RUDOLPH CONTRERAS, United States District Judge.
Defendant Nancy Preston was convicted of Mail Fraud in violation of 18 U.S.C. § 1341, and on December 12, 2014, this Court entered a Final Order of Forfeiture forfeiting $239,069 to the United States in the form of a money judgment pursuant to 18 U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461(c). See Final Order of Forfeiture ("Final Order"), ECF No. 22. On June 17, 2014, the Court amended the Final Order pursuant to Federal Rule of Criminal Procedure 32.2(e)(2)(A) to include as substitute property pursuant to 21 U.S.C. § 853(p) cash in one Merrill Lynch account held by Defendant's husband, James Preston, and certain securities in a separate Merrill Lynch account held by the James W. Preston Trust (the "Trust"). See Fourth Amended Order of Forfeiture ("Fourth Amended Order" or "Order of Forfeiture"), ECF No. 43. On July 29, 2014, James Preston filed a Petition asserting an interest in the substitute property pursuant to Federal Rule of Criminal Procedure 32.2 and 21 U.S.C. § 853(n). See James W. Preston's Petition Asserting an Interest in Property (the "Petition"), ECF No. 48.
The Government has filed a motion to dismiss the Petition as to its assertion of an interest in the securities in the Trust's Merrill Lynch account.
From approximately 1992 to September 2011, Defendant Nancy Preston was the Corporate Controller for Clyde's Restaurant Group ("Clyde's"). See Statement of the Offense at 1, ECF No. 6. On January 9, 2012, Ms. Preston confessed to agents of the Federal Bureau of Investigation
Eleven days later, on January 20, 2012, there were two transfers from Merrill Lynch account number XXX-X1295 held by Ms. Preston ("Ms. Preston's 1295 Account") to Merrill Lynch account number XXX-X2092 held by her husband, James Preston ("Mr. Preston's 2092 Account"): a cash transfer of $6,000 and a cash transfer of $5,500, for a total of $11,500 (the "Cash"). See Petition at 2; Petition Ex. 2 at 16, ECF No. 48-1.
Description Quantity American Tower REIT Inc (HLDG Co) SHS 267 Tractor Supply Co 260 Lord Abbett Intl Core Equity Fund CL C 4064 Pioneer Cullen Value Fund CL C 1299 Franklin T/F Tr Va Tax Free Inc FD CL C 1465 Pioneer Emerging Markets FD CL C 752 Lord Abbett Classic Stock Fund CL C 845 Royce Pennsylvania Mutual Fund CL Consult 1289 Legg Mason Western Asset Managed Municipals FD C 940
Petition at 2; Petition Ex. 1 at 10.
Mr. Preston alleges that neither he nor Ms. Preston intended for him to receive a benefit as a result of the transfers and that he received no benefit. See Petition at 2-5. He alleges that Ms. Preston transferred the Securities and the Cash to him "so that he could pay her debts." Id. at 5. He further alleges that, in order to pay those debts, rather than use the Cash or liquidate the Securities, he "liquidated his own securities of the same value [as the Securities and the Cash
On August 29, 2012, the Government filed a Criminal Information against Ms. Preston in this Court, and on September 26, 2012, Ms. Preston pleaded guilty to mail fraud in violation of 18 U.S.C. § 1341. See Information, ECF No. 1; Minute Entry (Sept. 26, 2012). On September 26, 2012, the Court entered a Consent Order of Forfeiture forfeiting $389,069 to the United States in the form of a money judgment. See Consent Order of Forfeiture, ECF No. 9. On December 9, 2012, after the wire transfer from the Trust Account, the Government filed a consent motion seeking to reduce the forfeiture money judgment amount by $150,000 to account for "a partial payment to the victim as compensation for its loss." Consent Mot. for Final Order of Forfeiture, ECF No. 17. On December 12, 2012, the Court granted the consent motion, entering a Final Order of Forfeiture forfeiting $239,069 to the United States in the form of a money judgment pursuant to 18 U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461(c). See Final Order. The Final Order provided that the Court shall retain jurisdiction to enforce the Final Order and to amend it as necessary pursuant to Federal Rule of Criminal Procedure 32.2(e). See id.
