UNITED STATES OF AMERICA, Plaintiff - Appellee v. $4,480,466.16 in funds seized from Bank of America account ending in 2653 Defendant, RETAIL READY CAREER CENTER INCORPORATED, Claimant - Appellant
No. 18-10801
United States Court of Appeals for the Fifth Circuit
August 22, 2019
Appeal from the United States District Court for the Northern District of Texas
Before ELROD, WILLETT, and DUNCAN, Circuit Judges.
In this civil forfeiture proceeding, the United States seized millions of dollars from a Texas vocational school, alleging the funds were the fruits of a scheme to fleece veterans. The school intervened as a claimant, denied the government‘s allegations, and counterclaimed for constitutional tort damages against the government for ruining its business. The district court dismissed the school‘s counterclaims as a matter of law. Finding no authority from our court on the issue, the district court adopted the First Circuit‘s view that claimants in an in rem forfeiture proceeding may never bring counterclaims. See United States v. One Lot of U.S. Currency ($68,000), 927 F.2d 30, 34 (1st Cir. 1991) (”$68,000“). On appеal, the school protests that this categorical rule barring all counterclaims in civil forfeiture proceedings is incorrect. We decline to address that question, however, because the school‘s specific counterclaims are barred for a more fundamental reason—sovereign immunity—and so the district court lacked subject mattеr jurisdiction over them. We therefore vacate the district court‘s judgment and remand with instructions to dismiss the school‘s counterclaims for lack of subject matter jurisdiction.
I.
Appellant Retail Ready Career Center (“RRCC“) was a private school in Texas offering a six-week “boot camp style” course to train students as Heating, Ventilation, and Air Conditioning (“HVAC“) techniсians.1 According to RRCC, “[m]ost” students were “veterans who pa[id] for the course using their earned GI Bill benefit,” but “courses were open to other participants” as well. In 2017, the United States Department of Veterans Affairs (“VA“) began investigating whether RRCC had falsely claimed to be in compliance with the “85-15” rule. This rule prohibits the VA from approving a veteran‘s enrollment in a course “for any period during which more than 85 percent of the students enrolled in the course are having all or part of their tuition, fees or other charges paid for them by the educational institution or by VA[.]”
In September 2017, federal warrants were issued to seize the money in RRCC‘s bank accounts—over $4.6 million—as the alleged proceeds of federal law violations. See
The government moved to dismiss RRCC‘s counterclaims under
Meanwhile, the government struggled to state an adequate claim against RRCC‘s funds under the forfeiture rules. The district court dismissed the government‘s first amended complaint, finding its allegations insufficiently specific. The second amended complaint met the same fate. See United States v. $4,480,466.16 In Funds Seized, No. 3:17–CV–2989–D, 2018 WL 4096340, at *3 (N.D. Tex. Aug. 28, 2018) (ruling allegations in second amended complaint
were “insufficient to comply with Supp[lemental] R[ule] G(2)‘s requirement that the complaint must ‘state sufficiently detailed facts to support a reasonable belief that the government will be able to meet its burden of proof at trial‘“);
The issues before us on appeal concern only the fate of RRCC‘s countеrclaims. On June 12, 2018, the district court entered a final judgment dismissing RRCC‘s counterclaims under
II.
We review the district court‘s judgment dismissing RRCC‘s counterclaims de novo, “accepting all well-pleadеd facts [in RRCC‘s counterclaims] as true and viewing those facts in the light most favorable to [RRCC].” SGK Props., LLC v. U.S. Bank Nat‘l Ass‘n, 881 F.3d 933, 943 (5th Cir. 2018) (quoting Stokes v. Gann, 498 F.3d 483, 484 (5th Cir. 2007)). We may affirm the district court‘s judgment “on any basis supported by the record.” Total Gas & Power N. Am., Inc. v. FERC, 859 F.3d 325, 332 (5th Cir. 2017) (citing Taylor v. City of Shreveport, 798 F.3d 276, 279 (5th Cir. 2015); EEOC v. Simbaki, Ltd., 767 F.3d 475, 481 (5th Cir. 2014)); see also Lee v. Kemna, 534 U.S. 362, 391 (2002) (“[I]t is well settled that an appellate tribunal may affirm a trial court‘s judgment on any ground supported by the record.“).
III.
On appeal, RRCC asks us to disclaim the district court‘s broad ruling that claimants in in rem civil forfeiture proceedings are barred, always and everywhere, from filing counterclaims. We decline to address that question, however, because RRCC‘s counterclaims are barred for a more fundamental reason: sovereign immunity.7 As the government points out,
“It is axiomatic that the United States may not be sued without its consent and that the existence of consent is a prerequisite for jurisdiction.” United States v. Mitchell, 463 U.S. 206, 212 (1983) (citing United States v. Sherwood, 312 U.S. 584, 586 (1941); 14 WRIGHT, MILLER & COOPER, FED. PRAC. & PROC. § 3654); see also, e.g., In re Supreme Beef Processors, Inc., 468 F.3d 248, 251–52 (5th Cir. 2006) (en banc) (“The Constitution contemplates that, except as authorized by Congress, the fedеral government and its agencies are immune from suit.” (citing Hercules, Inc. v. United States, 516 U.S. 417, 422 (1996))). A waiver of sovereign immunity “cannot be implied but must be unequivocally expressed,” and any waiver “will be strictly construed, in terms of its scope, in favor of the sovereign.” Doe v. United States, 853 F.3d 792, 796 (5th Cir. 2017) (quoting United States v. Mitchell, 445 U.S. 535, 538 (1980); Lane v. Peña, 518 U.S. 187, 192 (1996)) (internal quotation marks omitted). The government argues that RRCC has identified no statute unequivocally
waiving the United States’ immunity for the damages claims in RRCC‘s cоunterclaims. Specifically, RRCC seeks damages arising from the “unreasonable seizure” of its bank accounts in violation of the Fourth Amendment and from the lack of “notice and hearing” in violation of the Fifth Amendment‘s Due Process Clause. The government is correct.
