Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-00311/USCOURTS-caed-2_06-cv-00311-0/pdf.json

Parties Involved:
B&B Construction
Plaintiff
BBT Enterprises, LTD
Plaintiff
Labor Force Partners, LTD
Plaintiff
Robert Tarter
Plaintiff
United States of America
Defendant

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1 Because oral argument will not be of material

assistance, the court orders this matter submitted on the briefs. 

See E.D. Cal. Local Rule 78-230(h).

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

LABOR FORCE PARTNERS, LTD;

ROBERT TARTER, D/B/A B&B

CONSTRUCTION; and BBT

ENTERPRISES, LTD., D/B/A 

B&B CONSTRUCTION,

NO. CIV. S-06-0311 FCD/KJM

Plaintiffs,

v. MEMORANDUM AND ORDER

UNITED STATES OF AMERICA,

Defendant.

----oo0oo----

This matter is before the court on defendant United States

of America’s (“defendant”) motion to dismiss for lack of subject

matter jurisdiction and for improper venue.1 Fed. R. Civ. P.

12(b)(1) and 12(b)(3). By this action, plaintiffs Labor Force

Partners, Ltd. (“Labor Force”), Robert Tarter, d/b/a B&B

Construction, and BBT Enterprises, Ltd., d/b/a B&B Construction

(“plaintiffs”) seek extraordinary relief for the return of

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2 Pursuant to a Minute Order of April 19, 2006, the court

denied plaintiffs’ request for an order shortening time to hear

plaintiffs’ motion for preliminary injunction. Because a grant

of defendant’s motion to dismiss for lack of subject matter

jurisdiction would moot plaintiffs’ motion, the court set

plaintiffs’ motion for hearing on the same day that the motion to

dismiss was previously set, May 19, 2006.

2

property seized pursuant to search warrants issued in an ongoing

criminal investigation. Specifically, plaintiffs ask the court

to grant a pre-indictment motion for return of property under

Federal Rule of Criminal Procedure 41(g). 

Plaintiffs oppose defendants’ instant motion and

concurrently seek a preliminary injunction against defendant (see

Mot. for P.I., filed April 18, 2006).2 

Because the court grants, for the reasons set forth below,

defendant’s motion to dismiss for lack of subject matter

jurisdiction, it does not consider defendant’s alternative motion

(as to plaintiff Labor Force) for dismissal for improper venue or

plaintiffs’ motion for a preliminary injunction. Those motions

are denied as moot since the court declines jurisdiction over

this case. Although district courts may entertain a motion for

return of property when no criminal proceedings are pending,

courts must exercise “caution and restraint” before assuming

jurisdiction. Ramsden v. United States, 2 F.3d 322, 324 (9th

Cir. 1993).

BACKGROUND

Plaintiffs filed this action on February 13, 2006, seeking

the return of documents seized by agents of the Internal Revenue

Service ("IRS") pursuant to two search warrants, one issued by

this court and one issued by the United States District Court for

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3 Defendant’s motion is directed at plaintiffs’ original

complaint. However, concurrently with their opposition to the

motion, plaintiffs filed a first amended complaint to address

certain of defendant’s jurisdictional arguments. (See Opp’n,

filed May 2, 2006, at 9:14-16.) For example, plaintiffs

corrected the reference in the complaint to 28 U.S.C. § 1346 as a

basis for jurisdiction in this case and instead referred to 28

U.S.C. § 1331 in the first amended complaint. Plaintiffs also

referenced in the first amended complaint the Fourth and Fifth

Amendments to the United States Constitution as bases for

jurisdiction in this case. Nevertheless, these references to

additional statutory and constitutional provisions are immaterial

to defendant’s motion because plaintiffs fail to identify any

waiver of the United States’ sovereign immunity except for

Federal Rule of Criminal Procedure 41(g). Thus, the court’s

jurisdiction over this action still depends on whether plaintiffs

can establish equitable jurisdiction for a pre-indictment action

for return of property under Rule 41(g). (FAC, filed May 2,

2006, ¶ 1.) As such, the court refers herein to the original

complaint, although the first amended complaint is the operable

complaint. Fed. R. Civ. P. 15. 

3

the Central District of California. (Compl., filed Feb. 13,

2006, ¶s 1, 9.)3 The complaint alleges that IRS agents executed

search warrants on the premises of plaintiff Labor Force in

Upland, California, and plaintiff B&B Construction in Lincoln,

California, on November 30, 2005, and that approximately 125

boxes of documentation were seized as a result of the searches. 