On June 17, 2014, the Court amended the Final Order to include $11,500 from Mr. Preston's 2092 Account and the Securities in the Trust Account as substitute property pursuant to 21 U.S.C. § 853(p). See Fourth Amended Order. The Government served the Fourth Amended Order on Mr. Preston, his counsel, and the Trust on July 3, 2014. See Notice of Service, ECF No. 51. On July 29, 2014, Mr. Preston filed his Petition asserting his interest in the substitute property.
The Government argues that the Petition should be dismissed with respect to its assertion of an interest in the Securities, because: (1) the Petition does not establish that Mr. Preston has constitutional standing to contest the forfeiture; (2) the Petition does not establish that Mr. Preston has so-called "statutory standing" to contest the forfeiture; (3) the Petition fails to satisfy the pleading requirements of 21 U.S.C. § 853(n)(3); and (4) the Petition fails to state a claim for relief under 21 U.S.C. § 853(n)(6). The Court addresses each of these issues in turn.
As a preliminary matter, it is useful for the Court to provide an overview of the legal framework for adjudicating a third party's asserted interest in property that has been ordered forfeited to the United States.
"The sole forum for a third party to address its interest in forfeited property is through a third party ancillary proceeding" under 21 U.S.C. § 853(n). United States v. Emor, 785 F.3d 671, 675 (D.C.Cir. 2015) (citing 21 U.S.C. § 853(n)). Any third party asserting a "legal interest" in forfeited property "may, within thirty days of the final publication of notice or his receipt of notice ... whichever is earlier, 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 petitioner under Section 853(n) must have standing under Article III of the Constitution. See Emor, 785 F.3d at 676. A petitioner must also have so-called "statutory standing," which is "nothing more than an inquiry into whether the statute at issue conferred a `cause of action' encompassing `a particular plaintiff's claim.'" Id. at 677 (quoting Lexmark Int'l, Inc. v. Static Control Components, Inc., ___ U.S. ___, 134 S.Ct. 1377, 1387, 188 L.Ed.2d 392 (2014). The statute also requires a petition to 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).
"Congress did not intend section 853(n) to serve as a vehicle by which all innocent third parties who are aggrieved by an order of criminal forfeiture can petition for judicial relief." United States v.
21 U.S.C. § 853(n)(6)(A). Or, the petitioner may establish under Section 853(n)(6)(B) that "the petitioner is a boda fide purchaser for the 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 under [Section 853]." 21 U.S.C. § 853(n)(6)(B). If a petitioner does not meet either of these sets of criteria, then he is not entitled to relief.
Rule 32.2 of the Federal Rules of Criminal Procedure provides that, in an ancillary proceeding concerning a petition under Section 853(n), "the court may, on motion, dismiss the petition for lack of standing, for failure to state a claim, or for any other lawful reason." Fed. R. Crim. P. 32.2(c)(1)(A). A motion to dismiss a petition under Section 853(n) prior to discovery or a hearing is treated similarly to a motion to dismiss a civil complaint under Federal Rule of Civil Procedure 12(b). See Willis Mgmt. (Vt.), Ltd. v. United States, 652 F.3d 236, 241-42 (2d Cir.2011). "A third-party petition must only provide `enough facts to state a claim to relief that is plausible on its face' to survive dismissal." United States v. Church & Dwight Co., 510 Fed.Appx. 55, 57 (2d Cir.2013) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). When considering a motion to dismiss a petition, the Court assumes all facts set forth in the petition to be true. See Fed. R. Crim. P. 32.2(c)(1)(A).
