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Woodcox v. United States

United States District Court, W.D. Kentucky, Louisville Division

April 17, 2018




         This matter is before the Court on Defendants' Motions to Dismiss (DN 13, 26). The motions have been fully briefed and are ripe for adjudication. For the reasons outlined below, the motions are GRANTED.


         This is a Federal Tort Claims Act (“FTCA”) action in which Plaintiff Jeffery Woodcox (“Plaintiff”) makes claims for abuse of process and malicious prosecution against Defendants, the United States and the Council on Occupational Education (“COE”) (collectively “Defendants”), as well as a negligence claim against the United States. (Am. Compl. ¶¶ 39-68, DN 5). Plaintiff was an officer, member of the board of directors, shareholder, surety on a bond, and guarantor of Decker College, Inc. (“Decker”), a private, two-year career institution which filed for bankruptcy following a Program Review by the United States Department of Education (“ED”). (Compl. ¶ 11, DN 1; Am. Compl. ¶¶ 1-2, 33). Plaintiff alleges that the ED's Program Review, which ultimately disqualified Decker for federal student aid funding resulting in its bankruptcy, relied on fabricated evidence coerced from the COE “with the specific intent of harming Decker's shareholders and principals.” (Am. Compl. ¶ 1).


         The standards for dismissal under Fed.R.Civ.P. 12(b)(1) and 12(b)(6) differ in the Sixth Circuit. See RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir. 1996). Threshold challenges to subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1) should generally be decided before any ruling on the merits under Fed.R.Civ.P. 12(b)(6). See Bell v. Hood, 327 U.S. 678, 682 (1946). In most circumstances, the plaintiff bears the burden to survive Fed.R.Civ.P. 12(b)(1) motions to dismiss for lack of subject matter jurisdiction. See id.

         Challenges to subject matter jurisdiction come in several varieties. Facial attacks challenge a plaintiff's establishment of jurisdiction in their complaint and require the court to examine the jurisdictional basis. See United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994) (citation omitted). Factual attacks contest the existence of factual prerequisites to jurisdiction. See Id. In such motions, the district court is empowered to resolve the factual disputes affecting any jurisdictional prerequisites. See Rogers v. Stratton Indus., Inc., 798 F.2d 913, 915 (6th Cir. 1986). A plaintiff bears the burden in both of these situations. See Bell, 327 U.S. at 682.

         Sovereign immunity may serve as a basis for a Fed.R.Civ.P. 12(b)(1) motion to dismiss for lack of jurisdiction. See Muniz-Muniz v. U.S. Border Patrol, 741 F.3d 668, 671 (6th Cir. 2013). “‘[W]hile the Eleventh Amendment is jurisdictional in the sense that it is a limitation on the federal court's judicial power, ' the defense ‘is not coextensive with the limitations on judicial power in Article III.'” Nair v. Oakland Cty. Cmty. Mental Health Auth., 443 F.3d 469, 474 (6th Cir. 2006) (quoting Calderon v. Ashmus, 523 U.S. 740, 745 n.2 (1998)). “[U]nlike subject- matter jurisdiction, ‘the entity asserting Eleventh Amendment immunity has the burden to show that it is entitled to immunity.'” Id. (citation omitted).

         When considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6), courts must presume all factual allegations in the complaint to be true and make all reasonable inferences in favor of the non-moving party. Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citation omitted). “But the district court need not accept a bare assertion of legal conclusions.” Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009) (citation omitted). “A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted) (citation omitted). When a plaintiff is proceeding pro se, the Court is required to liberally construe the complaint and hold it to a less stringent standard than a similar pleading drafted by an attorney. Haines v. Kerner, 404 U.S. 519, 520 (1972); Hahn v. Star Bank, 190 F.3d 708, 715 (6th Cir. 1999). Even pro se complaints, however, must satisfy basic pleading requirements. Wells v. Brown, 891 F.2d 591, 594 (6th Cir. 1989).

         To survive a motion to dismiss under Rule 12(b)(6), the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Traverse Bay Area Intermediate Sch. Dist. v. Mich. Dep't of Educ., 615 F.3d 622, 627 (6th Cir. 2010) (internal quotation marks omitted) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim becomes plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). “A complaint will be dismissed pursuant to Rule 12(b)(6) if no law supports the claims made, if the facts alleged are insufficient to state a claim, or if the face of the complaint presents an insurmountable bar to relief.” Southfield Educ. Ass'n v. Southfield Bd. of Educ., 570 Fed.Appx. 485, 487 (6th Cir. 2014) (citing Twombly, 550 U.S. at 561-64).


         A. COE's Motion to Dismiss

         COE seeks dismissal of Plaintiff's claims against it, and mounts four arguments to that effect. (Def. COE's Mot. Dismiss 1-2, DN 13; Def. COE's Mem. Supp. Mot. Dismiss 1-9, DN 13-1 [hereinafter Def. COE's Mem.]). Each argument is addressed in turn.

         1. Standing & Release of Claims by Bankruptcy Trustee

         COE asserts that Plaintiff lacks standing for his claims, because as a shareholder, his claims are derivative of the injuries suffered by Decker, and he therefore “lacks standing to assert them in his own name.” (Def. COE's Mem. 2-4). COE further argues that, even if Plaintiff had standing for his claims, his suit should nonetheless be dismissed because his derivative claims were released by the Settlement Agreement and Release executed between COE and Decker in the bankruptcy proceedings. (Def. COE's Mem. 4-6). Plaintiff appears to assert that his standing to sue COE arises because “COE is a quasi-government agency” against which Plaintiff can bring suit under the FTCA. (Pl.'s Resp. Def. COE's Mot. Dismiss 4, DN 29 [hereinafter Pl.'s Resp. Def. COE]). COE responds that Plaintiff's claims against it are not properly grounded in the FTCA, given that it grants consent for the United States government be sued, and does not apply to COE. (Def.'s Reply Supp. Mot. Dismiss 3, DN 31 [hereinafter Def. COE's Reply] (citing Fulcher v. United States, 88 F.Supp.3d 763, 770 (W.D. Ky. 2015))). Plaintiff did not address COE's argument regarding his claims being derivative of claims of Decker, or COE's argument regarding release by the bankruptcy trustee.

