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Carpenter v. Commissioner, IRS

United States District Court, D. Connecticut

December 14, 2016

DANIEL CARPENTER, et al., Plaintiffs,
COMMISSIONER, IRS, et al., Defendants.


          STEFAN R. UNDERHILL, United States District Judge

         On April 19, 2013, the plaintiffs, Daniel Carpenter and Grist Mill Capital, LLC, filed an action pursuant to Bivens v. Six Unknown Fed. Narcotics Agents, 403 U.S. 388 (1971), against the defendants, IRS Commissioners Douglas Schulman and Steven Miller;[1] Victor Song, Chief of the IRS‘ Criminal Investigation Division; Shaun Schrader, a special agent of the Criminal Investigations Division, and Unknown Agents 1-72, special agents of the Criminal Investigation Division. The complaint seeks, inter alia, compensation for alleged Fourth, Fifth, and Sixth Amendment violations arising from the search of Grist Mill Capital for documents related to alleged tax fraud. (doc. 1) After significant motion practice, Schrader has now filed a renewed motion to dismiss the Second Amended Complaint ("SAC"), on the grounds that the claims are barred by qualified immunity and the rule articulated by the Supreme Court in Heck v. Humphrey, 512 U.S. 477 (1994). (doc. 72) He identifies two changed circumstances justifying this renewed motion: first, on December 24, 2015, in a criminal case involving a separate fraudulent scheme, U.S. District Judge Robert N. Chatigny denied Carpenter‘s motion to suppress the same evidence at issue here, and on June 6, 2016, Judge Chatigny found Carpenter guilty on all 57 counts of that indictment. See United States v. Carpenter, No. 3:13-cr-226 (RNC) (D. Conn.). Second, on August 21, 2014, after the second motions to dismiss were filed but before they were decided, the Second Circuit issued Terebesi v. Torreso, 764 F.3d 217 (2d Cir. 2014), cert. denied sub nom. Torresso v. Terebesi, 135 S.Ct. 1842 (2015), which sets out principles of Fourth Amendment law that the parties agree may have impact in this case. On October 5, 2016, I denied Schrader‘s motion for conversion to a motion for summary judgment (doc. 82), and on October 18, 2016, I held a hearing on the pending motion to dismiss.

         For the following reasons, I grant in part and deny in part Schrader‘s motion to dismiss.

         I. Standard of Review

         A. Motion to Dismiss for Failure to State a Claim Upon Which Relief May Be Granted

         A Rule 12(b)(6) motion to dismiss for failure to state a claim is designed "merely to assess the legal feasibility of a complaint, not to assay the weight of evidence which might be offered in support thereof." Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984) (quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)).

         When deciding a motion to dismiss pursuant to Rule 12(b)(6), the court must accept the material facts alleged in the complaint as true, draw all reasonable inferences in favor of the plaintiffs, and decide whether it is plausible that plaintiffs have a valid claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007); Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996).

         Under Twombly, "[f]actual allegations must be enough to raise a right to relief above the speculative level, " and assert a cause of action with enough heft to show entitlement to relief and "enough facts to state a claim to relief that is plausible on its face." 550 U.S. at 555, 570; see also Iqbal, 556 U.S. at 679 ("While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations."). The plausibility standard set forth in Twombly and Iqbal obligates the plaintiff to "provide the grounds of his entitlement to relief" through more than "labels and conclusions, and a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555 (quotation marks omitted). Plausibility at the pleading stage is nonetheless distinct from probability, and "a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of [the claims] is improbable, and . . . recovery is very remote and unlikely." Id. at 556 (quotation marks omitted).

         II. Background

         A. Factual Background

         The following relevant facts are alleged in the Second Amended Complaint (SAC). Carpenter is the owner of several companies, including Grist Mill Capital, LLC ("GMC"), which does business from 100 Grist Mill Road. SAC at ¶ 4. In 2010, Carpenter was being prosecuted in the District of Massachusetts for a matter unrelated to the present case. Id. at ¶ 12. In 2010, the Massachusetts case had been tried to a verdict against Carpenter, reversed on appeal, and Carpenter was in the process of challenging the second verdict against him.[2] See United States v. Carpenter, 1:04-cr-10029 (GAO) (D. Mass.) [hereinafter, "the Massachusetts case"].

