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United States v. United States Currency in the Sum of Six Hundred Sixty Thousand

April 5, 2006

UNITED STATES OF AMERICA, PLAINTIFF,
v.
UNITED STATES CURRENCY IN THE SUM OF SIX HUNDRED SIXTY THOUSAND, TWO HUNDRED DOLLARS ($660,200.00), MORE OR LESS, DEFENDANT.



The opinion of the court was delivered by: Azrack, United States Magistrate Judge

Memorandum and Order

This action arises from the seizure of $660,200 in United States currency from a suitcase at John F. Kennedy International Airport (Dkt No. 1: Compl. ("Compl.") (08/30/02) ¶ 1). The government commenced civil forfeiture proceedings in rem for the entire amount of currency pursuant to 31 U.S.C. §§ 5316 and 5317 (Compl. ¶ 3). While the suitcase bearing the currency was not theirs, nor were they present at the airport during seizure, Abdel Moneim Soliman*fn1 and Samy Khalil filed claims to the currency (Dkt No. 3: V. Claim Resp. to Compl. (11/07/02)). Judge Nicholas Garaufis referred the parties to me for all discovery and settlement purposes. On February 9, 2005, the parties appeared in my courtroom and finalized a settlement agreement (Dkt No. 28: Mins. (02/09/05)). Almost six months later, claimants filed a motion to enforce the settlement (Dkt No. 32: Mot. to Enforce J./Settlement Agreement (08/09/05)). By stipulation dated November 30, 2005, the parties consented to have me preside over this case for all purposes, including entry of judgment (Dkt No. 52: Consent to Jurisdiction by U.S. Mag. J. (12/14/05)). Accordingly, I have considered claimants' motion to enforce the settlement. For the reasons stated below, claimants' motion to enforce the settlement is granted.

BACKGROUND

On April 30, 2002, agents of the United States Customs Service, Contraband Enforcement Team seized $660,200 in United States currency outbound at John F. Kennedy International Airport (Compl. ¶¶ 11-12). Upon searching the luggage of passengers Hassan and Afaf Al-Sadawi, the agents found the currency concealed in boxes of crackers, baby wipes and oatmeal (Compl. ¶ 14). In November 2002, Samy Khalil ("Khalil" or "Claimant") filed a Verified Claim Responding to the Complaint In Rem for the seized currency. Subsequently, Abdel Moneim Soliman ("Soliman" or "Claimant") also filed a claim for the currency.

On March 12, 2003, I held an initial conference and set a discovery schedule. Over the next twenty months, the parties engaged in extensive discovery, including substantial document review as well as depositions. At the close of discovery, I presided over two settlement conferences between the government and claimants. On February 9, 2005, the parties appeared for a final settlement conference. Steven Kessler ("Kessler"), Khalil's attorney, and Assistant United States Attorney Tracey Knuckles ("AUSA Knuckles"), appearing on behalf of the government, represented to me that they had reached a settlement; however, the agreement could not be finalized until Soliman's claims were also resolved. Soliman's attorney, Louis M. Freeman ("Freeman") was present for the settlement discussions as well. All three parties argued their positions on the settlement of Soliman's claim and, with my assistance, arrived at an agreement. I called a recess, during which, upon my instruction, the parties consulted with their respective clients and supervisors to secure approval for the proposed settlement. After the recess, AUSA Knuckles reported that she had discussed the proposed settlement with, and received approval from, the Deputy Chief of the Asset Forfeiture Division, Assistant United States Attorney Richard Weber ("AUSA Weber").

Under the terms of the settlement, claimants agreed to forfeit $312,600 to the United States. The government agreed to return $17,500 to Soliman, $7,500 of which was to be used to satisfy a fine issued to Soliman in the criminal case, United States v. Abdel Soliman, 02-CR-0901 (E.D.N.Y. 2003) (NGG). It was agreed that a portion of the money going to Soliman would come from the funds already settled by the government for return to Khalil. The government agreed to return the remaining $330,100 to Khalil with all interest earned on the defendant currency. All parties accepted the terms of the settlement. At the close of the conference, AUSA Knuckles advised me that she would draft a written settlement agreement and forward it to claimants' attorneys.

