United States v. $4,480,466.16 in Funds Seized ( 2019 )

Case: 18-10801 Document: 00515087912 Page: 1 Date Filed: 08/22/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 18-10801 FILED
August 22, 2019
UNITED STATES OF AMERICA, Lyle W. Cayce
Clerk
Plaintiff - Appellee
v.
$4,480,466.16 in funds seized from Bank of America account ending in 2653
Defendant,
RETAIL READY CAREER CENTER INCORPORATED,
Claimant - Appellant
Appeal from the United States District Court
for the Northern District of Texas
Before ELROD, WILLETT, and DUNCAN, Circuit Judges.
STUART KYLE DUNCAN, Circuit Judge:
In this civil forfeiture proceeding, the United States seized millions of
dollars from a Texas vocational school, alleging the funds were the fruits of a
scheme to fleece veterans. The school intervened as a claimant, denied the
government’s allegations, and counterclaimed for constitutional tort damages
against the government for ruining its business. The district court dismissed
the school’s counterclaims as a matter of law. Finding no authority from our
court on the issue, the district court adopted the First Circuit’s view that
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claimants in an in rem forfeiture proceeding may never bring counterclaims.
See United States v. One Lot of U.S. Currency ($68,000), 927 F.2d 30, 34 (1st
Cir. 1991) (“$68,000”). On appeal, the school protests that this categorical rule
barring all counterclaims in civil forfeiture proceedings is incorrect. We decline
to address that question, however, because the school’s specific counterclaims
are barred for a more fundamental reason—sovereign immunity—and so the
district court lacked subject matter jurisdiction over them. We therefore vacate
the district court’s judgment and remand with instructions to dismiss the
school’s counterclaims for lack of subject matter jurisdiction.
I.
Appellant Retail Ready Career Center (“RRCC”) was a private school in
Texas offering a six-week “boot camp style” course to train students as Heating,
Ventilation, and Air Conditioning (“HVAC”) technicians. 1 According to RRCC,
“[m]ost” students were “veterans who pa[id] for the course using their earned
GI Bill benefit,” but “courses were open to other participants” as well. In 2017,
the United States Department of Veterans Affairs (“VA”) began investigating
whether RRCC had falsely claimed to be in compliance with the “85-15” rule.
This rule prohibits the VA from approving a veteran’s enrollment in a course
“for any period during which more than 85 percent of the students enrolled in
the course are having all or part of their tuition, fees or other charges paid for
them by the educational institution or by VA[.]” 38 C.F.R. § 21.4201. The rule’s
purpose is to “minimize the risk that veterans’ benefits will be wasted on
educational programs of little value . . . and to prevent charlatans from
grabbing the veterans’ education money.” Cleland v. Nat’l Coll. of Bus., 435
U.S. 213, 219 (1978) (cleaned up).
1 We draw these facts primarily from RRCC’s verified claim, which we accept as true
for purposes of reviewing the district court’s grant of a motion to dismiss. See Masel v.
Villareal, 924 F.3d 734, 743 (5th Cir. 2019).
2
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In September 2017, federal warrants were issued to seize the money in
RRCC’s bank accounts—over $4.6 million—as the alleged proceeds of federal
law violations. See FED. R. CIV. P., SUPPLEMENTAL RULE (“SUPP. RULE”) G(3)(b)
(explaining “the court—on finding probable cause—must issue a warrant” to
seize movable property not in government control). 2 In October 2017, the
government filed a complaint in rem seeking forfeiture of the funds under
various fraud and conspiracy statutes. 3 After receiving notice of that action,
RRCC filed a verified claim to the seized property. See 18 U.S.C. § 983(a)(4)(A)
(providing “[a]ny person claiming an interest in the seized property may file a
claim asserting such person’s interest in the property”); SUPP. RULE G(5)(a)
(setting out claim requirements). In its verified claim, RRCC alleged that the
seizure occurred without prior notice or hearing; caused “an immediate and
devastating effect on RRCC’s business”; and forced RRCC to “close the school,”
dismiss employees without pay, and fly students home lest they be “stranded
in Texas.” RRCC also included two “constitutional counterclaims,” which
alleged the seizure violated the Fourth and Fifth Amendments and sought
“damages to compensate [RRCC] for the destruction of its business.”
