Free Response - 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 OPPOSITION TO PLAINTIFF'S MOTION FOR LEAVE TO AMEND COMPLAINT Pursuant to Rules 7.1 and 15(a) of the Court of Federal Claims ("RCFC"), defendant, the United States, respectfully submits the following brief in opposition to plaintiff's motion to amend its complaint. For reasons discussed herein, we respectfully request that this Court deny the plaintiff's December 9, 2005, motion to amend its complaint after the filing of a dispositive motion. QUESTION PRESENTED Whether justice requires this Court to allow the plaintiff to make a futile amendment to its complaint after a dispositive motion has been filed. STATEMENT OF FACTS On September 17, 2002, the Department of Health and Human Services ("HHS") awarded contract number GS-35F-4761G to ICES, Ltd.. Complaint ("Compl.") ¶¶ 1-7. Payment under this contract was made through invoices submitted by ICES. On May 25, 2004, pursuant to 48 C.F.R. § 32.8, ICES executed an Instrument of Assignment whereby it assigned future contract payments to Commerce Funding Corporation. Id. at ¶ 9. Commerce Funding forwarded a Notice of Assignment to Ms. Dorothy M. Parker, the contracting officer, who received the

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notice on August 9, 2004. Id. at ¶ 10. On August 17, 2004, Commerce Funding confirmed that the Director of the Division of Accounting Operations for the section of HHS that was involved in the contract had received a copy of the Notice of Assignment. Id. at ¶ 11. On March 2, 2005, after having directed at least four invoices to Commerce Funding pursuant to the assignment, HHS made a payment for invoice number 20 directly to ICES. Id. at ¶ 13. Commerce Funding contacted the payment office, but never received payment for invoice number 20. Id. at ¶ 14. Beginning in April 2005, Commerce Funding began receiving invoice payments that had been reduced for offsets by the Department of the Treasury for debts that ICES owed the Government. Id. at ¶¶ 15-19. On June 9, 2005, Commerce Funding wrote a letter to the contracting officer, Ms. Parker, concerning these invoices numbered 21 through 23. Id. at ¶ 20, Ex. F. Commerce funding received no response. Id. On August 12, 2005, Commerce Funding filed its complaint initiating this lawsuit. Commerce Funding's complaint with regard to invoices 21 through 23 had ignored 31 C.F.R. § 285.5e(6), which specifically allowed the Department of the Treasury to offset the Government payments as it had done. In a telephone conversation prior to filing its response, undersigned Government counsel contacted Commerce Funding's counsel to bring this regulation to her attention and discuss resolution of this matter short of dispositive motions. However, Commerce Funding refused to dismiss the portion of its complaint concerning invoices 21 through 23. On November 10, 2005, the Government filed its answer and partial motion to dismiss. On December 9, 2005, as part of its response to our motion to dismiss, Commerce Funding made a motion requesting that this Court allow it to amend its complaint. Its proffered

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amended complaint alleges that the Government participated in a "misrepresentation" giving rise to an "equitable lien" against the Government. Pl.'s Br. at 3, 7. ARGUMENT Commerce Funding did not make alternative allegations, formally or otherwise, at any time during the three months that ensued between the filing of its complaint and the filing of the Government's unrefuted partial motion to dismiss. Pursuant to RCFC 15(a), under the circumstances of this case, Commerce Funding may amend its complaint at this stage "only by leave of [this] court or by written consent of the adverse party . . . ." Though this Court may give leave to amend "when justice so requires," such liberality is not unlimited. See, e.g., E.W. Bliss Co. v. United States, 77 F.3d 445, 449-50 (Fed. Cir. 1996); First Interstate Bank of Billings v. United States, 61 F.3d 876 (Fed. Cir. 1995); Te-Moak Bands of Western Shoshone Indians of Nevada v. United States, 948 F.2d 1258 (Fed. Cir. 1991). "The decision whether to allow leave to amend pleadings . . . is within the sound discretion of the trial court." First Interstate Bank, 61 F.3d at 881 (citing Te-Moak Bands, 948 F.2d at 1260). Courts will deny motions to amend a complaint because of 1) undue delay, 2) bad faith, 3) concerns that the party seeking to amend has a dilatory motive, 4) if the party seeking to amend has repeatedly failed to cure deficiencies, 5) if there is undue prejudice to the opposing party, or 6) if the proposed amendment would be futile. Te-Moak Bands, 948 F.2d at 1260-61 (citing Forman v. Davis, 371 U.S. 178, 182 (1962)). As this Court has recognized, the "existence of any one of [the above factors] is sufficient to deny a motion to amend, the theory being that the amendment would not be necessary to serve the interests of justice under the circumstances." Alfa Laval Separation, Inc. v. United States, 47 Fed. Cl. 305, 312 (2000) (quoting Spalding & Son, Inc. v. United States, 22 Cl. Ct. 678, 680 3