(Compl. at ¶ 9.) These seized documents are currently being held

in Sacramento, California.

B&B Construction is a concrete contractor which has employed

as many as 400 workers. According to the allegations of the

complaint, the B&B Construction workers were transferred to

"Labor Force Partners" which leased their services back to B&B

Construction. The complaint further alleges that some of the

employees' earnings were channeled through "Labor Force Partners

Trust," purportedly free of FICA and Medicare taxes. 

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4

The primary factual issues underlying this case thus involve

the payroll (or purported "trust dividends") of the B&B

Construction or Labor Force employees, also known as

"trust beneficiaries." The complaint asserts that the court has

jurisdiction over this matter under Federal Rule of

Criminal Procedure 41(g). Plaintiffs challenge the validity of

the search warrants and the legality of the searches and seizures

and seek the following relief: (1) an injunction requiring

defendant to return all the seized documents, without retention

of copies; (2) an injunction requiring defendant to return the

portion of the seized documents that is irrelevant to the ongoing

criminal investigation, without retention of copies; (3) an

injunction requiring defendant to provide reasonable access to

the seized documents, including transfer of some of the seized

documents to a location closer to Upland, California and return

of the originals to plaintiffs; (4) damages for the seizures and

retention of documents; and (5) costs and attorneys' fees. 

STANDARD

Federal Rule of Criminal Procedure 41(g) states: "A person

aggrieved by an unlawful search and seizure of property or by the

deprivation of property may move for the property's return. The

motion must be filed in the district where the property was

seized." "Although Rule 41(g) is ordinarily used to seek return

of property after an indictment is issued, 'district courts have

the power to entertain motions to return property seized by the

government when there are no criminal proceedings pending against

the movant.'" United States v. Kama, 394 F.3d 1236, 1238 (9th

Cir. 2005) (quoting Ramsden v. United States, 2 F.3d 322, 324

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4 Procedurally, defendant brings the instant motion under

Federal Rule of Civil Procedure 12(b)(1), making a “factual

attack” on the complaint. Under such circumstances, the court

may look beyond the complaint, without having to convert the

motion into one for summary judgment, and it also need not

presume the truthfulness of plaintiffs’ allegations. White v.

Lee, 227 F.3d 1214, 1242 (9th Cir. 2000).

5 Contrary to plaintiffs’ argument “callous disregard”

for plaintiffs’ constitutional rights remains a factor for

consideration even after the 1989 amendments to Rule 41(g). In

Ramsden, which postdated the 1989 changes, the Ninth Circuit

continued to apply all four factors. 2 F.3d at 325.

5

(9th Cir. 1993)). Such pre-indictment motions “‘are treated as

civil equitable proceedings, and, therefore, a district court

must exercise 'caution and restraint' before assuming

jurisdiction.’” Id. 

In deciding whether to assume jurisdiction, the court must

weigh four factors to determine whether the “‘balance of equities

tilts in favor of reaching the merits’ of the Rule 41(g) motion:”

(1) whether “‘the Government displayed a callous disregard for

the constitutional rights of the movant;’” (2) whether “‘the

movant has an individual interest in and need for the property he

wants returned;’” (3) whether “‘the movant would be irreparably

injured by denying return of the property;’” and (4) whether

“‘the movant has an adequate remedy at law for the redress of his

grievance.’” Id.4

ANALYSIS

Upon consideration of these factors, for the following

reasons, the balance of equities does not support the court's

exercise of equitable jurisdiction over this case: 

1. No “callous disregard” for plaintiffs’ rights5

Plaintiffs have not shown that defendant displayed a callous

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disregard for their constitutional rights in seizing the property

at issue. Unlike Ramsden cited above, where the search and

seizure was not done pursuant to a search warrant, here, the

searches of plaintiffs' premises on November 30, 2005 and the

seizures made pursuant thereto were executed pursuant to valid

search warrants issued by this court and the Central District

Court. 

