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United States v. All Right, Title and Interest In Real Property

United States District Court, Second Circuit

August 6, 2013

UNITED STATES OF AMERICA Plaintiff,
v.
ALL RIGHT, TITLE AND INTEREST IN THE REAL PROPERTY AND APPURTENANCES THERETO KNOWN AS 35-37 EAST BROADWAY, NEW YORK, NEW YORK 10002 LISTED AS BLOCK 280, LOT 42 IN THE OFFICE OF THE COUNTY CLERK AND REGISTER OF NEW YORK COUNTY, NEW YORK, Defendant-in-rem.

OPINION & ORDER

HAROLD BAER, Jr., District Judge.[1]

The United States brings this civil forfeiture action against the above-captioned real property (the "Property"). The remaining claimants to the Property are Won & Har Realty Corporation, TYT East Corporation, and David Gao. Won & Har is the Property's current owner. TYT was the tenant in possession during the relevant period. And David Gao is a TYT shareholder. This opinion and order resolves the parties' four competing dispositive motions, including those pertaining to Gao's securities fraud claims against Ji Xiong Ni and Fen Zheng, two TYT officers. In addition, this opinion resolves TYT's counsel's motion to withdraw. For the reasons that follow, the government's motion for summary judgment is GRANTED and the Property is subject to forfeiture. Summary judgment is also GRANTED as to TYT's and Gao's lack of standing. Won & Har's motion for summary judgment is DENIED as to both its innocent ownership and the disproportionality of forfeiture under the Eighth Amendment. Accordingly, TYT's and Gao's claims to the Property are dismissed. Further, Ji Xiong Ni's and Fen Zheng's motion to dismiss the fraud claims against them is GRANTED. Finally, the motion to withdraw by TYT's counsel is GRANTED.

BACKGROUND

The New York Police Department ("NYPD") first executed a search warrant at the Property on March 15, 2011 as part of an investigation into illegal gambling on the premises. A second search warrant was executed on July 19, 2011. And a third search warrant was executed on May 21, 2012, this time with both NYPD and federal Homeland Security agents participating. On all three occasions, law enforcement found evidence of a large-scale gambling operation- including mah jong, pai gow, 13-card poker, and slot machines. Law enforcement officers seized tens of thousands of dollars during all three instances and arrested several individuals. Based on video surveillance, much of this gambling was conducted openly. Indeed, by March 29, 2012, a large sign had been erected on the front of the Property stating "LUCKY U 777" with dollar signs scattered across the sign.

After the NYPD executed the second search warrant, Won & Har's president, David Leong, sought information from the NYPD regarding the ongoing gambling. And on August 1, 2011, Leong directed Won & Har's attorney to issue a notice to TYT demanding that it cure the illegal gambling taking place in four different units. Later that month, TYT wrote to Won & Har that tenants in those units had surrendered their leases.

Then on October 4, 2011, the City of New York filed a public nuisance action against Won & Har and the Property's lessees based on the ongoing illegal gambling. Won & Har eventually settled that action on November 22, 2011. As part of that settlement, Won & Har agreed to a permanent injunction prohibiting the company from permitting the Property to be used for illegal gambling. TYT also agreed to similar settlement with the City. But in addition to an injunction, TYT also consented to "unannounced warrantless inspections of the entire subject premises" by the NYPD. (Fong Aff. Ex. E.) In light of these public nuisance charges and permanent injunction, as well as the three raids conducted between March 2011 and May 2012 and the evidence of open gambling, Won & Har was required to do something about the problem.

Yet after receiving the surrender notices from TYT and settling with the City, Won & Har took no further action in relation to illegal gambling at the Property until after the government's third raid. And after that raid, Won & Har moved to evict TYT on May 23, 2012. Judgment was entered in favor of Won & Har on August 31, 2012 and a warrant of eviction was issued against TYT on February 14, 2013. TYT later vacated the premises.

DISCUSSION

A. Forfeiture of the Property

I examine first the parties' competing motions for summary judgment as to the forfeiture of the Property. It is well-settled that "[s]ummary judgment is appropriate only if the evidence demonstrates that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law.'" United States v. Portrait of Wally, 663 F.Supp.2d 232, 250 (S.D.N.Y. 2009) (quoting Fed.R.Civ.P. 56(c)). Regarding each of the parties' competing motions, "evidence must be construed in the light most favorable to the non-movant." Id. (quoting Lucente v. Int'l Bus. Machs. Corp., 310 F.3d 243, 253 (2d Cir. 2002)).

1. TYT's and Gao's Standing

I address first TYT's standing to assert claims to the Property. To contest a civil forfeiture, claimants must demonstrate Article III standing. United States v. All Right, Title & Interest in Real Prop., Appurtenances, & Improvements known as 479 Tamarind Dr., Hallandale, FL, No. 98 Civ. 2279, 2005 WL 2649001, at *3 (S.D.N.Y. Oct. 14, 2005). Standing requires that claimants show "some ownership or possessory interest in the property at issue." Id. Here, the parties do not dispute that a warrant of eviction was issued against TYT. That warrant terminated TYT's leasehold rights. See In re Sweet N Sour 7th Ave. Corp., 431 B.R. 63, 67 (S.D.N.Y. Bankr. 2010) ("State law is clear that the issuance of a warrant of eviction terminates the landlord-tenant relationship."). And at oral argument, TYT's counsel acknowledged that TYT retains no equitable interest by virtue of any continued possession of the Property. Because TYT no longer holds any interest in the Property, TYT lacks standing to contest the forfeiture and its claims are dismissed.

And because TYT lacks standing, so does David Gao. As a TYT shareholder, any interest Gao might have had in the Property is derivative of TYT's lease. But see 479 Tamarind Dr., 2011 WL 1045095, at *2 ("[A] shareholder has no standing to contest the forfeiture of an asset of a corporation because shareholders do not have an ownership interest in any specific property owned by that corporation."). That interest was extinguished along with TYT's interest ...


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