United States District Court, E.D. New York
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Brian D. Morris, David Carey Woll, James G. McGovern, Michael Warren, Michael Lloyd Yaeger, United States Attorneys Office, Brooklyn, NY, for United States of America.
Roscoe C. Howard, Daniel Seikaly, Leasa Woods Anderson, Meena T. Sinfelt, Andrews Kurth LLP, Washington, DC, John F. Kaley, Doar Rieck & Mack, New York, NY, for Defendants.
MEMORANDUM AND ORDER
MATSUMOTO, District Judge:
On December 30, 2011, after a jury trial, defendant Courtney Dupree (" Dupree" ), the owner and CEO of GDC Acquisitions, LLC (" GDC" ), and a number of wholly owned subsidiaries, was convicted of (1) conspiracy to commit bank fraud, (2) bank fraud, and (3) two counts of making a false statement in connection with a complex multi-million dollar scheme to defraud Amalgamated Bank (" Amalgamated" ) by obtaining or attempting to obtain loan proceeds on the basis of false financial statements and other material misrepresentations between January 2007 and July 2010. On January 3, 2012, the same jury returned a special verdict finding that Dupree obtained $18,157,000 constituting or derived from proceeds traceable to the offenses for which he was convicted, and also finding that funds in eight bank accounts seized by the government were subject to forfeiture as property constituting or derived from proceeds traceable to those offenses. ( See ECF No. 511, Special Verdict Sheet for Forfeiture.) Accordingly, on January 10, 2012, the court entered a preliminary order of forfeiture as to the funds seized from the bank accounts. Four of the eight bank accounts were with JP Morgan Chase Bank (" Chase Bank" ) in the name of Unalite Southwest, LLC (" USW" ), a wholly-owned subsidiary of GDC, and total $983,790.11 (the " Subject Funds" ). ( See id. ) Pursuant to 21 U.S.C. § 853(n) and Federal Rule of Criminal Procedure 32.2(c)(1), before the court may enter a final order of forfeiture as to the assets included in the preliminary order of forfeiture in favor of the government, it must first conduct a post-trial ancillary proceeding in order to adjudicate any third-party claims to the forfeited assets.
Presently before the court are four motions related to third-parties claiming an interest in the Subject Funds: (1) a motion by the United States of America (the " government" ) to dismiss the verified petition for a hearing to adjudicate the third-party claims of defendant Rodney Watts (" Watts" ) and his counsel DePetris & Bachrach, LLP (" D & B" ) (collectively, the " Watts Petitioners" ) to the Subject Funds; (2) a cross-motion by the Watts Petitioners for judgment on the pleadings against the government; (3) a motion by the Watts Petitioners to dismiss the verified petition for a hearing to adjudicate the third-party claims of Amalgamated to the Subject Funds; and (4) a request by pro se third-party Valerie A. Griffin (" Griffin" ) that she be added as an interested party so that she may file a third-party claim to assets included in the preliminary order of forfeiture. ( See ECF Nos. 554, 559, 571, 575-76, 579-584.) For the reasons set forth below, the court hereby: (1) grants the government's motion to dismiss the Watts Petitioners' petition; (2) denies the Watts Petitioners' cross-motion for judgment on the pleadings; (3) denies the Watts Petitioners' motion to dismiss Amalgamated's petition; and (4) denies Griffin's request to be added as an interested party in order to file a third-party petition.
I. Factual and Procedural History
The court will assume the reader's familiarity with the extensive factual and
procedural history of this case, and will therefore only summarize those facts that are pertinent to the present motions regarding third-party claims to assets subject to the preliminary order of forfeiture.
On July 21, 2010, Magistrate Judge Marilyn D. Go of the Eastern District of New York issued warrants to seize funds in approximately sixteen bank accounts as representing property that constituted or was derived from proceeds traceable to a conspiracy to commit bank fraud, mail fraud, and wire fraud in violation of 18 U.S.C. §§ 1344, 1341, and 1343. ( See generally ECF No. 2, Arrest Warrant.) On July 23, 2010, Magistrate Judge Ramon E. Reyes of the Eastern District of New York issued seizure warrants for funds in several additional bank accounts. Included among those assets seized by the government were the Subject Funds from four accounts at Chase Bank held in the name of USW.