The special agent’s affidavit in support of the search

warrants amply supports the issuance of the warrants in this

case. (Perez Aff. in Supp. of Pls.’ P.I. Mot., filed April 18,

2006, Ex. A.) For example, Special Agent Lamb’s affidavit

outlines widespread abuse by plaintiffs of employee leasing

agreements, the failure to withhold and pay federal employment

taxes, and the failure to pay over withheld income taxes to the

IRS. More specifically, as stated in the affidavit, in 2000, the

employees of B&B Construction were informed that henceforth they

would be employed by Labor Force and leased back to B&B

Construction. In addition, the employees would become

beneficiaries of the Labor Force Partners Trust (“LFPT”) and

would receive a separate check each pay period from LFPT as a

dividend. The employees were told that they would make more

money because they would not have to pay Social Security and

Medicare taxes. According to a former employee of B&B

Construction, the employees’ work responsibilities did not change

under the new lease-back arrangement; the only difference was

that the employees received two checks (one from Labor Force and

one from LFPT) and no employment taxes were paid on the LFPT

check. Although the employees of Labor Force/B&B Construction

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purported to receive a beneficial ownership interest in LFPT,

they did not participate in the operations of the Trust and their

interest was terminated when they left their employment with

Labor Force/B&B Construction. At the end of each year, the

employees received a W-2 form for the wages paid by Labor Force

and a Schedule K-1 (Form 1041) for the payments made by LFPT. 

(Id.)

According to the Lamb affidavit, the IRS is investigating

whether the LFPT payments were improperly treated as trust

distributions instead of wages to avoid withholding and paying

federal employment taxes. The IRS is also investigating LFPT’s

failure to file Forms 1041, U.S. Income Tax Return for Estates

and Trusts, for the tax years 2000 through 2004. As part of Form

1041, trust distributions to beneficiaries must be disclosed to

the IRS on Schedule K-1. Without a Schedule K-1 from LFPT, the

IRS could not verify the trust dividend income reported by the

“trust beneficiaries” on their individual income tax returns. 

According to the Lamb affidavit, LFPT withheld estimated

income taxes from its payments to its trust beneficiaries without

paying over these funds to the IRS. The trust beneficiaries

later discovered that they were forced to pay a second time the

income tax owed (and purportedly withheld by LFPT) to the IRS. 

(Id.)

Moreover, the catalogs of seized documentation (attached as

exhibits to the Tarter and Perez affidavits offered in support of

plaintiffs’ motion for preliminary injunction) demonstrate that

the seized materials relate to the ongoing criminal

investigation. (See Tarter Aff., Ex. B; Perez Aff., Ex. B.) IRS

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agents seized from B&B Construction completed job files, bill

receipts, payroll records, bank statements and other financial

records, employee files, employee time sheets, employee

correspondence, employee tax files, title documents, and computer

hard drives. From the premises of Labor Force, agents seized

LFPT earnings reports and records, Labor Force payroll records,

employee tax return files, several computers and hard drives,

bank records, and correspondence files. These items are clearly

relevant to issues involved in the ongoing investigation,

including: “(a) whether ‘leased’ workers of Labor Force Partners

actually functioned as employees of B&B Construction; (b) whether

B&B Construction and Labor Force Partners improperly

recharacterized wage income as trust distributions to avoid

employment tax contributions; (c) whether Labor Force Partners

deducted estimated income taxes without transferring those funds

to the IRS; and (d) whether Labor Force Partners deliberately

failed to report trust distributions to the IRS.” (Def.’s Opp’n

to Pls.’ P.I. Mot., filed May 2, 2006.)

Plaintiffs reliance on United States v. Tweel, 550 F.2d 297

(5th Cir. 1977), to argue the invalidity of the subject search

warrants, is inapposite. In Tweel, a criminal defendant bought a

motion to suppress evidence obtained through an affirmative

misrepresentation by an IRS revenue agent. The court held that

the agent’s failure to apprise the defendant of the “obvious

criminal nature of the investigation was a sneaky deliberate

deception by the agent.” Id. at 299; see also United States v.

Bridges, 334 F.3d 1010, 1019-20 (9th Cir. 2003) (applying Tweel

and finding that the “failure of an IRS agent . . . to warn a

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taxpayer that [a civil] audit may have potential criminal

ramifications does not render the search unreasonable” because

their must be evidence of “some affirmative representation to

establish the existence of fraud”). Here, Tweel is inapplicable

because the complaint does not allege any specific affirmative

misrepresentation by IRS agents to plaintiffs or their employees. 

