Riveira et al v. Dresch et al, No. 2:2018cv01211 - Document 56 (W.D. Wash. 2019)
Court Description: ORDER granting Defendant's 53 Motion to Dismiss for Failure to State a Claim. Plaintiffs' complaint is DISMISSED without leave to amend. Signed by U.S. District Judge John C Coughenour. (TH)
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Riveira et al v. Dresch et al Doc. 56 THE HONORABLE JOHN C. COUGHENOUR 1 2 3 4 5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 8 9 EDWARD RIVEIRA JR., et al., 10 Plaintiffs, ORDER v. 11 12 CASE NO. C18-1211-JCC SCOTT DRESCH, in his individual capacity, and DOES 1–10, 13 Defendants. 14 15 16 This matter comes before the Court on Defendant’s motion to dismiss Plaintiffs’ second 17 amended complaint (Dkt. No. 53). Having thoroughly considered the parties’ briefing and the 18 relevant record, the Court finds oral argument unnecessary and hereby GRANTS the motion for 19 the reasons explained herein. 20 I. BACKGROUND 21 In 1989, Plaintiffs Edward and Amanda Riveira founded Absolute Mobility Center 22 (“AMC”), a business based out of their home. (Dkt. No. 51 at 2–3.) AMC sells wheelchair- 23 accessible vehicles, supplied by Indiana-based Braun Corporation (“Braun”), and other mobility- 24 assistance devices to customers, including veterans. (Id.) When qualified veterans purchase 25 AMC vehicles, “the [U.S. Department of Veterans Affairs (the “VA”)] would reimburse AMC 26 certain costs associated with the transaction. This includes the cost of shipping the vehicles from ORDER C18-1211-JCC PAGE - 1 Dockets.Justia.com 1 Indiana [Braun’s location].” (Id. at 20.) Since starting the business, Plaintiffs have established 2 AMC offices outside of their home. (See id. at 34.) 3 Defendant Scott Dresch is a Special Agent with the Internal Revenue Service’s Criminal 4 Investigation Division. (Id. at 4.) On August 17, 2015, Defendant swore an affidavit requesting 5 search warrants in order to investigate Plaintiffs’ alleged violations of provisions of the U.S. tax 6 code, 18 U.S.C. §§ 287, 641, and 1001, as well as 26 U.S.C. § 7206(1). (Dkt. Nos. 51-1, 53 at 3.) 7 The Honorable James P. Donohue, U.S. Magistrate Judge, issued the warrants. (Dkt. Nos. 51-2, 8 51-3, 51-4.) 9 On the morning of August 19, 2015, armed federal agents arrived at Plaintiffs’ home 10 while Mr. Riveira was present. (Dkt. No. 51 at 33.) At about the same time, Mrs. Riveira was 11 pulled over by a Snohomish County Sheriff patrol car and another unmarked car while she drove 12 through Plaintiffs’ neighborhood. (Id.) After being detained for about 25 minutes, Mrs. Riveira 13 was brought to Plaintiffs’ home, and Plaintiffs were kept outside under armed guard while agents 14 searched their home. (Id.) Agents also raided Plaintiffs’ offices in Woodinville and Tacoma 15 while AMC customers and employees were there, seizing records and computers. (Id. at 34.) 16 In March 2018, the U.S. Attorney’s Office ceased its investigation into Plaintiffs’ alleged 17 criminal conduct without charging Plaintiffs. (Id. at 34–35.) Plaintiffs claim that they continue to 18 experience financial, emotional, and reputational harms as a result of the agents’ search of their 19 home and offices. (Id. at 35–36.) On August 16, 2018, Plaintiffs sued Defendant in his individual 20 capacity for allegedly violating Plaintiffs’ Fourth Amendment rights against unreasonable 21 searches and seizures. (Dkt. No. 1.) Plaintiffs later amended their complaint to revise examples 22 from AMC account records, revise the number of boxes of records that were seized, and to add 23 allegations regarding a confidential source (“CS1”) who provided information contained in 24 Defendant’s warrant application. (See Dkt. No. 10.) 