Keough v. United States
| Decision Date | 13 December 2021 |
| Docket Number | 20-cv-10311-DJC |
| Parties | KEVIN KEOUGH and NANCY KEOUGH,, Plaintiffs, v. UNITED STATES of AMERICA and JANET YELLEN,, Defendants. |
| Court | U.S. District Court — District of Massachusetts |
Plaintiffs Kevin Keough (“Kevin”) and Nancy Keough (“Nancy”), on behalf of themselves and all others similarly situated (collectively, “Plaintiffs”) have sued Defendants United States of America and Janet Yellen (“Yellen”), in her official capacity as Secretary of the Treasury, alleging that debt collection charges assessed against them violate the Eighth Amendment (Count I), 31 U.S.C. § 3717(e)(1) (Count II), constitute unjust enrichment (Count III) and entitle them to an accounting (Count IV). D. 1. Defendants have moved to dismiss Plaintiffs’ complaint for lack of subject matter jurisdiction. D. 35. Plaintiffs have also moved to amend their complaint. D. 41. For the reasons discussed below, the Court ALLOWS Defendants’ motion to dismiss the operative complaint, D. 35, and ALLOWS Plaintiffs’ motion to amend, D. 41.
Pursuant to Fed. R. Civ. P. 12(b)(1), a defendant may move to dismiss an action for lack of subject matter jurisdiction. “[T]he party invoking the jurisdiction of a federal court carries the burden of proving its existence.” Murphy v. United States, 45 F.3d 520, 522 (1st Cir. 1995) (quoting Taber Partners, I v. Merit Builders, Inc., 987 F.2d 57, 60 (1st Cir. 1993)). To determine if the burden has been met, the Court “take[s] as true all well-pleaded facts in the plaintiffs’ complaints, scrutinize[s] them in the light most hospitable to the plaintiffs’ theory of liability, and draw[s] all reasonable inferences therefrom in the plaintiffs’ favor.” Fothergill v. United States, 566 F.3d 248, 251 (1st Cir. 2009).
Fed. R. Civ. P. 15(a) “mandates that leave to amend is to be ‘freely given when justice so requires’ . . . unless the amendment ‘would be futile, or reward, inter alia, undue or intended delay.’” Steir v. Girl Scouts of the USA, 383 F.3d 7, 12 (1st Cir. 2004) (quoting Fed. R. Civ. P. 15(a)(2) and Resolution Trust Corp. v. Gold, 30 F.3d 251, 253 (1st Cir. 1994)). Rule 15(a)’s “liberal amendment policy . . . does not mean that leave will be granted in all cases.” Acosta-Mestre v. Hilton Int’l of P.R., 156 F.3d 49, 51 (1st Cir. 1998) (quoting 6 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1487, at 611 (2d ed. 1990)). If, however, “the proposed amendment would be futile because, as thus amended, the complaint still fails to state a claim, the district court acts within its discretion in denying the motion to amend.” Boston & Me. Corp. v. Town of Hampton, 987 F.2d 855, 868 (1st Cir. 1993), overruled on other grounds by Educadores, Puertorriqueños en Acción v. Hernandez, 377 F.3d 61 (1st Cir. 2004).
In 2011, the Securities and Exchange Commission (“SEC”) sued Infofin, Inc. and Kevin for alleged violations of federal securities laws, and named Nancy as a relief defendant. D. 1 ¶¶ 2–3; S.E.C. v. Inofin, No. 11-cv-10633-DJC, D. 1 (D. Mass. Apr. 14, 2011). This Court entered judgment against Nancy for disgorgement in the amount of $368,430.51 and later against Kevin for disgorgement in the amount of $368,430.51, prejudgment interest of $44,500.00 and penalties of $50,000 (collectively, “Judgments”). D. 1 ¶¶ 4–6. Kevin and Nancy were held jointly and severally liable for the disgorgement amount in Nancy’s judgment. Id. ¶ 7. The SEC referred the Judgments to the United States Department of the Treasury (“Treasury”) for collection. Id. ¶ 8.
Treasury assigned case and agency debt numbers to Kevin’s judgment for each of the disgorgement, pre-judgment interest and civil penalties and sent notices for same on December 13, 2016. Id. ¶¶ 9–10. Such notices included amounts assessed by Treasury in addition to the judgment amounts entered by this Court but did not itemize such additional charges or assessments (e.g., interest, administrative costs, penalties). Id. ¶ 11. The Treasury notices listed Kevin’s outstanding debt to Treasury at $545,305.00 (disgorgement), $69,453.22 (penalties) and $63,377.23 (prejudgment interest), for a total of $678,135.45. Id. ¶¶ 10, 15-16. Kevin received two notices dated February 20, 2017, from Continental Service Group, Inc. (“Continental”), a debt collection agency, referring to two Treasury case numbers: disgorgement and prejudgment interest. Id. ¶¶ 12, 15–16. The Continental notices itemized the amounts Kevin owed as principal, interest, administrative costs and penalties. Id. ¶ 14. The Continental notices informed Kevin he was being assessed administrative costs of $126,238.94 (disgorgement), which is approximately 34.41% of the principal amount, and $14,008.62 (prejudgment interest), which is approximately 31.48% of the principal amount. Id. ¶¶ 15–19. Kevin received a notice on November 16, 2018, from Performant Recovery, Inc. (“Performant”) that he owed $682,302.16 on the disgorgement debt, which was not itemized. Id. ¶ 22. Kevin did not receive notices from Performant as to the other debts or any further notices from Continental. Id. ¶ 23.
