New York and Presbyterian Hospital v. United States
881 F.3d 877 (Fed. Cir. 2018)
Authored by N. Alexander O’Hara
Statement of Facts: Medical residents sued New York and Presbyterian Hospital, the succeeding entity of a merger between The Society of The New York Hospital and The Presbyterian Hospital (collectively, the “Hospital”), in the U.S. District Court for the Southern District of New York for claims connected to the Hospital’s failure to file protective refund claims for the Federal Insurance Contributions Act (“FICA”) taxes that the Hospital had withheld from the residents’ pay. Under FICA, employers and employees each pay FICA taxes on all wages paid to the employees, with the employer responsible for withholding the necessary amount, and Internal Revenue Service (“IRS”) indemnifying the employers against the claims made against such payments.
In the underlying case, Childers v. New York and Presbyterian Hospital, 36 F. Supp. 3d (S.D.N.Y. 2014), the Hospital had filed for protective FICA refund claims for one group of residents and fellows between 1995 and 2001, but had failed to do the same for others. The Hospital also entered a confidential settlement with the IRS which, in return for valuable consideration, gave up the Hospital’s right to seek refunds for FICA taxes. The Hospital did so without the consent of the staff and failed to inform employees they could file protective FICA claims on their own, despite knowing that staff did not know how to do so.
Procedural History: The Hospital filed a third-party complaint against the United States (the “Government”) seeking indemnification, then sued the Government in the U.S. Court of Federal Claims (“Claims Court”), alleging that the Hospital is entitled to payment from the government for recovery of the sums paid to the residents under the provisions of 26 U.S.C. § 3102(b). The Government responded by filing a motion to dismiss for lack of subject matter jurisdiction, arguing that section 3102(b) is not a “money-mandating statute”, and thus must be dismissed for lack of subject-matter jurisdiction under Rule 12(b)(1) of the Rules of the Court of Federal Claims.
The Claims Court granted the Government’s motion for dismissal, finding that section 3102(b) is an immunity provision, not a mandate for reimbursement, and that 26 U.S.C.A §7422 (1998) precludes “any court” from hearing a case seeking the recovery of taxes until a claim has first been made with the IRS.
Questions Presented: First, when an employer “shall be indemnified” under section 3102(b), does this indemnification constitute a money-mandating source of substantive law? Second, did the Claims Court err by determining it did not have jurisdiction over conflicts arising from demands for compensation under section 3102(b)?
Holdings: First, yes, because the plain language of the statute, based upon clear meaning, comparison with similar provisions elsewhere in the Internal Revenue Code, and the legislative history, is reasonably amendable to an interpretation that it is money-mandating. Second, yes. Because section 3102(b) is a money-mandating statute under the provisions of the Tucker Act, the Claims Court has subject-matter jurisdiction over claims arising from this statute, and they erred in granting the motion to dismiss. The case is reversed and remanded, with costs to the Hospital.
Reasoning: Pursuant to the Tucker Act, the Claims Court has jurisdiction to render judgement upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort. 28 U.S.C. § 1491(a)(1).
The Tucker Act, however, only grants jurisdiction and is not an independent source of substantive rights that may be enforced against the Government. Those seeking to bring claims against the Government must show either an unequivocal waiver of sovereign immunity, or an express or implied money-mandating source of substantive law upon which to seek payment.
A law can be fairly interpreted as mandating compensation if it is reasonably amenable to the reading that it mandates a right of recovery in damages, unless there are strong indications that Congress did not intend to mandate money damages. More than simply being reasonably amenable to this interpretation, however, the only reasonable interpretation of section 3102(b) is that is creates a mandate that the Government shall provide reimbursements for FICA taxes paid to an employer.
Section 3102(b) states, every employer required to deduct the tax “shall be liable for the payment of such tax, and shall be indemnified against the claims and demands of any person for the amount of any such payment made by such employer.” Under a plain reading, it is reasonable to understand the word indemnified as mandating a right of recovery, because the word indemnify, as it was used at the time the statute was enacted, contemplated the concept of reimbursement. A review of multiple dictionaries, including Black’s Law Dictionary, confirms this understanding of indemnify.
