Court of Federal Claims Rejects Taxpayer Games in Partial Payment FBAR Civil Penalty Refund Suit (4/10/21)

In Mendu v. United States, 2021 U.S. Claims LEXIS 537 (4/7/21), Mendu filed a partial payment FBAR penalty refund suit for $1,000 and the Government counterclaimed for the unpaid balance on the FBAR assessment of about $752,000 (plus additions).  The Court made these key holdings:

https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/claims-court-holds-fbar-penalties-are-not-internal-revenue-taxes/4m251

• The Court has jurisdiction over a  partial payment FBAR penalty refund suit.  The Flora rule does not apply because the FBAR penalty is not a tax.
• The Court made that jurisdictional holding in rejecting Mendu’s own motion to dismiss for want of jurisdiction.
• The Court rejected also Mendu’s motion to voluntarily dismiss the refund suit under Rule 41(a)(2) and transfer to the counterclaim to the district court for SD Cal..

So, the case will proceed on the refund claim and the counterclaim.

What was all the commotion about?  Basically, Mendu was pulling out the stops to avoid the counterclaim even at the cost of giving up his refund suit and, in any event to avoid adverse precedent in the CFC and Federal Circuit.  The reason:  the big dollars were in the counterclaim.

In the course of the commotion, the United States requested for a transfer of the counterclaim (effectively a collection suit) to the district court if the Court found it did not have jurisdiction of the refund suit under Flora.  The Government was apparently concerned that, if the Court dismissed the refund suit filed by plaintiff, the Court would have no jurisdiction over the collection suit filed by counterclaim and that would mean that a new collection suit filed in the district court might be outside the key 2-year statute of limitations for filing an FBAR collection suit.  The notion was that, if there is a transfer of the counterclaim to the district court under 28 U.S.C. § 1631 (permitting transfer “in the interests of justice”), the Government’s timely filing of the counterclaim will suffice for the statute of limitations on the resulting collection suit in the district court.

Mendu made an alternative motion to voluntarily dismiss if the Court found it had jurisdiction.  For purposes of that motion, apparently, Mendu joined in the Government’s request for transfer of the counterclaim to the district court.  As explained by the Court:

Plaintiff’s peculiar insistence to dismiss his own complaint appears to be for no reason other than to manufacture a "want of jurisdiction" in order to avoid the Federal Circuit’s binding precedent in Norman v. United States, 942 F.3d 1111, 1114 (Fed. Cir. 2019). This Court will not permit such gamesmanship. Under Plaintiff’s suggestion, section 1631 could be used, not to cure a want of jurisdiction, but to create one that would undoubtedly be used to attempt to dismiss Defendant’s counterclaim. Indeed, if courts were to permit the type of transfer Plaintiff suggests, any plaintiff who becomes dissatisfied with the Federal Circuit’s jurisprudence could voluntarily dismiss his complaint notwithstanding a defendant’s counterclaim. Such a transfer is contrary to the text of the statute and is not "in the interest of justice."

Bottom-line, Mendu was playing cute with the Court which rejected the ploy.