Following that settlement conference, Kessler and AUSA Knuckles discussed via telephone minor points to include in the settlement agreement, such as what portion of the settlement amount was to be interest, what portion was to be principal, and the procedures for paying the settlement (Dkt No. 32: Decl. of Steven L. Kessler, Esq. In Supp. of Mot. To Enforce Open-Ct. Settlement Agreement ("Kessler Decl.") (09/30/05) ¶ 7). On March 8, 2005, Knuckles mailed the Stipulation of Settlement and Decree of Forfeiture ("Stipulation") to both Kessler and Freeman for execution (Id. Ex. C). On March 9, 2005, immediately upon receipt of the Stipulation, Kessler contacted Knuckles to resolve minor issues with the document, all of which were resolved over the telephone (Id. ¶ 9). Both deemed alterations to AUSA Knuckles' original Stipulation unnecessary (Id.).

AUSA Knuckles informed Kessler that, in order to set up the wire transfer of the settlement funds to Kessler's escrow account, he should contact Toni Davis ("Davis"), a United States Treasury Department representative (Id. ¶ 10). Kessler spoke with Davis that same day and arranged for Davis to fax him the ACH Vendor/Miscellaneous Payment Enrollment Form to set up the wire transfer (Id.). Kessler filled out the form with the agency, payee, and financial institution information and faxed it back to Davis that same day (Id. ¶ 10, Ex. D).

During the subsequent week, Kessler and Khalil executed the unaltered March 8, 2005 Stipulation (Id. ¶ 10). On March 17, 2005, Kessler mailed AUSA Knuckles the executed Stipulation with a request that she "execute [the] same and return to [him] a fully executed Stipulation signed by the Court" (Id.. ¶ 11, Ex. E). In addition, he thanked her for "expediting the processing of the wire transfer" (Id. Ex. E). Three weeks passed without the Stipulation being finalized (Id. ¶ 12). Kessler was unable to reach AUSA Knuckles until April 13, 2005, at which time she informed him that she would execute the Stipulation and authorize the release of the funds once she received the executed Stipulation from Freeman and Soliman (Id.). On April 18, 2005, Freeman and Soliman mailed their executed Stipulation to AUSA Knuckles (Id. ¶ 13).

Throughout the remainder of April and into early May, Kessler attempted without success to contact AUSA Knuckles to confirm that she mailed a fully executed Stipulation and authorized the transfer of the funds (Id. ¶¶ 13-14). On May 3, 2005, Kessler contacted Davis at the Treasury Department, and Davis instructed him to speak with Patricia Hank, whom Kessler was inevitably unable to reach (Id. ¶ 14). After continued, unsuccessful attempts to contact AUSA Knuckles and additional conversations with Davis on June 1, 2005, Davis instructed Kessler to speak with Todd Smith ("Smith"), the Associate Chief Counsel at the United States Customs Office (Id. ¶ 15). When Kessler eventually reached Smith, Smith informed him that AUSA Knuckles had resigned her position with the government on the previous business day, May 27, 2005 (Id. ¶ 16).

Kessler and Freeman immediately called chambers to apprise me of the situation. I advised them to find out which AUSA had been assigned to the matter so that they could finalize the settlement. Subsequently, in June 2005, Kessler learned that the matter was reassigned to Assistant United States Attorney Douglas Leff ("AUSA Leff") (Id. ¶ 18). When Kessler finally spoke by telephone with Leff, Leff informed Kessler that he had just been assigned to the case, and, while unfamiliar with the file, he knew that the government had decided not to finalize the settlement (Id. ¶ 18). On June 6, 2005, I conducted a telephone conference with all the parties, during which AUSA Leff informed me of the government's intention not to execute the Stipulation. At Leff's request, I held another telephone conference with the parties on June 28, 2005, at which time he again informed me of the government's refusal to finalize the settlement stipulation. At that point, claimants advised that they wished to move to enforce the settlement.

Thereafter, claimants moved to enforce the settlement and to recoup their costs and attorneys' fees under the Equal Access to Justice Act. In response, the government argued that (i) the Assistant United States Attorney who appeared at the settlement conference did not have authority to bind the government to a settlement, and (ii) the parties did not intend to be bound until a final settlement agreement was executed. On March 8, 2006, I held a conference, at which time I determined that a hearing was necessary to establish an accurate record for this matter (Dkt No. 55: Mins. (03/08/06)). Before a hearing date was set, I received a letter from the government, submitting that "a hearing concerning the proposed settlement is not necessary" and requesting that "the Court decide the pending motions on the basis of the papers submitted" (Dkt No. 54: Letter from Leff to the Honorable Judge Azrack (03/15/06) at 1 ("03/15/06 Leff Letter")). In its letter, the government "concede[d] that it intended to enter into the oral settlement at issue and intended to enter into the written settlement agreement" (Id. at 1-2). However, the government maintained its position that the settlement agreement was not binding because "it was not executed on behalf of plaintiff United States" (Id. at 1). Thus, as the government requested, I withdrew the order for a hearing (Dkt No. 57: Order (03/15/06)) and will "decide the pending motions on the basis of the papers submitted" (See 03/15/06 Leff Letter at 1).

