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United States District Court, S.D. New York

October 14, 2005.


The opinion of the court was delivered by: ROBERT CARTER, Senior District Judge


The Government brought this action seeking judicial forfeiture of all right, title, and interest in real property and appurtenances located at 479 Tamarind Drive, Hallandale, Florida ("defendant property"). Arthur Froom, a.k.a. Arthur Kissel ("Froom") and other individual claimants to the property (Elliot Pearl ("Pearl") and Susan Szilazi ("Szilazi"), collectively the "individual claimants") contested the forfeiture.

The individual claimants move to dismiss the Government's verified complaint, asserting their own claims and those of the two corporate claimants to the property (LaFontaine Rish Medical Group Ltd. ("LRMG") and Medical Group Research Group Associates, Ltd. ("MGRA"), each registered in Ontario, Canada*fn1 (collectively, the "corporate claimants.")) They also move for summary judgment against the Government. The Government asserts that the individual claimants lack standing to contest the forfeiture and request that the court treat the motion to dismiss brought on behalf of the corporate claimants as a request for summary judgment which the court would defer ruling upon until after further discovery. I. BACKGROUND

  Froom's wife and former business associate, Sonia LaFontaine ("LaFontaine") was arrested on March 2, 1998. On March 12, 1998, a grand jury returned an indictment charging LaFontaine and Froom with mail fraud. Indictment, United States v. LaFontaine, No. 98 Cr. 251 (S.D.N.Y. March 20, 1998). A superseding indictment adding additional counts was later issued. Superseding Indictment, United States v. LaFontaine, No. 98 Cr. 251 (S.D.N.Y. March 29, 2000). LaFontaine was convicted of charges related to a healthcare fraud conspiracy and sentenced to 135 months of imprisonment. Judgment, United States v. Lafontaine, No. 98 Cr. 251 (S.D.N.Y. March 14, 2002).

  On or about February 27, 1998, Froom fled to Canada to avoid arrest for his role in the healthcare fraud conspiracy. Four months later, a request for his extradition was approved by the Canadian authorities. Minister's Approval of Treaty Request, No. 000372 (June 18, 1998). Froom was subsequently arrested in Toronto on an immigration warrant. Record of Inquiry, In re Froom, No. 0003-98-00800 at 8 (Can. Immigration and Refugee Bd. May 25, 2000). He was released on bond pending the outcome of his appeals of his deportation order. Froom v. Canada, No. T-2024-01, 2002 Fed.C.C. Lexis 567 (Fed. Ct. Dec. 9, 2002). Froom appealed without success to the Canadian Federal Court of Appeals (Froom v. Canada, No. A-570-03, 2004 W.C.B.J. Lexis 2262 (Fed. Ct. App. Oct. 21, 2004) (extradition order affirmed)) and to the Supreme Court of Canada. Froom v. The Minister of Justice, No. 30686 (Can. March 17, 2005) (leave to appeal dismissed).*fn2 Froom remains at large.

  The Government seeks judicial forfeiture of the defendant property, which the Government maintains was purchased by Froom and LaFontaine in order to launder proceeds of the healthcare fraud conspiracy. Verified Compl. ¶ 16-20. While appealing his extradition from Canada to face criminal charges in this court, Froom sought to appear before this court (by mail) in order to contest the forfeiture. Claim of Arthur Froom, May 13, 1998.

  In the instant motion, Froom reasserts his claim to the defendant property and seeks dismissal the forfeiture action.*fn3 Because of Froom's persistent refusal to submit to this court's criminal jurisdiction, the Government cross-moves to dismiss his claim, citing the fugitive disentitlement provisions of the Civil Asset Forfeiture Reform Act of 2000.


  The federal civil forfeiture statute subjects property involved in a transaction in violation of 18 U.S.C. § 1956 or § 1957 to forfeiture. 18 U.S.C. § 981 (2000). Section 1956, commonly known as the "money laundering statute," outlaws financial transactions involving the proceeds of unlawful activity. Section 1957 imposes a criminal penalty on anyone who "knowingly engages in or attempts to engage in a monetary transaction in criminally derived property that is of a value greater than $10,000 and is derived from specified [criminal] activity."*fn4

