United States of America, The v. Spencer et al

Filing 69

OPINION AND ORDER by Judge Terence Kern Dismissing Patrick G. Walters' Counterclaim ; granting 27 Motion to Dismiss for Lack of Jurisdiction (vah, Chambers)

IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF OKLAHOMA
UNITED STATES OF AMERICA,
Plaintiff,
vs.
ANTHONY L. SPENCER, and PATRICK
G. WALTERS, individually and as
Trustee of the Spencer Irrevocable Trust,
Defendants.

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OPINION AND ORDER
Before the Court is the United States’ Motion to Dismiss Patrick G. Walters’ (“Walters”)
Counterclaim (Doc. 27).
I.

Background
The following facts are alleged in the United States’ Complaint. On July 3, 1997, Anthony

Spencer (“Spencer”) was charged with thirty-seven (37) criminal tax offenses, including one count
of conspiracy, five (5) counts of subscribing to a false or fraudulent tax return, and thirty-one (31)
counts of aiding and assisting the preparation of a fraudulent tax return. On January 23, 1998,
Spencer pled guilty to all thirty-seven (37) criminal offenses, and he was thereafter sentenced to
sixty (60) months in prison on count one, and to three (3) months in prison on each of the remaining
counts. Spencer began serving his sentence on October 28, 1998.
In the time between his July 14, 1998 sentencing and his incarceration on October 28, 1998,
Spencer transferred the entirety of his assets to others. Specifically, on October 9, 1998, Spencer’s
then-wife, Evelyn Caton (“Caton”), filed for divorce. Eleven days later, on October 20, 1998,
Spencer and Caton agreed to a division of property whereby they each took approximately half of
the marital assets. As a result of this agreement, Caton received all the real property owned in the

marriage and Spencer received liquid assets. Thereafter, on October 22, 1998, Spencer wrote a letter
to Walters, wherein he estimated that he would owe the United States $2 or $3 million in taxes.
Spencer instructed Walters to take his “entire worth” and make “enough money to pay off these
suck-ass bastards or blow it all trying.” (Oct. 22, 1998 Letter, Ex. 1 to Compl.) On October 28,
1998, Spencer executed a written agreement to place his purported “entire worth” in trust with
Walters through the creation of the Spencer Irrevocable Trust (“Trust”). The corpus of the Trust
consisted of a $610,000 check drawn on Caton’s bank account dated October 22, 1998, which
represented all of Spencer’s remaining assets after the divorce. The trust agreement provided that
Spencer was the sole designated beneficiary but entitled him to the “residue of the Trust” only “upon
final payment of [Spencer’s] income tax liability.” (Trust, Ex. 2 to Compl., at Article III.B.) The
$610,000 was given to the Trust with “little or inadequate consideration,” and Spencer was left
insolvent after transferring these assets to the Trust. (Compl. ¶¶ 20, 21.)
Spencer was released from prison on November 30, 2001. Following his release, Spencer
contacted Walters on multiple occasions regarding the status of the Trust. After not receiving a
response from Walters, Spencer wrote Walters a letter dated October 21, 2002, wherein Spencer
outlined his attempts to get information about the Trust, accused Walters of refusing “to handle
[Spencer’s] investment portfolio in a normal and reasonable manner,” and demanded that Walters
return his entire portfolio. (Oct. 21, 2002 Letter, Ex. 4 to Compl.) Spencer also stated that,
“[d]uring our business relationship and when I put my entire worldly assets in your care, you
expressed the need for trust in each other. I have kept my trust in you, however, you failed.” (Id.)
The Complaint alleges that Walters never returned any assets from the Trust to Spencer. Spencer
subsequently sued Walters in the District Court for Tulsa County, alleging claims for, inter alia,