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(1991)); see also Hays v. United States, 16 Cl. Ct. 770, 772 (1989). As we demonstrate below, Commerce Funding is attempting to make fruitless changes that it could have proposed earlier. I. Because Commerce Funding Is Belatedly Raising Arguments That It Could Have Raised Much Earlier, It Should Not Be Allowed To Amend Its Complaint The United States Court of Appeals for the Federal Circuit has acknowledged that complaint amendments may be disallowed where there was a "possibility of earlier curing." TeMoak Bands, 948 F.2d at 1262. "A litigant's failure to assert a claim as soon as [it] could have is properly a factor to be considered in deciding to grant leave to amend." Id. at 1261 (quoting Carson v. Polley, 689 F.2d 562, 584 (5th Cir. 1982)). After a significant delay, the burden shifts to the party seeking amendment to show the reasonableness of its delay. Id. at 1263. A party who unjustifiably failed to seek to amend earlier and then seeks to rescue its case with a delayed amendment should not be allowed to amend its complaint. See Sebastian v. United States, 185 F.3d 1368, 1374 (Fed. Cir. 1999). This is particularly true when a dispositive motion has been filed and the information upon which the amendment is sought was available earlier. E.W. Bliss Co. v. United States, 77 F.3d 445 (Fed. Cir. 1996). Commerce Funding admitted that it learned of the Department of the Treasury offsets of invoices 21 through 23 approximately eight months ago. Compl. at ¶¶ 15-19. It now appeals to this Court to "consider the very suspicious circumstances under which the [Treasury] made the offsets described in Commerce Funding's Complaint." Pl.'s Br. at 3. However, it does not name any material fact that it did not know as of the filing of its complaint. The Department of the Treasury made offsets according to a Small Business Administration ("SBA") debt that preceded Commerce Funding's arrangement with the debtor ICES. Commerce Funding seeks to amend its

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complaint to allege that the SBA had "reached an accommodation" with ICES regarding its debt. As we demonstrate below, this proffered change in the complaint is futile and does not state a claim upon which relief can be granted because the Department of the Treasury's decision to exercise its regulatory rights to offset would not be rendered improper by communications between the SBA and the debtor ICES. However, aside from the futility of the amendment, there is nothing about the allegation of payment of prior SBA loans rather than non-Governmental ICES debts that could not have been made eight months ago when the complaint was filed. In view of the factors cited above, the attempt to avoid an unrefuted dispositive motion by adding an allegation that could have been made at the time of filing should be denied. II. Commerce Funding's Proposed Complaint Amendment Would Be Futile At the same time, Commerce Funding's proposed amended complaint does not state a valid claim upon which relief could be granted. "Futility of [a] proposed amendment is an adequate reason to deny leave to amend." Cultor Corp. v. A.E. Staley Mfr. Co., 224 F.3d 1328 (Fed. Cir. 2000) (sustaining denial of amendment when a plaintiff had not made a "colorable argument" of the possible success of its proffered amended complaint). This Court "may deny a motion to amend a complaint if the amendment would be futile, because, for example, the claim added by the amendment could not withstand a motion to dismiss." Slovacek v. United States, 40 Fed. Cl. 828 (1998). Commerce Funding proposes to argue an "equitable lien" theory and "urges the Court to consider the very suspicious circumstances" of the Department of the Treasury's offsets pursuant to 31 C.F.R. § 285.5e(6). Pl.'s Br. at 3, 9-10. Though bad faith is not specifically alleged, Commerce Funding claims that the Government "set up" the plaintiff when it made the offsets 5