DISCUSSION

I. AUSA's Knuckles & Weber had Authority to Bind the Government to the Settlement

The government has inconsistently raised and feebly argued the issue of attorney authority throughout the briefing of this matter. In its initial reply papers to claimants' motion to enforce the settlement, the government did not argue that AUSA's Knuckles and Weber lacked the authority to bind the government; rather, the government argued that the oral settlement was not intended to bind the government in the absence of a written and executed settlement stipulation (Dkt No. 37: Gov't Mem. in Opp'n to Claimants' Mot. to Enforce Settlement ("Gov't Mem. in Opp'n") (08/26/05) at 7-13). In subsequent correspondence to the Court, the government altered and expanded this argument, stating that its intent not to be bound by the unexecuted settlement was evinced by the fact that "AUSA Knuckles was not authorized to bind the government other than in writing . . . ." (Dkt No. 52: Letter from Leff to the Honorable Judge Garaufis (10/17/05) at 1 ("10/17/05 Leff Letter")). As with the initial reply papers, in the government's March 15, 2006 letter, the issue of authority was not addressed directly; however, the government conceded its intent to enter into an oral and subsequently written settlement agreement, yet maintained it was not bound because the agreement was never fully executed (03/15/06 Leff Letter at 1-2).

The government's reassertion that it was not bound to the oral settlement is comprised, in part, of its claim that AUSA Knuckles was not vested with the authority to bind the government (See 10/17/05 Leff Letter at 1). Because the government did not concede the issue of authority and continues to maintain that the unexecuted stipulation is not binding, I must address the AUSA's authority. Based on the discussion below, I find that AUSA Weber had actual authority to orally bind the federal government to the terms of the settlement and that AUSA Knuckles had actual authority to bind the government through the drafted and transmitted Stipulation.

The Second Circuit has adopted, and frequently reaffirmed, the "undisputed" and fundamental principle that the decision to settle a case rests with the client alone. United States v. Int'l Bhd. of Teamsters, 986 F.2d 15, 19 (2d Cir. 1993) (citing United States v. Beebe, 180 U.S. 343, 350-53 (1901)); Fennell v. TLB Kent Co., 865 F.2d 498, 501-02 (2d Cir. 1989). While this principle is well established, "if an attorney has apparent authority to settle a case, and the opposing counsel has no reason to doubt that authority, the settlement will be upheld." Fennell, 865 F.2d at 502 (citing Int'l Telemeter Corp. v. Teleprompter Corp., 592 F.2d 49, 55 (2d Cir. 1979)).

The instant matter involves asset forfeiture under the United States Code; thus, "the scope of the agent's authority is determined according to federal precedent." Int'l Bhd., 986 F.2d at 20 (citing Fennell, 865 F.2d at 501). Precedent does not require claimants to prove that AUSA's Knuckles and Weber had authority to bind the federal government. Rather, it is the government's burden, as the party asserting lack of authority, to prove that Knuckles and Weber did not have authority to settle with claimants. See Gilbert v. United States, 479 F.2d 1267, 1268-69 (2d Cir. 1973). See also Artha Mgmt., Inc. v. Sonia Holdings, Ltd., 91 F.3d 326, 329 (2d Cir. 1996) ("[A]ny party challenging an attorney's authority to settle the case . . . bears the burden of proving by affirmative evidence that the attorney lacked authority.") (emphasis added). The Second Circuit has qualified that burden as "not insubstantial." Int'l Bhd., 986 F.2d at 20 (citing Surety Ins. Co. of Cal. v. Williams, 729 F.2d 581, 583 (8th Cir. 1984) (holding that defendants "carry a heavy burden to establish that their attorney acted without any kind of authority . . . [and] in meeting that burden [they] may not rely on [ ] conclusory affidavit[s], but must establish through competent evidence that their attorney lacked actual, implied, or apparent authority . . . .")).

The procedure for settling asset forfeiture cases in the United States Attorney's Office (the "Office") for the Eastern District of New York is set forth in the Affirmation of Elaine D. Banar ("Banar"), the current Chief of the Asset Forfeiture Unit (Dkt No. 37: Affirmation of Elaine D. Banar ("Banar Affirm.") (08/24/05)). Banar currently holds the position that Weber formerly occupied. Banar or one of the Deputy Chiefs of Asset Forfeiture reviews all "proposed stipulation agreements concerning forfeiture prior to their transmission to a claimant's attorney" (Banar Affirm. ¶ 3) (emphasis added). All "proposed final stipulation agreements . . . must be in writing and must be approved" by Banar or one of the Deputy Chiefs "prior to their transmission to a claimant's attorney (Id. ¶ 4) (emphasis added).

