Filed: Nov. 16, 2012
Latest Update: Mar. 26, 2017
Summary: RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit I.O.P. 32.1(b) File Name: 12a0388p.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _ X Plaintiff-Appellee, - UNITED STATES OF AMERICA, - - - No. 12-5175 v. , > - - REAL PROPERTY AND RESIDENCE LOCATED - AT 4816 CHAFFEY LANE et al., - Defendants, - - - - MEGAN COFFMAN and BANIEL, LLC, - Claimants-Appellants. N Appeal from the United States District Court for the Eastern District of Kentucky at Lexington. Nos. 5:08-cv-00410; 5:
Summary: RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit I.O.P. 32.1(b) File Name: 12a0388p.06 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _ X Plaintiff-Appellee, - UNITED STATES OF AMERICA, - - - No. 12-5175 v. , > - - REAL PROPERTY AND RESIDENCE LOCATED - AT 4816 CHAFFEY LANE et al., - Defendants, - - - - MEGAN COFFMAN and BANIEL, LLC, - Claimants-Appellants. N Appeal from the United States District Court for the Eastern District of Kentucky at Lexington. Nos. 5:08-cv-00410; 5:0..
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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 12a0388p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
Plaintiff-Appellee, -
UNITED STATES OF AMERICA,
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No. 12-5175
v.
,
>
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REAL PROPERTY AND RESIDENCE LOCATED
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AT 4816 CHAFFEY LANE et al.,
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Defendants, -
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MEGAN COFFMAN and BANIEL, LLC,
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Claimants-Appellants. N
Appeal from the United States District Court
for the Eastern District of Kentucky at Lexington.
Nos. 5:08-cv-00410; 5:09-cr-00181-2—Karen K. Caldwell, District Judge.
Decided and Filed: November 16, 2012
Before: MOORE, GILMAN, and KETHLEDGE, Circuit Judges.
_________________
COUNSEL
ON BRIEF: Brian M. Johnson, BINGHAM GREENEBAUM DOLL LLP, Lexington,
Kentucky, for Appellants. Charles P. Wisdom, Jr., Wade T. Napier, UNITED STATES
ATTORNEY’S OFFICE, Lexington, Kentucky, for Appellee.
_________________
OPINION
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KAREN NELSON MOORE, Circuit Judge. This is a dispute over one 2003
Azimut Solar Yacht (Hull ID No. XAX74077G203)—henceforth, “the yacht.”
Claimants-Appellants are Baniel, LLC (“Baniel”) and Megan Coffman (“Coffman”);
1
No. 12-5175 United States v. Real Prop. et al. Page 2
Baniel owns the yacht, and Coffman owns Baniel.1 They appeal the district court’s
order granting a motion for an interlocutory sale of the yacht, which we AFFIRM.
I. FACTS AND PROCEDURE
This appeal stems from one aspect of long-running civil and criminal forfeiture
proceedings. In August 2008, Baniel, Coffman, and her husband Bryan Coffman
(“Bryan”) obtained financing from Bank of America to help purchase the yacht, giving
Bank of America in turn a secured interest in the yacht. R. 36-2 (Note) (Page ID
#240–45). On October 7, 2008, the United States filed a civil forfeiture in rem
complaint against several properties, owned and controlled by Coffman and Bryan, that
it alleges were proceeds of fraud and money laundering. R.1 (Verified Compl.) (Page
ID #1–4). The yacht was added to the complaint on December 5, 2008. R. 6 (Am.
Verified Compl.) (Page ID #31). Given the pending criminal investigations against both
Coffmans, the district court immediately stayed any civil forfeiture proceedings.2 R. 5
(Ex Parte Order of 10/8/08) (Page ID #29–30). Coffman filed a verified claim to the
yacht on September 29, 2009. R. 19-3 (Claims of Megan Coffman at 3) (Page ID #90).
Coffman was acquitted of all criminal charges in May 2011, but Bryan was convicted
of mail fraud, wire fraud, securities fraud, and money laundering. R. 354 (Jury Verdict)
(Page ID #3705–09) (Case No. 5:09-cr-181). The criminal proceedings are still
ongoing.3
1
Appellants are rather fluid in their treatment of the corporate form in their prior briefing: some
briefs to the district court refer exclusively to Baniel, others to Coffman, some to both, and at least one,
see R. 53 (Reply Mem. in Supp. of Mot. for Release of Property at 4) (Page ID #331), appears to conflate
the two. The briefs submitted to this court refer to Baniel and Coffman together, and we follow this
convention.
