Blakely v. United States

• Decision Date: 12 September 2001
• Docket Number: DEFENDANTS-APPELLEES,No. 00-1404,PLAINTIFFS-APPELLANTS,00-1404
• Parties: (6th Cir. 2002) JOHN KEITH BLAKELY AND JOHN EMMETT LONG,, v. UNITED STATES OF AMERICA, ET AL., Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 853

276 F.3d 853 (6th Cir. 2002)

JOHN KEITH BLAKELY AND JOHN EMMETT LONG, PLAINTIFFS-APPELLANTS, v. UNITED STATES OF AMERICA, ET AL., DEFENDANTS-APPELLEES.

No. 00-1404

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: September 12, 2001

Decided and Filed January 11, 2002

Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 99-74532--John Corbett O'Meara, District Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

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[Copyrighted Material Omitted] Marshall E. Goldberg, Detroit, MI, Jeffrey M. Blum (argued and briefed), Louisville, Kentucky, for Plaintiffs-Appellants.

Alan N. Harris (briefed), Bodman, Longley & Dahling, Ann Arbor, Michigan, Kathleen A. Lieder (briefed), Bodman, Longley & Dahling, Cheboygan, Michigan, William L. Woodard (briefed), Office Assistant United States Attorney, Detroit, Michigan, Kathleen Moro Nesi (argued) Assistant U.S. Attorney, Detroit, MI, for Defendants-Appellees.

Before: Siler, Clay, and GIBSON, Circuit Judges.^*

OPINION

Clay, Circuit Judge.

Plaintiffs, John Keith Blakely and John Emmett Long, filed the instant action against Defendants, United States of America, Attorney General Janet Reno, in her official and individual capacities, United States Attorney Saul Green, in his official and individual capacities, and the Commissioner of the Internal Revenue Service (collectively hereinafter referred to as the "federal Defendants") as well as several banks including Oxford Bank.¹ In their first amended complaint, Plaintiffs alleged causes of action for (1) fraud under Michigan state law against all defendants; (2) violation of the due process clause against all federal Defendants in their official capacities; (3) violation of the excessive fines clause of the Eighth Amendment against all federal Defendants in their official capacities; (4) violations of Plaintiffs' constitutional rights under Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics, 403 U.S. 388 (1971), against Reno and Saul in their individual capacities; (5) a declaratory judgment holding unconstitutional the civil forfeiture statute, 18 U.S.C. § 981(a); and (6) injunctive relief prohibiting the United States and any of its agents from enforcing 18 U.S.C. § 981(a).

In an opinion issued March 9, 2000, the district court dismissed Plaintiffs' first amended complaint on motions of the federal Defendants and Oxford Bank for failure to state a claim under Rule 12(b)(6), and as to the state law fraud claim for failure to plead the claim with particularity as well as for other reasons; denied Plaintiffs' motion for partial summary judgment as to counts V and VI for declaratory and injunctive relief; and denied Plaintiffs' motion for leave to file a second amended complaint. See Blakely v. First Fed. Sav. Bank & Trust, 93 F. Supp. 2d 799 (E.D. Mich. 2000). We now AFFIRM.

BACKGROUND

Plaintiffs and their wives jointly own Country Folk Art Shows, Inc. ("CFAS"), a business that sponsors and organizes country folk art exhibits throughout the country. During 1991 and 1992, the criminal investigation division of the Internal Revenue Service ("I.R.S.") launched an investigation into Plaintiffs' activities with regard to their operation of CFAS. The investigation revealed that Plaintiffs and their wives had failed to declare and pay income tax on the full amount of income derived from operation of CFAS. The investigation also revealed that Plaintiffs had violated laws against "structuring," by placing income in amounts less than $10,000 in various banks in order to avoid government reporting requirements on cash transactions which exceeded that amount.

In 1992, the government initiated a civil forfeiture action against Plaintiffs pursuant to 18 U.S.C. § 981(a). See United States v. Certain Real Prop. Located at 6185 Brandywine Dr., No. 92-CV-40157 (E.D. Mich. filed September 25, 1992). The government also brought criminal charges against Plaintiffs relating to the tax evasion and structuring charges.

The parties entered into a consent judgment, which was consummated on September 25, 1992, and disposed of the civil forfeiture action. Under the terms of the consent judgment, Plaintiffs' property was forfeited, including real property and funds owned by Plaintiffs and their wives. As for the criminal charges against them, Plaintiffs and their wives pleaded guilty to one count of tax evasion. Plaintiffs also pleaded guilty to one count of willfully structuring bank deposits, pursuant to 31 U.S.C. § 5324.

