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Bancroft Global Development v. United States

United States District Court, District of Columbia

August 27, 2018

UNITED STATE OF AMERICA, et al., Defendants.




         Plaintiffs Bancroft Global Development, Michael Stock, and Melissa Bates Stock seek the return of documents seized during the execution of a search warrant in 2011, as well as money damages for the allegedly unlawful disclosure of their confidential tax return information. In particular, Plaintiffs allege that employees of several federal agencies told employees of other federal agencies that Plaintiffs were being audited, the likely result of the audit, and commented about Plaintiffs' behavior during the audit. Additionally, Plaintiffs allege that the government agencies that had originally seized their confidential tax information gave a portion of those documents to another undisclosed government agency without the legal authority to do so. The Government has moved to dismiss each of Plaintiffs' unlawful disclosure claims on the grounds that they are either time-barred or insufficiently pleaded. For the reasons stated below, the Court dismisses Counts III and VII of Plaintiffs' Second Amended Complaint for failure to state a claim and dismisses Mr. and Mrs. Stocks' claims in Count VI and a portion of Count IV for lack of standing.


         Plaintiff Bancroft Global Development (“Bancroft”) is a nonprofit corporation that “provides education and training for foreign governments and international organizations in disciplines such as explosive ordnance disposal, emergency medicine, and law enforcement, in order to protect civilians and help such areas recover and develop economically.” 2d Am. Compl. ¶¶ 13-14, ECF No. 36. Plaintiff Michael Stock serves as Bancroft's President and Director, and Plaintiff Melissa Bates Stock serves as its Secretary and Director. Id. ¶¶ 15-16. Bancroft's work involves a substantial amount of classified information and material that it receives from the federal government. Id. ¶ 22. Certain members of Bancroft's staff, including Mr. and Mrs. Stock, have been granted “clearances for extremely sensitive classified information, ” which allows them access to classified material relating to specific government programs or contracts. Id. ¶¶ 22-23. Additionally, the government has allowed Bancroft to store and process classified materials in certain locations in its offices. Id. ¶ 24.

         Despite these clearances and authorizations, in 2011, the Federal Bureau of Investigation (“FBI”) and Immigration and Customs Enforcement (“ICE”) began investigating Bancroft for potential violations of 18 U.S.C. § 1924, concerning the unauthorized removal or retention of classified documents or material. Id. ¶ 25. In furtherance of that investigation, on November 9, 2011, the FBI and ICE executed three search warrants: two authorizing the seizure of property in Bancroft's D.C. offices and one authorizing the seizure of property in Mr. and Mrs. Stock's home in McLean, Virginia. Id. ¶ 26. The FBI and ICE seized a multitude of records belonging to Bancroft and the Stocks, including both hard copy records and electronic files. See Id. ¶¶ 27-30.

         Soon thereafter, the Internal Revenue Service (“IRS”) began an audit of Bancroft's 2008, 2009, and 2010 tax returns. Id. ¶ 31. In furtherance of that audit, the IRS issued formal Information Document Requests seeking records that would establish the accuracy of Bancroft's tax returns during those years. However, because the FBI and ICE had seized most of Bancroft's hard copy and electronic records, Bancroft was unable to comply with the IRS's requests. Id. ¶ 32. In an attempt to comply with the requests, Bancroft wrote to Assistant U.S. Attorney Jonathan Malis about the status of the seized records, explaining that the government's retention of the documents prevented Bancroft from complying with the IRS's Information Document Requests. Mr. Malis did not grant Bancroft access to the relevant materials. Id. ¶ 33.

         Due in part of Bancroft's inability to comply with the Information Document Requests, the IRS opened an additional audit into Mr. and Mrs. Stock's personal tax returns for the same years. Id. ¶ 34. Again, Mr. and Mrs. Stock found themselves unable to comply with the requests because many of the documents they would need to submit in order to comply remained in government custody. Id. ¶ 35. In April 2013, IRS Revenue Agent Rene Hammett, the agent assigned to the two audits, contacted Plaintiffs' counsel inquiring about the status of the IRS's outstanding Information Document Requests. Id. ¶ 36. She informed Plaintiffs' counsel that she understood that many of the responsive records remained in government custody and were now in the possession of the U.S. Attorney's Office, and explained that Elizabeth Henn, counsel for the IRS, had contacted the Office in an attempt to resolve this issue. Id. ¶ 37. Despite these efforts, it would be another three months before any of Plaintiffs' seized records would be returned to them. Id. ¶ 40.

