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ValueBank v. UP2U, LLC

United States District Court, Fifth Circuit

December 20, 2013

VALUEBANK, TEXAS, Plaintiff,
v.
UP2U, LLC, et al, Defendants.

AMENDED ORDER

NELVA GONZALES RAMOS, District Judge.

The Court GRANTS the Motion for Reconsideration of Motion to Dismiss filed by Simply Taxes, LLC (D.E. 104) and the Em-Tax Motion for Reconsideration of the Document 98 (D.E. 105) and amends the Court's Order of October 11, 2013 (D.E. 98) as follows:

Before the Court is "Defendant Simply Taxes' First Amended Motion to Dismiss Defendant-Claimants United States, People of the State of Illinois, and UP2U, LLC for Lack of Subject-Matter Jurisdiction" (D.E. 70) pursuant to Fed.R.Civ.P. 12(b)(1). Prior to consideration of this Motion, the Court granted Defendant UP2U, LLC's Motion for Summary Judgment, dismissing that Defendant from this action. D.E. 74. Defendants, United States (US) and People of the State of Illinois (Illinois) have filed their respective responses (D.E. 78, 80). For the reasons set out below, the Motion (D.E. 70) is DENIED.

DISCUSSION

A. Statement of Jurisdiction

This is an interpleader action, filed in the Nueces County District Court by ValueBank, Texas (ValueBank) against several adverse claimants to two deposit accounts held by ValueBank in the name of UP2U, LLC (UP2U). ValueBank did not plead a specific rule or statute supporting the use of interpleader procedure. D.E. 1-1. In its Amended Answer, Illinois refers to the interpleader action continuing in this Court as initiated under "Rule 43 of the Texas Code of Civil Procedure." D.E. 61, p. 1. Illinois does not plead any additional jurisdictional provisions. Interpleader in federal courts is permitted under a number of authorities, including 28 U.S.C. § 1335 and Fed.R.Civ.P. 22.

The U.S. removed the action to this Court, reciting federal question jurisdiction under 28 U.S.C. § 1331, jurisdiction over the U.S. as a Defendant under 28 U.S.C. § 1346, and actions affecting property on which the U.S. has or claims a lien under 28 U.S.C. § 2410(a)(5) (reciting the use of interpleader actions). In stating its cross-claim to the interpled funds, the U.S. has recited subject matter jurisdiction under 28 U.S.C. § 1340, regarding actions arising under the Internal Revenue Code, specifically 26 U.S.C. § 7402(a) (conferring jurisdiction to enforce the internal revenue laws) and § 7405 (regarding the right of the U.S. to file actions for erroneous tax refunds). Title 28 U.S.C. § 1367 provides supplemental jurisdiction over all claims that fall within the same "case or controversy."

B. The Competing Claims

At issue are monies related to Internal Revenue Service tax refunds. According to the pleadings, certain tax returns were prepared by Simply Taxes d/b/a Mo' Money Tax Service, LLC (MMT) and Money Co. USA, LLC (MCUSA), and were filed electronically. MCUSA and/or Em-Tax Software, Inc. (Em-Tax) provided tax preparation software to MMT which was used to account for the receipt, segregation, and disbursement, through UP2U, of individual tax refunds. The monies were held in UP2U's account for payment processing and were then allocated to (1) the taxpayer's net refund, (2) the tax preparer's (MMT's) fees, including Electronic Return Originator (ERO) fees, and (3) MCUSA's and/or Em-Tax's licensing fees. The interpled funds represent some of these non-disbursed funds.

The pleadings can be summed up to reflect the following status of competing claims to the interpled funds:

• UP2U disclaimed any interest in the funds and has been dismissed.
• Simply Taxes makes a claim for funds held on behalf of MMT, MCUSA, and Em-Tax.
• The U.S. claims an interest in the funds because the gross tax refunds included amounts paid in error due to improper education credits claimed on individual tax returns. The U.S. asserts that its claim properly extends to the interpled funds with respect to both the amounts held for the taxpayers and the amounts held for ERO fees.
• Illinois holds a money judgment against MMT, and MCUSA for violation of consumer protection statutes, which it seeks to collect from any amount of the interpled funds that ...

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