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BLACK PRINCE DISTILLERY, INC. v. UNITED STATES

April 17, 1984

The BLACK PRINCE DISTILLERY, INC., Plaintiff,
v.
UNITED STATES of America, Defendant



The opinion of the court was delivered by: LACEY

 LACEY, District Judge.

 Plaintiff is a producer of distilled spirits, with manufacturing facilities located in Clifton, New Jersey. During the years 1976 and 1977, it paid distilled spirits taxes imposed by 26 U.S.C. § 5001 et seq. which were assessed on the volume of distilled spirits produced for that period. Subsequently, plaintiff filed two claims for refunds of the taxes paid for those years presumably because plaintiff determined that it had in fact experienced operating losses during 1976 and 1977 which were not reported when the taxes were paid. One refund claim was filed in January of 1977 to recover taxes paid for the period of July through December in 1976 (the "1976 refund claim") in the amount of $98,289.50. This refund was allowed and returned by the Government's Bureau of Alcohol, Tobacco and Firearms ("BATF") in August of 1977. The plaintiff's second refund claim was filed in June of 1978 to recover taxes paid for the period of January through June in 1977 in the amount of $ 92,808.45 (the "1977 refund claim"). This claim was disallowed by the Government.

 Plaintiff filed this action on April 16, 1980 to recover the 1977 tax refund and to obtain a declaratory judgment from this court that the 1976 tax refund was valid and unassailable. The Government filed its answer on June 30, 1980, in which it averred that the court lacked jurisdiction to issue the declaratory judgment sought by plaintiff and denied plaintiff's entitlement to the 1977 refund. The action was administratively terminated on September 15, 1980 for the pendency of a grand jury investigation of plaintiff's corporate predecessor. The investigation was concluded and the action was restored to active status on May 26, 1983.

 On December 6, 1983, with leave of court, the Government amended its answer to include a counterclaim containing four counts. At oral argument, the Government clarified its counterclaim and informed the court what its statutory bases are, which are paraphrased as follows:

 In Count I of the counterclaim, the Government invokes its statutory authority to assess and collect taxes due pursuant to 26 U.S.C. § 6501(c)(1) and (2) and seeks to recover the 1976 refund on the theory that it was erroneously made.

 In Count II, the Government avers that the 1976 refund claim was fraudulently made by the plaintiff and constitutes a "false claim" under the False Claims Act, 31 U.S.C. § 3729 et seq. On this count the Government seeks double damages -- that is, twice the amount of the 1976 refund -- along with a $ 2,000 fine as authorized by the False Claims Act.

 In Count III, the Government alleges that the 1977 refund claim violated the False Claims Act. However, on this count the Government does not seek damages but only the imposition of a $ 2,000 fine.

 Finally, in Count IV, the Government seeks a forfeiture of both the 1976 and 1977 refunds pursuant to the Court of Claims procedure for "Forfeiture of Fraudulent Claims", 28 U.S.C. § 2514.

 Before this court are plaintiff's motion for voluntary dismissal of Count I of its complaint and for summary judgment in its favor on Counts I, II, and III of the Government's counterclaim.

 PLAINTIFF'S MOTION FOR VOLUNTARY DISMISSAL OF COUNT I OF THE COMPLAINT

 In Count I of the complaint, plaintiff seeks a declaratory judgment that its 1976 refund, which was allowed by the BATF, is valid and cannot be recovered by the government. Plaintiff now moves for voluntary dismissal of Count I, conceding that this court cannot give a declaratory judgment in a tax case such as this one by reason of 28 U.S.C. § 2201. Handeland v. C.I.R., 519 F.2d 327, 329 (9th Cir.1975). In the interest of judicial economy, the plaintiff's motion will be granted.

 PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON THE COUNTERCLAIM

 Although plaintiff's motion purports to be one for partial summary judgment, it is more accurately a motion to dismiss the counterclaim for failure to state a claim upon which relief can be granted because there has not been a reply to the counterclaim, and no supporting materials have been filed for the court's consideration. Navios Corporation v. National Maritime Union of America, 236 F. Supp. 657, 659 (D.Pa.1964), aff'd 359 F.2d 853 3rd Cir., cert. denied 385 U.S. 900, 87 S. Ct. 205, 17 L. Ed. 2d 132 (1966); Alloy Cast Steel Company v. United Steel Workers of America, 70 F.R.D. 687, 689 (D.Ohio 1976). Accordingly, the motion will be treated as one under Fed.R.Civ.P. 12(b)(6).

 Plaintiff first argues that Count I of the Government's counterclaim must be dismissed because it is time barred. Plaintiff contends that since this part of the counterclaim is a suit for recovery of an erroneous tax refund, the Government's only authority is found in 26 U.S.C. § 7405, titled, "Action for recovery of erroneous refunds," which is governed by the statute of limitation set forth in section 6532(b) of the Internal Revenue Code:

 
Suits by United States for recovery of erroneous refunds. -- Recovery of an erroneous refund by suit under section 7405 shall be allowed only if such suit is begun within 2 years after the making of such refund, except that such suit may be brought at any time within 5 years from the making of the refund if it appears that ...

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