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United States of America v. Elissa G. King

June 18, 2012

UNITED STATES OF AMERICA,
v.
ELISSA G. KING,
DEFENDANT.



The opinion of the court was delivered by: John G. Koeltl, District Judge:

MEMORANDUM OPINION AND ORDER

These are cross-motions for summary judgment regarding the third-party petition of the Law Offices of Steven E. Rosenfeld, P.C. ("Rosenfeld") filed pursuant to 21 U.S.C. § 853(n). The petition asserts a legal interest in property that was ordered forfeited to the United States pursuant to 18 U.S.C. § 981(a)(1)(C) in connection with the defendant Melissa King's guilty plea in this case. Specifically, Rosenfeld seeks $87,500 of the $175,000 in funds that Federal Insurance Company ("Federal") agreed to pay the defendant to settle a lawsuit she initiated for breach of contract and breach of fiduciary duty. A Preliminary Order of Forfeiture issued by the Court on October 26, 2011 ordered this $175,000 in funds to be forfeited to the United States. Rosenfeld claims that he is entitled to half of these funds pursuant to his retainer agreement with the defendant.

I.

The following facts are undisputed, unless otherwise indicated.

A.

In June 2009, prior to the defendant's arrest on criminal charges, the Compressed Air and Free Air Foundations, Tunnels, Caissons, Subways, Cofferdams, Sewer Construction Workers Local 147 of New York, New Jersey States and Vicinity AFL-CIO ("Local 147") and others brought a civil action against the defendant alleging that she stole more than $5 million from them ("the Local 147 lawsuit"). (Complaint, Richard T. Fitzsimmons et al. v. King Care, LLC et al., No. 09 Civ. 5506 (S.D.N.Y. June 16, 2009), ECF No. 1.) The defendant retained Peter Till, Esq. and the Pepper Hamilton firm to represent her in the Local 147 lawsuit and, in 2009, paid her attorneys at least $212,000 for this representation. (Gov.'s R. 56.1 Stmt. ¶¶ 2-3; Rosenfeld Resp. R. 56.1 Stmt. ¶¶ 2-3.)

The defendant was indicted on February 17, 2010 on one count of theft and embezzlement from an employee welfare benefit plan and employee pension benefit plan, in violation of 18 U.S.C. § 664, and eleven counts of money laundering, in violation of 18 U.S.C. § 1957. (Indictment, United States v. Melissa King, No. 10 Cr. 122 (S.D.N.Y. Feb. 17, 2010), ECF No. 12.) A superseding indictment and second superseding indictment were subsequently filed, which added counts of mail fraud and tax evasion and amended the language of some of the allegations. (Superseding Indictment ("First Superseding Indictment"), United States v. Melissa King, No. 10 Cr. 122 (S.D.N.Y. June 30, 2010), ECF No. 35; Superseding Indictment ("Second Superseding Indictment"), United States v. Melissa King, No. 10 Cr. 122 (S.D.N.Y. Jan. 24, 2011), ECF No. 115.) The allegations against the defendant were that she embezzled approximately $40 million from Local 147's employee benefit plans and laundered the embezzled funds through a series of bank accounts. (Id.) Each of the indictments sought the forfeiture of various property pursuant to 18 U.S.C. §§ 981(a)(1)(C) and 982 and 28 U.S.C. § 2461, although the fees that the defendant paid to her attorneys in connection with the Local 147 lawsuit were not among the property specifically identified.