         On April 16, 2010, Shaun Schrader, a Special Agent of the Criminal Investigation Unit of the United States Internal Revenue Service, provided an affidavit in support of an application for a warrant to search 100 Grist Mill Road for evidence that Carpenter was engaging in criminal tax offenses, including conspiracy to impede the lawful function of the IRS, 18 U.S.C. § 371, and aiding and assisting the preparation of false income tax returns, 26 U.S.C. § 7206(2).[3] The affidavit does not reference any specific dangers anticipated in executing the proposed search nor any exigent circumstances justifying a highly armed raid on the property. SAC at ¶ 18. Carpenter alleges that Schrader knowingly included various misstatements in the affidavit. See Id. at ¶ 16- 17.

         On April 20, 2010, Schrader and 72 unknown IRS agents (the "John Doe" defendants) executed the search warrant at 100 Grist Mill Road in order to obtain evidence against Daniel Carpenter and GMC. Carpenter alleges that the IRS agents wore "black Kevlar bullet-proof vests and were brandishing automatic weapons" during the execution of the search, which was conducted in the same manner as a SWAT operation. Id. at ¶¶ 8. During the search, Carpenter and the other GMC employees were not informed of which crime they were suspected of committing, nor were they provided with the search warrant affidavit or any other document indicating which crimes were at issue. Id.

         During the search, the government seized 322 banker boxes of documents over the course of eighteen hours, a period in excess of what was authorized by the warrant. Id. at ¶ 9. During the search, the agents held numerous employees against their will for long periods of time and interrogated them. Id. Carpenter was "placed in custody, threatened with handcuffs, and questioned, despite his invocation of his right to have counsel present." Id. at ¶ 10. He was also "threatened with arrest" when he attempted to speak to counsel or leave the room to make a call. Id. Carpenter also alleges that the government "ransacked" his office during the search. Id. at ¶ 28.

         Carpenter alleges that Schrader had a duty to supervise the John Doe defendants in their use of force and the manner in which they carried out the search, and that he failed to do so. Id. at ¶¶ 21, 24. Specifically, he alleges that Schrader failed to supervise or instruct the agents on what was appropriate conduct during the search, and that Schrader was either "directly responsible" for the intimidating tactics or "deliberately indifferent" to the possibility that the search would be carried out in an unconstitutional manner. Id. at ¶ 21. Carpenter alleges that Schrader also "consciously disregarded the substantial risk that he had authorized the custodial interrogation" of Carpenter without reading him his Miranda rights in violation of his Fifth and Sixth Amendment rights to have counsel present. Id. at ¶ 28.

         Carpenter alleges that Schrader‘s acts were intentional and motivated by animus against Carpenter because of his reputation as an "anti-government" actor and his litigation against the government in the Massachusetts case. Id. at ¶ 26. Accordingly, Carpenter alleges that the manner in which the search was carried out was deliberately intended to "harass, intimidate and humiliate" him. Id. Carpenter further claims that the IRS has a policy and practice of using armed agents to enforce search warrants for tax documents, despite the fact that the IRS manual "requires investigations to be carried out with the least intrusive means necessary." Id. at ¶ 22; see also Id. at ¶ 25. Carpenter does not allege, however, that Schrader had any responsibility for setting IRS policies.

         To date, Carpenter and his related entities have not been indicted for the tax offenses alleged in the warrant affidavit.

         B. Procedural Background

         1. First Motions to Dismiss

         On April 3, 2014, I heard arguments and ruled on the defendants‘ first set of motions to dismiss. Schrader‘s first motion raised issues substantially similar to those raised in his present motion. I granted his motion to dismiss the complaint without prejudice to refiling in the interest of obtaining a more detailed complaint. At that time, I explicitly declined to reach the qualified immunity issue. 1st Mot. to Dismiss Tr. at 47 (doc. 35).

