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United States v. Any and All Funds On Deposit In Account Number Xxxxxxxxxx

United States District Court, S.D. New York

January 20, 2015




On November 8, 2013, the United States of America (the "Government") filed a verified complaint seeking civil forfeiture of certain assets - here, 48 cars and funds contained in four bank accounts - allegedly derived from illegal activities. Claims over these seized assets (the "Defendants-in-rem") have been filed by Unicorn Tire Corporation ("Unicorn") and Efans Trading Corporation ("Efans") (collectively, "Claimants"). Claimants argue that the Government is unable to establish a violation of export laws; that it has failed adequately to plead its mail and wire fraud claims; that it has failed to establish in rem jurisdiction over 36 of the 48 cars seized outside the Southern District of New York; and that it has failed to plead how funds from one of the four bank accounts at issue facilitated the allegedly unlawful activities. Separately, Claimants seek a hearing to determine whether the Government had probable cause to seize the assets. For the reasons stated in this Opinion, Claimants' motions are denied in their entirety.


A. The Alleged Scheme

The cornerstone of the Government's allegations regarding a fraudulent scheme lies in its assertion that "[a] high-end exotic vehicle... will often net double or triple its value overseas." (Am. Compl. ¶ 19). There exists, in consequence, an arbitrage opportunity for vehicle brokers - individuals who purchase cars in the United States for immediate export to other countries. ( See id. ).

In an attempt to prevent such activity, automobile manufacturers have contracted with dealerships to require that new automobiles made for sale within the United States not be sold to individuals or companies intending to export the new automobiles outside the United States. (Am. Compl. ¶ 9). Automobile manufacturers impose this prohibition because, it is alleged, unauthorized exports of their new automobiles cause "numerous financial problems... including, among other things, by creating problems in the manufacturers' distribution markets, causing market infringement problems, harming franchise dealerships, and causing problems relating to vehicle recall registration and service." ( Id. at ¶ 10). The contractual agreements between the manufacturers and dealerships often carry monetary penalties, commonly called "charge backs, " which the manufacturers may assess against dealerships if the manufacturers determine that dealerships are selling new automobiles to purchasers who intend to export them rather than use them in the United States. ( Id. at ¶ 11).

Such contractual arrangements do not stop vehicle brokers from attempting to purchase automobiles from dealerships by concealing the fact that the vehicle is intended for immediate export. (Am. Compl. ¶ 15). Vehicle brokers have difficulty purchasing the vehicles directly, however, because manufacturers maintain and distribute to the dealerships so-called "Auto-Exporter" lists. ( Id. at ¶ 13). Dealers are prohibited from selling a vehicle to an individual or company on the list. ( Id. ). As a result, vehicle brokers may utilize a "straw buyer" - an individual who is recruited to consummate the transaction, and who receives a small amount of compensation for his or her cooperation - to make the purchase from the dealer. ( Id. at ¶ 15). The straw buyer purchases the vehicle, without test driving it or negotiating a price, and then immediately turns it over to the broker who recruited him or her to make the purchase. ( Id. ). There is as well an issue of insurance Because an uninsured vehicle will not be permitted to leave the dealership, the straw buyer or the broker must obtain an insurance policy in order to get the vehicle off of the lot. ( Id. at ¶ 17). The insurance policy is then typically cancelled before any payments are made on it. ( Id. ).

According to the Amended Complaint, the buyers and brokers make false statements to automobile dealerships and insurance companies concerning the buyer's intended use of the vehicle. (Am. Compl. ¶¶ 16-17). In some cases, the buyer signs a form representing to the dealership that the vehicle will not be exported out of the United States for a period of at least 12 months. ( Id. at ¶ 16). Similarly, in some cases, the insurance company is told that the vehicle will be garaged at the home of the straw buyer, and not immediately handed over to the broker for export. ( Id. at ¶ 17).

