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Tri-State Hospital Supply Corporation v. United States

June 1, 2001


The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge


Plaintiff Tri-State Hospital Supply Corporation ("Tri-State") brings this action against the United States under the Federal Tort Claims Act ("FTCA"), 28 U.S.C. § 2671 et seq., alleging that the United States Customs Service ("Customs") and the Department of Justice ("DOJ") engaged in a malicious prosecution and abuse of process in connection with their six-year investigation and prosecution of Tri-State. Before the court is the United States' motion to dismiss for lack of subject matter jurisdiction. Upon consideration of the motion, the opposition thereto, and the record of this case, the court concludes that the motion should be granted in part.


Tri-State is a Michigan corporation that sells hospital supplies throughout the United States. *fn1 In the early 1980s, Tri-State began importing surgical equipment from suppliers in Pakistan. Tri-State paid the invoices it received from its Pakistani suppliers, but also received rebates back from those suppliers. During the period 1984-1986, Tri-State consulted with its licensed customs broker, LEP International, Inc. ("LEP"), regarding the value of the imported supplies it should declare to Customs. LEP advised Tri-State to declare only the price that was reflected on the actual invoices accompanying the supplies. Tri-State did so, resulting in its declaring a higher invoice price to Customs as compared to the price it ultimately paid after deducting the rebates it received.

In 1994, Tri-State became the subject of civil and criminal investigations for allegedly falsifying forms submitted to the United States Customs Service. Customs officials executed a search warrant at Tri-State's headquarters and seized various evidence relating to the value of surgical instruments imported from Pakistan. Customs also issued a series of civil penalty notices based on allegations that Tri-State fraudulently overstated the prices it paid and engaged in an international money laundering scheme. In 1996, Customs referred its case to DOJ for the collection of the civil penalties, and DOJ officials brought suit against Tri-State in the United States Court of International Trade.

On several occasions before and during the enforcement trial, counsel for Tri-State explained to DOJ and Customs officials that it had relied upon the counsel of LEP in reporting the price of supplies it received from Pakistan. Evidence also emerged before and during the trial, which proved that Tri-State did not engage in any fraudulent scheme and that the Customs penalties were unwarranted. In addition, Customs and DOJ officials tried to collect penalties based on Customs entries that they knew were barred by the applicable statute of limitations.

During the early stages of the trial, DOJ decided to dismiss its fraud claim against Tri-State, and the Court of International Trade granted Tri-State's motion for judgment as a matter of law on the gross negligence count. After the trial, the jury deliberated on the sole remaining negligence count and returned a no liability verdict in favor of Tri-State. This FTCA suit followed.

In Count I of the complaint, Tri-State alleges that the United States engaged in a malicious prosecution because it had no probable cause to issue penalty notices against Tri-State or to sue Tri-State for collection of those penalties in the Court of International Trade. Tri-State also contends that Customs officials knowingly violated their own regulations by seeking to impose civil penalties on the company. Count II alleges that the United States engaged in an abuse of process in connection with the penalty charges and enforcement trial. As a result of the conduct of Customs and DOJ officials, Tri-State incurred damages, including "$3,239,153.60 in attorneys' fees and associated costs." Compl. ¶ 13; see also Compl. ¶ 173; Prayer for Relief at 38.


The United States contends that Tri-State's claims are jurisdictionally barred because the United States has not waived its sovereign immunity. Specifically, the United States claims that the alleged conduct of Customs and DOJ officials is immune from suit under the FTCA's malicious prosecution/abuse of process and discretionary function exceptions. The United States also argues that, in any event, the FTCA does not permit Tri-State to recover attorneys' fees it spent in defending itself against the United States' investigation and prosecution. Tri-State disagrees.

The staring point of the court's analysis is to recognize that the United States is immune from suit absent an express waiver of sovereign immunity. See United States v. Sherwood, 312 U.S. 584, 586 (1941). This waiver must define the terms of the United States' consent and establish the court's jurisdiction to entertain the suit. See id. Under the FTCA, the United States may be held liable "for injury or loss of property, or personal injury or death" caused by a government employee to the same extent that a private person would be held liable under like circumstances. 28 U.S.C. § 1346(b). However, the FTCA's waiver of sovereign immunity is subject to a number of exceptions. See 28 U.S.C. § 2680. If an exception applies, sovereign immunity is not waived, and the court has no subject matter jurisdiction over the case. See Sloan v. United States Dep't of Housing and Urban Development, 236 F.3d 756, 759 (D.C. Cir. 2001).

A. Malicious Prosecution/Abuse of Process Exception

The first exception raised in this case is the malicious prosecution/abuse of process exception. The FTCA explicitly excludes from its waiver of sovereign immunity "[a]ny claim arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights." 28 U.S.C. § 2680(h). However, the FTCA includes an 'exception to this exception' for the torts of "investigative or law enforcement officers of the United States Government." Id. In other words, "claims of malicious prosecution and abuse of process can only arise from the conduct of 'investigative or law enforcement officers of the United States government.'" Moore v. United States, 213 F.3d 705, 708 (D.C. Cir. 2000) (citing 28 U.S.C. § 2680(h)) (emphasis added). The statute defines "investigative or law enforcement officer" as "any officer of the United States who is empowered by law to execute searches, to seize evidence, or to make arrests for violations of Federal law." 28 U.S.C. § 2680(h).

The United States argues that all of Tri-State's claims, except those relating to Customs Senior Special Agent Bethel, are jurisdictionally barred under the malicious prosecution/abuse of process exception because only Agent Bethel can be classified as an investigative or law enforcement officer. The court disagrees. In ΒΆ 17 of its complaint, Tri-State alleges that "at least 20 agents of the United States Customs Service . . . executed the search warrant at Tri-State's headquarters." Assuming that those 20 agents had authority to execute the search, each of those 20 agents ...

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