The government moved to dismiss RRCC’s counterclaims under Federal
Rule of Civil Procedure 12(b)(6). Relying principally on the First Circuit’s
decision in $68,000, 927 F.2d 30, the government argued that “claimants in
2The government also seized other property not relevant to this appeal, including over
$100,000 from five other bank accounts; real property located in Dallas, Texas; and seven
luxury vehicles.
3 See, e.g., 18 U.S.C. § 981(a)(1)(C) (providing “[a]ny property, real or personal, which
constitutes or is derived from proceeds traceable to a violation of [certain federal laws]” is
“subject to forfeiture to the United States”); id. § 981(a)(1)(D) (providing “[a]ny property, real
or personal, which represents or is traceable to the gross receipts obtained, directly or
indirectly, from a violation of [federal fraud statutes]” is “subject to forfeiture to the United
States”); id. § 982(a)(3) (providing a court shall order that a person convicted of a federal
fraud offense forfeit to the United States any property “which represents or is traceable to
the gross receipts obtained, directly or indirectly, as a result of such violation”).
3
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civil-forfeiture cases may not file counterclaims against the United States, as
they are merely claimants, not the party against which the suit is directed.”
The district court noted the parties had not cited “any binding Fifth Circuit
authority” on this question, but found “persuasive” the First Circuit’s
reasoning in $68,000, 4 which had been followed by several district courts from
other circuits. 5 The court therefore granted the government’s motion to dismiss
RRCC’s counterclaims, “hold[ing] that, as a claimant in an in rem civil
forfeiture action, RRCC cannot bring a counterclaim.”
Meanwhile, the government struggled to state an adequate claim against
RRCC’s funds under the forfeiture rules. The district court dismissed the
government’s first amended complaint, finding its allegations insufficiently
specific. The second amended complaint met the same fate. See United States
v. $4,480,466.16 In Funds Seized, No. 3:17–CV–2989–D, 2018 WL 4096340, at
*3 (N.D. Tex. Aug. 28, 2018) (ruling allegations in second amended complaint
4 The entirety of the First Circuit’s reasoning on this point consists of this citation-
free half-paragraph:
By definition, a counterclaim is a turn-the-tables response directed by one party
(“A”) at another party (“B”) in circumstances where “B” has earlier lodged a claim
in the same proceeding against “A.” A forfeiture action is in rem, not in
personam. The property is the defendant. Since no civil claim was filed by the
government against [the claimant]—indeed, rather than being dragooned into
the case as a defendant, he intervened as a claimant—there was no “claim” to
“counter.” Thus, [the claimant’s] self-styled counterclaim was a nullity, and the
court below appropriately ignored it.
$68,000, 927 F.2d at 34.
5 See United States v. 8 Luxury Vehicles, 88 F. Supp. 3d 1332, 1337 (M.D. Fla. 2015);
United States v. Funds from Fifth Third Bank Account # 0065006695, No. 13-11728, 2013
WL 5914101, at *12 (E.D. Mich. Nov. 4, 2013); United States v. $22,832.00 in U.S. Currency,
No. 1:12 CV 01987, 2013 WL 4012712, at *4 (N.D. Ohio Aug. 6, 2013); United States v.
$43,725.00 in U.S. Currency, No. 4:08–1373–TLW, 2009 WL 347475 at *1 (D.S.C. Feb. 3,
2009); United States v. 1866.75 Bd. Feet, No. 1:07cv1100 (GBL), 2008 WL 839792, at *3 (E.D.