Additionally, the Government alleges that the brokers authorize Shipper's Export Declarations ("SEDs"), which are shipping forms required by U.S. Customs and Border Protection ("CBP"), to be completed for the vehicles in a manner that furthers the scheme. ( Id. at ¶ 18). Specifically, the Government alleges that the brokers cause the Vehicle Identification Numbers ("VINs") to be omitted from the SEDs so that the manufacturers remain unaware that the automobile has been exported. ( Id. at ¶¶ 33-36).

The Government alleges that "[m]anufacturers, dealerships, and insurance companies... stand to suffer, and have suffered, significant harm from the scheme, which has caused a discrepancy between the benefits they reasonably anticipate from the transactions and the actual benefits they receive." (Am. Compl. ¶ 20). More specifically, the Government alleges that manufacturers have spent hundreds of millions of dollars to repair cars in other countries that were specifically designed to operate on octane fuel available in North America; that dealerships have been assessed monetary penalties by the manufacturers for selling cars that have been exported pursuant to the scheme; and, finally, that insurance companies have expended unnecessary employee hours and incurred other costs in creating and issuing insurance policies that were obtained under false pretenses and cancelled almost immediately. ( Id. at ¶ 20(a)-(c)).

B. Claimants' Role in the Alleged Scheme

The Government alleges that Efans is one of the vehicle brokers that has engaged in this activity. ( See Am. Compl. ¶¶ 21-24, 41-42). Efans, which is located in Memphis, Tennessee, shares a building with Unicorn Tire; the two companies are owned by the same two individuals (referred to in the Amended Complaint as "Owner-1" and "Owner-2"). ( Id. at ¶ 22).

Efans and Unicorn Tire each maintains a business checking account at the Regions Bank branch in Cordova, Tennessee (the "Efans Regions Account" and the "Unicorn Regions Account, " respectively), funds from which are Defendants-in-rem. (Am. Compl. ¶ 25). The Government alleges that each month, Owner-1 and Owner-2, who jointly control both accounts, use the Unicorn Regions Account to transfer money to the Efans Regions Account; the Unicorn Regions Account then "zeroes out" at the beginning and end of each month, so that Owner-1 and Owner-2 can use the Efans Regions Account to purchase luxury vehicles for export pursuant to the scheme. ( Id. at ¶¶ 26, 29). Further, Owner-1 and Owner-2 transfer proceeds from the sales of the vehicles back from the Efans Regions Account to the Unicorn Regions Account. ( Id. at ¶ 29).

Efans and Unicorn Tire also each maintains a business checking account at the Renasant Bank branch in Germantown, Tennessee (the "Efans Renasant Account" and the "Unicorn Renasant Account, " respectively); funds from the Unicorn Renasant Account (but not the Efans Renasant Account) are Defendants-in-rem. (Am. Compl. ¶ 30). The Government alleges that Owner-1 and Owner-2, who control both of these accounts, transfer money from the Unicorn Renasant Account to the Unicorn Regions Account, which allows Owner-1 and Owner-2 to use the Unicorn Regions Account to fund the purchase of the luxury vehicles from the Efans Regions Account. ( Id. at ¶¶ 30-31).

Homeland Security Investigations ("HSI"), which has investigated Efans's export activity, identified a group of instances in which Efans was able to purchase vehicles and export them from the country. (Am. Compl. ¶ 33). According to the Amended Complaint, HSI identified a pattern of Efans purchasing vehicles through the use of straw buyers, who paid for the vehicles in full on the date of the sale, using cashier's checks drawn on the Efans Regions Account. ( Id. at ¶ 37). Additionally, the Government alleges that, through interviews of some of Efans's straw buyers, HSI identified false statements made to dealerships and insurance companies regarding the straw buyers' intended use of these vehicles. ( Id. at ¶ 38). Specifically, dealerships were told that the cars would not be exported for at least 12 months, and insurance companies were told that the straw buyers intended to drive the cars and to garage the cars at their homes. ( Id. at ¶¶ 38-39). The Government alleges that these representations were false, and that the automobiles were purchased for immediate export. ( See id. ). It further alleges that Efans authorized the omission of the VINs from the SEDs for vehicles that it exported, which effectively concealed the vehicles' export from the manufacturers. ( Id. at ¶¶ 35-36).