While the government attempted to argue that because the first definition in the dictionaries did not contemplate payment, the fair interpretation standard does not require that only the first-listed dictionary definition be considered. The order of the definitions does not matter under the relevant legal standard, which is simply whether the words are reasonably amenable to an interpretation that the government has created a mandate for payment.
Furthermore, other sections of the Internal Revenue Code support this interpretation of section 3102(b). Section 3202(b), which is the counterpart of section 3102(b), but for employees of railroads, rather than schools, provides that the “employer . . . shall not be liable to any person for the amount of any such payment” with regards to taxes deducted. The same language is used in section 3404, which concerns withholding of taxes by an employer. Because these sections are structured the same (merely substituting “shall not be liable” for “shall be indemnified”), and because Congress is generally presumed to act with intentionality, it can be presumed that Congress intended for these similar sections to have different legal meanings.
The Government also conceded that the original case against the Hospital should have been dismissed under section 7422 of the Internal Revenue Code, as it immunized the Hospital from claims. While the Claims Court interpreted this to mean that the Government should be immunized, section 7422 is better understood as evidence that if Congress had meant to simply write an indemnity provision into 3102(b), it was more than capable of doing so.
Finally, the legislative history of section 3102(b) supports the conclusion that it is reasonably amenable to an interpretation that it provides a money mandate. The only relevant legislative history regards section 802(a) of the Social Security Act, the immediate predecessor to section 3102(b). In that statute, Congress indemnified employers against claims and demands “up to the correct amount”, which only makes sense if Congress is contemplating the payment of money.
Therefore, because this language is reasonably amenable to an interpretation that it mandates the Government to reimburse FICA taxes paid by an employer, it is money-mandating, and the Claims Court erred in dismissing the claims for lack of jurisdiction.
Dissenting Opinion: Circuit Judge O’Malley dissented with the majority’s interpretation of section 3102(b) as a reimbursement provision. While the majority is correct that a statute is money-mandating if it can fairly be interpreted as mandating compensation, the analysis of the majority was insufficient to arrive at this conclusion.
The case the majority relies upon for the “reasonably amenable” standard, United States v. White Mountain Apache Tribe, 537 U.S. 465 (2003), was a slim decision, with four justices dissenting against the expansion of the test for when Congress had conferred a substantive right that could be enforced against the government. Prior to this, the Federal Circuit had determined that the proper understanding of what constitutes a fair inference is not whether a court could determine an inference was merely reasonable, but whether it was the most correct interpretation.
At most, prior case history suggests that a fair inference warrants a liberal interpretation of whether a statute is money-mandating. This does not mean, however, that courts can avoid determining whether a money-mandating interpretation is the most reasonable interpretation. The majority mistakes this determination for whether the statute can mean it confers a right to reimbursement, when the appropriate question is whether the statute does confer a right to reimbursement.
In coming to that determination, the majority correctly notes the ambiguity of the word indemnify, and that it can mean providing compensation. However, the court’s role is to resolve that ambiguity. Given the framework of section 7422, which precludes courts from considering employee claims for recovery of FICA taxes before they file an IRS claim, it makes no sense for the Government to confer a right of reimbursement on the employer, as this would allow employers to pay taxes at their whim, and demand payment from the Government to do so. This section serves as an immunity for the government and should not be compared to the immunity provisions provided to employers under section 3102(b).
Additionally, the majority points to the notion that section 3102(b) uses different language than either section 3202(b) or section 3403. However, they fail to note that these statutes have been enacted and updated in piecemeal fashion, not as a uniform whole. Nothing in the legislative history suggests that the distinction in updating the language in some areas, but not others, was intended to confer a different meaning. Nor does the fact that the predecessor statute to section 3102(b) included “correct amount” suggest that Congress intended to contemplate payment of money. This phrase merely means that they shall be indemnified up to the amount of taxes paid. This is the same effect that sections 3202(b) and 3403 have, and the majority acknowledge these as merely being indemnity statutes, not as money mandating ones.
The appropriate standard is not whether it is possible that Congress intended to create a money-mandating provision, but whether it did intend to create one. Furthermore, the most logical interpretation of similar provisions found in law is that they merely act as indemnity provisions. For these reasons, section 3102(b) should not be read to include a money-mandate, and the Claims Court was correct to dismiss for lack of subject matter jurisdiction.