Nancy received a letter dated July 25, 2017, from Pioneer Credit Recovery, Inc. (“Pioneer”), a private collection agency contracted by Treasury, to collect on her delinquent balance with Treasury. Id. ¶¶ 24–25. Pioneer itemized Nancy’s outstanding debt as $368,872.63 (principal), $2,136.83 (interest) and $180,749.94 (other), which Plaintiffs allege is an administrative cost. Id. ¶ 26-28.
Plaintiffs allege that the administrative cost was calculated as a percentage rather than the actual or reasonably estimated cost of debt collection. See id. ¶ 59. Plaintiffs bring this action on behalf of all persons who were charged such administrative fees by Treasury. Id.
Plaintiffs initiated this lawsuit on February 14, 2020. D. 1. On March 19, 2021, Plaintiffs moved for class certification. D. 27. Defendants then moved to dismiss Plaintiffs’ complaint, D. 35, and the Court stayed Plaintiffs’ motion for class certification pending resolution of the motion to dismiss, D. 37. Plaintiffs have also moved to amend their complaint. D. 41. The Court heard the parties on the pending motions and took these matters under advisement. D. 56.
Absent clear waiver, sovereign immunity shields the federal government, its agencies, and its officers sued in their official capacities from suit. F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1994); Howe v. Bank for Int’l Settlements, 194 F.Supp. 2d 6, 19-21 (D. Mass. 2002) (applying sovereign immunity to official capacity suit against Secretary of the Treasury) (citing Am. Policyholders Ins. Co. v. Nyacol Prods. Inc., 989 F.2d 1256, 1259 (1st Cir. 1993)). “A waiver of the [f]ederal [g]overnment’s sovereign immunity must be unequivocally expressed in statutory text . . . and will not be implied.” Lane v. Pena, 518 U.S. 187, 192 (1996) (citations omitted).
As a preliminary matter, neither 28 U.S.C. § 1331 (federal question jurisdiction) nor § 2201 (Declaratory Judgment Act) operates as a waiver of sovereign immunity. See Berman v. United States, 264 F.3d 16, 20 (1st Cir. 2001) ( that “[g]eneral jurisdictional statutes such as 28 U.S.C. § 1331 . . . do not waive sovereign immunity and therefore cannot be the basis for jurisdiction over a civil action against the federal government”); Progressive Consumers Fed. Credit Union v. United States, 79 F.3d 1228, 1230 (1st Cir. 1996) () (citations omitted). Additionally, Plaintiffs’ Eighth Amendment claim (Count I) cannot survive a sovereign immunity defense as alleged, since an Eighth Amendment claim for damages (i.e., a Bivens claim) may not be brought against a federal agency or its officers sued in their official capacity, like Treasury and Yellen here. See D. 1 ¶¶ 70–72; McCloskey v. Mueller, 446 F.3d 262, 271–72 (1st Cir. 2006) (citing Ruiz Rivera v. Riley, 209 F.3d 24, 28 (1st Cir. 2000)); Carlson v. Green, 446 U.S. 14, 18–20 (1980).
Plaintiffs’ invocation of the Federal Tort Claims Act (“FTCA”), 28 U.S.C. §§ 1346(b), 2671 also does not save the remaining claims in their complaint from a sovereign immunity bar. See D. 1 ¶¶ 51 (), 76 (alleging damages for violation of federal statute governing interest and costs charged on outstanding debt to U.S. government), 79 (alleging unjust enrichment for same), 83 (seeking an accounting to determine amounts “unlawfully collected . . . as a result of the unlawful conduct” alleged in complaint). “The FTCA . . . is a limited waiver of sovereign immunity that permits plaintiffs to bring claims against the United States for certain common law torts committed by its employees.” Est. of Rahim by Rahim v. United States, 506 F.Supp. 3d 104, 121 (D. Mass. 2020); see Meyer, 510 U.S. at 475. “Federal courts have jurisdiction over these claims if they are ‘actionable under § 1346(b).’” Brownback v. King, __ U.S. __, 141 S.Ct. 740, 746 (2021) (quoting Meyer, 510 U.S. at 477). “A claim is actionable if it alleges the six elements of § 1346(b), which are that the claim be: ‘[1] against the United States, [2] for money damages, . . . [3] for injury or loss of property, or personal injury or death [4] caused by the negligent or wrongful act or omission of any employee of the Government [5]...
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