C. The Seizures of the Defendants-in-rem

1. The Bank Accounts

On October 7, 2013, the Honorable Gabriel W. Gorenstein, United States Magistrate Judge, issued seizure warrants (the "October 7 Seizure Warrants") for the Efans Regions Account and the Unicorn Regions Account. (Am. Compl. ¶ 43).[2] Pursuant to the October 7 Seizure Warrants, the Government seized approximately $489, 316 from the Efans Region Account and approximately $695, 749.49 from the Unicorn Regions Account. ( Id. ).

The October 7 Seizure Warrants included so-called "damming" language that directed Regions Bank to disallow any debits or withdrawals from the Efans Regions Account and the Unicorn Regions Account during the time period between October 8, 2013, and October 21, 2013. (Am. Compl. ¶ 44). Nevertheless, on or about October 15, 2013, a check in the amount of $567, 000 was returned to the Unicorn Renasant Account from the Unicorn Regions Account. ( Id. ). Regions Bank subsequently informed the Government that the check had been sent back to the Unicorn Renasant Account for insufficient funds. ( Id. ). On or about October 18, 2013, the Government issued a freeze letter for the Unicorn Renasant Account, on the grounds that there was probable cause to believe that its contents were subject to seizure and forfeiture, and on the same date learned that the balance in the Unicorn Renasant Account exceeded $2, 000, 000. ( Id. ).

On November 6, 2013, the Honorable Ronald L. Ellis, United States Magistrate Judge, issued a seizure warrant for the Unicorn Renasant Account, finding probable cause to believe that this account was subject to seizure and forfeiture under Title 19, United States Code, Section 1595a(d). (Am. Compl. ¶ 44). Pursuant to this seizure warrant, the Government seized approximately $2, 320, 865.03 from the Unicorn Renasant Account. ( Id. ).

2. The Automobiles

The Government also seized automobiles that Efans (through straw purchasers) purchased for export. HSI reviewed SEDs listing the contents of containers at the Port of New York and New Jersey (the "Port") to locate any vehicles belonging to Efans that were scheduled to be shipped overseas. (Am. Compl. ¶ 45). HSI identified containers at the Port holding 12 vehicles, and containers on the water holding 28 vehicles that were in the process of being shipped overseas by Efans (the "Twelve Vehicles" and the "Twenty-Eight Vehicles, " respectively). CBP placed shipping holds on these containers. ( Id. at ¶ 46). On November 6, 2013, Magistrate Judge Ellis issued seizure warrants for the Twelve Vehicles, which were still located at the Port. ( Id. ). After the Twenty-Eight Vehicles left the Port, but before they had reached their destination overseas, CBP ordered that the vehicles be re-delivered to the Port for an export examination. ( Id. at ¶ 47).

On October 24, 2013, the Government interviewed the employee of a freight forwarder who worked with Efans to ship automobiles. (Am. Compl. ¶ 49). The employee informed the Government that Efans had planned to ship eight additional cars (the "Eight Vehicles") from the Port, but had recently caused the cars to be moved to a location in Newark, New Jersey. ( Id. ). Investigators interviewed employees of a Newark-based freight forwarder - who confirmed that Efans had been planning to ship the vehicles overseas - and located the Eight Vehicles. ( Id. ). The Government seized the Eight Vehicles on the grounds that there was probable cause to believe that the vehicles, which were purchased by Efans for immediate export in the same manner as the Twelve Vehicles and the Twenty-Eight Vehicles, were subject to forfeiture. ( Id. ). Following the seizure, the Eight Vehicles were processed by HSI at a location within the Southern District of New York. They are currently being stored, in HSI's custody, at a location in New Jersey. ( Id. ).

D. The Instant Litigation[3]

On November 8, 2013, the Government initiated the instant forfeiture action by filing a Verified Complaint against the Efans Regions Account, the Unicorn Regions Account, the Unicorn Renasant Account, and 47 vehicles that Efans attempted to export as part of the alleged scheme. (Dkt. #1). The Government alleged that Claimants committed mail and wire fraud, in violation of 18 U.S.C. §§ 1341, ...

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