Two years later, the United States Supreme Court decided Ratzlaf v. United States, 510 U.S. 135 (1994), holding that criminal convictions for willfully structuring currency transactions in violation of 31 U.S.C. § 5324 could be maintained only when the government proved that the defendant knew he was violating the structuring laws at the time he committed the offense. Id. at 137-38.

Plaintiffs served twenty-one months in prison for the structuring offense. In 1996, Plaintiffs moved to have their structuring convictions vacated under 28 U.S.C. § 2255. They argued that at the time of their guilty pleas a factual basis was not placed on the record showing that their structuring activities were "willful" as required by Ratzlaf. The government acknowledged that the factual bases for the pleas were insufficient. Thus, the district court granted Plaintiffs' motion to vacate their structuring convictions.

On October 13, 1998, Plaintiffs filed a motion under Federal Rule of Civil Procedure 60(b) to set aside the September 25, 1992 consent judgment. The district court denied the motion.

DISCUSSION

On appeal, Plaintiffs challenge the district court's exercise of supplemental jurisdiction over their state law claims against Oxford Bank, the court's dismissal of their first amended complaint, and the district court's denial of Plaintiffs' motion to file a second amended complaint. We shall address each argument in turn.

A. Supplemental Jurisdiction

We review a district court's determination as to whether it had supplemental jurisdiction over state law claims de novo. Long v. Bando Mfg. of Am., Inc., 201 F.3d 754, 759 (6th Cir. 2000). A district court's decision to exercise supplemental jurisdiction over state law claims is reviewed for an abuse of discretion. Campanella v. Commerce Exch. Bank, 137 F.3d 885, 892 (6th Cir. 1998).

On appeal, Plaintiffs argue that the district court erred in exercising supplemental jurisdiction over its state law claim for fraud against Defendant Oxford Bank.² In their reply brief, Plaintiffs argue that the transaction that gave rise to their claims against the federal Defendants was the forfeiture proceedings and an "erroneous tax assessment" imposed on Plaintiffs by the I.R.S., and that Oxford was not directly involved in those claims. They argue that the false misrepresentations made by bank employees resulted in the I.R.S. investigation and the "unlawful forfeiture." They contend these claims are separate from the claims advanced against the federal Defendants. We find these arguments unavailing.

"[T]he district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a). "In other words, if there is some basis for original jurisdiction, the default assumption is that the court will exercise supplemental jurisdiction over all related claims." Campanella, 137 F.3d at 892. Claims form part of the same case or controversy when they "derive from a common nucleus of operative facts." Ahearn v. Charter Township of Bloomfield, 100 F.3d 451, 454-55 (6th Cir. 1996); accord White v. County of Newberry, S.C., 985 F.2d 168, 172 (4th Cir. 1993) (recognizing that claims form part of same case or controversy if they "revolve around a central fact pattern").

In the instant case, Plaintiffs' fraud claim against Oxford Bank is part of the same case or controversy as its fraud claim and all other claims against the federal Defendants. In their first amended complaint, Plaintiffs allege that Defendant Oxford Bank acted in concert with the federal Defendants in defrauding them, which resulted in the forfeiture of certain of their assets. Plaintiffs allege that the "bank defendants facilitated the wrongful taking of petitioners' assets [i.e., the forfeiture of Plaintiffs' property to the government]" by failing to notify Plaintiffs of the laws against structuring banking transactions to avoid federal reporting requirements. (J.A. at 20.) Plaintiffs further allege that the bank defendants, presumably this includes Defendant Oxford Bank, "reported the structured deposits to pertinent agencies in the United States Department of Treasury. All bank defendants cooperated with the United States Attorney in consummating the illegal forfeiture." (J.A. at 21.) They allege, "[b]y continuously representing that petitioners' deposits would be going into their own accounts and at the same time inducing them to make the deposits in a manner that would lead to the United States Attorney and Internal Revenue Service taking all the funds so deposited of the I.R.S., the bank defendants participated with various officials of the United States in concerted activities constituting bank fraud." (J.A. at 21.) Plaintiffs continued, "the United States Attorney and various I.R.S. Agents managed to enlist the bank defendants in what has now been discovered to be a scheme to commit bank fraud. While bank personnel may not have understood the scheme in its entirety, their actions in inducing plaintiffs to make the structured deposits and their actions in cooperating with the United States in consummating the fraud were deliberate and intentional." (J.A. at 21-22.) As discussed later, Pl...