25 26 Defendant filed a motion to dismiss Plaintiffs’ amended complaint for failure to state a claim and asserting a qualified immunity defense. (See Dkt. No. 33.) The Court permitted ORDER C18-1211-JCC PAGE - 2 1 Plaintiffs to file a second amended complaint, in which they asserted additional factual 2 allegations related to Defendant’s qualified immunity defense. (See Dkt. Nos. 45-1, 51.) 3 Plaintiffs allege that the raids of their home and offices were based on overly broad and 4 unparticularized warrants. (See Dkt. No. 51 at 6, 32.) Plaintiffs assert that Defendant obtained 5 these warrants by knowingly and/or recklessly misrepresenting information about Plaintiffs’ 6 finances and transactional history, Plaintiffs’ bookkeeping system, AMC’s audit, and the 7 credibility of CS1, a former AMC employee from whom Defendant obtained information to 8 support his warrant affidavit. (See id. at 6–17.) Plaintiffs also allege that Defendant knowingly 9 misrepresented the VA’s cost reimbursement policy. (See id. at 17–32.) In response to Plaintiffs’ 10 second amended complaint, Defendant filed a renewed motion to dismiss raising the same claims 11 and defenses. (See Dkt. Nos. 49 at 1, 53.) 12 II. DISCUSSION 13 A. Motion to Dismiss Legal Standard 14 A party may move for dismissal if the claimant “fail[s] to state a claim upon which relief 15 can be granted.” Fed. R. Civ. P. 12(b)(6). A claim for relief must include “a short and plain 16 statement of the claim showing that the pleader is entitled to relief; and . . . a demand for the 17 relief sought . . . .” Fed. R. Civ. P. 8(a). The statement must put a party on fair notice of the claim 18 and its grounds. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In reviewing a motion to 19 dismiss, the Court accepts all factual allegations as true and views them in the light most 20 favorable to the nonmoving party, but need not accept conclusory allegations, unwarranted 21 deductions of fact, or unreasonable inferences as true. Sprewell v. Golden State Warriors, 266 22 F.3d 979, 988 (9th Cir. 2001). To survive a motion to dismiss, a claim must be “plausible” in that 23 the facts pled “allow[] the court to draw [a] reasonable inference” that a defendant is liable for 24 the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Determining plausibility is 25 “context-specific” and “requires the reviewing court to draw on its judicial experience and 26 common sense.” Id. at 679. ORDER C18-1211-JCC PAGE - 3 1 B. Qualified Immunity Legal Standard 2 Government officials are immune from civil liability if “in performing discretionary 3 functions . . . their conduct does not violate clearly established statutory or constitutional rights 4 of which a reasonable person would have known.” Harlow v. Fitzgerald, 457 U.S. 800, 818 5 (1982). This standard is a low bar—qualified immunity protects “all but the plainly incompetent 6 or those who knowingly violate the law.” Ashcroft v. al-Kidd, 563 U.S. 731, 743 (2011) (quoting 7 Malley v. Briggs, 475 U.S. 335, 341 (1986)). For purposes of a motion to dismiss, the Court 8 applies the Harlow standard to the official’s conduct “as alleged in the complaint.” Behrens v. 9 Pelletier, 516 U.S. 299, 309 (1996). 10 To overcome a qualified immunity defense, a party must show that he or she experienced 11 a violation of a constitutional right and that the right was clearly established at the time of the 12 official’s alleged misconduct. Pearson v. Callahan, 555 U.S. 223, 232, 236 (2009) (citing 13 Saucier v. Katz, 533 U.S. 194 (2001)). If a party claims that the constitutional violation arose 14 from the official’s deceptive or reckless preparation of an affidavit for a search warrant, then the 15 party must “make[] a substantial preliminary showing that a false statement knowingly and 16 intentionally, or with reckless disregard for the truth, was included by the affiant in the warrant 17 affidavit, and [that] the allegedly false statement is necessary to the finding of probable cause.” 