Va. Mar. 25, 2008); United States v. Assorted Comput. Equip., No. 03–2356V, 2004 WL
784493, at *2 (W.D. Tenn. Jan. 9, 2004). The Sixth Circuit has recently adopted the First
Circuit’s rationale in $68,000. See Zappone v. United States, 870 F.3d 551, 561 (6th Cir. 2017).
4
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were “insufficient to comply with Supp[lemental] R[ule] G(2)’s requirement
that the complaint must ‘state sufficiently detailed facts to support a
reasonable belief that the government will be able to meet its burden of proof
at trial’”); SUPP. RULE G(2)(f). The parties continue to litigate that issue below. 6
The issues before us on appeal concern only the fate of RRCC’s
counterclaims. On June 12, 2018, the district court entered a final judgment
dismissing RRCC’s counterclaims under Federal Rule of Civil Procedure 54(b),
which RRCC timely appealed. We have jurisdiction to review that Rule 54(b)
judgment. See New Amsterdam Cas. Co. v. United States, 272 F.2d 754, 756
(5th Cir. 1959) (dismissal of counterclaim, when plaintiff’s claim is still
pending, is non-appealable “absent a certificate under Rule 54(b)”).
II.
We review the district court’s judgment dismissing RRCC’s
counterclaims de novo, “accepting all well-pleaded facts [in RRCC’s
counterclaims] as true and viewing those facts in the light most favorable to
[RRCC].” SGK Props., LLC v. U.S. Bank Nat’l Ass’n, 881 F.3d 933, 943 (5th
Cir. 2018) (quoting Stokes v. Gann, 498 F.3d 483, 484 (5th Cir. 2007)). We may
affirm the district court’s judgment “on any basis supported by the record.”
Total Gas & Power N. Am., Inc. v. FERC, 859 F.3d 325, 332 (5th Cir. 2017)
(citing Taylor v. City of Shreveport, 798 F.3d 276, 279 (5th Cir. 2015); EEOC v.
Simbaki, Ltd., 767 F.3d 475, 481 (5th Cir. 2014)); see also Lee v. Kemna, 534
U.S. 362, 391 (2002) (“[I]t is well settled that an appellate tribunal may affirm
a trial court’s judgment on any ground supported by the record.”).
6 Following RRCC’s appeal in this case, the government filed its third amended
complaint, in response to which RRCC moved for dismissal and summary judgment. The
district court has not ruled on those motions. Instead, the district court granted the
government’s motion to stay the forfeiture action for 120 days during the pendency of a
related, ongoing criminal investigation. The stay expired June 6, 2019, at which point the
government moved to extend the stay for an additional 120 days. That motion is pending
before the district court.
5
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III.
On appeal, RRCC asks us to disclaim the district court’s broad ruling
that claimants in in rem civil forfeiture proceedings are barred, always and
everywhere, from filing counterclaims. We decline to address that question,
however, because RRCC’s counterclaims are barred for a more fundamental
reason: sovereign immunity. 7 As the government points out, the United States
has not waived its sovereign immunity with respect to the particular claims
asserted in RRCC’s counterclaims—damages claims for violations of the
Fourth and Fifth Amendments—and the district court therefore lacked subject
matter jurisdiction over them. We agree.
“It is axiomatic that the United States may not be sued without its
consent and that the existence of consent is a prerequisite for jurisdiction.”
United States v. Mitchell, 463 U.S. 206, 212 (1983) (citing United States v.
Sherwood, 312 U.S. 584, 586 (1941); 14 WRIGHT, MILLER & COOPER, FED. PRAC.
& PROC. § 3654); see also, e.g., In re Supreme Beef Processors, Inc., 468 F.3d
248, 251–52 (5th Cir. 2006) (en banc) (“The Constitution contemplates that,
except as authorized by Congress, the federal government and its agencies are
immune from suit.” (citing Hercules, Inc. v. United States, 516 U.S. 417, 422
(1996))). A waiver of sovereign immunity “cannot be implied but must be
unequivocally expressed,” and any waiver “will be strictly construed, in terms
of its scope, in favor of the sovereign.” Doe v. United States, 853 F.3d 792, 796
(5th Cir. 2017) (quoting United States v. Mitchell, 445 U.S. 535, 538 (1980);
Lane v. Peña, 518 U.S. 187, 192 (1996)) (internal quotation marks omitted).