In a five-count superseding indictment on August 13, 2010, defendants Dupree, Watts, and Thomas Foley (" Foley" ) (collectively, " defendants" ) were indicted by a grand jury for bank fraud, conspiracy to commit bank, mail, and wire fraud, and making a false statement and report for the purposes of influencing Amalgamated. ( See ECF No. 295, Superseding Indictment.)  The first four counts of the Superseding Indictment arise out of an alleged scheme to defraud Amalgamated, a federally insured financial institution, by obtaining, and attempting to obtain, loan funds for GDC and its subsidiaries on the basis of false financial statements and other material misrepresentations between January 2007 and July 2010. ( Id. ¶¶ 5, 6, 8.) Specifically, on or about August 29, 2008, three of GDC's subsidiaries, JDC Lighting, LLC, Unalite Electric and Lighting, LLC, and Hudson Bay Environments Group, LLC (collectively, the " Borrower Subsidiaries" ), entered into an agreement (" the Loan Agreement" ) with Amalgamated under which the Borrower Subsidiaries could borrow up to $21 million through a revolving credit and term loan, which were guaranteed by GDC and other wholly owned subsidiaries of GDC. ( Id. ¶ 9). Under the terms of the Loan Agreement, the Borrower Subsidiaries pledged as security for the loans all of their property, which included, inter alia, their accounts receivable and inventory. The Borrower Subsidiaries were required to submit Borrowing Base Certificates to Amalgamated each month stating the total value of both their accounts receivable and current inventory. ( Id. ¶¶ 10-11.) The core of the fraud allegations was that defendants deliberately and falsely overstated the accounts receivable on consolidated financial statements and Borrowing Base Certificates provided to Amalgamated, which were used to determine the amount that the Borrower Subsidiaries could borrow in any given month. ( Id. ¶¶ 11-13.)
In May of 2011, Watts sought to challenge the government's continued restraint of the Subject Funds at an evidentiary hearing conducted pursuant to United States v. Monsanto, 924 F.2d 1186 (2d Cir.1991). ( See ECF No. 213, Minute Entry for Monsanto Hearing held before Magistrate Judge Joan M. Azrack.) On July 27, 2011, the court adopted in part and modified in part the Report and Recommendation of Magistrate Judge Azrack, and found that the government had demonstrated probable cause to continue to restrain $350,290.87 of the Subject Funds in advance of trial. (ECF No. 281,
Memorandum and Order (" July 27th Order" ) at 23-24, 2011 WL 3235637.) As part of his opposition to the government's motion for reconsideration and clarification of the court's order, Watts tendered an assignment by USW, executed by counsel for Dupree on August 11, 2011 (the " Assignment" ), which purports to assign all of USW's right, title, and interest in the Subject Funds to Watts' counsel, D & B, in payment of past and future legal services provided by D & B to Watts. ( See ECF No. 314-1, Assignment ¶¶ 2-3.)
Despite Watts' request that the remaining balance of the Subject Funds, totaling $633,499.24, be released to D & B, the court instead directed the government to deposit the remaining balance into the Eastern District of New York's Seized Asset Deposit Fund pending further orders from this court or a court with jurisdiction over those funds. ( See Minute Entry of Sept. 13, 2011; ECF No. 338, Order.) At Watts' request, based upon Watts' appeal to the Second Circuit of those orders, the court granted Watts a stay of his criminal case pending adjudication of his appeal. ( See Minute Entry of Oct. 17, 2011.)
After jury selection on December 5, 2011, the trial of Dupree and Foley commenced with opening statements the following day on December 6, 2011, and continued thereafter. On December 30, 2012, after one day of deliberations, the jury returned its verdict finding Dupree guilty of counts One through Four of the Superseding Indictment, and acquitting Foley of all charges.
( See Jury Verdict.) The forfeiture phase of the jury trial then continued in a separate proceeding following the guilty verdict. On January 3, 2012, the jury returned a Special Verdict for a Forfeiture Money Judgment, by a preponderance of the evidence, that Dupree obtained funds constituting or derived from proceeds of the offenses in the Superseding Indictment of which he was convicted, in the amount of $18,157,000, as representing proceeds traceable to offenses for which he was convicted, and that funds seized by the government from the eight bank accounts were also subject to forfeiture as property traceable to or derived from proceeds of Dupree's offenses of conviction. ( See Special Verdict Sheet for Forfeiture.) Accordingly, on January 10, 2012, the court entered preliminary orders of forfeiture as to the Subject Funds. ( See ECF Nos. 520, 521, First and Second Preliminary Orders of Forfeiture.) Dupree has not contested the sufficiency of the evidence to sustain the forfeiture verdict.
