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SMITH v. U.S.

October 27, 1989

THOMAS J. SMITH, PLAINTIFF,
v.
UNITED STATES OF AMERICA, J. THOMAS JOHNSON, KEVIN HOULIHAN, WILLIAM SMITH, AND RICHARD DUNN, DEFENDANTS.



The opinion of the court was delivered by: Richard Mills, District Judge:

  OPINION

This scenario could be entitled "The Fox Guarding the Hen House," and is the corollary to a unique case which we decided a few months ago.

This case and its companion involve the disclosure of tax return information by an Internal Revenue Service (IRS) official to an Illinois Department of Revenue (IDR) official. The taxpayer whose return was the subject of the disclosure was at that time a high ranking official in the IDR who was discharged because of his failure to file a return and pay his taxes.

This matter is before the Court on Defendants' motions for summary judgment.

I — Facts

At all relevant times, Ira Loeb was the District Director for the Springfield District of the IRS. As district director, he was the federal official primarily responsible for the administration of the federal tax laws in this district. Plaintiff, Thomas Smith, was employed by the IDR and acted as the liaison official for the federal-state exchange program (program). The program facilitates the exchange of confidential tax information between the IRS and the IDR. As the liaison official, Smith was the contact point between the IRS and the IDR. J. Thomas Johnson was Director of the Illinois Department of Revenue and Kevin Houlihan was an Executive Deputy Director. William Smith was the Deputy Director of Audit and Collections, and Richard Dunn was Inspector in Charge of the Investigation Division.

In mid-October of 1984, information regarding Thomas Smith's tax delinquencies was brought to the attention of Mr. Loeb. Subsequently, Mr. Loeb received a memorandum from Eugene Winston, Chief of the Collection Division for the district, dated October 29, 1984. This memorandum stated that Mr. Smith had not filed a federal tax return for the years 1982 and 1983 and that he had outstanding tax liabilities for the years 1980 and 1981. Upon receiving this information, Mr. Loeb determined that it indicated a potential state tax violation by Mr. Smith and that this delinquency reflected poorly on Mr. Smith's ability to carry out his liaison responsibilities. Mr. Loeb decided that the IRS should request that Mr. Smith be relieved of his position as the liaison official.

To accomplish his goal, Mr. Loeb determined that the director of the Illinois Department of Revenue should be contacted directly. Mr. Loeb initiated this direct contact because the official who he would normally have contacted regarding the disclosure of confidential tax information was Mr. Smith, the very individual whose tax information was involved! Cognizant of the strict disclosure laws, Mr. Loeb consulted IRS counsel for an opinion regarding the propriety of disclosing the information. It was determined by counsel that the disclosure could be made lawfully under the Internal Revenue Code. 26 U.S.C. § 6103(d). Counsel further advised Mr. Loeb on the implications of disclosure in light of Rueckert v. Gore, 587 F. Supp. 1238 (N.D.Ill. 1984), aff'd, 775 F.2d 208 (7th Cir. 1985), which involved disclosures of federal tax return information to the Illinois Department of Revenue. After receiving clearance from counsel, Mr. Loeb personally provided Mr. Johnson, the Director of the IDR, with the Winston memorandum and requested that Mr. Smith be relieved of his liaison responsibilities.

Mr. Loeb discovered that he had made a mistake in disclosing this information when this Court — in a prior opinion in a related case, Smith v. United States, 703 F. Supp. 1344 (C.D.Ill. 1989) — granted summary judgment in favor of Mr. Smith. Following disclosure of the Winston memorandum, the IDR conducted an investigation into Mr. Smith's tax filings. This investigation included requesting further information from the IRS.

Shortly before noon on December 7, 1984, Mr. Smith was advised by William Smith (no relation) that he would be required to attend a 1:00 p.m. meeting concerning his discharge from the IDR. Mr. Smith was further advised that he should have an attorney present. Present at this meeting were William Cline and William Smith representing the IDR and Mr. Smith represented by his counsel. Taking the affidavits submitted by William Cline and Plaintiff together, it is undisputed that a meeting was held by representatives of the Illinois Department of Revenue and Mr. Smith and his attorney. At this meeting, the approved charges were read (and given) to Mr. Smith and he was asked to respond to them. Mr. Smith, represented by counsel, responded that his attorney advised him not to file the returns because of his pending divorce action. Mr. Smith was then suspended from the IDR pending discharge for failure to properly file his tax returns.

Mr. Smith appealed his discharge to the Illinois Civil Service Commission. The Commission reversed the IDR's decision to terminate Mr. Smith and imposed a 120 day suspension. The Commission believed that a suspension was more appropriate based upon past Commission precedent, the circuit court's ruling in a similar case, and the IDR's action with respect to another employee who also had failed to properly file tax returns. The Commission's decision was subsequently affirmed by the Illinois Appellate Court. See Department of Revenue v. Smith, 150 Ill. App.3d 1039, 103 Ill.Dec. 832, 501 N.E.2d 1370 (4th Dist. 1986).

Following the Commission's decision, Mr. Smith was returned to the payroll of the IDR; however, he was not permitted to return to work and was placed on leave. In April of 1986 when Mr. Smith came up for reappointment pursuant to the Illinois Personnel Code, he was not reappointed and was discharged from his position with the IDR. See Ill.Rev.Stat. ch. 127, ¶ 63b108b.18.

Mr. Smith subsequently brought suit against the United States for the unauthorized disclosure of the tax return information. As previously mentioned, Mr. Smith was granted summary judgment concerning liability and this Court presently has pending the damages issue. In the instant case, Mr. Smith has brought suit in a ten count complaint against Ira Loeb and officials of the IDR. Mr. Smith requests $6 million for his troubles and believes that each of these individuals should chip in.

II — Summary Judgment Standard

Under Fed.R.Civ.P. 56(c), summary judgment should be entered "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Unquestionably, in determining whether a genuine issue of material fact exists, the evidence is to be taken in the light most favorable to the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 1609, 26 L.Ed.2d 142 (1970). Nevertheless, the rule is also well established that the mere existence of some factual dispute will not frustrate an otherwise proper summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986). Thus, the "preliminary question for the judge [is] not whether there is literally no evidence, but whether there is any upon which a jury could properly proceed to find a verdict for the party producing it upon whom the onus of proof is imposed." Id. at 251, 106 S.Ct. at 2511 (quoting Improvement Co. v. Munson, 14 Wall. 442, 448, 20 L.Ed. 867 (1872)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Applying this standard, the Court now turns to the case at bar.

III — State Law Claims

Counts I-IV of Plaintiff's second amended complaint allege pendent state law claims. Counts I-II were initially brought against Ira Loeb individually. Counts III-IV have been brought against Ira Loeb, as well as J. Thomas Johnson, Kevin Houlihan, William Smith, and Richard Dunn (state defendants). Pursuant to the Federal Torts Claims Act, the ...


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