Free Reply to Response to Motion - District Court of Federal Claims - federal

Case 1:05-cv-00881-VJW

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS COMMERCE FUNDING CORPORATION, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 05-881C (Judge Wolski)

DEFENDANT'S REPLY BRIEF IN SUPPORT OF PARTIAL MOTION TO DISMISS Pursuant to Rule 7.1 of the Court of Federal Claims ("RCFC"), defendant, the United States, respectfully submits the following reply brief in support of its partial motion to dismiss. In our opening brief, we demonstrated that Commerce Funding had not stated a claim upon which relief could be granted. A case should be dismissed pursuant to RCFC 12(b)(6) "when the facts asserted by the claimant do not entitle [it] to a legal remedy . . . accept[ing] all well-pleaded factual allegations as true and draw[ing] all reasonable inferences in the claimant's favor." Def.'s Br. at 3-4 1 (quoting Lindsay v. United States, 295 F.3d 1252, 1257 (Fed. Cir. 2002). With regard to invoices 21 through 23, Commerce Funding's original complaint ignored the Department of the Treasury's right to an offset of Government payments, pursuant to 31 C.F.R. § 285.5e(6), and Commerce Funding had not alleged that any applicable exceptions to that regulation. Id. at 4-5. We further demonstrated that Commerce Funding's amended complaint does not state a claim upon which relief could be granted. We demonstrated that Commerce Funding has not

"Def.'s Br." refers to the opening brief in support of our partial motion to dismiss filed upon April 6, 2006. Similarly, "Pl.'s Br." refers to the response to our partial motion to dismiss for failure to state a claim which Commerce Funding filed upon May 4, 2006.

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alleged circumstances that could give rise to an equitable lien. Def.'s Br. at 5-6. We further demonstrated that Commerce Funding has not stated a claim for unjust enrichment because neither injustice nor enrichment results from the Treasury offsetting Federal payments to satisfy a debtor's prior obligations to the Government. Id. at 6-9. In its response brief, Commerce Funding characterizes the Treasury's offset rights as a "defense of avoidance." Commerce Funding argues that the Government is attempting to improperly shift the burden of proof onto the plaintiff. Pl.'s Br. at 2-3. It argues that: in order to support its defense, the Defendant would have to show that the elements necessary for proper offset under 31 C.F.R. § 285.5(e)(6) existed prior to the time offsets were taken against payments due to ICES and assigned to [Commerce Funding] including that the debt was delinquent or past-due, that the debt was legally enforceable, that the debt was eligible for collection by offset, and that the debt otherwise met every requirement of 31 C.F.R. § 285.5(e)(6) and other applicable law. Id. at 3-4. While Commerce Funding is correct that the Government does bear the burden to prove an affirmative defense, we have met our burden by referring to the portions of Commerce Funding's complaint that acknowledge that the money was seized as a Treasury offset and referring to the statutory authority of the Department of the Treasury to offset Government payments to debtors. Pl.'s Amended Compl. 2, 22-24. Once a statutory defense has been articulated, the "plaintiff has the burden of proof as to any exception to [the] defense." See, e.g., Creppel v. United States, 33 Fed. Cl. 590, 594 (1995) (ruling with regard to the statutory limitation period). Commerce Funding has not alleged any applicable exception to the

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Department of the Treasury's right to offset Government payments to cover debts owed to the Government. Commerce Funding does not dispute our demonstration that an equitable lien cannot be found where there is not a particular obligation between parties with a particular piece of property to which a lien attaches or an intent that such property would serve as security for that obligation. Def.'s Br. at 5-6 (citing Skip Kirchdorfer, Inc. v. United States, 26 Cl. Ct. 666, 675 (1992)); Pl.'s Br. at 4. However, Commerce Funding alleges that the Notice of Assignment created a lien that would be superior to the Government's offset rights. Pl.'s Br. at 4. We are aware of no authority that supports this proposition. In fact, in United California Discount Corp. v. United States, this Court rejected a plaintiff's claim that an assignment created a superior lien by noting that "[s]ecured creditors take their security interest subject to the laws of the land." 19 Cl. Ct. 504, 511 (1990). From whatever perspective this matter is viewed, nothing in the assignment of payments by ICES voided the Treasury's ability to offset Federal payments to satisfy prior debts that ICES owed the Government. Commerce Funding finally argues that the Government was unjustly enriched by receiving "a benefit to which it is not entitled without the consent of [Commerce Funding]." Pl.'s Br. at 4. However, Commerce Funding's contention, if accepted, would invalidate 31 C.F.R. § 285.5(e)(6) since any offset by the Treasury would be seen as an "unjust enrichment." In fact, the Treasury did nothing more than exercise its regulatory power to halt the payment of public funds to a debtor with prior obligations to the Government. As a result of this, ICES's obligations to the Government were reduced and there was no resulting unjust enrichment to allege. 3

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CONCLUSION For the reasons stated here and in our opening brief, we respectfully request that the Court, pursuant to RCFC 12(b)(6), grant our motion and dismiss those portions of the amended complaint alleging a claim based upon invoices 21 through 23.

Respectfully submitted, PETER D. KEISLER Assistant Attorney General

DAVID M. COHEN Director s/ Patricia M. McCarthy PATRICIA M. McCARTHY Assistant Director s/ James D. Colt JAMES D. COLT Trial Attorney Department of Justice Civil Division Commercial Litigation Branch 1100 L. Street, NW Attn: Classification Unit 8th Floor Washington, D.C. 20530 Tel: (202) 305-7562 Fax: (202) 305-7643 May 18, 2006 Attorneys for Defendant

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CERTIFICATE OF SERVICE I hereby certify that on this 18th day of May, 2006, a copy of the foregoing DEFENDANT'S REPLY BRIEF IN SUPPORT OF PARTIAL MOTION TO DISMISS was filed electronically. I understand that notice of this filing will be sent to all parties of record by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

s/ James D. Colt