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

Case 1:05-cv-00881-VJW

Document 10

Filed 12/22/2005

Page 1 of 6

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

Nos. 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.1 We demonstrated that, with regard to invoices 21 through 23, that Commerce Funding's complaint ignored the Department of the Treasury's right an offset of Government payments, pursuant to 31 C.F.R. § 285.5e(6). Def.'s Br. at 3.2 We further demonstrated that Commerce Funding had not alleged that any exceptions to that regulation would apply to it. Id. In its response to our partial motion to dismiss, Commerce Funding does not dispute the applicability of 31 C.F.R. § 285.5e(6). Pl.'s Br. at 8-9. In fact, it admits that "exceptions to 31 C.F.R. § 285.5e(6) may not apply" and argues instead that its proffered amended complaint
1

In our accompanying brief, we demonstrate that Commerce Funding's motion to amend its complaint should not be allowed. Unless and until its motion to amend is granted, its original complaint is still in place and we still seek dismissal of the part of that original complaint related to invoices 21 through 23. "Def.'s Br." refers to the opening brief in support of our partial motion to dismiss filed upon November 10, 2005. 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 December 9, 2005.
2

Case 1:05-cv-00881-VJW

Document 10

Filed 12/22/2005

Page 2 of 6

would state an alternative "equitable lien theory." Id. at 9. Commerce Funding has not refuted our argument that its complaint does not state a claim upon which relief can be granted. ARGUMENT I. Commerce Funding Concedes The Defects Of Its Complaint By Omission Commerce Funding attempted to apply that standard of summary judgment in responding to our motion to dismiss. Pl.'s Br. at 8. However, RCFC 12(b)(6) only requires the application of a summary judgment standard if facts outside of the pleadings are presented. When ruling upon a 12(b)(6) motion, Courts may consider matters of public record such as regulations. Sebastian v. United States, 185 F.3d 1368, 1374 (Fed. Cir. 1999). Since our argument demonstrates that Commerce Funding does not state a claim based upon its complaint in light of relevant regulations, there is no reliance upon outside facts that would require the application of summary judgment. In any case, there is no factual dispute regarding the current complaint that would preclude a grant of summary judgment with regard to invoices 21 through 23. II. Dismissal Would Be Appropriate Even If Amendment Of The Complaint Were Allowed We realize that, unless this Court allows Commerce Funding to amend its complaint, the original complaint is the only pleading before the Court. However, if this Court allowed Commerce Funding to amend its complaint, the amended complaint would face a renewed motion to dismiss from the Government. Commerce Funding's proposed amended complaint does not state a valid claim upon which relief could be granted. 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, 2

Case 1:05-cv-00881-VJW

Document 10

Filed 12/22/2005

Page 3 of 6

Commerce Funding claims that the Government "set up" the plaintiff when it made the offsets 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 3

Case 1:05-cv-00881-VJW

Document 10

Filed 12/22/2005

Page 4 of 6

suggestion of a lien where the plaintiff could demonstrate only one instance of such a lien being 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. As such, even its proposed amended complaint would not state a claim upon which relief could be granted. CONCLUSION For the reasons stated here and in our opening brief, we respectfully request that the Court grant our motion and dismiss those portions of the complaint alleging a claim based upon invoices 21 through 23 pursuant to RCFC 12(b)(6).

4

Case 1:05-cv-00881-VJW

Document 10

Filed 12/22/2005

Page 5 of 6

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) 514-7300 Fax: (202) 307-0972 December 22, 2005 Attorneys for Defendant

5

Case 1:05-cv-00881-VJW

Document 10

Filed 12/22/2005

Page 6 of 6

CERTIFICATE OF SERVICE I hereby certify that on this 22nd day of December, 2005, 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