Free 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 ) ) Plaintiffs, ) ) v. ) ) THE UNITED STATES OF AMERICA ) ) Defendant. ) __________________________________________)

No. 05-881C (Judge Wolski)

PLAINTIFF'S RESPONSE TO DEFENDANT'S PARTIAL MOTION TO DISMISS COMES NOW, Plaintiff, Commerce Funding Corporation ("CFC"), and in response to Defendant's Partial Motion to Dismiss states the following: 1. CFC filed its Complaint seeking payment on five invoices payable by the Defendant under a contract between Defendant and ICES, LTD. ("ICES"). CFC alleged that the payments due under the contract were duly assigned to CFC in accordance with the Assignment of Claims Act (the "ACA"). Complaint ¶¶ 11-13 and Exhibit A. CFC alleges that the Defendant verified that ICES performed the work billed on the five invoices that are the subject of the Complaint and that ICES' performance was accepted with respect to those invoices. Complaint ¶¶ 15 and 19. CFC alleges that the Defendant failed to pay the invoices to CFC as required by the ACA. CFC seeks payment on the invoices based on the contractual obligation and the ACA, as well as on the theories of equitable lien or unjust enrichment. In these allegations, CFC has set forth a prima facie case for its entitlement to payment. 2. The Defendant has filed a Partial Motion to Dismiss the Amended

Complaint seeking to dismiss the "portion of plaintiff's first amended complaint seeking

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relief regarding payments allegedly seized by the Department of the Treasury" for failure to state a claim upon which relief can be granted pursuant to RCFC Rule 12(b)(6). Defendant's Partial Motion to Dismiss ¶ 3. The Defendant relies solely upon the asserted applicability of 31 C.F.R. § 285.5(e)(6) to support its partial motion to dismiss. 3. The Defendant's assertion that 31 C.F.R. § 285.5(e)(6) applies to relieve

the defendant from the obligation of payment to CFC is a defense of avoidance and is thus an affirmative defense under RCFC 8(c) as the Defendant asserts that "payments either have been paid to Commerce Funding by ICES or have been subject to a Treasury Department Offset." Answer to Amended Complaint ¶ 33. The Defendant must plead affirmative defenses. "RCFC 8(c) requires that a defendant plead an affirmative defense...in his answer." Robinson v. Johnson, 2002 C03 1006 (USCA2, 2002); see also Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 350 (1971). RCFC 8(c) states: Affirmative Defenses. In pleading to a preceding pleading, a party shall set forth affirmatively...payment...and any other matter constituting an avoidance or affirmative defense. Further, the Defendant has the burden of proof on any asserted affirmative defense. Westfield Holdings, Inc., v. United States, 2005 CFC 253 (USCAF, 2005); see also Seaboard Lumber Co. v. United States, 2002 CFC 493 (USCAF, 2002).

4.

The gist of Defendant's Partial Motion to Dismiss is that the Court should

assume based on the Defendant's assertion that the Treasury Department offset was in fact done, was done properly and that such offset relieves the Defendant from its payment obligation to CFC. Indeed, it seems that the Defendant argues that it is CFC's burden to

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disprove the applicability of 31 C.F.R. § 285.5(e)(6). See Defendant's Partial Motion to Dismiss ¶¶ 9-10. The Defendant cites no authority for the proposition that the burden to disprove an affirmative defense is on the plaintiff and that facts disproving the defense must be alleged in the Complaint. In order for the Defendant to prevail on its partial motion to dismiss, the affirmative defense asserted must be apparent on the face of the complaint to be subject to a Rule 12(b)(6) motion to dismiss. Rycoline Prods., Inc. v. C&W Unlimited, 109 F.3d 883, 886 (3d Cir. 1997); see also Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1385 n.1 (ed Cir. 1994). 5. While in certain situations the Defendant may have the right to collect debts or claims owed to a Federal Agency as defined by 31 C.F.R. § 285.5(e)(6), the bare assertion of such a right is no basis for a Motion under 12(b)(6) as it requires the Court to examine matters outside the complaint. If an affirmative defense "is not apparent on the face of the complaint, then it may not afford the basis for a dismissal of the complaint under Rule 12(b)(6)." Bethel v. Jendoco Constr. Corp., 570 F.2d 1168, 1174 (3d Cir.1978). 6. The Complaint alleges under various theories that CFC is entitled to payment. Those alleged facts support CFC's claim. 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 CFC 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

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law. The Defendant has not shown this, and if it had, the Defendant's Partial to Dismiss would then be more appropriate for disposition under RCFC 56 with provision of time for CFC to adequately respond. 7. As to the equitable lien, the Defendant asserts that CFC did not allege that

the payments under the contract were security for an obligation. The Defendant ignores the fact that the Instrument of Assignment and the Notice of Assignment are the instruments through which a secured interest in a government receivable is perfected. There is no doubt that CFC had a lien and the Defendant's assertion that the government offset is superior to CFC's lien again relies on the Defendant proving affirmatively that it has a right of offset. Accordingly, a dismissal under RCFC 12(b)(6) is inappropriate. 8. Likewise, the Defendants assertion that the there was no unjust enrichment

depends on the validity of the offset. If the Defendant cannot prove that the offset was proper, the Defendant was unjustly enriched by the retention of funds due to CFC which were used to pay another obligation which by rights should not be paid by CFC. In other words, without a valid offset, which has not been shown, the Defendant has received a benefit to which it is not entitled without the consent of CFC. Without additional evidence that is not part of the pleadings, the Defendant's claim cannot be determined on a motion under RCFC 12(b)(6). WHEREFORE, Commerce Funding Corporation requests that the Defendant's Partial Motion to Dismiss be denied.

Respectfully submitted, /s/ Heather R. Sullenberger________ Heather R. Sullenberger, Esq.

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Commerce Funding Corporation 1945 Old Gallows Road, Suite 205 Vienna, Virginia 22182 Tel: (703) 893-2150 ext. 234 Fax: (703) 893-3257 Counsel for the Plaintiff

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CERTIFICATE OF SERVICE I hereby certify that on this 4th day of May, 2006, a copy of the foregoing Plaintiff's Response to Defendant's 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/ Heather R. Sullenberger Heather R. Sullenberger, Esq.