18 Franks v. Delaware, 438 U.S. 154, 155–56 (1978); see also Chism v. Washington State, 661 F.3d 19 380, 386 (9th Cir. 2011) (describing such inquiry as a showing of “judicial deception”). If the 20 party makes such a showing, he or she is entitled to a hearing. Id. If the party fails to do so, the 21 affidavit is presumed valid. Id. at 171. The Harlow question of reasonableness essentially 22 “merges” with the Franks question of dishonesty or recklessness. See Butler v. Elle, 281 F.3d 23 1014, 1024 (9th Cir. 2002). 24 C. 25 The Fourth Amendment protects a person’s rights “to be secure in their persons, houses, 26 papers, and effects, against unreasonable searches and seizures.” U.S. Const. amend. IV. Fourth ORDER C18-1211-JCC PAGE - 4 Fourth Amendment Search and Seizure Legal Standard 1 Amendment protections extend to seizures that are less than arrests and to all intrusions by 2 public agents on personal security, in both civil and criminal investigations. Terry v. Ohio, 392 3 U.S. 1, 16–17 (1968); City of Ontario, Cal. v. Quon, 560 U.S. 746, 755 (2010). There is “no 4 ready test for determining reasonableness other than by balancing the need to search against the 5 invasion which the search entails.” Camara v. Mun. Court of City & Cty. of San Francisco, 387 6 U.S. 523, 536–37 (1967). Where a search warrant is mandated, “reasonableness” of search and 7 seizure is measured in terms of whether “probable cause” exists to conduct the search. Id. at 534. 8 Probable cause “is a fluid concept—turning on the assessment of probabilities in particular 9 factual contexts—not readily, or even usefully, reduced to a neat set of legal rules.” Illinois v. 10 11 Gates, 462 U.S. 213, 232 (1983). Plaintiffs’ Fourth Amendment rights were clearly established at the time that Defendant 12 prepared the affidavit. Defendant, as an experienced government official, is expected to have 13 been aware of this right at the time he prepared the affidavit. See Saucier, 533 U.S. at 202. And a 14 reasonable person would know that this right is available to all citizens. See Harlow, 457 U.S at 15 818. However, Plaintiffs do not establish that their Fourth Amendment rights were violated, and 16 thus do not overcome Defendant’s qualified immunity defense, because they do not plausibly 17 demonstrate that (1) the warrants lacked sufficient specificity, United States v. Kow, 58 F.3d 423, 18 426–27 (9th Cir. 1995), or that (2) Defendant’s affidavit contained knowing or reckless falsities 19 and lacked a substantial basis for probable cause. See United States v. Leon, 468 U.S. 897, 914– 20 15 (1984); see also Franks, 438 U.S. at 155–56. 21 22 1. Sufficient Specificity To satisfy the Fourth Amendment’s requirements, a search warrant must be sufficiently 23 specific as to the items subject to seizure and the scope of the search, unless evidence of a 24 “permeation of fraud” justifies a seizure of all records. See Kow, 58 F.3d at 426–28. When 25 evaluating a warrant’s particularity, the Court considers: (1) whether probable cause existed to 26 seize the described items; (2) whether executing officers could objectively distinguish items ORDER C18-1211-JCC PAGE - 5 1 subject to seizure from those which are not; and (3) the feasibility of a more particular 2 description of the items. United States v. Hindman, 2008 WL 2945482, slip op. at 3 (E.D. Wash. 3 2008) (citing United States v. Adjani, 452 F.3d 1140, 1148 (9th Cir. 2006)). Courts consider an 4 affidavit to be part of the warrant, “and therefore potentially curative of any defects,” if the 5 warrant incorporates the affidavit by reference, and the affidavit is physically attached to the 6 warrant or accompanies the warrant during the search. United States v. SDI Future Health, Inc., 7 568 F.3d 684, 699 (9th Cir. 2009). 