         In May 2013, Plaintiffs were informed that the Department of Justice had closed its criminal investigation of Plaintiffs. Id. ¶ 41. Jay Bratt, Deputy Chief of the National Security Section, told Plaintiffs' counsel that the government would return all unclassified records it had collected for purposes of the investigation to Plaintiffs' counsel, but would send all classified records it had collected to an unidentified government agency. Id. ¶ 42. However, when Plaintiffs received a portion of the seized records in July 2013, they noticed that: (1) “the inventory of returned materials did not include all of the seized unclassified property, . . . including critical financial information needed to respond to the ongoing audits”; (2) “highly classified material had been commingled with unclassified records while in Government custody, ” resulting in the transmission of certain unclassified records to the unidentified government agency; (3) “the returned materials included materials clearly marked as classified”; (4) the government's inventory of items initially seized, and items returned, contained errors; and (5) “electronic media had been wiped clean of all its data, and physical items had been destroyed while in FBI custody.” Id. ¶ 44. “In light of these problems, Plaintiffs still did not have access to sizeable amounts of information needed to respond to the ongoing audits.” Id. ¶ 49. Indeed, as of the filing of their Second Amended Complaint, Plaintiffs still had not received many of the unclassified records and nearly all of the classified records that the Government had seized. See Id. ¶ 64.

         When Plaintiffs attempted to obtain the remainder of the seized documents, the government did not acknowledge that it had retained or released any documents in error. Id. ¶¶ 50-51. However, two years later, on June 24, 2015, ICE Special Agent John Dietrich delivered two more boxes of “miscellaneous documents, ” including a portion of the seized tax returns and return information, to Bancroft's office. Id. ¶ 52. While Special Agent Dietrich was returning the boxes, Plaintiffs noticed that he appeared to be aware of the “existence, status, scope, and anticipated outcome of the IRS audit.” Id. ¶ 89.

         Plaintiffs allege that the mishandling of their seized records led to the improper sharing of their confidential tax information with unauthorized individuals. Id. ¶ 66. First, Plaintiffs allege that in May 2016, the IRS informed Plaintiffs that their missing tax records were no longer in FBI or ICE custody, but rather “were maintained in a facility that could have been accessed by IRS personnel with the proper clearance if the taxpayer had provided permission.” Id. ¶ 70. Plaintiffs believe that the referenced facility belongs to an undisclosed government agency (“Government Agency”)[2] with whom Bancroft has or had a classified contractual relationship. Id. ¶ 71. Plaintiffs argue that this means that the FBI, ICE, and the U.S. Attorney's Office provided this third-party Government Agency with documents containing confidential tax return information “without authorization or any legitimate purpose.” Id. ¶ 72.

         Second, Plaintiffs allege that beginning on or around July 2012, IRS counsel Henn told Assistant U.S. Attorney Malis and Deputy Chief Bratt about: “the existence and status of the audit”; an IRS agent's “prediction that Bancroft's tax-exempt status would be revoked”; the agent's “view that Bancroft was not being cooperative”; and “specific information about Plaintiffs' accounts, transactions, and relationships with third parties.” Id. ¶ 75. While Plaintiffs were informed in April 2013 that Ms. Henn had been in contact with the U.S. Attorney's Office, Plaintiffs were under the impression that this contact was for the limited purpose of finding out when the IRS would be able to gain access to the seized records. Id. ¶ 78. It was not until May 2016 that Plaintiffs learned that Ms. Henn had disclosed the information listed above to Mr. Malis and Mr. Bratt. Id.