The government argues that RRCC has identified no statute unequivocally
7 Because we rule on the basis of sovereign immunity, nothing in our opinion should
be read as approving the First Circuit’s rationale in $68,000 that counterclaims in in rem
forfeiture proceedings are categorically barred. As the district court pointed out, no decision
of ours has adopted that broad view and we have no occasion to address whether it is correct.
6
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waiving the United States’ immunity for the damages claims in RRCC’s
counterclaims. Specifically, RRCC seeks damages arising from the
“unreasonable seizure” of its bank accounts in violation of the Fourth
Amendment and from the lack of “notice and hearing” in violation of the Fifth
Amendment’s Due Process Clause. The government is correct.
In its reply brief, RRCC attempts to identify the required waiver in 28
U.S.C. § 2680(c). In that provision, Congress “re-waived” the United States’
sovereign immunity under the Federal Tort Claims Act (“FTCA”) for certain
property damages claims arising out of forfeitures. 8 See, e.g., Smoke Shop, LLC
v. United States, 761 F.3d 779, 782 (7th Cir. 2014) (explaining that in the 2000
Civil Asset Forfeiture Reform Act or “CAFRA” Congress “‘rewaived’ the
government’s immunity” under the FTCA “for tort actions stemming from law-
enforcement detentions of property” under specific circumstances); Foster v.
8 Section 2680(c) provides, in relevant part, that the FTCA immunity waiver applies
“to any claim based on the injury or loss of goods, merchandise, or other property, while in
the possession of any officer of customs or excise or any other law enforcement officer, if—
(1) the property was seized for the purpose of forfeiture under any provision of
Federal law providing for the forfeiture of property other than as a sentence
imposed upon conviction of a criminal offense;
(2) the interest of the claimant was not forfeited;
(3) the interest of the claimant was not remitted or mitigated (if the property
was subject to forfeiture); and
(4) the claimant was not convicted of a crime for which the interest of the
claimant in the property was subject to forfeiture under a Federal criminal
forfeiture law.”
28 U.S.C. § 2680(c)(1)–(4). The subsection cross-references 28 U.S.C. § 1346(b), which in
relevant part provides that federal district courts have exclusive jurisdiction over post-
January 1, 1945 money damages claims against the United States for
injury or loss of property, or personal injury or death caused by the negligent or
wrongful act or omission of any employee of the Government while acting within
the scope of his office or employment, under circumstances where the United
States, if a private person, would be liable to the claimant in accordance with
the law of the place where the act or omission occurred.
Id. § 1346(b)(1).
7
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United States, 522 F.3d 1071, 1075 (9th Cir. 2008) (explaining “CAFRA . . .
restored the waiver of sovereign immunity—or ‘re-waived’ sovereign
immunity—with respect to certain forfeiture-related seizures”). RRCC
overlooks, however, that the FTCA waiver does not extend to “constitutional
torts” like the Fourth and Fifth Amendment damages claims pled in RRCC’s
counterclaims. We have squarely recognized that “[c]onstitutional torts . . . do
not provide a proper predicate for an FTCA claim.” Spotts v. United States, 613
F.3d 559, 565 n.3 (5th Cir. 2010) (citing FDIC v. Meyer, 510 U.S. 471, 478
(1994)); see also, e.g., Coleman v. United States, 912 F.3d 824, 835 (5th Cir.