8 9 Defendant’s affidavit describes Plaintiffs’ recordkeeping as “permeated with fraud,” and provides circumstantial facts and a list of items to be seized. (See Dkt. No. 51-1.) Plaintiffs claim 10 that the warrants were “overly broad and insufficiently particularized” and do not meet the 11 “permeated with fraud” standard. (Dkt. No. 51 at 6–7, 37.) Defendant’s affidavit is incorporated 12 by reference in each of the three search warrants. (See Dkt. Nos. 51-2 at 2, 51-3 at 2, 51-4 at 2.) 13 While it is unclear whether the affidavit itself accompanied the warrants during the searches, 14 Attachments A and B of the affidavit were incorporated as attachments to the warrants. (See Dkt. 15 Nos. 51 at 7; 51-2, 51-3, 51-4 at 4–10.) The warrants request seizure of “[a]ll records . . . of the 16 types described below” and then name specific types of materials that pertain to named entities 17 and serve a specified purpose. (See, e.g., Dkt. No. 51-2 at 7–8); see Adjani, 452 F.3d at 1148–49. 18 Plaintiffs fail to acknowledge items in Attachment B of the warrants that are sufficiently specific 19 as to what is to be seized, such as “[a]ll contracts . . . related to Absolute Mobility Center, Braun 20 Inc., Richs Inc.” (See, e.g., Dkt. No. 51-2 at 7–10.) 21 The warrants further objectively limit the search scope by specifying the criminal charges 22 to which the items must pertain to, “for the time period of January 1, 2008 through the present.” 23 (See, e.g., id. at 7); see United States v. Spilotro, 800 F.2d 959, 964 (9th Cir. 1986) (“Reference 24 to a specific illegal activity can, in appropriate cases, provide substantive guidance for the 25 officer’s exercise of discretion in executing the warrant.”). Given the circumstances as described 26 in the affidavit, such as the scope of possible criminal activity, the level of specificity in the ORDER C18-1211-JCC PAGE - 6 1 warrants was reasonable. (See generally Dkt. No. 51-1); see Adjani, 452 F.3d at 1149. As the 2 warrants were not overly broad and contained sufficient specificity, the Court finds that they 3 meet the Fourth Amendment specificity requirements. See Adjani, 452 F.3d at 1148. 1 4 5 2. Probable Cause and Judicial Deception Probable cause looks to the likelihood that evidence of a crime could be uncovered in a 6 search, and is not concerned with the prima facie elements of a crime, such as mens rea. See 7 Chism, 661 F.3d at 389. Reviewing courts give deference to a magistrate judge’s determination 8 of probable cause, unless the affidavit contains (a) a knowing or reckless falsity, and/or (b) lacks 9 a “substantial basis” for determining the existence of probable cause. United States v. Leon, 468 10 U.S. 897, 914–15 (1984). 2 This inquiry into reckless falsity and lack of substantial basis mirrors 11 the Franks test for defeating qualified immunity—an act of “judicial deception”—so the Court 12 evaluates both inquiries together. See supra Section II.B. A claim of judicial deception cannot be 13 based on “an officer’s erroneous assumptions about the evidence he has received.” Ewing v. City 14 of Stockton, 588 F.3d 1218, 1224 (9th Cir. 2009). The Court need not accept conclusory 15 allegations of judicial deception as true. Sprewell, 266 F.3d at 988 (9th Cir. 2001); see also Newt 16 v. Kasper, 85 F. App’x 37, 38 (9th Cir. 2003) (applying Sprewell conclusory allegation standard 17 to judicial deception claim). 18 19 a. Knowing or Reckless Falsity Plaintiffs claim that Defendant “caus[ed] a search and seizure without probable cause” by 20 making material misrepresentations and omissions to secure the search warrants—an alleged act 21 of judicial deception. (Dkt. Nos. 51 at 36, 54 at 5); see Chism, 661 F.3d at 386. Plaintiffs claim 22 that such falsities were material because they implied Plaintiffs’ alleged intent to violate tax 23 laws. But see Chism, 661 F.3d at 389. The Court evaluates each of the alleged falsities below. 