The Government argues that Mr. Preston fails to establish that he has standing under Article III of the Constitution to challenge the forfeiture of the Securities. See Motion to Dismiss at 4-5. The Court must determine whether Mr. Preston has constitutional standing as a threshold matter. See Emor, 785 F.3d at 676. "The requirements for a petition to demonstrate constitutional standing to challenge a forfeiture are very forgiving." Id. (internal quotation omitted). In this Circuit, "[i]n general, any colorable claim on the property suffices, if the claim of injury is `redressable, at least in part, by a return of the property.'" Id. (quoting United States v. 7725 Unity Ave. N., 294 F.3d 954, 957 (8th Cir.2002)). In determining whether to dismiss a petition on jurisdictional grounds, such as standing, courts may consider evidence outside the petition. See Emor, 785 F.3d at 677.
The Court finds that Mr. Preston meets the forgiving minimum requirements for constitutional standing to challenge the forfeiture of the Securities. The Petition asserts an interest in the Securities held by the Trust and claims that Mr. Preston purchased the securities from Ms. Preston for fair consideration and without receiving any benefit. See Petition at 2. The Petition also refers to both Mr. Preston's 2092 Account and the Trust Account as "Mr. Preston's accounts." Petition at 6. While the Petition fails to provide any detail concerning Mr. Preston's role with
The Government next argues that Mr. Preston fails to establish "statutory standing." Motion to Dismiss at 4-6. Jurisprudence concerning statutory standing is less than clear. The Supreme Court has acknowledged that the term is somewhat "misleading." Lexmark Int'l v. Static Control Components, Inc., ___ U.S. ___, 134 S.Ct. 1377, 1387 n. 4, 188 L.Ed.2d 392 (2014). The D.C. Circuit recently clarified in Emor that "[s]tatutory standing is not really about standing at all, in the sense that it limits a `court's statutory or constitutional power to adjudicate the case.' Instead, statutory standing is nothing more than an inquiry into whether the statute at issue conferred a `cause of action' encompassing `a particular plaintiff's claim.'" Emor, 785 F.3d at 677 (quoting Lexmark Int'l, 134 S.Ct. at 1387). Essentially, the Court must determine whether Mr. Preston falls within the class of persons whom Congress authorized to file a petition in an ancillary proceeding. See Lexmark Int'l, 134 S.Ct. at 1387. In making this determination, the Court must treat the factual allegations in the Petition as true and cannot consider any factual findings or legal conclusions drawn from outside the pleadings. See Emor, 785 F.3d at 677.
Section 853(n)(2) authorizes "[a]ny person, other than the defendant, asserting a legal interest in property which has been ordered forfeited to the United States" pursuant to Section 853 to petition the Court. 21 U.S.C. § 853(n)(2). For purposes of statutory standing, therefore, the Court must determine whether the Petition "assert[s] a legal interest" in the Securities.
In his Petition, Mr. Preston does not allege facts that, if true, would establish that he has a legal interest in the Securities, which are held in the Trust Account. As discussed, supra, the Petition does not allege any facts concerning Mr. Preston's role with respect to the Trust. As the Government observes, "[t]he Petition is devoid of any reference as to how James Preston, the grantor of an irrevocable trust, has a legal interest in the trust property under state law." Motion to Dismiss at 5-6. While Mr. Preston states in his opposition to the Motion to Dismiss that he is the trustee of the trust and that he has a legal interest in the property held by the Trust Account under Virginia law, unlike with respect to the issue of constitutional standing, the Court cannot consider factual allegations outside the Petition when determining statutory standing. The Petition does not reference any state law or the Trust's governing documents. Nor does it even contain the word "trustee" or indicate who the beneficiary or beneficiaries of the Trust are. It makes no distinction whatsoever between Mr. Preston's alleged interest in the Cash held in his personal account and the Securities held in the Trust Account.
In his Petition, Mr. Preston fails to plead a legal interest in the Securities, and, therefore, he fails to establish statutory standing to contest their forfeiture. On this basis alone, the Petition should be dismissed as to the Securities.