2
Docket citations in this opinion are to the civil forfeiture proceedings, rather than to the now-
combined criminal proceedings (Case No. 5:09-cr-181), unless otherwise indicated.
3
When Baniel and Coffman filed their initial brief in this court, no preliminary forfeiture order
had been issued in the criminal proceedings. Appellant Br. at 7. A week later, the district court released
its preliminary order of forfeiture, which found that “[t]he yacht is subject to forfeiture,” and is to be
“condemned and forfeited.” R. 461 (Mem. Op. & Prelim. Order of Forfeiture of 4/16/12 at 15–16) (Page
ID #7530–31) (Case No. 5:09-cr-181). No final forfeiture order has yet been announced. See id. at 5
(Page ID #7520) (“This Order has no impact on third-party ownership. If there are third-party claims to
the property, those parties must file claims and the Court will evaluate those claims at future ancillary
proceedings.”).
No. 12-5175 United States v. Real Prop. et al. Page 3
Payments to Bank of America have not been made since December 2009, and at
the latest estimate approximately $637,000 is the balance owed on the note. R. 51 (Bank
of Am. Mem. in Opp’n at 1) (Page ID #319). In February 2011, Bank of America and
the United States filed a joint motion for an interlocutory sale of the yacht. R. 39 (Joint
Mot. for an Interlocutory Sale) (Page ID #248). The district court eventually allowed
briefing on the matter; Baniel also filed a motion for release of the yacht to Coffman’s
custody. R. 50 (Mot. for Release of Property) (Page ID #304). These motions remained
pending until January 30, 2012, when Bank of America and the United States renewed
their motion. R. 55 (Renewed Joint Mot. for an Interlocutory Sale) (Page ID #339). On
February 17, 2012, the district court ordered the interlocutory sale, denied release of the
yacht to Baniel, and joined the civil action with the ongoing criminal action. United
States v. Real Prop. & Residence Located at 4816 Chaffey Lane (Chaffey Lane I), No.
5:08-410, 2012 WL 529239 (E.D. Ky. Feb. 17, 2012). Baniel and Coffman sought a stay
of the sale pending appeal, which was denied by the district court. United States v. Real
Prop. & Residence Located at 4816 Chaffey Lane (Chaffey Lane II), No. 5:09-181,
2012
WL 1380239 (E.D. Ky. Apr. 20, 2012). Baniel and Coffman appealed separately both
the denial of a stay and the order granting the interlocutory sale. This court also denied
a stay. United States v. Real Prop. & Residence Located at 4816 Chaffey Lane (Chaffey
Lane III), No. 12-5175 (6th Cir. May 10, 2012) (unpublished order). Baniel and
Coffman now appeal the order granting an interlocutory sale.
II. JURISDICTION
This appeal comes to us under the collateral-order doctrine. In our May 2012
order, we concluded that appellate jurisdiction exists. Chaffey Lane III, at 1. As noted,
we also denied a stay of this interlocutory sale order pending our review, but observed
that “the sale does not appear to be imminent.” Id. Because the parties have given no
indication that the yacht has since been sold, and because the district court has yet to
release a final forfeiture order, we conclude that a live controversy is still before us.
No. 12-5175 United States v. Real Prop. et al. Page 4
III. INTERLOCUTORY SALE CLAIM
Rule G(7)(b)(i) of the Supplemental Rules for Admiralty or Maritime Claims and
Asset Forfeiture Actions establishes the following procedure for interlocutory sales
during forfeiture actions in rem:
Order to Sell. On motion by a party or a person having custody of the
property, the court may order all or part of the property sold if:
(A) the property is perishable or at risk of deterioration,
decay, or injury by being detained in custody pending the
action;
(B) the expense of keeping the property is excessive or is
disproportionate to its fair market value;
(C) the property is subject to a mortgage or to taxes on
which the owner is in default; or
(D) the court finds other good cause.