         In order to satisfy Article III's standing requirement, “a plaintiff must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties.” Coyne v. Am. Tobacco Co., 183 F.3d 488, 494 (6th Cir. 1999) (internal quotation marks omitted) (citation omitted). “[A]n action to redress injuries to a corporation . . . cannot be maintained by a stockholder in his own name . . . .” Canderm Pharmacal, Ltd. v. Elder Pharm., Inc., 862 F.2d 597, 603 (6th Cir. 1988) (internal quotation marks omitted) (citations omitted); see also Cherry v. FCC, 641 F.3d 494, 495 (2d Cir. 2011) (holding that the plaintiff, the shareholder of a company, lacked standing to challenge the FCC's approval of radio license assignments because the alleged injuries were not caused by the assignments, but instead the plaintiff's injuries were traced to the company's default on its loan obligations); Heart of Am. Grain Inspection Serv., Inc. v. Mo. Dep't of Agric., 123 F.3d 1098, 1102 (8th Cir. 1997). The rule applies even to a corporation's sole shareholder. See Smith Setzer & Sons, Inc. v. S.C. Procurement Review Panel, 20 F.3d 1311, 1317 (4th Cir. 1994). Likewise, guarantors to corporate liability lack standing because their liability is derivative and will not constitute an injury in fact. See, e.g., Mid-State Fertilizer Co. v. Exch. Nat'l Bank of Chicago, 877 F.2d 1333, 1335-37 (7th Cir. 1989).

         Here, Plaintiff was an officer, member of the board of directors, shareholder, surety on a bond, and guarantor of Decker. (Am. Compl. ¶ 2). The Court agrees with COE that none of these confer standing upon Plaintiff, as his claims are merely derivative of injuries suffered by Decker. Plaintiff's claims against COE will therefore be dismissed.

         2. Plaintiff's Abuse of Process Claim

         In the alternative, COE argues that Plaintiff's abuse of process claim fails on both procedural and substantive grounds. (Def. COE's Mem. 6).

         a. Statute of Limitations

         COE avers that Plaintiff's abuse of process claim is time-barred by Kentucky's one-year statute of limitations on such claims. (Def. COE's Mem. 6-7). Plaintiff's Response did not address this argument.

         Pursuant to KRS 413.140(1)(a), Kentucky has a one-year statute of limitations on abuse of process claims. Maqablh v. Heinz, No. 3:16-CV-289-JHM, 2016 WL 7192124, at *8 (W.D. Ky. Dec. 12, 2016). Such claims are “generally held to accrue . . . from the termination of the acts which constitute the abuse complained of, and not from the completion of the action in which the process issued.” Dickerson v. City of Hickman, No. 5:08-CV-P53-R, 2010 WL 816684, at *5 (W.D. Ky. Mar. 4, 2010).

         As COE notes, Plaintiff's basis for his claim against COE is a letter COE sent to ED in August 2005 as part of a program review of Decker. (Am. Compl. ¶¶ 51, 53, 55; Am. Compl. Ex. 7, at 2, DN 5-7). Plaintiff instituted the present lawsuit on December 20, 2016. (Compl. 1, DN 1). Plaintiff has not argued any reason the statute of limitations was tolled. The Court therefore agrees that, even if Plaintiff has standing to pursue his abuse of process claim against COE, that claim is time-barred.

         b. Failure to State a Claim

         COE also contends that Plaintiff failed to establish the elements of an abuse of process claim under Kentucky law. (Def. COE's Mem. 7-9). Plaintiff did not substantively respond to this position, merely stating that “[t]he Complaint more than adequately pleads an abuse of process claim.” (Pl.'s Resp. Def. COE 3).

         A defendant is liable for abuse of process where he or she used “a legal process, whether criminal or civil, against another primarily to accomplish a purpose for which that process is not designed . . . .” Sprint Commc'ns Co., L.P. v. Leggett, 307 S.W.3d 109, 113 (Ky. 2010) (citing Restatement (Second) of Torts § 682 (1977)). Under Kentucky law, there are two essential elements of the claim:

(1) an ulterior purpose and (2) a willful act in the use of the process not proper in the regular conduct of the proceeding. Some definite act or threat not authorized by the process, or aimed at an objective not legitimate in the use of the process is required and there is no liability where the defendant has done nothing more than carry out the process to its authorized conclusion even though with bad intentions.

Simpson v. Laytart, 962 S.W.2d 392, 394-95 (Ky. 1998) (internal citations omitted) (citation omitted). Stated another way, there is a “difference between the proper use of process, though ill-motivated, and an abuse of process.” Cherry v. Howie,191 F.Supp.3d 707, 716 (W.D. Ky. 2016). PLAINTIFF's abuse of process claim alleges that “ED . . . and COE wrongfully employed the Program Review to destroy Decker and attack the value of shareholders in Decker . . . .” (Am. Compl. ¶ 53). The Court concurs with COE's position that, “as the Program Review is a process initiated by the Department of Education[, ]”[1] Plaintiff's abuse of process claim will not lie against COE. (Def. COE's Mem. 8 (citing Garland v. Brewer, No. ...

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