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breach of contract and breach of fiduciary duty. The Complaint states that this suit is still pending.
(See Compl. ¶ 46.)
The United States then brought suit against Walters, claiming that Spencer fraudulently
conveyed his assets to Walters and that the United States may recover from Walters, as a transferee,
for Spencer’s unpaid income tax liability. Alternatively, the United States claims that if the Trust
was truly created for the purpose of paying off Spencer’s tax debts, Walters breached the Trust and
his fiduciary duties, and the United States is entitled to damages from these breaches as an intended
third-party beneficiary of the Trust.1 Finally, the United States requests that the Court impose a
constructive trust on all assets of the Trust.2
Walters subsequently filed a Counterclaim against the United States, which provides a
lengthy history of Walters’ relationship with the IRS and alleges that the IRS has “set about to
systematically harass, threaten, and intimidate [him] to thwart and discourage his testimony in cases
opposing [the IRS.]” (Countercl. 2.) Walters’ Counterclaim includes allegations dating back to 1980
in matters largely unrelated to the instant suit. Based on such allegations, Walters seeks a
declaration that the United States “has, and continues, to harass and retaliate against Walters in
violation of his rights under the First, Fourth and Fifth Amendments to the Constitution of the

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The United States alleges that Walters abused his position as trustee of the Trust
because: (1) he did not pay any money from the Trust to the United States to cover any portion
of Spencer’s income tax liability; and (2) rather than “invest[ing] the funds . . . to repay
[Spencer’s] proposed tax liability,” as was provided for in the Trust, (Trust, Ex. 2 to Compl., at
Article IV.A.1), Walters “used the trust funds for his own personal benefit and in violation of his
fiduciary duties as trustee,” (Compl. ¶ 24). The Complaint also alleges that “Walters did not
maintain accurate books of the Trust’s assets and ‘investments’ [or] provide an annual
accounting.” (Id. ¶ 42.)
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Walters moved to dismiss the United States’ Complaint pursuant to Federal Rule of
Civil Procedure 12(b)(6), but said motion was denied by the Court. (See Doc. 20.)
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United States.” (Countercl. at 20.) Walters also asks the Court “to permanently enjoin the United
States from further acts of harassment and reprisal in violation of [Walter’s] rights under the
Constitution of the United States.” (Id.) The United States has moved to dismiss the Counterclaim
pursuant to Federal Rule of Civil Procedure 12(b)(1) (“Rule 12(b)(1)”), arguing, inter alia, that the
United States enjoys sovereign immunity from suit and this Court is therefore without subject matter
jurisdiction.3
II.

Rule 12(b)(1) Standard
Federal courts are courts of limited jurisdiction and may exercise jurisdiction only when

specifically authorized to do so. Castaneda v. INS, 23 F.3d 1576, 1580 (10th Cir. 1994). “A court
lacking jurisdiction must dismiss the cause at any stage of the proceedings in which it becomes
apparent that jurisdiction is lacking.” Scheideman v. Shawnee County Bd. of County Comm’rs, 895
F. Supp. 279, 280 (D. Kan. 1995). The party seeking to invoke a federal court’s jurisdiction sustains
the burden of establishing that such jurisdiction is proper. Winnebago Tribe of Neb. v. Kline, 297
F. Supp. 2d 1291, 1299 (D. Kan. 2004). When federal jurisdiction is challenged, the plaintiff bears
the burden of showing why the case should not be dismissed. Id.
Rule 12(b)(1) motions to dismiss for lack of subject matter jurisdiction generally take one
of two forms. Stuart v. Colo. Interstate Gas Co., 271 F.3d 1221, 1225 (10th Cir. 2001). “First, a
moving party may make a facial attack on the complaint’s allegations as to the existence of subject
matter jurisdiction.” Id. “In reviewing a facial attack, the district court must accept the allegations

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The United States also argues that the Counterclaim should be dismissed because “no
justiciable ‘actual controversy’ exists within the meaning of the Declaratory Judgment Act,”
(Mot. to Dismiss Counterclaim 4), and the Counterclaim is barred by the Anti-Injunction Act and
the Declaratory Judgment Act. Because the Court finds that the United States is immune from
suit, it need not address these arguments.
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in the complaint as true.” Id. “Second, a party may go beyond allegations contained in the
complaint and challenge the facts upon which subject matter jurisdiction is based.” Id. “In
reviewing a factual attack, a court has ‘wide discretion to allow affidavits, other documents, and a
limited evidentiary hearing to resolve disputed jurisdictional facts.’” Id. (quoting Holt v. United
States, 46 F.3d 1000, 1003 (10th Cir.1995)). “In the course of a factual attack under Rule 12(b)(1),
a court’s reference to evidence outside the pleadings does not convert the motion into a Rule 56
motion.” Stuart, 271 F.3d at 1225. In this case, the United States’ Motion to Dismiss is a facial
attack on Walters’ Counterclaim.
III.