  A claimant to the property who is also a defendant in a related criminal action may ordinarily contest forfeiture. See United States v. Contents of Account No. 68108021, 228 F. Supp. 2d 436, 444 (S.D.N.Y. 2002) (Sprizzo, J.). However, a criminal defendant may not use the resources of a federal court for personal benefit while knowingly evading the jurisdiction of the same court so as to avoid prosecution. Courts have express statutory authority to dismiss civil forfeiture claims related to criminal cases when the claimant is a fugitive from justice. 28 U.S.C. § 2466 (2000); Collazos v. United States, 368 F.3d 190 (2d Cir. 2004). A defendant is a fugitive from justice when he "actively resists returning from abroad to face [criminal] charges." United States v. Eng, 951 F.2d 461, 464 (2d Cir. 1991) abrogated on other grounds by Degen v. United States, 517 U.S. 820 (1996).

  Section 2466 was enacted as part of a comprehensive revision of the federal civil forfeiture laws known as the Civil Asset Forfeiture Reform Act of 2000. ("CAFRA".) It sets out the prerequisites to fugitive disentitlement:

(a) A judicial officer may disallow a person from using the resources of the courts of the United States in furtherance of a claim in any related civil forfeiture action . . . upon a finding that such person: (1) after notice or knowledge of the fact that a warrant or process has been issued for his apprehension, in order to avoid criminal prosecution. . . . (B) declines to enter or reenter the United States to submit to its jurisdiction. . . . and (2) is not confined or held in custody in any other jurisdiction for commission of criminal conduct in that jurisdiction.
Pub.L. No. 106-185, § 14, 114 Stat. 202, 219 (2000), codified at 28 U.S.C. § 2466. Once the requirements of the statute are met, "the ultimate decision whether to order disentitlement in a particular case rests in the sound discretion of the district court." Collazos, 368 F.3d at 198.

  The prerequisites to invoking CAFRA to dismiss Froom's claim to defendant property are met in this case. First, a warrant was issued for Froom's arrest. Arrest Warrant, United States v. Lafontaine, No. 98-MJ-0044, February 27, 1998. Second, Froom had notice that he is named as a defendant in pending criminal charges and he actively resisted being extradited to face them. Finally, Froom is not in custody in Canada for having committed a crime in that jurisdiction.

  Froom has provided an affidavit from a Canadian attorney that states that he is bound by the conditions of his release on bond not to leave the province of Ontario, Canada. Galati Aff. App. to Claimant's Br. in Supp. of Mot. for Summ. J., Ex. 12. However, it is clear from that affidavit that Froom is free to leave Canada without penalty. In doing so he would merely forfeit his right to contest his extradition. United States v. Lafontaine, No. 98 Cr. 251, 2000 U.S. Dist. LEXIS 9199 (S.D.N.Y. July 5, 2000) (Mukasey, J.). The Canadian authorities arrested Froom in order to expel him from the country, and not because he committed an offense within their jurisdiction. Therefore, the conditions of his release on bond do not preclude the court from subjecting Froom to fugitive disentitlement under CAFRA. See United States v. $1,231,349.68 in Funds, 227 F. Supp. 2d 130, 132-33 (D.D.C. 2001); Collazos, 368 F.3d at 201.

  As a fugitive from justice, Froom "has demonstrated such disrespect for the legal processes that he has no right to call upon the court to adjudicate his claim." Ortega-Rodriguez v. United States, 507 U.S. 234, 246 (1993), quoting Ali v. Sims, 788 F.2d 954, 959 (3d Cir. 1986). Froom may not use the court's resources to pursue a civil forfeiture claim while simultaneously evading our criminal jurisdiction.*fn5 Therefore, to protect the integrity of the judicial process from further abuse, the court will exercise its discretion under CAFRA to dismiss Froom's claim to defendant property.


  "Before a claimant can contest a forfeiture, he must demonstrate standing." Mercado v. U.S. Customs Service, 873 F.2d 641, 644 (2d Cir. 1989). "If the claimant cannot show a `sufficient interest in the property to give him Article III standing . . . there is no case or controversy, in the constitutional sense, capable of adjudication in the federal courts.'" U.S. v. New Silver Palace Restaurant, Inc., 810 F. Supp. 440, 442 (E.D.N.Y. 1992), quoting United States v. $38,000.00 in United States Currency, 816 F.2d 1538, 1543 (11th Cir. 1987).