According to Banar, No AUSA is authorized to enter into a binding verbal agreement to settle a forfeiture action. AUSA's may receive approval to verbally contemplate certain terms of a settlement with a claimant's attorney, but the specific terms of the settlements must be placed in written form and approved by [Banar] or one of [her] Deputy Chiefs prior to their transmission to a claimant's attorney (Id. ¶ 5). Once the AUSA receives approval for the settlement, the Stipulation is mailed to the claimants for their review and execution (Id. ¶ 6). When the Stipulation is returned to the AUSA, the final step for that AUSA is to "execute the agreement on behalf of the United States Attorney's Office" (Id. ¶¶ 7-8). There is no indication, whatsoever, in Banar's Affirmation that the Office manual, regulations, procedures or customs require that the Chief of Asset Forfeiture or the Deputy Chiefs reviewing the proposed settlement seek approval from outside the Office at any point prior to their approval of the Stipulation.

A. AUSA Weber had Actual Authority to Orally Bind the Government

As stated above, it is the government's burden to prove that the AUSA's involved did not have authority to bind the federal government. Not only does the government fail to meet this burden; but, rather, the Banar Affirmation conclusively establishes that AUSA Weber had actual authority to orally bind the government to the settlement. Banar states that she has direct authority to approve final Stipulations before AUSA's mail them to claimants for execution. Weber, the Chief of Asset Forfeiture, wielded the same authority that Banar currently has to approve all settlements in the division. Thus, Weber had actual authority to bind the government to the settlement agreement, as he had the final authority to approve the written agreement, prior to its mailing to counsel.

The government crafted a convoluted argument that AUSA's Knuckles and Weber were not authorized to orally agree to a settlement, contending that the Department of Justice procedures do not allow AUSA's to approve forfeiture settlements because settlements require the approval of the Asset Forfeiture Office of the Criminal Division (Leff 10/17/05 Letter at 2).*fn2 The appropriate guidelines for settling an asset forfeiture matter in the Asset Forfeiture Division of the United States Attorney's Office are found in 28 C.F.R. §§ 0.171(a)-(b) and 28 C.F.R. Pt. 0, Subpt. Y, App., Directive No. 14-95 §§ 1(b)(1)(a)-(c).*fn3 This was a routine asset forfeiture, under which Directive No. 14-95 applies, and the settlement in this case was for $347,600, which "does not exceed $500,000." See 28 C.F.R. Pt. 0, Subpt. Y, App., Directive No. 14-95 §§ 1(b)(1)(a)-(c) (1995). Consequently, the Deputy of Asset Forfeiture was not required to seek outside approval for this settlement. The application of Directive No. 14-95 is consistent with the Banar Affirmation, which made no reference to the Chief or Deputy Chiefs of Asset Forfeiture seeking approval from anyone outside the United States Attorney's Office for the Eastern District of New York. Therefore, under the Code of Federal Regulations, AUSA Weber had authority to approve the settlement.

In Burton v. Adm'r, Gen. Serv. Admin. the government unsuccessfully sought to avoid an oral settlement agreement on the same grounds, namely that approval needed to come from a higher channel. No. 89-Civ-2338, 1992 WL 300970, at *1 (D.D.C. July 10, 1992). The United States Attorney's Office represented the General Services Administration ("GSA") at a settlement conference. Id. at *1-2. The AUSA phoned the GSA to ensure the "validity of the offer" and returned to the courtroom to report that "GSA had indeed confirmed that the offer was valid . . . ." Id. The government later argued that the agreement was not binding because of a "misunderstanding within the agency concerning the [settlement] terms" and because the AUSA did not have "the necessary authority to bind the GSA . . . ." Id. at *2-3. The court found that the GSA's Office of General Counsel had authority to settle and did not need approval from higher channels. Id. at *4-5. The court held that the AUSA "needed no more than [the GSA attorney's] consent in order for her to have authorization to offer the proposed settlement terms . . . ." and that she "acted entirely within her authority", having "every reason to believe that the GSA agreed with the settlement terms." Id. at *4. Thus, the court held that the settlement agreement between plaintiff and the GSA was "valid and enforceable." Id. at *6.