24 25 1 As the Court finds that the warrants were not overly broad or lacking in specificity, the Court need not apply the “permeated with fraud” doctrine. See Kow, 58 F.3d at 426–28. 2 26 Additionally, the reviewing court must find that the magistrate judge operated in a neutral and detached manner. Leon, 468 U.S. at 914. The Court finds so here. ORDER C18-1211-JCC PAGE - 7 1 2 i. Credibility of CS1 Defendant interviewed CS1 and summarized their discussions in his affidavit. (See Dkt. 3 No. 51-1 at 16–22.) CS1 claimed, among other things, that Plaintiffs: charged customers for state 4 sales taxes without remitting the tax amounts to the Washington Department of Revenue 5 (“DOR”); instructed customers to pay vehicle costs to General Electric Finance (“GE Finance”) 6 or Braun directly, rather than to AMC, to facilitate Plaintiffs’ underreporting of income; and 7 accepted cash payments from customers without making cash deposits into the AMC business 8 checking account. (Id. at 18–21.) Plaintiffs argue that Defendant “repeatedly shades or outright 9 omits key facts” as to CS1’s credibility and “downplays” a material conflict of interest. (Dkt. No. 10 51 at 8–9.) Plaintiffs allege that Defendant misrepresented CS1’s criminal history and in effect 11 hid “a well-established pattern of [CS1] deceiving and harming her employers.” (Id. at 9.) 3 12 Plaintiffs also allege that Defendant “knew yet omitted” the fact that CS1 had little knowledge 13 about the VA’s reimbursement policy and no formal training in bookkeeping, despite holding the 14 bookkeeping duties for AMC during the period of alleged tax violations. (Id.) Plaintiffs further 15 contend that CS1 founded a similar business after leaving AMC and, as a competitor of AMC, 16 informed her business partner that she “intended to fund her business using the monetary award 17 she anticipated she would receive for reporting AMC to law enforcement.” (Id.) Plaintiffs claim 18 that Defendant did not have evidence to corroborate CS1’s testimony. (Id. at 11.) 19 An informant’s infallibility or lack of ulterior motive are not prerequisites for probable 20 cause. Gates, 462 U.S. at 246; see also U.S. v. Meling, 47 F.3d 1546, 1555 (9th Cir. 1995). In his 21 affidavit, Defendant acknowledged CS1’s criminal history and the alleged conflict of interest— 22 CS1’s participation in a similar economic market after leaving AMC. (See Dkt. No. 51-1 at 17.) 23 Thus, Defendant disclosed salient facts regarding CS1’s credibility despite Plaintiffs’ claim that 24 25 26 3 Defendant’s affidavit states that CS1 was convicted of one count of fraud, which arose out of three separate occasions of stealing. (See Dkt. Nos. 51 at 8, 53 at 12.) Defendant’s affidavit does not mention another civil suit against CS1 for embezzlement, which concluded with a default judgment. (See id.) ORDER C18-1211-JCC PAGE - 8 1 he withheld additional information. Moreover, even if Defendant’s affidavit was inaccurate, 2 Plaintiffs have not made a plausible showing of judicial deception because they have not made 3 specific, non-conclusory factual allegations as to Defendant’s knowing or reckless 4 misrepresentation of CS1’s credibility. (See generally Dkt. No. 51); see also Iqbal, 556 U.S. at 5 678; Sprewell, 266 F.3d at 988; Ewing, 588 F.3d at 1224. 