Z STREET

         Z STREET,                                        
                                                                   
                        Plaintiff,                                                                       CIVIL ACTION NO. 2:10-cv-04307-CMR
                                                                   
                        v.                                        

                                                                  
      DOUGLAS H. SHULMAN,                  
       IN HIS OFFICIAL CAPACITY AS       
       COMMISSIONER OF                        
       INTERNAL REVENUE,                       
                                                                   
                      Defendant.                           

Jerome M. Marcus
MARCUS & AUERBACH, LLC
101 Greenwood Avenue, Suite 310
Jenkintown, PA 19046
Voice:  215 885 2250
FAX:     888 875 0469
Email:  This e-mail address is being protected from spambots. You need JavaScript enabled to view it

          The Plaintiff in this case is a nonprofit organization, Z STREET, which educates the public about Zionism, and about the State of Israel and its battle with terror.  As a nonprofit educational organization, Z STREET has applied for certification that donations made to it are charitable, and therefore exempt from federal income tax, under Section 501(c)(3) of the Internal Revenue Code.  Complaint ¶4.  
          The Complaint alleges that grant of Plaintiff’s application for exemption “has been delayed, and may be denied,” because the IRS is spending part of its decision-making process scrutinizing Z STREET’s positions on issues relating to Israel in an effort to determine whether the applicant’s “activities contradict the Obama Administration’s public policies.”  Complaint ¶22. Because the Administration’s policies that seem to be the focus of the IRS inquiry relate to Israel, the Complaint identifies the IRS practice as its “Israel Special Policy.”

          Plaintiff had learned of the IRS’s Israel Special Policy because Plaintiff’s counsel had been informed of it orally by an IRS agent, Diane Gentry.  As the Complaint explains, Agent Gentry informed Plaintiff’s counsel orally “that the IRS is carefully scrutinizing organizations that are in any way connected with Israel,” and that there are such “cases [ ] being sent to a special unit in the D.C. office to determine whether the organization’s activities contradict the Administration’s public policies.”  Complaint, ¶¶21, 22.
          The Complaint alleges further that the IRS devotes time to determining whether, indeed, the organization’s activities contradict the Administration’s public policies, and that such time necessarily delays completion of the IRS’s review of the organization’s application for charitable exemption:  the Complaint alleges that under the IRS’s policy, “such applications [will] be scrutinized differently and at greater length, and therefore that they take longer to process than those made by organizations without that characteristic, or even that the tax-exempt application might be denied altogether on that basis.”  Complaint ¶24.
          There can be no question that the Israel Special Policy has injured the Plaintiff.  A Special Israel Policy of the kind described to the Plaintiff by Agent Gentry would necessarily cause a delay in the processing of the Plaintiff’s application for charitable exemption.  This is so because, as the Complaint alleges, “Z STREET, and its President, Lori Lowenthal Marcus, have  taken positions publicly on issues relating to Israel that are inconsistent with positions taken by the Obama Administration.”  Complaint ¶23.  

          One might be tempted to dismiss the Plaintiff’s allegations as, as best, the result of errant remarks by an ill-informed or biased IRS employee rather than IRS policy. That would be no basis for dismissing the Complaint – because the Complaint explicitly alleges the contrary, and its allegations must be taken as true for purposes of resolving a motion to dismiss for failure to state a claim.  But information that has come to light since the Complaint was filed makes clear that no such comparatively innocent explanation for the government’s actions is possible.  As shown in Exhibit A hereto, a different organization has been subjected to what appears to be the same IRS Special Israel Policy that has impeded Plaintiff’s application for charitable exemption.  As detailed in the Declaration of Jerome M. Marcus, Z STREET’s counsel in this case, after the instant Complaint was filed, Plaintiff learned that another organization – this one simply Jewish and without any publicly stated positions on political issues affecting the State of Israel – applied for a charitable exemption.  While the application was pending, its representative received a letter from the IRS, all but the first page of which appears as Exhibit 1 to Mr. Marcus’s declaration.  The letter, sent not by Agent Gentry, who was handling Plaintiff’s application, but by a different IRS agent, inquires of the applicant:

          Does your organization support the existence of the land of Israel? 

          Describe your organization’s religious belief system towards the land of Israel.

Can one imagine that an application for tax exemption could – constitutionally – be affected in any conceivable way by the answer to these questions?  And yet the IRS’s posing of this question makes it clear beyond doubt that multiple IRS officials have taken the time to determine that this is a useful line of inquiry; have discussed and obtained approval for this conclusion; disseminated this conclusion to agents processing applications for 501(c)(3) exemption; drafted questions designed to ferret out the answers the government needs to apply this policy; and then spent more time posing the questions, waiting for the answers, and then weighing their significance to determine the answers’ impact on whether exemptions from tax should be granted.  