  The burden of proof in making a demonstration of standing rests with the claimants. Mercado, 873 F.2d at 644. This court has characterized the burden of a claimant contesting civil forfeiture as requirement that they demonstrate some ownership or possessory interest in the property at issue. See United States v. One 1982 Porsche 928, 732 F. Supp. 447, 451 (S.D.N.Y. 1990) (Conner, J.). The possessory or ownership interest must be in the specific forfeited property. See e.g. United States v. Agnello, 344 F. Supp. 2d 360, 372 (E.D.N.Y. 2003); Cf. United States v. Coluccio, 51 F.3d 337, 339 (2d Cir. 1995).

  Pearl and Szilazi have not demonstrated that they have any interest in the defendant property that would confer standing upon them to contest its forfeiture. Their claim to the property is instead based on their ownership interest in the corporate entities that purportedly hold legal title. However, even if these corporations own the property, this is immaterial.

  LRMC and RGMA's shareholders do not have an ownership interest is any specific property owned by the corporation. Rather, they only have an equitable interest in the corporation's collected assets. This proposition is well settled under Ontario law. See e.g. Chilian v. Augdome Corp., 78 D.L.R. (4th) 129 (On. Ct. App. 1994), construed in Seville Properties Ltd. v. Coutre, No. 03/3235, 141 A.C.W.S. (3d) 494 (B.C.S.C. July 26, 2005), available at 2005 A.C.W.S.J. LEXIS 11405 at *14 (reasoning that "Chilian is authority for the proposition that a corporate shareholder does not have an estate or interest in assets held by the corporation"), accord First Nat'l Bank & Trust Co. v. Hyman Novick Realty Corp., 68 A.D.2d 191, 194; 416 N.Y.S.2d 844, 846 (N.Y.App.Div. 1979) (reasoning that "[u]nder New York corporations law, a stockholder has no legal title to corporate assets by virtue of stock ownership.")

  Consequently, a shareholder in a corporation chartered in Ontario does not have standing to contest the forfeiture of any of the specific assets of that corporation, just as if the entity had been incorporated in New York. Cf. New Silver Palace Restaurant, 810 F. Supp. at 443-44 (holding that "while shareholders hold equitable title to corporate assets they may not file a notice of claim" to those assets in a forfeiture proceeding.) Pearl and Szilari's claims would be duplicative of those of the corporate claimants, and are therefore barred. Id.


  Froom, Pearl and Szilari also seek to bring LRMC and RGMA's claims to the defendant property. Froom, as an individual barred under CAFRA from contesting the forfeiture, cannot contest the forfeiture on behalf of the corporate claimants. 28 U.S.C. § 2466(b) (2000). It is unclear whether Pearl and Szilari have standing to raise these corporations' claims. The court will not address this issue at this time, since it may prove to be a moot point. The fugitive disentitlement doctrine "may be applied to a claim filed by a corporation if any majority shareholder . . . is a person to whom [CAFRA] applies." 28 U.S.C. § 2466(b) (2000). If Froom is a majority shareholder in LRMC and MRGA, they may be disqualified from contesting the forfeiture even if they raise their claims to the property directly.*fn6

  The Government has requested further discovery of the ownership structure of MRGA and LRMC. The court will grant this request. Since any claim made by corporate claimants might be disqualified by Froom's ownership, and this issue can only be resolved by reference to matters outside of the pleadings, the court will convert the pending motion to dismiss brought on behalf of the corporate claimants and the Government's cross motion to dismiss into Rule 56 motions for summary judgment and consolidate these with the claimants' summary judgment motion of March 8, 2004. See Gagliardi v. Village of Pawling, 18 F.3d 188, 191 (2d Cir. 1994).


  For the foregoing reasons, the Government's motion to dismiss Froom, Pearl and Szilari's individual claims to defendant property is hereby granted. Accordingly, the individual claimants' motions to dismiss and for summary judgment are denied. The court will defer judgment on the claims brought by Pearl and Szilari on behalf of the corporate claimants until after further discovery. The court hereby converts the motion to dismiss brought on behalf of the corporate claimants into a motion for summary judgment and consolidates it with the pending motion for summary judgment filed on April 12, 2004. Pursuant to Rule 16, F.R. Civ. P., the court orders the parties to complete discovery by December 9, 2005. Accordingly, the Government's response to the pending summary judgment motion will be due on December 30, 2005. Should Froom choose to file a reply brief, it must be submitted by January 15, 2006.



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