Bancroft Global Dev. v. United States

• Decision Date: 27 August 2018
• Docket Number: Civil Action No.: 17-395 (RC)
• Citation: 330 F.Supp.3d 82
• Parties: BANCROFT GLOBAL DEVELOPMENT, et al., Plaintiffs, v. UNITED STATES of America, et al., Defendants.
• Court: U.S. District Court — District of Columbia

330 F.Supp.3d 82

BANCROFT GLOBAL DEVELOPMENT, et al., Plaintiffs,

v.UNITED STATES of America, et al., Defendants.

Civil Action No.: 17-395 (RC)

United States District Court, District of Columbia.

Signed August 27, 2018

Simon A. Latcovich, Michael A. Goldsticker, Williams & Connolly LLP, William Henry Shawn, Shawncoulson, LLP, Washington, DC, for Plaintiffs.

Joseph Robert Ganahl, U.S. Department of Justice, Joshua M. Kolsky, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendants.

MEMORANDUM OPINION

GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR PARTIAL DISMISSAL

RUDOLPH CONTRERAS, United States District Judge

I. INTRODUCTION

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.

II. FACTUAL BACKGROUND¹

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...