          The questions themselves are wildly improper, and the answers – no matter what their content might be – are irrelevant to any constitutional processing of an application for exemption from tax.  Even a single moment spent by the IRS devising the question, transmitting it, waiting for the answer, or weighing the answer to this question causes a delay in the processing of an application.  As the government does not deny, that delay -- caused as it is by consideration of constitutionally irrelevant and impermissible factors -- is necessarily an unconstitutional discrimination in the processing of such an applicant’s request for exemption from tax.  Lest there be any ambiguity on this, the Complaint alleges clearly that the government’s delay in granting Plaintiff’s application “has impaired and continues to impair Z STREET’s ability to raise funds and has thereby restricted the scope of its operation and its ability to speak and to educate the public regarding the issues that are the focus and purpose of Z STREET.”  Complaint ¶25.
          Plaintiff’s application for exemption has been delayed in precisely this way, as Agent Gentry’s statements to Plaintiff’s counsel make clear.  That is the constitutional injury at the root of this case.

          No waiver of sovereign immunity – no voluntary consent to its being sued -- is needed to allow a suit to go forward in federal court to compel the United States government, or officials named in their official capacity, to comply with the First Amendment.  As the D.C. Circuit has explained,

Clark v. Library of Congress, 750 F.2d 89, 102 (D.C. Cir. 1984).  See also American Council of the Blind v. Boorstin, 644 F. Supp. 811 (D.D.C. 1986).  Indeed, even actions against state officials – who are protected by the Eleventh Amendment from a wide range of federal judicial action – are permitted if they seek only to compel the state officials to obey the U.S. Constitution.  See Payton v. County of Carroll, 473 F.3d 845, 853 (7th Cir. 2007) (noting “the uncontroversial proposition that sovereign immunity does not shield state officials who act unconstitutionally from an injunction”).  
           Disregarding this clear law, the IRS invokes a collection of inapposite decisions requiring  waiver of sovereign immunity in cases not seeking injunctive relief to compel obedience to the Constitution, but instead seeking damages or non-constitutionally based injunctive relief. The specifics are discussed in the footnote;² the only thing that matters for present purposes is that, with one irrelevant exception,³ none of these cases involved a request that a court issue injunctive relief compelling a federal official to abide by the Constitution in the execution of his duties.

           The bottom line is that the government’s position is clearly wrong:  the United States is  a creature of the Constitution, and the United States need not agree that it can be sued in court to be compelled to obey the Constitution.  On the contrary – the United States must always obey the Constitution.  And the government can always be hailed into court if that’s necessary to obtain judicial enforcement of its constitutional duties.  The government has no sovereign immunity protecting it from being compelled to obey the document that makes the government sovereign, and defines the scope of its sovereignty.

_________________________

          Ignoring the only remedies Z STREET actually seeks in this case –a process for allocating charitable exemptions from tax unmarred by unconstitutional viewpoint discrimination, and public disclosure of the unconstitutional factors now at work  – the IRS proposes that Plaintiff’s complaint must be dismissed because Z STREET could have brought other claims that could yield other relief.  None of these alternative claims is an adequate remedy at law to replace the claim Plaintiff has brought.  
          The biggest problem with the government’s argument on this head is that none of these claims can possibly yield a constitutional process -- and yet such a process is the only thing Z STREET has sued to obtain.  Thus a claim under 26 U.S.C. §7428 might – months after the IRS could have concluded a constitutionally untainted process – yield a tax exemption.  But it could not possibly yield a constitutionally untainted process for the allocation of such an exemption.  And because loss of First Amendment rights is necessarily irreparable harm, Elrod v. Burns, 427 U.S. 347, 373 (1976), such an action could not possibly make Plaintiff whole for the delay caused by the government’s investigation into, and consideration of, Plaintiff’s substantive political viewpoint.  
          Thus in Logan v. Zimmerman Brush Co., 455 U.S. 422, 437 (1982), the Supreme Court held that an independent tort action available under state law was not a constitutionally satisfactory substitute for Plaintiff’s cause of action under the state Fair Employment Practices Act, because reinstatement was not a remedy available through the tort action.  For that reasons, the Court explained, "even a successful [tort] suit [will] not vindicate entirely Logan's right to be free from discriminatory treatment."   Relying on Zimmerman Brush, the Fifth Circuit has upheld a Bivens action for damages against an agent for malicious conduct during an audit.  Rutherford v. United States, 702 F.2d 580 (5th Cir. 1983).  The Fifth Circuit recognized that statutory remedies existed for correcting the malicious agent’s allegedly improper assessment of the amount of tax due.  That, however, was entirely separate from the plaintiff’s liberty interest in a fair process:

     the remedy suggested by the district court is not responsive to the wrong sketched out in the Rutherfords'             complaint. In the language of procedural due process, it provides the Rutherfords no "opportunity to be heard" on their allegations that Kuntz violated their constitutional rights. Because a refund proceeding is not the process that is due, we reverse the district court's decision that available judicial and administrative proceedings satisfy the fifth amendment's guarantee of due process.