         Third, Plaintiffs allege that the IRS impermissibly shared tax information, “including IRS-generated documents and Bancroft's own return information, ” with Government Agency. Id. ¶ 79. Plaintiffs also allege that in 2012, during a meeting at IRS headquarters, “IRS officials informed Government Agency employees that the IRS would revoke Bancroft's tax exempt status.” Id. ¶ 81. Thereafter, Agent Hammett continued to speak with Government Agency's employees, including the then-Director of the Agency, about the audit at various points throughout 2012. Id. ¶ 82. Plaintiffs have also unearthed “a handwritten note, dated May 6, 2016 and signed by IRS official Nancy Todd, indicat[ing] that she had shared with a Government Agency employee . . . information prepared by the IRS exam in response to Bancroft's taxpayer protest.” Id. ¶ 83. Overall, Plaintiffs allege that the IRS has discussed the following with Government Agency employees: “(i) Bancroft's accounting system and record-keeping; (ii) whether Bancroft properly had managed federal funds; (iii) whether Bancroft used Generally Accepted Accounting Principles; and (iv) whether the Government Agency would be willing to pressure Bancroft to relinquish its tax-exempt status.” Id. ¶ 84.

         Fourth, Plaintiffs allege that the IRS and the FBI disclosed Bancroft's tax return information to ICE, as evidenced by their conversation with Special Agent Dietrich on June 24, 2018. See Id. ¶¶ 86-91. And fifth, Plaintiffs allege that the Government Agency improperly disclosed Bancroft's tax return information to employees of its parent agency (“Organization”), as evidenced by the fact that the Organization refused to consider Bancroft for a contract in January 2017 because “the Organization had been made aware of the IRS audit, that the IRS was going to shut down Bancroft, and that Bancroft's reputation involved a troublesome history of audits.” Id. ¶ 96. Additionally, Bancroft alleges that employees of Government Agency disclosed this type of information to nine other individuals, such as “management-level staff in a procurement entity, who were well-positioned to make decisions about Bancroft's eligibility to receive government contracts.” Id. ¶¶ 98-99. Plaintiffs explain that they learned of these disclosures in May 2016, when they received Government Agency's list of third-party contacts as part of the audit. Id. ¶ 100.

         Plaintiffs filed this suit in March 2017 alleging unlawful disclosure of their tax return information in violation of 26 U.S.C. § 6103. Compl. ¶¶ 13-14, ECF No. 1. Three weeks later, they filed an amended complaint, filling in some of the details of their unlawful disclosure claims and adding requests for a declaratory judgment for spoliation of property the government destroyed and for replevin of the documents seized. See generally Am. Compl, ECF No. 9. Defendant John Koskinen, then-Commissioner of the IRS, moved to dismiss many of the counts in the new complaint on several grounds, including (1) that Plaintiffs named the wrong defendants in their unlawful disclosure of their tax return information claims, (2) that some of the unlawful disclosure claims were time-barred, (3) that Plaintiffs provided insufficient details to state cognizable claims for the unlawful disclosure of their tax information, and (4) that the claim of spoliation against the Commissioner of the IRS in his official capacity should be dismissed because Plaintiffs had not alleged that the IRS had custody of the documents Plaintiffs sought. See Koskinen Mot. Dismiss at 2, ECF No. 23. The remaining defendants- ICE, the Department of Justice, and several of its sub-components-also moved to dismiss several counts of the amended complaint on the grounds that (1) the unlawful disclosure claims were insufficiently pleaded, and (2) that Plaintiffs' spoliation and replevin claims should have been brought under the Federal Tort Claims Act, but that even if they had been, Plaintiffs had failed to exhaust their administrative remedies in order to bring such claims. See Mem. Supp. DOJ Mot. Dismiss at 1- 2, ECF No. 24.

