U.S. v. Gonzales & Gonzales Bonds and Ins. Agency, Inc.

• Decision Date: 27 July 2010
• Docket Number: No. C 09-4029 MHP,C 09-4029 MHP
• Citation: 728 F.Supp.2d 1077
• Court: U.S. District Court — Northern District of California
• Parties: UNITED STATES of America, Plaintiff, v. GONZALES & GONZALES BONDS AND INSURANCE AGENCY, INC., et al., Defendants.

728 F.Supp.2d 1077

UNITED STATES of America, Plaintiff,

v.GONZALES & GONZALES BONDS AND INSURANCE AGENCY, INC., et al., Defendants.

No. C 09-4029 MHP.

United States District Court, N.D. California.

July 27, 2010.

E. Kathleen Shahan, Frances Mary McLaughlin, John Joseph Siemietkowski, United States Department of Justice, Washington, DC, for Plaintiff.

Gary Alan Nye, David Ryan Ginsburg, Roxborough, Pomerance, & Nye LLP, Woodland Hills, CA, for Defendants.

MEMORANDUM & ORDER

Re: Plaintiff's Motion to Dismiss Counterclaim; Defendants' Motion for a Judicial Determination Regarding the Nature of the Case

MARILYN HALL PATEL, District Judge.

Defendant Gonzales & Gonzales Bonds and Insurance Agency, Inc. ("G & G") is engaged in posting immigration bonds with the Department of Homeland Security ("DHS") for, inter alia, the release of aliens from detention pending a determination of the alien's immigration status. 8 C.F.R. § 236.1(c). Defendant American Surety ("ACS") is a federally-approved surety company for whom G & G posted immigration bonds. The United States (or "government") sued defendants to collect on certain breached immigration bonds. Now before the court is defendants' motion regarding the standard of review and discovery matters, and plaintiff's motion to dismiss the counterclaim. Having considered the parties' arguments fully and for the reasons set forth below, the court enters the following memorandum and order.

BACKGROUND

I. Litigation history

In 1993, G & G, Farwest Insurance Company ("Farwest"), Amwest Surety Insurance Co. ("Amwest"), and the DHS' predecessor in interest, Immigration and Naturalization Services, became embroiled in litigation regarding the parties' respective obligations with respect to immigration bonds posted by G & G, Farwest and Amwest. In 1995, the parties entered into a settlement agreement, which became known as "Amwest I." The DHS agreed to change several of its policies and implement them during the execution of future immigration bonds.

In 1997, the parties entered into another settlement agreement known as "Amwest II." The terms of Amwest I were incorporated into Amwest II, and required, inter alia, that the DHS send a field memorandum to its officers advising them of the agreed upon "comprehensive guidance for the implementation of the [Amwest I Agreement]." Docket No. 9 (Counterclaim), Exh. 2 (Amwest II agreement) ¶ 1; see also id., Exh. A to Exh. 2 (Field memo). Defendants contend this field memorandum was never sent, and consequently, DHS field officers do not know their obligations when they find breach of an immigration bond. However, the substance of many of the terms of the Amwest agreements are expressly stated in each immigration bond.

In 2003, G & G again filed suit against the DHS in the Central District of California alleging causes of action under the Administrative Procedure Act ("APA") and the Declaratory Judgment Act ("DJA"). After years of motion practice, G & G amended its complaint to replace its causes of action with a sole cause of action for money damages under 28 U.S.C. section 1346(a)(2) (the "Little Tucker Act"). In 2006, the district court transferred the entire action to the Court of Federal Claims. G & G appealed to the Federal Circuit, which held that G & G's claim was not one for monetary relief and, thus, was not within the purview of the Little Tucker Act. Therefore, the claim was dismissed for lack of jurisdiction. Gonzales & Gonzales Bonds & Ins. Agency, Inc. v. Dep't of Homeland Sec., 490 F.3d 940, 945-46 (Fed.Cir.2007).