6 7 ii. DOR Audit and AMC Transactional History Plaintiffs allege that Defendant withheld or misrepresented information about AMC’s 8 income, expenses, and tax payments in his affidavit. (See Dkt. No. 51 at 13–17.) Defendant 9 relied on information regarding the DOR’s audit of AMC, which began in 2011 and concluded 10 on February 27, 2013. (See Dkt. No. 51-1 at 19–20.) Plaintiffs claim that Defendant made false 11 statements about the DOR audit by: inferring AMC’s reluctance and/or failure to comply with 12 the DOR’s requests for information; withholding that “DOR did not assess liability for many of 13 the vehicles identified through the [Department of Licensing] records;” distorting the fact that 14 “AMC offered to make a substantial tax payment in anticipation of a determination that AMC 15 had collected but not remitted sales tax on certain transactions” and then made those payments; 16 and withholding that “DOR did not assess any evasion penalties against AMC.” (Id. at 13–15.) 17 Plaintiffs further allege that Defendant: distorted the difference between state sales tax issues and 18 federal income tax liability; withheld that AMC had underreported its expenses, in addition to its 19 income; and withheld that Plaintiffs’ “direct payments to GE were reported as income.” (Id. at 20 15–16) (emphasis in original). 21 Plaintiffs further allege that “a correct analysis of the Braun records shows that Plaintiffs 22 in fact overreported their taxable income.” (Id. at 13, 16) (emphasis in original). Plaintiffs also 23 allege that Defendant recklessly categorized AMC’s bookkeeping system as a “scheme” that was 24 “permeated with fraud” and withheld that the “DOR itself observed that AMC’s files were a 25 mess.” (Id. at 6, 13.) Plaintiffs indicate that these alleged misrepresentations undermine 26 Defendant’s suggestion that Plaintiffs intended to violate tax laws, though intent is not relevant ORDER C18-1211-JCC PAGE - 9 1 2 to the probable cause inquiry. (Id.); see Chism, 661 F.3d at 389. Defendant sought the search warrants “[b]ecause of what [he] believe[d] was AMC’s 3 fraudulent behavior in responding to [DOR’s] requests.” (See Dkt. No. 51-1 at 10–11.) Plaintiffs 4 have not made specific factual allegations to show that Defendant founded this belief on his own 5 knowing or reckless falsities as to AMC’s income, expenses, and tax payments. See Sprewell, 6 266 F.3d at 988; Ewing, 588 F.3d at 1224. In light of Defendant’s reasoning in his affidavit and 7 the supporting facts, Plaintiffs have not made a plausible showing of judicial deception. See 8 Iqbal, 556 U.S. at 678; Franks, 438 U.S. at 155–56, 171. 9 iii. VA Reimbursements 10 Plaintiffs challenge Defendant’s statements in his affidavit regarding VA reimbursement. 11 (See Dkt. No. 51 at 17–32.) Plaintiffs generally sought $2,000 in reimbursement from the VA for 12 each van sold to a qualified veteran, which allegedly was the “usual and customary cost for the 13 vans” and covered “AMC’s actual shipping costs, as well as additional costs associated with 14 readying each vehicle for delivery to the customer.” (Id. at 20, 22.) Plaintiffs claim that VA 15 employees instructed them to “enter their reimbursable freight costs onto blank bills of lading 16 from Braun and submit it to the VA for reimbursement” and that such practice was “engaged in 17 by other comparable vendors.” (Id. at 20–21.) 18 Plaintiffs claim that Defendant misrepresented information regarding VA reimbursements 19 in his affidavit because he did not cite to the authorities governing VA reimbursement for 20 shipping costs for vehicles sold to qualifying veterans, and “deliberately omitted information 21 indicating that the VA’s practice was subject to a variety of interpretations and was inconsistent 22 over time and among different VA employees.” (Id. at 17–18.) Plaintiffs also claim that 23 Defendant selectively “manipulated the inferences” drawn from Plaintiffs’ communications with 24 VA representatives about the reimbursement practices and policies, to “bolster his case for 25 probable cause that Plaintiffs were acting with criminal intent.” (See id. at 21–29.); but see 26 Chism, 661 F.3d at 389. Plaintiffs claim that Defendant committed judicial deception because his ORDER C18-1211-JCC PAGE - 10 1 alleged misrepresentations resulted in “an incomplete portrait of industry practice, and 2 incomplete context.” (Dkt. No. 51 at 20–21.) 