2019) (the “source of substantive liability under the FTCA” must be the “law of
the State” and not federal law (citing Meyer, 510 U.S. at 478)); Sanchez v. Rowe,
870 F.2d 291, 295 (5th Cir. 1989) (explaining “the FTCA does not provide a
cause of action for constitutional torts” because “by definition constitutional
torts are not based on state law” (cleaned up)). Thus, the FTCA waiver does
not encompass the constitutional damages claims in RRCC’s counterclaims,
and the district court thus lacked jurisdiction over them. 9
9 We do not decide whether RRCC could bring valid FTCA claims as counterclaims in
a civil forfeiture proceeding. See, e.g., Life Partners Inc. v. United States, 650 F.3d 1026, 1029–
30 (5th Cir. 2011) (discussing administrative exhaustion requirements which are “a
prerequisite to suit under the FTCA”) (citing 28 U.S.C. § 2675(a); McAfee v. 5th Circuit
Judges, 884 F.2d 221, 222–23 (5th Cir. 1989)). We decide only that the specific claims
asserted in RRCC’s counterclaims fall outside the CAFRA re-waiver and are therefore barred
by sovereign immunity. Additionally, we note that neither the Tucker Act nor its companion,
the Little Tucker Act, waive sovereign immunity over RRCC’s claims. The Tucker Act
provides a judicial avenue for “any claim against the United States founded . . . upon the
Constitution.” 28 U.S.C. § 1491(a)(1); see also United States v. Bormes, 568 U.S. 6, 11 (2012)
(discussing Tucker Act). The waiver in the Tucker Act, however, “has been limited to apply
only to the Takings Clause . . . because only that clause contemplates payment by the federal
government.” Rothe Dev. Corp. v. U.S. Dep’t of Defense, 194 F.3d 622, 625 (5th Cir. 1999).
Here, RRCC does not invoke the Tucker Act, and its Fifth Amendment claims are premised
on an alleged due process violation, not the Takings Clause. See, e.g., Bellamy v. United
States, 7 Cl. Ct. 720, 723 (1985) (explaining claims court “has no jurisdiction over claims
based upon the Due Process and Equal Protection guarantees of the Fifth Amendment,
8
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RRCC also argues that the United States waives sovereign immunity
simply by “initiat[ing] an in rem proceeding.” RRCC cites no authority
supporting that grandiose proposition. It points only to admiralty cases
allowing a limited cross-libel against the United States when the United States
sues another vessel for collision damages. See United States v. The Thekla, 266
U.S. 328 (1924); United States v. The Paquete Habana, 189 U.S. 453 (1903);
The Siren, 74 U.S. 152 (1868); see also, e.g., United States v. Shaw, 309 U.S.
495, 502–03 (1940) (explaining that, in such cases, “it is necessary to determine
the cross-libel as well as the original libel to reach a conclusion as to liability
for the collision”). 10 But RRCC directs us to no authority for the proposition
that this distinct admiralty rule waives the United States’ sovereign immunity
whenever it institutes a civil forfeiture proceeding. Nor does RRCC direct us to
any unambiguous statutory waiver of the United States’ immunity under such
circumstances. 11 As we have already explained, Congress did enact an
unambiguous immunity waiver with respect to forfeiture proceedings, see 28
U.S.C. § 2680(c)(1)–(4), but it has no application here.
Finally, RRCC claims we cannot reach sovereign immunity for two
reasons. First, RRCC points out the government did not raise the issue below.
That is irrelevant: Whether the United States’ sovereign immunity has been
because these constitutional provisions do not obligate the Federal Government to pay money
damages” (quoting Carruth v. United States, 224 Ct. Cl. 422, 445 (1980) (cleaned up)).
10 See generally 2 AM. JUR. 2d ADMIRALTY § 44 (“Whenever the United States sues for
damage inflicted on its vessel or cargo, it impliedly waives its exemption from admiralty
jurisdiction as to cross libels or counterclaims arising from the same transaction.” (citing The
Thekla, 266 U.S. 328; The Western Maid, 257 U.S. 419 (1922))).