         Upon review of the Government's motions, Plaintiffs moved to amend their complaint to (1) add the United States as a defendant to all of their claims, and (2) replace the replevin and spoliation claims with a claim under Federal Rule of Criminal Procedure 41(g) for the return of property. See Mot. Amend, ECF No. 29. The Court granted Plaintiffs' motion and Plaintiffs' Second Amended Complaint became the operative complaint in this case. See Mem. Op. (Oct. 27, 2017), ECF No. 35. The United States has now moved to dismiss Plaintiffs' five unlawful disclosure claims, and its motion is ripe for decision. See Defs.' Mot. Dismiss, ECF No. 42.


         “Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit.” F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1994). “[T]he existence of consent is a prerequisite for jurisdiction, ” United States v. Mitchell, 463 U.S. 206, 212 (1983), and a “plaintiff must overcome the defense of sovereign immunity in order to establish the jurisdiction necessary to survive a Rule 12(b)(1) motion to dismiss.” Jackson v. Bush, 448 F.Supp.2d 198, 200 (D.D.C. 2006). “[L]imitations and conditions upon which the Government consents to be sued must be strictly observed and exceptions thereto are not to be implied.” Lehman v. Nakshian, 453 U.S. 156, 160-61 (1981). A court, however, must accept “the allegations of the complaint as true, ” Banneker Ventures, LLC v. Graham, 798 F.3d 1119, 1129 (D.C. Cir. 2015), and “construe the complaint ‘liberally,' granting plaintiff ‘the benefit of all inferences that can be derived from the facts alleged.'” Barr v. Clinton, 370 F.3d 1196, 1199 (D.C. Cir. 2004) (quoting Kowal v. MCI Communications Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994)). Where necessary to resolve a jurisdictional challenge, “the court may consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992).

         Overall, “‘the [p]laintiff's factual allegations in the complaint . . . will bear closer scrutiny in resolving a 12(b)(1) motion' than in resolving a 12(b)(6) motion for failure to state a claim.” Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F.Supp.2d 9, 13-14 (D.D.C. 2001) (citing 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1350). A motion to dismiss under Rule 12(b)(6) does not test a plaintiff's ultimate likelihood of success on the merits; rather, it tests whether a plaintiff has properly stated a claim. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), abrogated on other grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982). A court considering such a motion presumes that the complaint's factual allegations are true and construes them liberally in the plaintiff's favor. See, e.g., United States v. Philip Morris, Inc., 116 F.Supp.2d 131, 135 (D.D.C. 2000). Nevertheless, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This means that a plaintiff's factual allegations “must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Twombly, 550 U.S. at 555-56 (citations omitted). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, ” are therefore insufficient to withstand a Rule 12(b)(6) motion to dismiss. Iqbal, 556 U.S. at 678. A court need not accept a plaintiff's legal conclusions as true, see id., nor must a court presume the veracity of the legal conclusions that are couched as factual allegations, see Twombly, 550 U.S. at 555.

         IV. ANALYSIS

         The Government has moved to dismiss Counts III, IV, V, VI, and VII of Plaintiffs' Second Amended Complaint on several grounds. First, the Government argues that Plaintiffs have not shown that they filed suit within the applicable limitations period for Counts IV, V, VII. Defs.' Mot. at 6-10. This failure to demonstrate timeliness, the Government argues, deprives the Court of subject matter jurisdiction over these counts. Second, the Government argues that Plaintiffs have failed to state viable claims for violations of § 6103 in all of their unlawful disclosure counts. See Id. at 10. Plaintiffs respond that all of their claims are timely and sufficiently pleaded. See generally Pls.' Opp'n, ECF No. 44. As explained below, the Court finds that Counts III and VII were insufficiently pleaded and therefore dismisses those claims. Additionally, the Court finds that Mr. and Mrs. Stock lack standing to bring Count VI and a portion of Count IV and therefore dismisses their claims in those counts as well.