In its reply brief, RRCC attempts to identify the required waiver in
United States, 522 F.3d 1071, 1075 (9th Cir. 2008) (explaining “CAFRA . . . restored the waiver of sovereign immunity—or ‘re-waived’ sovereign immunity—with rеspect to certain forfeiture-related seizures“). RRCC overlooks, however, that the FTCA waiver does not extend to “constitutional torts” like the Fourth and Fifth Amendment damages claims pled in RRCC‘s counterclaims. We have squarely recognized that “[c]onstitutional torts . . . do not provide a proper predicate for an FTCA claim.” Spotts v. United States, 613 F.3d 559, 565 n.3 (5th Cir. 2010) (citing FDIC v. Meyer, 510 U.S. 471, 478 (1994)); see also, e.g., Coleman v. United States, 912 F.3d 824, 835 (5th Cir. 2019) (the “source of substantive liability under the FTCA” must be the “law of the State” and not federal law (citing Meyer, 510 U.S. at 478)); Sanchez v. Rowe, 870 F.2d 291, 295 (5th Cir. 1989) (explaining “the FTCA does not provide a cause of action for constitutional torts” because “by definition constitutional torts are not based on state law” (cleaned up)). Thus, the FTCA waiver does not encompass the constitutional damages claims in RRCC‘s counterclaims, and the district сourt thus lacked jurisdiction over them.9
RRCC also argues that the United States waives sovereign immunity simply by “initiat[ing] an in rem proceeding.” RRCC cites no authority supporting that grandiose proposition. It points only to admiralty cases allowing a limited cross-libel against the United States when the United States sues another vessel for collision damages. See United States v. The Thekla, 266 U.S. 328 (1924); United States v. The Paquete Habana, 189 U.S. 453 (1903); The Siren, 74 U.S. 152 (1868); see also, e.g., United States v. Shaw, 309 U.S. 495, 502–03 (1940) (explaining that, in such cases, “it is necessary to determine the cross-libel as well as the original libel to reach a conclusion as to liability for the collision“).10 But
Finally, RRCC claims we cannot reach sovereign immunity for two reasons. First, RRCC points out the government did not raise the issue below. That is irrelevant: Whether the United States’ sovereign immunity has been
waived is a question of subject matter jurisdiction we can address for the first time on appeal. See, e.g., Lewis v. Hunt, 492 F.3d 565, 568 (5th Cir. 2007) (holding that an appellate court may consider United States’ sovereign immunity sua sponte, “[a]lthough the parties and the district court did not raise [it]“); Bodin v. Vagshenian, 462 F.3d 481, 484 (5th Cir. 2006) (explaining that lack of waiver of United States’ sovereign immunity under FTCA “deprives federal courts of subject matter jurisdiction“). Second, RRCC clаims that addressing sovereign immunity would convert a without-prejudice dismissal below into a with-prejudice dismissal on appeal, which would be inappropriate without a cross-appeal. See, e.g., Jennings v. Stephens, 135 S. Ct. 793, 798 (2015) (explaining “an appellee who does not cross-appeal may not ‘attack the [district court‘s] decree with a view either to enlarging his оwn rights thereunder or of lessening the rights of his adversary‘” (quoting United States v. Am. Ry. Express Co., 265 U.S. 425, 435 (1924))). RRCC is again mistaken. Claims barred by sovereign immunity are dismissed without prejudice, not with prejudice. See, e.g., Warnock v. Pecos Cty., Tex., 88 F.3d 341, 343 (5th Cir. 1996) (explaining that “[b]ecause sovereign immunity deprives the court of jurisdiction, the claims barred by sovereign immunity can be dismissed only under Rule 12(b)(1) and not with prejudice“); see also, e.g., United States v. Tex. Tech Univ., 171 F.3d 279, 285 n.9 (5th Cir. 1999) (same, citing Warnock); 9 WRIGHT & MILLER, FED. PRAC. & PROC. § 2373 (because dismissal for lack of jurisdiction does not reach merits, claim “must be considered to have been dismissed without prejudice“). Thus, we may, and do, rule that RRCC‘s counterclaims are barred by sovereign immunity.12
IV.
Congress has provided various remedies for claimants like RRCC who assert that the United States has wrongfully seized their property in forfeiture proceedings.
We VACATE the district court‘s judgment and REMAND with instructions to dismiss RRCC‘s cоunterclaims for lack of subject matter jurisdiction.
Notes
$68,000, 927 F.2d at 34.By definition, a counterclaim is a turn-the-tables response directed by one party (“A“) at another party (“B“) in circumstances where “B” has earlier lodged a claim in the same proceeding against “A.” A forfeiture action is in rem, not in personam. The property is the defendant. Since no civil claim was filed by the government against [the claimant]—indeed, rather than being dragooned into the case as a defendant, he intervened as a claimant—there was no “claim” to “counter.” Thus, [the claimant‘s] self-styled counterclaim was a nullity, and the court below appropriаtely ignored it.
- the property was seized for the purpose of forfeiture under any provision of Federal law providing for the forfeiture of property other than as a sentence imposed upon conviction of a criminal offense;
- the interest of the claimant was not forfeited;
- the interest of the claimant was not remitted or mitigated (if the property was subject to forfeiture); and
- the claimant was not convicted of a crime for which thе interest of the claimant in the property was subject to forfeiture under a Federal criminal forfeiture law.”
injury or loss of property, or personal injury or death caused by the negligent or wrоngful act or omission of any employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.