Wang v. Horio

Citations: 741 F. Supp. 1373; 1989 U.S. Dist. LEXIS 16955; 1989 WL 222581Docket: C-89-0234-CAL

Court: District Court, N.D. California; September 12, 1989; Federal District Court

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Defendant James Horio seeks court certification that he was an employee of the United States and acted within the scope of his employment during the events leading to this case. If granted, the United States would substitute as the party defendant and could assert all defenses available to it. This process stems from 28 U.S.C. 2679(d)(3), introduced in late 1988, with no prior case law interpreting the section. The petition is contested by both the United States and the plaintiffs, leading the court to conduct an evidentiary hearing to resolve factual issues.

Key undisputed facts include that plaintiffs Chen and Victoria Wang hired Horio as a financial consultant. Horio reported potential tax evasion by the Wangs to the IRS, resulting in a criminal investigation and their subsequent indictment on tax charges, which were later dismissed after critical evidence was suppressed by the court. The Wangs then initiated a civil lawsuit against Horio in state court, which was removed to federal court, invoking jurisdiction under 28 U.S.C. 2679(d)(3). The lawsuit's claims are primarily based on Horio's role as an informant against the Wangs, except for one claim under Bivens, which is not covered by the protections of the statute.

After being served, Horio requested the Attorney General to certify that he acted within his employment scope, but the Attorney General ultimately declined to provide the certification despite initial indications of willingness to do so.

Horio filed a petition under 28 U.S.C. 2679(d)(3) after the Attorney General refused to certify that he was acting within the scope of his employment. This statute allows an employee to petition the court to certify their employment status and scope of duties, which, if granted, substitutes the United States as the defendant. The United States opposes the petition on two grounds: (1) Horio was not a United States employee, and (2) the court's review should adhere to the standards of the Administrative Procedure Act, rather than a plenary proceeding.

The court determines that the issues to resolve are (1) whether Horio is an employee of the United States, and (2) whether he was acting within his employment scope during the relevant incidents. The court emphasizes that it will conduct a plenary consideration of the evidence rather than a limited review of the Attorney General's decision. It clarifies that the court's authority under the statute encompasses both factual inquiries regarding employment status and scope.

The determination of Horio's employment status is governed by federal law, specifically 28 U.S.C. 2671, while the assessment of whether he was acting within the scope of his employment is governed by California law. Horio carries the burden of proof on these factual issues, which must be established by a preponderance of the evidence. Additionally, the court notes a procedural question regarding the plaintiffs' motion to participate in the petition proceedings, which is opposed by both Horio and the United States.

The statute in question does not clarify the involvement of tort plaintiffs in the petition proceedings. Plaintiffs have a vested interest in the outcome, fearing that if the United States is substituted for Horio, it may invoke defenses that could lead to the dismissal of their claims. Their interests diverge from those of the United States, as both aim to deny Horio certification under the statute, but the United States is primarily concerned with the costs of defense, while plaintiffs risk losing their claims. The court finds that plaintiffs are not proper participants in the petition proceedings for several reasons: the statute only mentions the employee and the Attorney General as participants; service of the petition is directed only to the United States, not the plaintiffs; the previous statute allowed for plaintiffs' participation in remand motions, which is absent in the new statute; and the intent of the statute is to restore protections to government employees limited by the Supreme Court in a prior case. The court also requested an offer of proof from the plaintiffs regarding their potential evidence, but found it unhelpful, as the relevant evidence relates to the relationship between the government and the petitioner, which the plaintiffs cannot access. Plaintiffs claimed their constitutional rights would be violated by exclusion, but the court disagrees, noting that similar situations in litigation do not grant tort plaintiffs the right to participate. The court reaffirmed its stance that plaintiffs are not entitled to participate in the hearing, although it considered their written submissions and allowed them to express objections on record, while denying them the chance to present evidence or cross-examine witnesses.

Horio’s status as an employee of the United States and whether he acted within the scope of his employment are pivotal issues in this case. Federal law governs the determination of employee status, defined under 28 U.S.C. § 2671 to include individuals acting on behalf of a federal agency, regardless of compensation. The key factor is the level of control the United States exercised over Horio's actions. Previous case law, such as Slagle v. United States, established that insufficient control indicates a lack of employee status, whereas Leaf v. United States found adequate control to qualify an informant as an agent.

The court must assess whether the government's control over Horio meets the criteria for employee status based on the factors outlined in Slagle. Additionally, California state law governs whether Horio was acting within the scope of his employment, focusing on whether his conduct was required by or incidental to his duties and whether it could have been reasonably foreseen by the employer.

Evidence presented indicates that Horio approached IRS Special Agent Seddio with information about illegal activities related to the plaintiffs' taxable income and subsequently became a 'controlled informant' for the IRS, a role requiring approval from multiple IRS officials. Although Horio was not compensated, federal law allows for employee status regardless of payment, and the IRS manual supports this definition. Horio, an independent business consultant, was engaged in activities not typical of his usual professional services. Notably, during a recorded conversation, Agent Seddio stated that Horio was not to be considered an employee of the government.

Horio initially believed that he would not receive payment from the government based on a verbal statement made by Seddio before Horio was formally approved as a controlled informant. An application for a reward submitted by Horio stated he was not an employee of the Department of Treasury when he obtained and disclosed the information, but this document was dated prior to the official approval of his informant status. Evidence indicates that Seddio maintained strict control over Horio's information-gathering activities, directing him on what to report and providing equipment to record conversations with the plaintiffs. Seddio confirmed that Horio operated within the scope of his role as a controlled informant. Consequently, the court concluded that Horio was acting as an employee of the United States under 28 U.S.C. 2671, and his actions were within the scope of his employment as defined by 28 U.S.C. 2679(d)(3). The court granted Horio's petition, certified him as a federal employee for the purposes of the case, and ordered that the United States be substituted as the defendant, with the exception of the tenth cause of action. The court did not rule on Horio's request to dismiss the plaintiffs' allegations and allowed for further motions from the parties while staying all discovery until those motions were resolved or until thirty days elapsed without action. The court also noted that no conduct by the Attorney General was sufficient to estop the United States from denying Horio the requested certification.