The government has failed to meet its burden that AUSA Weber did not have authority to orally approve the settlement via telephone or that AUSA Knuckles acted inappropriately in relaying that approval to claimants and the Court. Having declined to participate in a hearing, the government has failed to proffer any additional support for its claim. Therefore, I find that AUSA Weber had actual authority to orally bind the government to the terms of the settlement agreement. AUSA Knuckles discussed the final terms of the settlement with him, and informed claimants and this Court during the second half of the conference that the terms were acceptable and that AUSA Weber had given his approval. The government has offered no evidence that Weber did not authorize the settlement terms over the telephone. Like the holding in Burton, this Court finds that AUSA Weber had actual authority to orally bind the government to the settlement terms, and consequently that AUSA Knuckles, relying on that approval, had the authority to bind the government to the settlement in open court.*fn4

Even if AUSA's Knuckles or Weber believed they needed authority from outside the Office, they should, and in my experience would, have informed the Court. "If settlement authority is not vested in the U.S. Attorney's Office, counsel need only so inform the court." United States v. Cohen, No. CV-94-2843, 1996 WL 1062770, at *2 (C.D. Cal. May 16, 1996). However, it is clear that AUSA Weber did not need to seek approval higher than his own to bind the government. Any attempt by the government to argue so at this time is both disingenuous and unsupported by either the Banar Affirmation or AUSA Knuckles' actions during and after the settlement conference. For all the above reasons, I find that AUSA Weber had actual authority to approve the settlement and did so prior to AUSA Knuckles' report to claimants before me in open court that the settlement was approved by, and acceptable to, the government.

B. AUSA Knuckles had Actual Authority to Bind the Government

I also find that AUSA Knuckles had independent authority, once she received oral approval from AUSA Weber for the settlement amount, to bind the government to the settlement through the drafting of settlement paperwork. In addition to AUSA Knuckles' relaying of AUSA Weber's approval, thereby orally binding the government to the agreement, once she drafted the paperwork and transmitted it to claimants, she satisfied a condition precedent that she would get the approval for the settlement and memorialize the terms in the written document.Thus, the settlement agreement must also be enforced based on this Court's additional finding that the "necessity of government ratification [ ] constitute[d] an implied condition precedent to the maturation of the remaining duties under the settlement agreement." Ostman v. St. John's Episcopal Hosp., 918 F. Supp. 635, 644 (E.D.N.Y. 1996).

In Ostman, Judge Seybert chastised the AUSA, who attended a final settlement conference, for his reticence regarding settlement authority: a lawyer[] [has a] duty of candor to the court. This [ ] principle looks unkindly upon attorneys who, knowingly or unwittingly, squander a court's limited resources by appearing at a settlement conference and making an offer of settlement without communicating to all interested parties, and to the court, that such offer exceeds their settlement authority.

Ostman, 918 F. Supp. at 644. In Ostman, the facts of the government's representation were somewhat more tangled, in that the AUSA who represented to bind the government at the settlement conference was standing in the stead of another AUSA who had attended all prior settlement conferences, but was unable to attend due to a scheduling conflict. Id. at 639. Furthermore, the AUSA of record did indeed require approval from the Department of Justice before he was authorized to accept a $750,000 medical malpractice settlement. Id. at 641.

Judge Seybert did not regard "the failure of the government attorneys to disclose that they lacked settlement authority to provide a basis to vitiate the settlement." Id. at 644. Instead, she found that the "condition" that the AUSA receive approval for the settlement amount was an "implied condition precedent to the maturation of the remaining duties under the settlement agreement." Id. Because the AUSA in Ostman was able to secure the Department of Justice's approval for the $750,000 settlement on the same day that a newly passed statute bequeathed him the general authority to approve all settlements up to $1,000,000, the court held that the condition precedent had been satisfied and confirmed the settlement agreement as valid and binding upon the United States government. Id. at 643, 645-46.

The holding in Ostman leads to the same conclusion here. The settlement between claimants Khalil and Soliman and the federal government is valid and binding. Even if AUSA Knuckles did not have the actual authority to orally bind the government to the settlement, she must have garnered that authority prior to mailing the Stipulation to the claimants. According to Banar, an AUSA must receive prior approval of the settlement terms from either the Chief of Asset Forfeiture or a Deputy Chief prior to drafting and mailing a stipulation to a claimant (Banar Affirm. ¶¶ 5-6). Additionally, once the claimants executed the Stipulation, the last step for the finalization of the settlement was the signature of the AUSA. The Banar Affirmation does not indicate that the AUSA must consult with anyone in the Office or elsewhere before signing claimants' already executed Stipulation (Id. ¶¶ 7-8). In the absence of any evidence that AUSA Knuckles failed to follow this procedure, and in light of the fact that she reported to claimants before me in open court that she had secured approval for the settlement from AUSA Weber, I ...


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