Mootness; Whether there was still a live Article III “case or controversy”; Claim seeking disclosure of search warrant affidavits; Whether the absence of an applicable cause of action can be the basis for a sua sponte dismissal for lack of subject matter jurisdiction; FedRCivP 12(h)(3)

The court held that the district court erred by sua sponte dismissing as moot the suit by plaintiffs-California Palms and its owner seeking recovery of funds seized by defendant-Government and disclosure of the warrant affidavits relied on to seize the funds. While the issue as to the funds was mooted by the Government’s voluntary return of them, the issue of the affidavit disclosure had not been resolved. The FBI conducted a criminal investigation involving California Palms (an Ohio rehabilitation center), executing warrants and seizing $603,902.89. Plaintiffs sued seeking return of the funds, arguing that the warrants were defective and seeking to inspect the warrant affidavits. The Government moved for a stay to file a civil forfeiture claim, and moved to dismiss plaintiffs’ case. The court noted that the motion did not refer to Rule “12, nor did it identify any specific Rule 12(b) ground for dismissal.” The district court granted the stay and denied the motion to dismiss without prejudice. However, the Government later moved to voluntarily dismiss the forfeiture case, stating that it was returning the seized funds to plaintiffs with interest. The same day the forfeiture case was dismissed, the district court issued an order to show cause why this case should not be dismissed as moot. Plaintiffs opposed dismissal but the district court later issued an order dismissing the case as moot. On appeal, while the parties’ briefs focused on the merits as to the disclosure of the warrant affidavits, the court did not reach the merits because it concluded “the district court erred in dismissing the case as moot.” It agreed that the case was “clearly moot as to the funds.” But the complaint also sought the disclosure of the warrant affidavits, and nothing in the record indicated the Government had disclosed their contents to plaintiffs in any manner. The facts did “not support a determination that the request for disclosure of the warrant affidavits is moot.” The court rejected the Government’s alternative explanation for the dismissal, holding that “the absence of an applicable cause of action cannot be the basis for a sua sponte dismissal for lack of subject matter jurisdiction.” It concluded that “Rule 12 does not allow for sua sponte dismissal for failure to state a claim. . . . A finding of mootness must be based on a factual occurrence in the world, not the legal unavailability of a remedy.”