By summary order issued on April 30, 2012, the Second Circuit held that the jury's verdict as to Dupree, as well as the preliminary orders of forfeiture entered on the basis of that verdict, rendered Watts' appeal moot, and therefore dismissed his appeal. See United States v. Watts, 477 Fed.Appx. 816, 817-818 (2d Cir.2012). The Second Circuit specifically stated in relevant part:
The district court's finding that the government lacked probable cause to continue to restrain the funds at issue did not bar the government from seeking the forfeiture of the funds following a trial based on a preponderance of the evidence standard. See Fed.R.Crim.P. 32.2(b)(1)(B); see also United States v. Premises and Real Prop. at 4492 S. Livonia Rd., 889 F.2d 1258, 1265-66 (2d Cir.1989) (" the illegal seizure of property, standing alone, will not immunize that property from forfeiture, so long as impermissibly obtained evidence is not used in the forfeiture proceeding" ). Of course, Watts is free to pursue his claims against the subject funds in a post-trial ancillary proceeding. See 21 U.S.C. § 853(n); Fed.R.Crim.P. 32.2(c)(1); see also De Almeida v. United States, 459 F.3d 377, 381 (2d Cir.2006) ( " [C]riminal forfeiture is not a
measure restricted to property owned by the criminal defendant.... The likelihood that some property involved in an offense will be owned by persons other than the criminal defendant is reflected in the provision for an ancillary proceeding" ).
Watts, 477 Fed.Appx. at 817-818.
On May 9, 2012, and in accordance with 21 U.S.C. § 853(n)(1), the government sent direct written notice of the preliminary order of forfeiture to potential claimants, including the Watts Petitioners and Amalgamated. ( See ECF No. 538, Certificate of Service.) On June 7, 2012, the Watts Petitioners timely filed a joint verified petition claiming an interest in the Subject Funds. (ECF No. 549, Verified Pet. for Hearing to Adjudicate Third-Party Claims of Watts and D & B (the " Watts Petition" ).) On June 8, 2012, Amalgamated also timely filed a verified petition claiming an interest in the Subject Funds. (ECF No. 550, Pet. of Amalgamated for Adjudication of Interest (the " Amalgamated Petition" ).) On June 19, 2012, the court set a briefing schedule as to the instant motions. (ECF Order of June 19, 2012.) Finally, by letter dated June 25, 2012, and received by the court on June 28, 2012, pro se third-party Griffin, a former employee of GDC, requested that the court add her name as an interested party in order that she may file a petition claiming an interest in the Subject Funds. (ECF No. 554, Ltr. from Valerie A. Griffin to the court (" Griffin Ltr." ).)
II. Ancillary Proceedings and Standard of Review
A. Statutory Framework of Ancillary Proceedings
The procedure by which third-parties may seek to recover an alleged interest in forfeited property is through a post-trial ancillary proceeding pursuant to 21 U.S.C. § 853(n). 21 U.S.C. § 853(n). " [T]he purpose of the ancillary proceeding is for the District Court ... to amend orders of forfeiture and apportion assets when one or more third parties claim an interest in the property to be forfeited." Willis Mgmt. (Vt.), Ltd. v. United States, 652 F.3d 236, 246 (2d Cir.2011). Thus, if a third-party establishes a valid and superior interest in the forfeited property, then that property shall be stricken from the final order of forfeiture. See 21 U.S.C. § 853(n)(6). If, however, the third-party does not establish a valid and superior interest in the property, then " the United States shall have clear title to property that is the subject of the order of forfeiture and may warrant good title to any subsequent purchaser or transferee." 21 U.S.C. § 853(n)(7). " Property" includes " tangible and intangible personal property, including rights, privileges, interests, claims and securities." United States v. Singh, 390 F.3d 168, 189 (2d Cir.2004) (quoting 21 U.S.C. § 853(b)(2)).
Section 853(n)(2), which delineates the process for third-parties seeking to modify a final order of forfeiture and claiming an interest in forfeited property, provides, in pertinent part:
Any person, other than the defendant, asserting a legal interest in property which has been ordered forfeited to the United States pursuant to this section may ... petition the court for a hearing to adjudicate the validity of his alleged interest in the property.
21 U.S.C. § 853(n)(2). A third-party petition must be filed within 30 days of either final publication of notice by the government of the forfeiture, or the claimant's
receipt of notice of the order of forfeiture, whichever is earlier. 21 U.S.C. § 853(n)(2). Section 853(n)(3) further provides that:
The petition shall be signed by the petitioner under penalty of perjury and shall set forth the nature and extent of the petitioner's right, title, or interest in the property, the time and circumstances of the petitioner's acquisition of the right, title, or interest in the property, any additional facts supporting the petitioner's claim, and the relief sought.