Even if the Petition could be construed as asserting a legal interest in the Securities sufficient to establish statutory standing, it also fails to satisfy the more detailed pleading requirements of Section 853(n)(3). That provision requires the Petition to "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). These are not "simply technical requirements, but are construed strictly to discourage false or frivolous claims." United States v. Ceballos-Lepe, 977 F.Supp.2d 1085, 1088-89 (D.Utah 2013) (citing United States v. Ginn, 799 F.Supp.2d 645, 647 (E.D.La.2010); United States v. Burge, 829 F.Supp.2d 664, 667 (C.D.Ill.2011)).
The Petition clearly fails to set forth the "nature and extent" of Mr. Preston's interest in the Securities, because, as discussed with respect to the issue of statutory standing, the Petition fails to allege anything about his alleged interest, such as his role with respect to the Trust and its property.
The Petition also fails to set forth the "time and circumstances" of Mr. Preston's acquisition of any interest in the Securities. The Securities were first transferred from Ms. Preston's 1295 Account to Mr. Preston's 1299 Account. The Petition sets forth the time of that transfer by attaching, referencing, and incorporating an account statement that provides a date of January 23, 2012. See Petition at 2; Petition
The Petition can also be independently dismissed because it fails to state a claim for relief under Section 853(n)(6).
In order to survive a motion to dismiss, a petition must allege facts sufficient to state a valid claim of relief. See Emor, 785 F.3d at 678; Church & Dwight Co., 510 Fed.Appx. at 57. A petitioner is only entitled to relief if he establishes that his legal right, title, or interest in the forfeited property meets the circumstances set forth in either Section 853(n)(6)(A) or Section 853(n)(6)(B), and, therefore, he must allege facts sufficient to state a claim under one of the two provisions. See United States v. Hailey, 924 F.Supp.2d 648, 658 (D.Md. 2013) ("The availability of a motion to dismiss indicates that to state a claim, one of the § 853(n)(6) bases must be pled.").
As the Government observes, it is unclear from the Petition whether Mr. Preston is pleading under Section 853(n)(6)(A) or Section 853(n)(6)(B). See Motion to Dismiss at 7-8. Such a deficiency can be fatal to a petition. See, e.g., United States v. Ceballos-Lepe, 977 F.Supp.2d 1085, 1090 (D.Utah 2013) (dismissing a petition in part because the petitioner
To be successful under Section 853(n)(6)(A), a petitioner must establish that, "at the time of the commission of the acts which gave rise to the forfeiture," the interest in the forfeited property was vested in the petitioner rather than the defendant or the petitioner's interest was superior to any interest of the defendant. 21 U.S.C. § 853(n)(6)(A).
Even assuming that the Petition adequately pleads an interest in the Securities, it nevertheless fails to state a claim under this provision. As discussed, supra, the Petition fails to allege the specific timing of the transfer of the Securities to the Trust Account. It also fails to allege any relationship in timing between that transfer (or the previous transfer from Ms. Preston's 1295 Account to Mr. Preston's 1299 Account) and the commission of the acts which gave rise to the forfeiture of the Securities. It is clear from the face of the Petition, however, that the transfers occurred later.
The Securities were included in the Order of Forfeiture as substitute property pursuant to Section 853(p), rather than as property subject to forfeiture under Section 853(a). Under Section 853(p), property becomes subject to forfeiture as substitute property when, as a result of any act or omission of the defendant, property subject to forfeiture under Section 853(a) meets one of five conditions. See 21 U.S.C. § 853(p)(1). When the Government sought to include the Securities in the
Ms. Preston admitted that she transferred the embezzled Clyde's funds to third parties from 2001 to 2011. See Statement of the Offense at 1. On the face of the Petition, it is clear that Ms. Preston did not transfer the Securities to Mr. Preston's 1299 Account until January 2012, and the Securities were not transferred to the Trust Account until after that. Mr. Preston does not allege that he acquired an interest in the Securities prior to those transfers, and, therefore, the Petition fails to state a claim under Section 853(n)(6)(A).
To be successful under Section 853(n)(6)(B), a petitioner must establish that he is a "bona fide purchaser for value" of the property and that, at the time of purchase, he was "reasonably without cause to believe that the property was subject to forfeiture." 21 U.S.C. § 853(n)(6)(B).