3 Plaintiffs provide interpretations of the VA’s reimbursement policy that they allege were 4 misrepresented or withheld from the affidavit, but they also concede that such policy was an 5 “uncertain landscape.” (Id. at 20.) Even if Defendant’s affidavit contained inaccuracies regarding 6 this policy, Plaintiffs have not raised factual allegations that plausibly establish that Defendant 7 knowingly or recklessly made false statements regarding that policy. See Iqbal, 556 U.S. at 678; 8 Franks, 438 U.S. at 155–56, 171; Sprewell, 266 F.3d at 988. Therefore, Plaintiffs have not made 9 a plausible showing of judicial deception. While Plaintiff did not make a plausible showing of 10 judicial deception, the Court will assess the “substantial basis for probable cause” inquiry. See 11 Leon, 468 U.S. at 914–15. 12 13 b. Substantial Basis for Probable Cause Plaintiffs claim that Defendant’s false statements were necessary for Judge Donohue’s 14 finding of probable cause because “[t]he cumulative effect of such false statements and 15 omissions usurped the Magistrate Judge of his authority to make an independent determination 16 of probable cause.” (Dkt. No. 51 at 32.) The Court evaluates the necessity of each of the alleged 17 falsities below. i. Credibility of CS1 18 19 Plaintiffs claim that CS1’s testimony provided the only basis of purported probable cause 20 to search Plaintiffs’ home, and they claim that CS1’s testimony is not reliable given the alleged 21 credibility issues discussed above. (Id. at 10); see supra Section II.C.2(a)(i). However, even in 22 the absence of the alleged omissions or misrepresentations about CS1’s credibility, probable 23 cause could have been found from information provided by CS1. Gates, 462 U.S. at 246; Meling, 24 47 F.3d at 1555. Further, Plaintiffs did not address some of the information provided by CS1 that 25 does contribute to a finding of probable cause, such as CS1’s observations of customers making 26 cash payments that were not deposited into the business bank account, and copies of AMC ORDER C18-1211-JCC PAGE - 11 1 invoices paid in cash. (See Dkt. No. 53 at 11–12.) Thus, Plaintiffs have not shown that but for the 2 alleged misrepresentations of CS1’s credibility, there would not have been a substantial basis of 3 probable cause. See Leon, 468 U.S. at 914–15; Franks, 438 U.S. at 155–56. 4 ii. DOR Audit and AMC Transactional History 5 In his affidavit, Defendant states several unchallenged facts pertaining to DOR’s 6 investigation, and Plaintiffs’ financial records and correspondence. Defendant cited the DOR’s 7 finding that “AMC had admitted to failing to remit almost $300,000 in sales taxes” and that 8 “AMC had underreported its gross receipts by over $4,000,000 for the time period of January 1, 9 2008 through March 31, 2012.” (Id. at 20.) Defendant also cited records indicating that AMC 10 customers made over $2,000,000 in direct payments to Braun, and emails from Plaintiffs to 11 Braun directing these payments to specific invoice numbers, as evidence of Plaintiffs’ efforts to 12 not report the income on their corporate tax returns and to avoid reporting the state sales tax. 13 (Id.) Defendant explained that DOR’s numbers were based on records obtained from the 14 Department of Licensing (“DOL”), which may have excluded some of the AMC vehicle titles, 15 thus postulating that DOR’s investigation could have understated the revenues that AMC failed 16 to report. (Id. at 20–21.) Defendant also explained that “[t]he accounting numbers contained 17 herein represent investigators’ best efforts to assess and tabulate the transactions that were 18 involved . . . based on information from subpoenaed records that may sometimes be incomplete 19 or unclear.” (Id. at 12.) Defendant also