II. Current Litigation

In August 2009, the DHS simultaneously filed three lawsuits against G & G in San Francisco, Indianapolis and Memphis. The DHS' complaint for the action filed in San Francisco contains four bonds that its officers declared breached. It is undisputed that in each instance of breach, defendants posted an immigration surety bond conditioned on the delivery or voluntary departure of the bonded alien. In each instance, a DHS official determined that the surety bond was breached under 8 C.F.R. section 103.6(e). Defendants did not appeal these determinations. The United States now seeks payment of the principal amount of the bond.

Defendants counterclaim against the DHS claiming that seventeen additional and separate bond-breach declarations by the DHS were all improper. Although they have sent the DHS, under protest, payment equal to the principal amount of the bonds, they have refused to pay the interest, penalties and handling charges that had accrued subsequent to the breach determination. Defendants claim that the DHS' breach determination was in error and seek return of their payments. Specifically, they claim that the DHS itself breached the immigration bond by: 1) failing to send an I-340 demand as required; 2) failing to send G & G a fully completed Amwest Questionnaire and attach a photograph with every demand; 3) failing to acknowledge proof of the alien's voluntarydeparture; 4) failing to send the removal notice within ninety days of the final order of removal of the bonded alien; 5) failing to send the notice of bond breach by certified mail; and 6) failing to allow G & G to inspect the bonded alien's A-file to determine the propriety of the breach determination.

LEGAL STANDARD

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed against a defendant for failure to state a claim upon which relief can be granted against that defendant. A motion to dismiss under Rule 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.1988). A motion to dismiss should be granted if a plaintiff fails to plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This "plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, --- U.S. ----, ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955). "Determining whether a complaint states a plausible claim for relief ... [is] a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id., 129 S.Ct. at 1950.

"[A]llegations of material fact are taken as true and construed in the light most favorable to the non-moving party." Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996). The court need not, however, accept as true pleadings that are no more than legal conclusions or the "formulaic recitation of the elements of a cause of action." Iqbal, 129 S.Ct. at 1949-50 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). "[A] court may take judicial notice of 'matters of public record,' " Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir.2001) (quoting Mack v. South Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir.1986)), and may also consider "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading" without converting a motion to dismiss under Rule 12(b)(6) into a motion for summary judgment, Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir.2002). "The district court will not accept as true pleading allegations that are contradicted by facts that can be judicially noticed or by other allegations or exhibits attached to or incorporated in the pleading." 5C Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1363 (3d ed. 2004).

DISCUSSION

The parties' major arguments all boil down to one essential issue: whether this action is akin to a mine-run civil suit, or whether the bonds are an administrative instrument such that their breach must be determined by the DHS in accordance with 8 C.F.R. section 103.6(e). Specifically, defendants seek de novo review of the government's breach determination, whereas the United States seeks the arbitrary and capricious standard of review generally employed in APA actions.

Defendants claim that the government lacks adequate fact-finding procedures, and therefore de novo review is appropriate. Alternatively, they claim that even if adequate procedures exist, the immigration bonds at issue are akin to ordinary commercial contracts, and therefore denovo review is appropriate. After finding that adequate fact-finding procedures exist, the court holds that even though immigration bonds are contracts, the arbitrary and capricious standard is nonetheless appropriate for review of the government's bond-breach determinations. Finally, the court addresses the jurisdictional propriety of defendants' counterclaim and allows limited discovery.

I. Fact-finding procedures

Facts determined by an agency are subject to de novo review when "the [agency] action is adjudicatory in nature and the agency factfinding procedures are inadequate." Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971); United States v. Healy Tibbitts Constr. Co., 713 F.2d 1469, 1474 n. 4 (9th Cir.1983). Defendants argue that the agency fact-finding process here is inadequate because there is no agency with appellate jurisdiction over the bond breach-determination, and because the agency is not required to review the alien's entire A-file before making its breach determination.

According to the regulatory scheme, if an alien fails to appear, "[t]he district director having custody of the file ... shall determine whether the bond shall be declared breached or cancelled and shall notify the obligor on Form I-323 or Form I-391 of the...