         A. The Statute of Limitations

         The Government contends that several of Plaintiffs' unlawful disclosure claims were untimely filed, and that because § 7431's statute of limitations is jurisdictional, the Court does not have subject matter jurisdiction over the untimely claims. See Defs.' Mot. at 6-10. To support their argument that § 7431's statute of limitations is jurisdictional, the Government points to Aloe Vera of Am. v. United States (“Aloe Vera I”), 580 F.3d 867 (9th Cir. 2009) and Gandy v. United States, 234 F.3d 281 (5th Cir. 2000), cases in which courts found § 7431's statute of limitations to be jurisdictional. In the alternative, the Government argues that the allegedly untimely counts may be dismissed for failure to state a claim because Plaintiffs' “pleadings show that they knew or had reason to know of the disclosures more than two years before filing suit.” Defs.' Mot. at 7. Plaintiffs respond that, Ninth and Fifth Circuit opinions notwithstanding, “a decade of Supreme Court and D.C. Circuit precedent . . . mak[es] clear that a limitations period like the one contained in Section 7431(d) is a non-jurisdictional affirmative defense on which the Government bears the burden at all times.” Pls.' Opp'n at 9. And regardless, Plaintiffs argue, their Second Amended Complaint makes clear that Plaintiffs discovered each alleged offense within the limitations period. Id. at 12. As explained below, the Court finds that § 7431's statute of limitations is not jurisdictional, but rather is an affirmative defense. Therefore, viewing the facts alleged in the Second Amended Complaint in the light most favorable to Plaintiffs, the Court finds that it cannot at this point in the proceedings determine whether Counts IV, V, and VII are time-barred, and therefore denies the Government's motion to dismiss on this ground.

         1. The Nature of § 7431's Statute of Limitations

         Section 7431 provides, in a subsection called “Period for bringing action, ” that “[n]otwithstanding any other provision of law, an action to enforce any liability created under this section may be brought, without regard to the amount in controversy, at any time within 2 years after the date of discovery by the plaintiff of the unauthorized inspection or disclosure.” 26 U.S.C. 7431(d). This limitations period applies both to suits against the United States when employees of the United States violate § 6103, see Id. § 7431(a)(1), and suits against non-employees when they violate § 6103, see Id. § 7431(a)(2).

         When the United States is named as a defendant in a suit, a cause of action's statute of limitations generally falls into two major categories. First, there are statutes of limitations that “seek primarily to protect defendants against stale or unduly delayed claims.” John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 133 (2008). These statutes of limitations are non-jurisdictional and are therefore subject to forfeiture, waiver, and equitable tolling. Id. Second, there are statutes of limitations that “seek not so much to protect a defendant's case-specific interest in timeliness as to achieve a broader system-related goal, such as . . . limiting the scope of a governmental waiver of sovereign immunity.” Id. (citations and internal quotation marks omitted).

         The question of which category a statute of limitations falls into “is not merely semantic but one of considerable practical importance for judges and litigants. Branding a rule as going to a court's subject-matter jurisdiction alters the normal operation of our adversarial system.” Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434 (2011). For example, in overcoming a motion to dismiss, into which of the two categories a statute of limitations falls can be critical. When defending against a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, plaintiffs bear the burden of pleading and eventually proving a court's subject matter jurisdiction. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992). If a plaintiff cannot establish that his claims “lie within ‘the Judicial Power of the United States, '” Maxberry v. Dep't of the Army, 952 F.Supp.2d 48, 50 (D.D.C. 2013) (quoting U.S. Const. art. III, § 1), and that “a federal statute grants the court jurisdiction to hear those claims, ” id. (citing Abdelfattah v. U.S. Dep't of Homeland Sec., 893 F.Supp.2d 75, 78 (D.D.C. 2012)), the court must dismiss the claim. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998) (citing Ex parte McCardle, 74 U.S. 506, 514 (1868)).

         On the other hand, when a statute of limitations is non-jurisdictional, and is therefore an affirmative defense, a court should grant a motion to dismiss “only if the complaint on its face is conclusively time-barred.” Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C. Cir. 1996); see also Bregman v. Perles, 747 F.3d 873, 875 (D.C. Cir. 2014) (“Because statute of limitations issues often depend on contested questions of fact, dismissal is appropriate only if the complaint on its face is conclusively time-barred.”). Overall, “although not without exception, the plaintiff typically bears the burden of proving that the Court has jurisdiction over the ...

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