Memorandum Opinion and Order
The United States has moved to dismiss Plaintiff Barry Jewell's complaint under Fed. R. Civ. P. 12(b)(6). It argues that Jewell lacks standing as a shareholder and that the Internal Revenue Service ("IRS") closing agreement is final (doc. #4). Jewell opposes, arguing he has standing because he suffered a direct injury and that the closing agreement may be set aside because of fraud, malfeasance, or misrepresentation of a material fact on the part of two IRS agents (doc. #6). The Court concludes that Jewell has suffered a direct harm and that sufficient facts have been pled for fraud, malfeasance, or misrepresentation of a material fact to survive a motion under Rule 12(b)(6). The United States' Motion to Dismiss is DENIED.
For a motion under Rule 12(b)(6), the Court assumes the facts of the complaint are true. Koehler v. Brody, 483 F.3d 590, 596 (8th Cir. 2007). Jewell was a shareholder in the law firm of Jewell, Moser, Fletcher & Hollman, P.A. ("JMFH"). JMFH was the sponsor of four prototype plan documents ("the prototype plans"), which it provided to its clients. After the GUST legislation from 1994 to 2000, JMFH was required to amend the prototype plans. The IRS informed plan sponsors that amendments needed to be made by February 28, 2002, or the last day of the first plan year beginning on or after January 1, 2001, which ever occurred last. JMFH submitted its amended prototype plans on February 5, 2002. The IRS requested corrections on July 25, 2002. Jewell alleges the corrections were de minimis and not substantive. According to Jewell, he made the corrections on July 26, the same day JMFH stopped conducting regular business and was dissolved (doc. # 16). The IRS responded with additional questions on October 4, 2002. Jewell contends he made those corrections on October 7. On October 9, the IRS issued opinion letters, approving the prototype plans.
Prior to October 9, JMFH began submitting individual client plans for approval. Two IRS agents, Lori Kay and Rick Parker, contacted JMFH's shareholders and informed them they were "late amenders" because of some alleged deficiencies in the individual client plans and would owe a penalty. Jewell contested the allegation, but two of JMFH's shareholders, Keith Moser and Scott Fletcher, negotiated a closing agreement ("the agreement") with the IRS under 26 U.S.C. § 7121. Under the agreement, JMFH would pay a penalty of $26,800 to resolve the issue. According to Jewell, Kay and Parker threatened that if Jewell removed his clients from consideration under the agreement and did not pay his share of the agreement, the IRS would not enter into the agreement with the dissolved JMFH, Jewell could face lawsuits from Moser's and Fletcher's clients, and the IRS would audit all of Jewell's clients. Jewell contends he had no choice but to pay his portion. Moser and Fletcher executed the agreement on behalf of JMFH. Jewell did not sign the agreement. The penalty was paid with three certified checks, with Moser & Associates paying $8,933.34, Fletcher Law Firm P.A. paying $8,933.33, and Jewell paying $8,933.33. In the cover letter that Jewell attached to his check and sent to Moser, Jewell stated he paid the penalty under protest (doc. #1, exh. A-17).
After the penalty was paid, Jewell brought this refund suit for $8,933.33 in his individual capacity. The IRS filed a motion to dismiss, arguing that Jewell lacks standing as a shareholder and that the agreement is final (doc. #4). Jewell opposed, arguing he has standing because he suffered a direct injury, separate from JMFH, and that the agreement may be set aside because of fraud, malfeasance, or misrepresentation of a material fact on the part of Kay and Parker (doc. #6).
The Court takes all facts pled in the complaint as true. Koehler, 483 F.3d at 596. The motion can be granted only when the plaintiff can prove no set of facts that would entitle him to relief. Id.
The United States argues Jewell cannot individually bring this claim because a shareholder of a dissolved corporation cannot sue on the corporation's behalf. Jewell responds that he has standing because he has incurred a direct harm.
Generally, because a corporation is an individual entity, any harm to the corporation creating a cause of action belongs to the corporation, and a shareholder cannot sue on the corporation's behalf unless framed as a derivative suit. Golden Tee, Inc. v. Venture Golf Sch., Inc., 969 S.W.2d 625, 629 (Ark. 1998) (citing Hames v. Cravens, 966 S.W.2d 244, 246 (Ark. 1998)). This is also true for dissolved corporations because under Arkansas law, a dissolved corporation retains the power to sue. Ark. Code. Ann. § 1104(b)(4)-(5) (2007). This power continues until the corporate assets are distributed to the shareholders. In re Russell, 123 B.R. 48, 51 (Bkrtcy. W.D. Ark. 1990).
However, the shareholder may sue individually if the shareholder has incurred a direct harm separate and distinct from the corporation. Golden Tee, Inc., 969 S.W.2d at 629. "The real distinction between a derivative and an individual action is whether it is the corporation that has been injured by the action complained of or whether it is only the individual shareholder who has suffered harm." Brandon v. Brandon Const. Co. Inc., 776 S.W.2d 349, 352 (Ark. 1989).
In this case, the dispute was between the IRS and JMFH surrounding JMFH's prototype plans. This would suggest that the harm was directed toward JMFH. However, JMFH was dissolved at the time of the closing agreement. Although not judicially distributed, the shareholders were taking possession of JMFH's assets (doc. # 16, ¶¶ 7-23). Jewell contributed his own funds to cover his portion of the penalty. No evidence has been presented that Jewell was reimbursed from any of JMFH's assets. Therefore, ...