Last week, the U.S. Court of Appeals for the D.C. Circuit reversed two district court decisions that had dismissed the claims of dozens of conservative non-profit organizations (the "Plaintiffs") in the Internal Revenue Service ("IRS") targeting scandal.
The Court affirmed the dismissal of several of the Plaintiffs' claims. But the Court rejected the IRS's claim that it was no longer engaging in the inappropriate targeting of conservative groups and thus reversed the district court decisions as to Plaintiffs' equitable actions, holding that the lower court erred in finding that the equitable claims were moot. The Court therefore vacated and remanded with respect to Plaintiffs' equitable claims.
The Plaintiffs alleged "that their applications for tax exempt status were selected out on the basis of an 'IRS targeting scheme' that identified for enhanced scrutiny the applications of applicants with names associated with 'conservative' causes, such as 'Tea Party' and 'patriot,' and perhaps 'liberty,'" and that this enhanced scrutiny involved "harassing and unconstitutional questions and requests for information that often required applicants to disclose donor lists, communications with members, and internet passwords and usernames."
The Court repeatedly referenced a May 2013 Department of Treasury Inspector General report that bore the name "Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review." The Court noted that "[i]t being plain to the Inspector General, the district court, and this court that the IRS cannot defend its discriminatory conduct on the merits, the governing issue is now whether the controversy is moot." The IRS argued, and the district court had agreed, that the Plaintiffs' claims are moot because it ceased the inappropriate targeting. But the Court disagreed, finding that:
"There is a difference between the controversy having gone away, and simply being in a restive stage. This difference gives rise to the concept of 'voluntary cessation.' That concept governs the case in which the defendant actor is not committing the controversial conduct at the moment of the litigation, but 'the defendant is free to return to its old ways'-thereby subjecting the plaintiff to the same harm but, at the same time, avoiding judicial review."
In order for the IRS to establish mootness through voluntary cessation of the conduct, the Court stated that "the defendant must show that (1) there is no reasonable expectation that the conduct will recur and (2) interim relief or events have completely and irrevocably eradicated the effects of the alleged violations." Because the IRS did not demonstrate either element, the Court held that voluntary cessation did not occur.
With respect to element 2, the Court held that "it is absurd to suggest the effect of the IRS's unlawful conduct . . . has been eradicated when" the IRS admits that "two of the appellant-plaintiffs' applications remain pending." The IRS had argued that the reason two applications remained pending is because the applicants brought a lawsuit over the delay, and it is the IRS's longstanding policy that "administrative action on an application for exemption is ordinarily suspended if the applicant files suit in court." The Court rejected this Catch-22 argument, finding that "the IRS is telling the applicants in these cases that 'we have been violating your rights and not properly processing your applications. You are entitled to have your applications processed. But if you ask for the processing by way of a lawsuit, then you can't have it.' We would advise the IRS: if you haven't ceased to violate the rights of the taxpayers, there is no cessation. You have not carried your burden, be it heavy or light."
The Court also found that the IRS did not carry its burden with respect to element 1 that "there is no reasonable expectation that the conduct will recur." Although the IRS internally announced that they had suspended the illegal targeting, in so doing they stated that "[e]ffective immediately, the use of watch lists to identify cases or issues requiring heightened awareness is suspended until further notice." But the Court held that this was not enough because "[a] violation of [a] right that is 'suspended until further notice' has not become the subject of voluntary cessation, with no reasonable expectation of resumption, so as to moot litigation against the violation of rights."
Because the Court held that the controversy was not moot, it reversed the lower court's dismissal of the Plaintiffs' equitable claims and remanded the case for further proceedings.