         2. Second Motions to Dismiss

         On May 30, 2014, the plaintiffs filed the Second Amended Complaint, (doc. 34), and the defendants, including Schrader, thereafter filed their second set of motions to dismiss (docs. 38 and 41). On December 4, 2014, I held a hearing on the motions to dismiss. I granted in part and denied in part a motion to dismiss filed by Song and Schrader, and specified that I was taking under advisement Schrader‘s motion to dismiss on qualified immunity grounds. (doc. 51) At that hearing, Schrader explicitly declined to address the new factual allegations that the search warrant affidavit was invalid, asserting that question was better dealt with as a factual question at summary judgment-otherwise, the Fourth, Fifth, and Sixth Amendment arguments were substantially similar to those raised in the instant motion.

         With respect to the Fourth Amendment claims arising out of the unreasonable manner of the search, I asked the government whether there was anything alleged in the complaint, or likely to be put forward, indicating that the agents had specific safety concerns that might have justified using heavily-armed agents to conduct the search. 2d Mot. to Dismiss Tr. at 26, 31. The government conceded that there was nothing of that kind alleged in the complaint and suggested it was unlikely that a stronger safety justification would be forthcoming. Id. at 26.

         3. The STOLI Case

         On December 12, 2013, after the initial complaint in this case was filed but before the first motions to dismiss were filed, Carpenter was indicted in the District of Connecticut for his participation in a fraudulent scheme involving stranger-originated life insurance. See United States v. Carpenter, 3:13-cr-226 (RNC) (D. Conn.) [hereinafter, "the STOLI case"]. The indictment resulted from a criminal investigation by the Department of Labor that included a 2011 search of the materials held by the IRS as a result of the 2010 search described above. Accordingly, on September 15, 2014, after the second motions to dismiss were filed, but before they were argued, [4] Carpenter filed a motion to suppress that evidence on the grounds that: (1) Schrader‘s affidavit was materially defective because it included numerous misstatements and deliberate omissions; (2) the affidavit and resulting warrant were overbroad and insufficiently particularized; and (3) the defendants failed to provide Carpenter with the affidavit during the search. STOLI Case, (doc. 83). The motion also alluded to the manner in which the search was conducted as unreasonable and to Fifth Amendment violations, but did not provide substantial briefing on those points. Id.

         On December 24, 2015, Judge Chatigny denied Carpenter‘s motion to suppress. STOLI case (doc. No 155). In relevant part, he found that the 2010 search warrant was "sufficiently particularized." Id. at 9-10. In making that finding, he rejected Carpenter‘s arguments that the warrant was defective because the supporting affidavit was not attached to it or because it permitted a large amount of material to be seized. Id. at 11 n.4. He found that the 2010 warrant also was not overbroad, observing that "uncontested statements" in Schrader‘s supporting affidavit adequately established probable cause for the search. Id. at 12-13. He also denied Carpenter‘s motion for a Franks hearing on the veracity of statements in the 2010 warrant affidavit, both because Carpenter had failed to make a preliminary showing that a false statement was included in the warrant and because the uncontested statements in the warrant nevertheless established probable cause. Id. at 15. Finally, he held that Carpenter had failed to allege facts sufficient to support a claim that the manner in which the search was carried out violated his substantive due process rights. Id. at 18-19. Judge Chatigny did not consider whether the manner in which the search was conducted was unreasonable and thus in violation of the Fourth Amendment.

         Carpenter subsequently waived his right to a jury trial, and on June 6, 2016, Judge Chatigny entered a verdict finding Carpenter guilty on all 57 counts of the indictment in that case. Verdict, STOLI case (doc. 212). Sentencing has been continued until Carpenter‘s post-conviction motions are resolved.

         III. Discussion

         The Second Amended Complaint appears to assert four claims: (1) Schrader violated Carpenter‘s Fourth Amendment rights by knowingly including false statements in the warrant affidavit; (2) Schrader violated Carpenter‘s Fourth Amendment rights by planning and supervising an unreasonable search of 100 Grist Mill Road; (3) Schrader violated Carpenter‘s Fifth Amendment rights by authorizing his custodial interrogation in a manner that created a substantial risk of coerced self-incrimination without the benefit of any attorney or a Miranda instruction; and (4) Schrader violated Carpenter‘s Sixth Amendment rights by authorizing his custodial interrogation while Carpenter was represented by counsel in the Massachusetts case.