Plaintiffs’ conclusory allegation that IRS agents “intentionally

misled” plaintiffs and their employees about pending criminal

investigations is insufficient to raise any issue under Tweel or

more importantly, to demonstrate a “callous disregard” for their

constitutional rights. Moreover, plaintiffs did not proffer any

admissible evidence to support a Tweel violation in their motion

for preliminary injunction. (See Affidavit of Eric Johnson,

filed April 18, 2006.)

Finally, defendant’s actions in retaining the seized

documents as part of the ongoing criminal investigation are

reasonable. See Matter of Search of Kitty's East, 905 F.2d 1367,

1375 n. 8 (10th Cir. 1990) (citing Fed. R. Crim. P. 41 Advisory

Committee's Note, 124 F.R.D. 397, 428 (1989) ["If the United

States has a need for the property in an investigation or

prosecution, its retention of the property generally is

reasonable."]).

In sum, plaintiffs cannot demonstrate a callous disregard

for their constitutional rights by virtue of the execution of the

subject search warrants.

2. Plaintiffs’ interest in and need for the documents

Defendant does not dispute that plaintiffs are the owners of

the seized documents at issue, and that at least some of the

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6 It is noteworthy that neither in responding to

defendant’s motion to dismiss or in their motion for preliminary

injunction have plaintiffs specified the precise documents

allegedly “necessary” for the continuation of their businesses or

to respond to civil tax investigations.

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documents are used by plaintiffs in their ongoing businesses.

3. No irreparable harm to plaintiffs

However, defendant does dispute that plaintiffs will be

irreparably harmed if the documents are not returned to them.

Plaintiffs contend they will suffer irreparable harm if the

relief sought is not granted because "the seized documentation

represents substantially all of the[ir] business records,"

without which they "will be substantially unable to continue in

business." (Compl. at ¶ 13.) In addition, plaintiffs assert

that they are unable to challenge civil determinations made by

the IRS without the seized documents. (Id.)

6

However, plaintiffs’ allegations ignore the following facts:

First, the seized office computers were promptly returned to

plaintiffs after the hard drives were copied, and thus,

plaintiffs have possession of all their electronic business

records. (Lamb Decl. in Supp. of Mot. to Dism., filed April 14,

2006, ¶ 4.) In addition, copies of current employee files and

contracts that might be necessary to continue day-to-day

operations, as well as the originals of title and

insurance documents for several vehicles, have been turned over

to plaintiff Tarter. (Id. at ¶s 5, 6.) Special Agent Jason Lamb

has also informed plaintiffs' counsel that plaintiffs may arrange

to review the other files and make limited copies at defendant’s

expense as reasonably necessary. (Id. at ¶ 5.) Indeed, on

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several previous occasions, plaintiff Tarter has been granted

access to identify documents he may reasonably need, and

originals or copies of certain documents he identified were

provided to him by defendant. (Id. at ¶s 6.) Finally, defendant

has made, and represents that it will continue to make, all the

seized documents available for copying at plaintiffs' expense.

(Id. at ¶ 7.) 

Given this reasonable access to the documents, plaintiffs

cannot demonstrate irreparable injury.

4. Plaintiffs have an adequate remedy at law

Furthermore, if formal criminal proceedings are instituted,

plaintiffs will have the opportunity to challenge the legality of

the search warrants and seizures in those proceedings. That is

the ordinary course of a Rule 41(g) motion, as once a criminal

case is initiated, the court’s jurisdiction to entertain the

motion is not an issue. Ramsden, 2 F.3d at 324. Or, upon the

conclusion of the criminal investigation, if no charges are

brought, defendant represents the seized property will be

returned to plaintiffs. Therefore, plaintiffs have an adequate

remedy at law. 

CONCLUSION

For the foregoing reasons, defendant’s motion to dismiss the

instant action for lack of subject matter jurisdiction is

GRANTED. On balance, the court finds that the equities do not

support the exercise of jurisdiction over this Federal Rule of

Criminal Procedure 41(g) pre-indictment action for return of

property. Defendant’s alternative motion for dismissal of

plaintiff Labor Force’s claims for improper venue and plaintiffs’

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motion for preliminary injunction against defendant are DENIED as

moot. The Clerk of the Court is directed to close this file.

IT IS SO ORDERED.

 DATED: May 15, 2006

 /s/ Frank C. Damrell Jr. 

FRANK C. DAMRELL, Jr.

UNITED STATES DISTRICT JUDGE

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