21 U.S.C. § 853(n)(3). Thus, a petition must set forth the legal basis and all grounds for the third-party's claimed interest in the property, and the third-party may not later amend the petition to assert additional grounds for relief. 21 U.S.C. § 853(n)(3); see United States v. Soreide, 461 F.3d 1351, 1355 (11th Cir.2006) (citing United States v. Strube, 58 F.Supp.2d 576, 585 (M.D.Pa.1999) (denying claims of third-parties as untimely when those claims were not made in petitions but in response to government's motion to dismiss)). Courts generally require " strict compliance" with the rules and deadlines governing forfeiture proceedings. See United States v. Amiel, 995 F.2d 367, 371 (2d Cir.1993) (collecting cases applying the " strict compliance" standard to various statutory forfeiture proceedings).
In order to advance a claim in the ancillary proceeding, a third-party petitioner must first establish a " legal interest" in a particular asset, pursuant to 21 U.S.C. § 853(n)(2). See United States v. Timley, 507 F.3d 1125, 1129 (8th Cir.2007) (" [A] party seeking to challenge the government's forfeiture of money or property used in violation of federal law must first demonstrate [a legal] interest in the seized item sufficient to satisfy the court of its standing to contest the forfeiture." (quoting United States v. Three Hundred Sixty Four Thousand Nine Hundred Sixty Dollars ($364,960.00) in U.S. Currency, 661 F.2d 319, 326 (5th Cir.1981))). " Legal interest" is not defined by federal law; rather, " [s]tate law determines a petitioner's interest in the property at issue." Willis Mgmt., 652 F.3d at 242 (citing Pacheco v. Serendensky, 393 F.3d 348, 353-56 (2d Cir.2004)). If a third-party petitioner possesses no legal interest under applicable state law (in this case, the law of the State of New York), the claim must be dismissed for lack of standing. See United States v. Ribadeneira, 105 F.3d 833, 835 (2d Cir.1997); Timley, 507 F.3d at 1130; United States v. Ovid, No. 09-CR-216, 2012 WL 2087084, at *3, 2012 U.S. Dist. LEXIS 80049, at *7-8 (E.D.N.Y. June 8, 2012).
Pursuant to Title 21 Section 853(n)(6), if a third-party petitioner demonstrates that the petitioner has standing, petitioner must then establish by a preponderance of the evidence at the hearing either that:
(A) [T]he petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property ...; or
(B) the petitioner is a bona fide purchaser for value of the right, title, or interest in the property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture ....
21 U.S.C. § 853(n)(6)(A),(B); see also Ribadeneira, 105 F.3d at 834-35; Ovid, 2012 WL 2087084, at *3, 2012 U.S. Dist. LEXIS 80049, at *7.
B. Procedures in Ancillary Proceeding
Ancillary proceedings are governed by
Federal Rule of Criminal Procedure 32.2(c), which provides that " the court may, on motion, dismiss the petition for lack of standing, for failure to state a claim, or for any other lawful reason. For purposes of the motion, the facts set forth in the petition are assumed to be true." Fed.R.Crim.P. 32.2(c)(1)(A); Willis Mgmt., 652 F.3d at 241. " [A] motion to dismiss a third-party petition in a forfeiture proceeding prior to discovery or a hearing should be treated like a motion to dismiss a civil complaint under Federal Rule of Civil Procedure 12(b)." Pacheco, 393 F.3d at 352. " Therefore, a petition should not be dismissed if the petitioner has stated ‘ enough facts to state a claim to relief that is plausible on its face.’ " Willis Mgmt., 652 F.3d at 241-42 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Additionally, all reasonable inferences must be drawn in favor of the petitioner. See Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Mgmt. LLC, 595 F.3d 86, 91 (2d Cir.2010) (stating Fed.R.Civ.P. 12(b)(6) standard). The court, however, is not required to accept " mere conclusory statements," nor is it required to accept legal conclusions that are pleaded as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955).
I. The Government's Motion to Dismiss the Watts Petition
A. The Watts Petitioners' Standing to Assert a Claim
The government first argues in its motion to dismiss the Watts Petition that neither D & B nor Watts have standing to assert a claim to the Subject Funds.  ( See ECF No. 580-1, Gov.'s Mem. of Law in Supp. of Mot. to Dismiss (" Gov. Mem." ) at 9-17.) The Watts Petitioners dispute that D & B and Watts lack standing to assert a claim and, instead, counter that the government lacks standing to contest the USW assignment of the Subject Funds to D & B. ( See ECF No. 582, Mem. of Law in Opp. to Gov.'s Mot. to Dismiss (" Watts Opp." ) at 1-14.) As discussed below, the court finds, assuming as it must for purposes of the motion, that the ...