Article

Note: Pending resolution of a dispute over a tax levy imposed by the United States Internal Revenue Service (Beneficiary), Applicant Mallard Automotive Group, Ltd.(Applicant), was permitted to post an LC in favor of Beneficiary. When Beneficiary drew on the LC, Applicant objected. To recover the proceeds, Applicant filed an administrative claim which Beneficiary ignored.

Applicant then filed this action to recover the proceeds. On Applicant's motion, the US District Court for the District of Nevada, Hagen, J., reconsidered its own previous ruling that dismissed the claim for relief on the procedural ground that the time within which to file a claim had expired. The court reversed itself, stating that since the statute of limitations "is subject to equitable tolling, the ... issue is not jurisdictional in nature and therefore this case was improperly resolved on a [motion to dismiss]."

Having granted reconsideration, the court took up Beneficiary's motion to dismiss for lack of subject matter jurisdiction. Under the US Constitution, the power or jurisdiction of federal courts to hear claims is limited, and a claim must fall within the applicable statute. A different court than the one hearing the motion, namely the Court of Federal Claims, has exclusive jurisdiction over federal contracts claims, divesting all other courts of jurisdiction. The court, therefore, concluded that it had no jurisdiction over the settlement agreement or the proceeds of the LC that arose as a result of it. The court stated that:

[Applicant] is asking this court to determine whether the US$200,000 deposited in the letter of credit is properly payable to [Beneficiary]. This determination, however, is not based upon whether the levy underlying the deposit of the funds was wrongful, rather it is a question of whether Section 3 of the settlement agreement was fulfilled. This is a question of interpretation, however, sounding "genuinely in contract", therefore this court lacks subject matter jurisdiction to answer the question.

The court concluded that Applicant "may not avoid the exclusive jurisdiction of the Court of Federal Claims merely by alleging violations of 'statutory provisions rather than breach of contract'".

[JEB/lhd]

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