United States District Court, S.D. New York
October 14, 2005.
UNITED STATES OF AMERICA
ALL RIGHT, TITLE AND INTEREST IN REAL PROPERTY, APPURTENANCES, AND IMPROVEMENTS KNOWN AS 479 TAMARIND DRIVE, HALLANDALE, FLORIDA, LISTED AS LOT 30 IN BLOCK 7 OF GOLDEN ISLES SECTION "B", AND RECORDED IN PLAT BOOK 45, PAGE 30 OF BROWARD COUNTY, FLORIDA, Defendant in rem.
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.
II. FROOM'S RIGHT TO MAKE A CLAIM TO DEFENDANT PROPERTY
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]
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.
III. STANDING OF PEARL AND SZILAZI TO CONTEST FORFEITURE
"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
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.
IV. THE CORPORATIONS' CLAIMS TO THE DEFENDANT PROPERTY
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
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.
IT IS SO ORDERED
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