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permitted by regulation. PL.'s Br. at 10. As an initial point, Commerce Funding's appeal for the Court to draw inferences from allegedly "suspicious circumstances" ignores the presumption of regularity and good faith that attend the performance of Government duties. The Federal Circuit has made clear that there is a "high hurdle for a challenger seeking to prove that a government official acted in bad faith" and that making such a showing "is intended to be very difficult." Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1239-40 (Fed. Cir. 2002). For this reason, courts have long required "well-nigh irrefragable proof" to overcome the presumption of a governmental agent's good faith. Id. (adopting a "clear and convincing evidence" standard while declaring that it "most closely approximates the language traditionally used to describe . . . the `well nigh irrefragable' proof standard"); Sanders v. United States Postal Service, 801 F. 2d 1329, 1331 (Fed. Cir. 1986); Spezzaferro v. Federal Aviation Administration, 807 F. 2d 169, 173 (Fed. Cir. 1986). Commerce Funding asks this Court to draw inferences that the law mandates should be drawn only through the clearest allegation and the most substantial of support. Moreover, Commerce Funding does not even allege facts that could constitute a claim that the Government misrepresented the state of ICES indebtedness to the Government or that it misled Commerce Funding with regard to the regulation under which the Department of the Treasury invoked the offsets in this case. Commerce Funding's proposal to argue an "equitable lien" theory also ignores the law surrounding equitable liens. The Federal Circuit has declared that such liens "arise from established custom and usage of a particular trade or from a mode of dealing between the parties." Skip Kirchdorfer, Inc. v. United States, 6 F.3d 1573 (Fed. Cir. 1993) (rejecting a suggestion of a lien where the plaintiff could demonstrate only one instance of such a lien being 6

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honored). Here, there is no allegation that there was any pattern of dealing between the Government and ICES or Commerce Funding that would abrogate the ability of the Department of the Treasury to insure that Government money satisfied pre-existing obligations to the Government. In addition, an equitable lien can only attach where there is a particular obligation with a particular property to which that lien attached, and an intent that such property would serve as security for that obligation. Skip Kirchdorfer, Inc. v. United States, 26 Cl. Ct. 666, 675 (1992). However, in this case, there are only Treasury offsets of Government payments subject to Treasury offsets to satisfy pre-existing debts to the Government. No allegations about discussions between the SBA and ICES alter the basic right of the Treasury, codified in a regulation, to insure that Government money being paid out must first satisfy pre-existing debts to the Government. Commerce Funding has not demonstrated why 31 C.F.R. § 285.5e(6) would not apply. Its proposed amendment to its complaint would not be any more capable of explaining why that common sense regulation would be inapplicable. Since the proffered amendment would be futile, it should not be allowed. CONCLUSION For these reasons, defendant respectfully requests that this Court deny plaintiff's motion to avoid our pending motion to dismiss by amending its complaint.

Respectfully submitted, PETER D. KEISLER Assistant Attorney General

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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 December 22, 2005 Attorneys for Defendant

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CERTIFICATE OF SERVICE I hereby certify that on this 22nd day of December, 2005, a copy of the foregoing DEFENDANT'S OPPOSITION TO PLAINTIFF'S MOTION FOR LEAVE TO AMEND COMPLAINT 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