11 RRCC incorrectly points to the immunity waiver in 46 U.S.C. § 30903(a), but that
statute also pertains only to certain admiralty claims involving the United States. See, e.g.,
MS Tabea Schiffahrtsgesellschaft MBH & Co. KG v. United States, 636 F.3d 161, 165 n.1 (5th
Cir. 2011) (explaining that “[t]he Suits in Admiralty Act (SAA) . . . provides the appropriate
waiver for maritime tort claims against the United States” (citing 46 U.S.C. § 30903)).
9
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waived is a question of subject matter jurisdiction we can address for the first
time on appeal. See, e.g., Lewis v. Hunt, 492 F.3d 565, 568 (5th Cir. 2007)
(holding that an appellate court may consider United States’ sovereign
immunity sua sponte, “[a]lthough the parties and the district court did not
raise [it]”); Bodin v. Vagshenian, 462 F.3d 481, 484 (5th Cir. 2006) (explaining
that lack of waiver of United States’ sovereign immunity under FTCA
“deprives federal courts of subject matter jurisdiction”). Second, RRCC claims
that addressing sovereign immunity would convert a without-prejudice
dismissal below into a with-prejudice dismissal on appeal, which would be
inappropriate without a cross-appeal. See, e.g., Jennings v. Stephens, 135 S.
Ct. 793, 798 (2015) (explaining “an appellee who does not cross-appeal may not
‘attack the [district court’s] decree with a view either to enlarging his own
rights thereunder or of lessening the rights of his adversary’” (quoting United
States v. Am. Ry. Express Co., 265 U.S. 425, 435 (1924))). RRCC is again
mistaken. Claims barred by sovereign immunity are dismissed without
prejudice, not with prejudice. See, e.g., Warnock v. Pecos Cty., Tex., 88 F.3d 341,
343 (5th Cir. 1996) (explaining that “[b]ecause sovereign immunity deprives
the court of jurisdiction, the claims barred by sovereign immunity can be
dismissed only under Rule 12(b)(1) and not with prejudice”); see also, e.g.,
United States v. Tex. Tech Univ., 171 F.3d 279, 285 n.9 (5th Cir. 1999) (same,
citing Warnock); 9 WRIGHT & MILLER, FED. PRAC. & PROC. § 2373 (because
dismissal for lack of jurisdiction does not reach merits, claim “must be
considered to have been dismissed without prejudice”). Thus, we may, and do,
rule that RRCC’s counterclaims are barred by sovereign immunity. 12
12 Because we resolve the appeal on sovereign immunity grounds, we do not address
the government’s argument that RRCC’s damages counterclaims are barred by 28 U.S.C.
§ 2465(b)(2)(A). Part of a provision addressing government liability for costs, fees, and
interest when a claimant prevails in a forfeiture proceeding, § 2465(b)(2)(A) provides that
“[t]he United States shall not be required to disgorge the value of any intangible benefits nor
10
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IV.
Congress has provided various remedies for claimants like RRCC who
assert that the United States has wrongfully seized their property in forfeiture
proceedings. See, e.g., United States v. Khan, 497 F.3d 204, 208 (2nd Cir. 2007)
(by reforming the forfeiture laws in CAFRA, “Congress was reacting to public
outcry over the government’s too-zealous pursuit of civil and criminal
forfeitures”). Under certain circumstances, claimants who “substantially
prevail[ ]” in a forfeiture action may recover attorneys’ fees, costs, and interest.
See 28 U.S.C. § 2465(b)(1)(A)–(C). In some cases, they may sue the United
States for property damages under the FTCA. See 28 U.S.C. § 2680(c)(1)–(4).
What claimants may not do, however, is sue the United States for
constitutional torts arising out of the property seizure. Congress has not
waived the United States’ sovereign immunity for damages claims of that
nature. Because RRCC’s counterclaims sought precisely those kinds of
damages, we hold its counterclaims are barred by sovereign immunity.
We VACATE the district court’s judgment and REMAND with
instructions to dismiss RRCC’s counterclaims for lack of subject matter
jurisdiction.
make any other payments to the claimant not specifically authorized by this subsection.” 28
U.S.C. § 2465(b)(2)(A).
11