         At the hearing, Carpenter abandoned several of those claims for the time being. He conceded that, under the doctrine of Heck v. Humphrey, 512 U.S. 477 (1994), the Fourth Amendment claims based on claims of an invalid warrant are precluded by Judge Chatigny‘s rulings in the STOLI case. Accordingly, Schrader‘s motion to dismiss those claims is granted without prejudice to renewal if the conviction is invalidated. Carpenter conceded that he was withdrawing his Fifth Amendment claim as premature. Accordingly, Schrader‘s motion to dismiss that claim is granted without prejudice to renewal. Carpenter also clarified at the hearing and in his opposition brief that he does not assert a stand-alone Sixth Amendment claim. See Pls.‘ Opp‘n Br. at 23 n.9. Accordingly, Schrader‘s motion to dismiss that claim is denied as moot. Two additional issues have been set on a separate briefing schedule: (1) whether the identities of the John Doe defendants can be subject to discovery; and (2) the viability of any claims asserted on behalf of GMC. See (docs. 85, 88). Thus, the sole issue to resolve on this motion to dismiss is whether qualified immunity bars Carpenter‘s Fourth Amendment claims arising from his allegations that the search was conducted in an unreasonable manner.

         Schrader argues that the remaining Fourth Amendment claims, [5] which are based on allegations that Schrader was personally responsible for conducting the search in an unreasonable manner, are barred by the doctrine of qualified immunity.[6] Drawing all reasonable inferences in favor of Carpenter, the Second Amended Complaint alleges that the force used to effectuate the search of his property was unreasonable and excessive because it involved 72 agents engaged in "commando" tactics, such as wearing bullet-proof vests and "brandishing" automatic weapons specifically in order to intimidate Carpenter, and that the search resulted in the needless destruction of Carpenter‘s property.[7] SAC at ¶¶ 8, 9, 19. Carpenter further alleges that the excessive force was used deliberately, at least in part because of Carpenter‘s reputation as an "anti-government" actor. Id. at ¶ 26. He also alleges that Schrader unreasonably seized Carpenter during the search by subjecting him to an extended involuntary detention for the purpose of coercing incriminating statements. Id. at ¶ 28.

         A. Qualified Immunity

         "Qualified immunity shields federal and state officials from money damages unless a plaintiff pleads facts showing (1) that the official violated a statutory or constitutional right, and (2) that the right was ‗clearly established‘ at the time of the challenged conduct." Ashcroft v. al-Kidd, 563 U.S. 731, 735 (2011) (citing Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982)). Because qualified immunity provides "immunity from suit rather than a mere defense to liability, " Pearson v. Callahan, 555 U.S. 223, 231 (2009) (citing Saucier v. Katz, 533 U.S. 194, 200-01 (2001)), the court should resolve qualified immunity questions "at the earliest possible stage of a litigation." Anderson v. Creighton, 483 U.S. 635, 646 n.6 (1987). At the motion to dismiss stage, however, the court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiffs. See al-Kidd, 563 U.S. at 734.

         The Supreme Court has articulated a three-part test for considering a claim of qualified immunity. First, [8] the court must determine whether a constitutional violation could exist on the facts as presented to the court. Saucier, 533 U.S. at 201. Second, if the facts support a claimed violation of a constitutional right, the court must determine if the right alleged is "clearly established." Id. "To determine whether a right is clearly established, [courts] look to (1) whether the right was defined with reasonable specificity; (2) whether Supreme Court or court of appeals case law supports the existence of the right in question, and (3) whether under preexisting law a reasonable defendant would have understood that his or her acts were unlawful." Scott v. Fischer, 616 F.3d 100, 105 (2d Cir. 2010). Even if there is no Supreme Court or Second Circuit case law directly on point, a right may be considered "clearly established" if decisions by the Second Circuit or other circuit courts "clearly foreshadow a particular ruling on the issue." Id. (internal quotation marks and citation omitted) (collecting Second Circuit cases relying on other circuits‘ decisions). Finally, if the first two criteria are met, the court must determine if, based on the facts known to the officer at the time of events, "it would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted." Saucier, 533 U.S. at 202.

         B. Fourth ...

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