Discussion
“It is elementary that the United States, as sovereign, is immune from suit save as it consents

to be sued, and the terms of its consent to be sued in any court define that court’s jurisdiction to
entertain the suit.” Merida Delgado v. Gonzales, 428 F.3d 916, 919 (10th Cir. 2005) (internal
citations omitted); see Fostvedt v. United States, 978 F.2d 1201, 1202 (10th Cir. 1992) (“The United
States may not be sued without its consent.”). In general, federal agencies and officers acting in
their official capacities are also shielded by sovereign immunity. Wyoming v. United States, 279
F.3d 1214, 1225 (10th Cir. 2002). “A waiver of sovereign immunity cannot be implied but must be
unequivocally expressed.” Merida Delgado, 428 F.3d at 919. Finally, “ [s]uch a waiver of
sovereign immunity must be strictly construed in favor of the sovereign and may not be extended
beyond the explicit language of the statute.” Fostvedt, 978 F.2d at 1202.
In this case, Walters does not point to an explicit statutory waiver of sovereign immunity by
the United States. Rather, Walters asserts that his counterclaim “falls within the ‘unconstitutional
acts’ exception to sovereign immunity,” (Resp. to Mot. to Dismiss 3), as specifically articulated in

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Kelly v. United States, 69 F.3d 1503 (10th Cir. 1995) and Wyoming v. United States, 279 F.3d 1214,
1225 (10th Cir. 2002). In Kelly, the Tenth Circuit affirmed the constitutionality of a portion of the
Federal Aviation Administration Authorization Act of 1994. In so doing, the court reiterated “one
of the well-established exceptions to the doctrine [of sovereign immunity, which] limits its
application in declaratory and/or injunctive suits against federal entities or officials seeking to enjoin
the enforcement of an unconstitutional statute.” Kelly, 69 F.3d at 1507. There is no support in Kelly
for a broad exception to sovereign immunity when a party complains about allegedly
“unconstitutional acts,” as claimed by Walters. Rather, Kelly confirms that a party may challenge
the enforcement of an unconstitutional statute. Because Walters’ counterclaim does not mount such
a challenge, the exception articulated in Kelly is inapplicable to this case.
In Wyoming, the State of Wyoming brought suit against the federal government, challenging
the refusal of the United States Fish and Wildlife Service to permit the state to vaccinate elk on the
National Elk Refuge. Walters cites Wyoming for its recitation of the following:
Two narrow exceptions to the general bar against suits seeking specific relief from
the United States exist. A court may regard a government officer’s conduct as so
‘illegal’ as to permit a suit for specific relief against the officer as an individual if
(1) the conduct is not within the officer’s statutory powers or, (2) those powers, or
their exercise in the particular case, are unconstitutional.
Wyoming, 279 F.3d at 1225 (emphasis added). Walters’ Counterclaim is not asserted “against [an]
officer as an individual,” however, rendering the exception mentioned in Wyoming inapplicable to
this case. Because Walters has failed to point to any other authority in support of the asserted
“‘unconstitutional acts’ exception to sovereign immunity,” (Resp. to Mot. to Dismiss 3), and because
Walters had not identified a specific waiver of sovereign immunity, the Court lacks jurisdiction over
Walter’s Counterclaim.

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IV.

Conclusion
For the reasons outlined herein, the United States’ Motion to Dismiss Patrick G. Walter’s

Counterclaim (Doc. 27) is GRANTED.

IT IS SO ORDERED this 24th day of February, 2012.

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