compared transactional activity in an AMC business 20 checking account with information provided in AMC’s tax forms, which contributed to his 21 theory that Plaintiffs had underreported their income. (See id. at 24.) Defendant had “not seen 22 evidence of any other business checking account maintained by AMC.” (Id. at 22.) Plaintiffs do 23 not dispute these factual findings, and these findings alone could have formed a substantial basis 24 for Judge Donohue’s finding of probable cause, thus rendering the searches of Plaintiffs’ home 25 and businesses valid. (See Dkt. No. 51 at 14–15); Leon, 468 U.S. at 914–15; Franks, 438 U.S. at 26 155–56. ORDER C18-1211-JCC PAGE - 12 1 2 iii. VA Reimbursements Defendant reviewed several audio and video recordings of conversations between Dale 3 Jones, the VA prosthetics chief, and Mrs. Riveira, in which she admitted that “the actual 4 shipping charges were approximately $750, and not $2,000, but that AMC had other costs of 5 doing business” and in which Jones repeatedly reminded her that VA would only reimburse the 6 actual cost of shipping. (Dkt. No. 51-1 at 26.) In his affidavit, Defendant discusses several 7 interviews in which Braun general counsel and employees stated that the bills of lading produced 8 by AMC were not legitimate Braun documents and that “Braun has never given AMC authority 9 or permission to create or alter Braun documents.” (See id. at 28–30.) These interviews provided 10 substantial evidence of Plaintiffs’ possible fraudulent claims for VA reimbursement, and 11 Plaintiffs do not challenge the content of many of those interviews. (See generally Dkt. No. 51.) 12 In light of Defendant’s evaluation of Plaintiffs’ probable criminal activity in his affidavit, Judge 13 Donohue reasonably balanced the need to search Plaintiffs’ home and businesses for evidence of 14 criminal activity against the invasion entailed by that search. See Camara, 387 U.S. at 536–37. 15 Plaintiffs have not raised a plausible claim to show otherwise because sufficient unchallenged 16 facts remain which form a substantial basis for finding probable cause. See Iqbal, 556 U.S. at 17 678; Leon, 468 U.S. at 914–15. 18 In sum, Plaintiffs’ second amended complaint cannot survive Defendant’s motion to 19 dismiss because Plaintiffs have not made a plausible claim for an unreasonable search and 20 seizure that overcomes Defendant’s qualified immunity defense. While Plaintiffs’ Fourth 21 Amendment rights were established at the time of the search, Plaintiffs have not plausibly 22 alleged that their rights were violated. See Pearson, 555 U.S. at 232, 236. Plaintiffs also have not 23 plausibly alleged that Defendant knowingly or recklessly made false statements in his affidavit. 24 Further, even if the alleged false statements were taken as such, Plaintiffs have not shown that 25 those collective statements provided the necessary basis for Magistrate Judge Donohue to find 26 probable cause. See Franks, 438 U.S. at 155–56, 171. Furthermore, Plaintiffs have not shown ORDER C18-1211-JCC PAGE - 13 1 that the remaining unchallenged facts in the affidavit could not have formed a substantial basis 2 for finding probable cause. See Leon, 468 U.S. at 914–15. 4 3 III. 4 CONCLUSION For the foregoing reasons, Defendant’s motion to dismiss Plaintiffs’ second amended 5 complaint (Dkt. No. 53) is GRANTED. Plaintiffs’ complaint is DISMISSED without leave to 6 amend. 7 DATED this 18th day of July 2019. 10 A 11 John C. Coughenour UNITED STATES DISTRICT JUDGE 8 9 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 4 Because Plaintiffs do not overcome Defendant’s qualified immunity defense, the Court need not reach the Bivens issue. (See Dkt. No. 51 at 4); Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971). ORDER C18-1211-JCC PAGE - 14
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