FED R. CIV. P. SUPP. G(7)(b)(i) (2009) (emphasis added). No one disputes that the yacht
is subject to a mortgage, and that the mortgage has been in default since December
2009.4 On this evidence, and on the basis of Rule G(7)(b)(i)(C), the district court
ordered an interlocutory sale.
Baniel and Coffman argue that the district court failed to recognize statutory
limitations applicable to Rule G(7). We review questions of law, including matters of
statutory interpretation, de novo. United States v. Parrett, 530 F.3d 422, 429 (6th Cir.
2008). When a district court exercises its discretionary authority to act, we review that
exercise for abuse of discretion. See Chaffey Lane III, at 3 (“The district court’s exercise
of discretion in ordering such a sale requires a ‘careful[] weigh[ing of] the competing
interests in each case’” (quoting FED R. CIV. P. SUPP. G(7) advisory comm. notes)); see
also United States v. Approximately 81,454 Cans of Baby Formula,
560 F.3d 638, 641
(7th Cir. 2009) (applying “a deferential standard of appellate review” to a Rule G(7)
sale).
4
Baniel and Coffman have offered to bring the mortgage current, but Bank of America has
declined the offer, and in any event has already accelerated and charged off the mortgage. R. 51 (Bank
of Am. Mem. in Opp’n at 1) (Page ID #319). Baniel and Coffman have also unsuccessfully sought to buy
out Bank of America’s interest at a discount from the original note value. R. 53 (Reply Mem. in Supp. of
Mot. for Release of Property at 4–5) (Page ID #331–32).
No. 12-5175 United States v. Real Prop. et al. Page 5
Baniel and Coffman argue that the district court incorrectly relied on Rule
G(7)(b)(i). In particular, they argue that the following two subsections of 18 U.S.C.
§ 981(g) constrain a court’s ability to order an interlocutory sale:
(1) Upon the motion of the United States, the court shall stay the civil
forfeiture proceeding if the court determines that civil discovery will
adversely affect the ability of the Government to conduct a related
criminal investigation or the prosecution of a related criminal case.
...
(6) Whenever a civil forfeiture proceeding is stayed pursuant to this
subsection, the court shall enter any order necessary to preserve the value
of the property or to protect the rights of lienholders or other persons
with an interest in the property while the stay is in effect.
The current matter is indeed a civil forfeiture proceeding that has been stayed while
criminal proceedings against Bryan continue. Chaffey Lane I, 2012 WL 529239, at *1.
Accordingly, Baniel and Coffman argue that an interlocutory sale is appropriate only if
it both satisfies Rule G(7)(b)(i) and also, in light of § 981(g)(6), “is necessary to protect
the asset’s value or the rights of lienholders and third parties.”5 Reply Br. at 1.
Baniel and Coffman are partially correct—procedures under Rule G(7) must be
employed consistently with applicable civil forfeiture statutes. See FED R. CIV. P. SUPP.
G(1) (“This rule governs a forfeiture action in rem arising from a federal statute.”)
(emphasis added). Title 18 U.S.C. § 981 (“Civil forfeiture”), as well as 18 U.S.C. § 983
(“General rules for civil forfeiture proceedings”), authorize civil forfeiture proceedings,
and the two statutes provide a basis for the government’s complaint. See R. 6 (Am.
Compl. at 3) (Page ID #33). But we disagree with Baniel and Coffman as to the
relationship between § 981(g)(6) and Rule (G)(7). The Supplemental Rules for
Admiralty or Maritime Claims and Asset Forfeiture Actions, which are part of the
Federal Rules of Civil Procedure, were adopted under the authority of the Rules
Enabling Act, 28 U.S.C. § 2072. See U.S. Express Lines Ltd. v. Higgins, 281 F.3d 383,
5
Baniel and Coffman further argue that multiple subsections of Rule G(7)(b)(i) must be satisfied
in order to permit an interlocutory sale—merely proving default, in this case, is not sufficient in their view.
Appellants Br. at 13; Reply Br. at 8–10. There is no statutory support for this position; Rule G(7)(b)(i)
is disjunctive, so any one disjunct can satisfy its terms.