On August 9, 2010, the defendant signed a retainer agreement with Rosenfeld whereby Rosenfeld agreed to represent the defendant in connection with a lawsuit against Local 147's insurance carriers - Chubb Group of Insurance Companies and subsequently Federal - for breach of contract and breach of fiduciary duty ("the Insurance Action"). (Decl. of Steven E. Rosenfeld ("Rosenfeld Decl.") Ex. D.) The Insurance Action alleged that Local 147's insurance carriers failed to provide the appropriate notifications before removing Ms. King from Local 147's insurance policy, under which her defense costs in the Local 147 lawsuit otherwise would have been covered. (Rosenfeld Decl. Ex. K.) The complaint alleged that Ms. King had incurred at least $600,000 in attorney's fees in connection with the Local 147 lawsuit and was entitled to be compensated for these expenses. (Id.) The complaint also sought an additional $700,000 to compensate Ms. King for attorney's fees she was likely to incur in the future. (Id.) Ms. King's retainer agreement with Rosenfeld provided that Rosenfeld would be entitled to "fifty percent (50%) of the gross proceeds recovered, whether by suit, settlement, or otherwise." (Rosenfeld Decl. Ex. D.) The retainer agreement also provided that 25% of Rosenfeld's fee would be paid to a co-counsel. (Id.) In June 2011, a settlement agreement was reached, pursuant to which Federal agreed to pay Ms. King $175,000 ("the Settlement Funds"). (Rosenfeld Decl. Ex. M.)

B.

On June 16, 2011, the Government moved ex parte for a restraining order to prevent the insurance carriers from distributing the Settlement Funds to the defendant on the basis that these funds were traceable to the proceeds derived from the alleged embezzlement. (Aff. of Financial Analyst Steven A. Yagoda in Supp. of Ex Parte Post-Indictment Restraining Order ("Yagoda Aff."), attached as Ex. O to Rosenfeld Decl.) Specifically, the Government argued that the defendant paid her attorneys in the Local 147 lawsuit at least $212,000 derived from crime proceeds and that the Settlement Funds were intended to reimburse the defendant for these tainted attorney's fees. (Yagoda Aff. at ¶¶ 10-12.) The Court granted the Government's application to restrain these funds on June 17, 2011. (Post-Indictment Restraining Order, United States v. Melissa King, No. 10 Cr. 122 (S.D.N.Y. June 17, 2011), ECF No. 155.)

The defendant subsequently filed a motion for a Monsanto hearing, in which she asserted, among other arguments, that the Settlement Funds were not proceeds traceable to the criminal activity alleged in the indictment. The Court denied the defendant's motion for a Monsanto hearing on September 27, 2011 and concluded that the defendant had failed to make a prima facie showing that the funds were not forfeitable. (Hr'g Tr., Sept. 27, 2011 ("Tr."), at 9.) The Court noted that defense counsel had conceded that the Government made an adequate factual showing that the attorney's fees paid in connection with the Local 147 lawsuit were traceable to crime proceeds and concluded that the Settlement Funds "merely reimburse[] the defendant for these funds and [are] thus also 'traceable to' the alleged criminal activity and properly forfeitable." (Tr. at 9-10.) The Court also denied a motion by Rosenfeld seeking to enforce a charging lien in the amount of $87,500 against the restrained Settlement Funds, concluding that the ancillary proceeding provided for in 21 U.S.C. § 853(n) was the exclusive means by which Rosenfeld's interest in the property could be adjudicated. (Tr. at 11-13.)

C.

On October 21, 2011, the defendant pleaded guilty to a superseding information which contained one count of embezzlement from employee benefit plans in violation of 18 U.S.C. § 664 and one count of false subscription of federal income tax returns in violation of 26 U.S.C. § 7206(1). (Superseding Information, United States v. Melissa King, 10 Cr. 122 (S.D.N.Y. Oct. 21, 2011), ECF No. 218.) The defendant also signed a Consent Order of Forfeiture that included, among other property subject to forfeiture, the $175,000 in Settlement Funds at issue on these motions. (Consent Order of Forfeiture/Preliminary Order of Forfeiture as to Specific Properties at 6-7 ¶ pp, United States v. Melissa King, No. 10 Cr. 122 (S.D.N.Y. Oct. 26, 2011), ECF No. 216.) This Consent Order of Forfeiture was entered as a Preliminary Order of Forfeiture on October 26, 2011.

On November 2, 2011, the Government sent notice of the forfeiture of the Settlement Funds to Rosenfeld. (Decl. of Jason P. Hernandez ("Hernandez Decl."), Ex. F.) On November 15, 2011, Rosenfeld filed a petition pursuant to 21 U.S.C. ยง 853(n) asserting an interest in $87,500, or half, of the $175,000 in Settlement Funds subject to forfeiture. Rosenfeld ...


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