702 F.2d at 584 (citation omitted).  See also Morrison v. Carey, 2007 U.S. Dist. LEXIS 7346 (E.D. CA Feb. 1, 2007) (right to a fair process to determine entitlement to parole).  
           Here, it should be emphasized, Plaintiff does not seek money damages from anyone – not from the United States, or the IRS, or from any agent personally in a Bivens action.  Plaintiff seeks only a constitutionally untainted process and disclosure of the substance of the policy that Defendant has been applying that injects unconstitutional factors into the decisionmaking process for allocating a charitable exemption from tax.
           No claim identified by the government in its brief provides that remedy.  Indeed, the only claim that can provide that remedy is the claim plaintiff has brought.  If Z STREET’s constitutional rights are not to be violated, Z STREET’s complaint must state a claim.
 

          In authority the government does not cite, the Supreme Court has enunciated a rule under which the government’s position here, on the scope of the Anti-Injunction Act, is necessarily wrong:  Plaintiff’s claim against the IRS, the Supreme Court has made clear, is not precluded by the Anti-Injunction Act, because that it is the only mechanism by which a party may challenge IRS action said to be unconstitutional.  South Carolina v. Regan, 465 U.S. 367 (1984).  That case limited Bob Jones University v. Simon, 416 U.S. 725 (1974), upon which the government relies, to situations where a plaintiff has an alternative remedy by which it can vindicate the right at issue.  South Carolina v. Regan holds: “The Anti-Injunction Act's purpose and the circumstances of its enactment indicate that Congress did not intend the Act to apply to actions brought by aggrieved parties for whom it has not provided an alternative remedy.”  465 U.S. at 378.
          Indeed, even before the Supreme Court decided South Carolina v. Regan, the law had been clear that the Anti-Injunction Act would not bar a claim where the government’s position was clearly wrong and the plaintiff would suffer irreparable harm if the action were not allowed to go forward.  Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 6-7 (1962).  That standard is clearly met here.  The government has not even tried to defend the principle that it can discriminate, in the allocation of 501(c)(3) determinations, on the basis of the applicant’s political views.  And First Amendment injury is per se irremediable.  Elrod v. Burns, 427 U.S. 347, 373 (1976) (“The loss of First Amendment freedoms, for even minimal periods of time, unquestionably constitutes irreparable injury”).  See also Pfizer, Inc. v. Giles (In re School Asbestos Litig.), 46 F.3d 1284, 1295 (3d Cir. 1994) (Alito, J.) (issuing writ of mandamus to correct erroneous district court opinion that limited First Amendment rights, on the ground that waiting for subsequent process would run afoul of the rule enunciated in Elrod v. Burns and quoted here).
          Because this is the law, the argument about the scope of the Anti-Injunction Act resolves to the same question dealt with above in Section II, and the government’s argument fails here for the same reason it failed there.  The ability to sue for a refund or otherwise to obtain a judicial determination about the Plaintiff’s entitlement to a charitable exemption, simply does not address, and cannot provide a remedy for, Plaintiff’s actual claim.  Z STREET seeks a constitutional process for determining whether a 501(c)(3) exemption should be granted, and disclosure of the actual basis upon which the government is now making that determination.  A judicial decision that Plaintiff is entitled to the exemption does not make the IRS’s process constitutional, and it does not expose the unconstitutional process by which the government is currently making that decision.
          And because the cases make availability of an alternative remedy the issue, the cases the government relies upon are all irrelevant.  Vidra v. Egger, 575 F. Supp. 1305 (E.D. Pa. 1982), for example, was indeed a case with a constitutional issue:  but the issue was the constitutionality of an Internal Revenue Code provision mandating a particular procedure for collection of tax.  That question could be fully answered in an action for a refund, where the constitutionality of the tax collection could be challenged.  Therefore the request for injunctive and declaratory relief was dismissed.  Here, as has already been made clear, an action for a refund will provide nothing of the relief Plaintiff seeks.  Therefore the rule applied in Vidra has no force here.  Yamaha Motor Corp. U.S.A. v. United States, 779 F. Supp. 610 (D.D.C. 1991) is for this purpose identical:  an action for injunctive and declaratory relief was dismissed because the plaintiff could bring an action for refund which would enable it to place before the court precisely the same question it was trying to litigate in the action here.  For that reason the instant action was dismissed and the plaintiff was left to pursue the refund action.  
          Indeed, the Yamaha Motor case makes this absolutely clear, because it states the rule at issue as the principle that “at bottom, the Anti-Injunction Act is designed to require that the legal right to the disputed sums be determined in a suit for a refund.” Bob Jones, supra, 416 U.S. at 737.”  779 F. Supp. at 612.  Here, of course, there simply is no “sum at issue.”  ⁴