No. 12-5175 United States v. Real Prop. et al. Page 6
390 (3d Cir. 2002). Rule G(7) thus provides a district court with authority that is
independent of 18 U.S.C. § 981. In particular, § 981(g)(6) governs situations, like this
one, where a civil forfeiture proceeding is stayed in light of a related criminal
investigation and prosecution. The plain text of § 981(g)(6) states that a district court
“shall enter any order necessary to preserve the value of the property or to protect the
rights of lienholders or other persons with an interest in the property while the stay is in
effect.” § 981(g)(6); cf. United States v. Certain Real Prop., Located at 317 Nick
Fitchard Rd., 579 F.3d 1315, 1321 & n.7 (11th Cir. 2009) (concluding that § 981
provides protection to property claimants, as well as criminal defendants, “while
retaining the usefulness of civil forfeitures in law enforcement activities”). The
implication of this requirement, then, is that a court may not enter an order that violates
§ 981(g)(6)—that is, an order that would destroy a property’s value or that would harm
the rights of persons with an interest in the property—because if it did, that same court
would have to issue a new order that undid the violating order. Accordingly, an order
for interlocutory sale of property subject to a stayed civil forfeiture proceeding must be
made consistent both with the requirements of Rule G(7) and with obligations imposed
by § 981(g)(6).6
We disagree with Baniel and Coffman, however, as to what duties § 918(g)(6)
imposes. They claim that “a court shall only enter orders that are ‘necessary’ to preserve
the value of allegedly forfeitable property or to protect the rights of lienholders.”
Appellants Br. at 11 (first emphasis added). This reading creates a threshold to judicial
action that does not exist in the statute. Section 981(g)(6) requires a court to enter an
order where necessary either to preserve property value or to protect the rights of
interested parties. But it does not preclude a court from acting where neither of these
concerns are manifest. Rather, to the extent that § 981(g)(6) constrains a court’s ability
6
In suggesting that Rule G(7) may be applied without constraints, the government directs us to
the following rule of criminal procedure: “At any time before entry of a final forfeiture order, the court,
in accordance with Supplemental Rule G(7) of the Federal Rules of Civil Procedure, may order the
interlocutory sale of property alleged to be forfeitable.” FED. R. CRIM. P. 32.2(b)(7). However, Rule
32.2(b)(7) deals with criminal forfeitures, whereas here we are presented with a civil forfeiture proceeding.
No. 12-5175 United States v. Real Prop. et al. Page 7
to order an interlocutory sale under Rule G(7), it does so where an interlocutory sale
would diminish the asset’s value or harm the rights of a lienholder or third party.
With the statutory understanding in place, we conclude that the district court did
not abuse its discretion in ordering an interlocutory sale. First, it is uncontested that the
yacht is “is subject to a mortgage . . . on which the owner is in default,” and so Rule G(7)
is satisfied. Second, § 981(g)(6) does not prohibit a sale on these facts. The value of the
underlying property is not at risk from an interlocutory sale, because the yacht will be
sold “in a commercially reasonable manner taking into account the characteristics of the
yacht.” Chaffey Lane I, 2012 WL 529239, at *2. And, because the yacht is subject to
a defaulted mortgage, Baniel and Coffman’s interest in the property is still adequately
protected. As the district court explained when denying a stay of this order, because of
its default, “Baniel has no right to the yacht itself. At best, Baniel would have a right to
any proceeds remaining after the note is paid and that right has no bearing on whether
the yacht should be sold.” Chaffey Lane II,
2012 WL 1380239, at *3. Neither Baniel’s
nor Coffman’s rights are harmed by an interlocutory sale. Accordingly, the district court
did not abuse its discretionary authority under Rule G(7) to order a sale, and did not run
afoul of any constraints emanating from § 981.
Finally, we have granted the government’s motion to strike two arguments—that
the district court violated Rule G(7)(b)(iv), and that the inability to recover the yacht
violated due process—on the basis that they are first developed in Baniel and Coffman’s
reply brief; we therefore have no occasion to address these arguments. See Hills v.
Kentucky, 457 F.3d 583, 588 (6th Cir. 2006) (citing Thaddeus-X v. Blatter,
175 F.3d 378,
403 n.18 (6th Cir. 1999) (en banc)), cert. denied,
549 U.S. 1130 (2007).
IV. CONCLUSION
For the reasons stated above, we AFFIRM the judgment of the district court.