Mr. Preston does not allege facts that are sufficient to state a claim under this provision. Mr. Preston alleges that he is a bona fide purchaser for value of the Securities, because he paid full value for them by paying Ms. Preston's debts in an equivalent value. See Petition at 2-5. He also alleges that he "did not know that paying full value for Mrs. Preston's Securities could subject him to any liability." Id. at 5. These facts, if true, are not sufficient to satisfy Section 853(n)(6)(B). Even if Mr. Preston was an innocent bona fide purchaser of the Securities, he still must allege that he was without cause to believe that the Securities were subject to forfeiture. See United States v. Jimerson, 5 F.3d 1453, 1455 (11th Cir.1993) (stating that Section 853 "does not contain an innocent owner provision" and that "alleged innocence, standing alone, cannot defeat the Government's interest in criminally forfeited property"). Whether he knew that he could be personally liable is not the correct standard. The statute concerns knowledge regarding whether the property was subject to forfeiture. Mr. Preston makes no allegations concerning his knowledge on this issue or whether a reasonable person would have known that the Securities were subject to forfeiture. On the contrary, Mr. Preston actually alleges facts that, if true, would demonstrate the inapplicability of the bona fide purchaser provision. According to the Petition, Ms. Preston was forced to transfer the Securities to him because of her criminal activity, meaning that he was aware at the time of the transfers that Ms. Preston was subject to criminal liability. Even more significantly, if the transfer had been made with the intention that the Securities (or an amount equivalent to their value) would be used to satisfy Ms. Preston's restitution obligation, as he alleges, then Mr. Preston
On the face of the Petition, it is implausible that Mr. Preston was a bona fide purchaser for value who was reasonably without cause to believe that the Securities were subject to forfeiture. The Petition therefore also fails to state a claim for relief under Section 853(n)(6)(B).
Mr. Preston claims that he has suffered an injury due to the forfeiture of the Securities to the United States. The criminal forfeiture statute, however, does not shelter all third parties from injury, even if they are innocent of the underlying crime. Rather, the statute offers relief only to those third parties who meet its standing and pleading requirements and whose interests meet a specific set of circumstances. The Petition fails on all three grounds. For the foregoing reasons, the Court grants the Government's Motion to Dismiss James Preston's Petition Asserting an Interest in Certain Merrill Lynch Securities, ECF No. 53. An order consistent with this Memorandum Opinion is separately and contemporaneously issued.
In his Petition, Mr. Preston alternatively requests that, if the Court finds that the Securities and the Cash held in Mr. Preston's 2092 Account are subject to forfeiture, then the "Government refund him the $150,000 sum he paid to satisfy Mrs. Preston's restitution obligation, as that was not intended to be a gift made to Mrs. Preston." Petition at 6. He does not, however, request that the Court compel the Government to refund the payment, which appears to have already been paid to Clyde's, let alone provide any legal authority for the Court to do so. The Court also notes that Mr. Preston does not reaffirm this request in his opposition to the Motion to Dismiss.
By a separate motion, the Government also asks the Court to take judicial notice of a declaration by Greg Rose, in-house counsel for Merrill Lynch, which was filed in a parallel civil case that the Government has brought against Mr. and Ms. Preston seeking to void the transfers of the Securities pursuant to 28 U.S.C. § 3304. See Mot. Court Take Judicial Notice Public Record, ECF No. 70; Decl. Greg Rose, ECF No. 70-2. In his declaration, Mr. Rose states that "[a]t no time did Merrill Lynch ask Mrs. Preston to close account xxx-x1295" and that Merrill Lynch maintained Ms. Preston's 1295 Account until August 30, 2014, "when the account was purged from the Merrill Lynch system following thirteen months of inactivity." Decl. Greg Rose ¶ 1. The Court finds that there are ample grounds to dismiss the Petition without considering this declaration and therefore will deny the Government's motion to take judicial notice of the declaration as moot.