_________________

          Finally, the Declaratory Judgment Act is a perfectly appropriate mechanism for obtaining a determination that the government’s tainted process for allocating 501(c)(3) exemptions is unconstitutional.  Because no money damages are at issue – and because loss of First Amendment rights is necessarily irreparable, and so cannot be monetized – the constitutional question is appropriately posed to this Court by request for a declaratory judgment and for injunctive relief barring the government from acting unconstitutionally.  So the law has been for a long time, see e.g., Youngstown Sheet & Tube Co. v. Sawyer, 103 F. Supp. 569 (D.D.C. 1952) (issuing Declaratory Judgment and injunctive relief on the ground that an Executive Order violated the Constitution), aff’d, 343 U.S. 579 (1952).  Indeed,

when constitutional questions are in issue, the availability of judicial review is presumed, and we will not read a statutory scheme to take the "extraordinary" step of foreclosing jurisdiction unless Congress' intent to do so is manifested by "'clear and convincing'" evidence.

Califano v. Sanders, 430 U.S. 99, 109 (1977).
           In any event, where “suit is allowed under the Anti-Injunction Act, it is not barred by the Declaratory Judgment Act.”  Perlowin v. Sassi, 711 F.2d 910 (9th Cir. 1983).  Because South Carolina v. Regan makes clear that Z STREET’s suit is not barred by the Anti-Injunction Act, its request for a Declaratory Judgment must also be allowed to go forward.

          For all the foregoing reasons, the Court should deny the government’s Motion to Dismiss this Complaint for Failure to State A Claim.

Respectfully submitted,

/s/_________________________________
Jerome M. Marcus
MARCUS & AUERBACH, LLC
101 Greenwood Avenue, Suite 310
Jenkintown, PA  19046
Voice:    215 885 2250
FAX:    888 875 0469
Email:  This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Z STREET,               

                      Plaintiff,                                   CIVIL ACTION NO. 2:10-cv-04307-CMR

                       v.           
DOUGLAS H. SHULMAN,            
IN HIS OFFICIAL CAPACITY AS       
COMMISSIONER OF            
INTERNAL REVENUE,           

                    Defendant.       

1.     I am counsel for Z STREET, the plaintiff in the above-captioned matter.

2.     Shortly after the Complaint in this case was filed, I learned that another organization was seeking a charitable exemption from tax under Section 501(c)(3) of the Internal Revenue Code, and that this organization had been victimized by the same IRS policy as that at issue in this case.

3.     I contacted an adviser to this organization and through that person I learned that the IRS had sent a letter to this organization asking about its views regarding Israel.  Because of the adviser’s concern that the IRS would take adverse action to the organization if it were known that the organization had publicly revealed the IRS’s inquiry, the adviser was willing to speak with me only if I agreed that I would retain the adviser’s name in confidence.  For the same reason, the adviser also refused to reveal to me the identity of the organization which was seeking the 501(c)(3) certification, and accordingly the adviser would not provide me with the first page of the letter the organization had received from the IRS, though the adviser was willing to provide me with the rest of the letter.

4.     The adviser did reveal to me that the organization was a Jewish religious organization that had no publicly stated positions regarding the State of Israel.

5.     The pages of the letter which the adviser provided to me are attached hereto as Exhibit A. 

        I declare under penalty of perjury that the foregoing is true and correct.

• |71.185.82.xxx |2010-11-23 09:40:11 Stephen Asbel
  Excellent memorandum. It is rather galling that the government is trying to argue that even if it is violating the constitution, there is no remedy. If the facts are not disputed, might Z Street's next step be to file a moton for summary judgment?
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• |71.185.82.xxx |2010-11-30 07:21:08 Rob  - Poison Policy
  It's rather alarming that the Obama administration can get away with his clear anti Semitic sentiment. This memorandum and Z Street's day in court, will probably never make it to the mainstream opinion media.
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• |98.114.22.xxx |2011-03-16 10:41:12 StupidGirlGenius  - Brilliant!!
  Unbelievable, yet simply brilliant. Life without a purpose what a complete waste Makes you want to quick your job and take the time to stop and smell the flowers.
  
  I have been beating my head against the wall in a federal court case and have reached the same conclusion as you so perfected stated.
  
  Logical thinking - the puzzle pieces have to fit. For every question there is an answer. a battle of wit...keep searching til you find the end result.
  
  Legal theory of goverment corruption - impossible. You have confirmed my answers and saved me a hell of alot of time.
  
  Just as Einstien - always equal but never better than... a matter of opinion!!
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