WILLIAM D. QUARLES, JR., District Judge.
Rodney Hailey ("Mr. Hailey") was convicted of wire fraud, money laundering, and Clean Air Act violations, and the Court has ordered preliminary forfeiture. Mr. Hailey's wife, Tracey Oliver Hailey ("Mrs. Hailey"), claims an interest in some of the forfeited property. Pending are the government's motions to compel compliance with discovery under 21 U.S.C. § 853(m), to dismiss Mrs. Hailey's claims, and to require compliance with 21 U.S.C. § 853(n)(3) and for permission to conduct discovery. For the following reasons, the motions to compel and for discovery will be granted. The motion to dismiss will be granted in part and denied in part.
From September 2009 to December 2010, Hailey engaged in a scheme to sell more than 32 million fake renewable credit identification numbers through his company Clean Green Fuel. See ECF No. 117 at 1-2. On June 25, 2012, a jury convicted Mr. Hailey of eight counts of wire fraud, 32 counts of money laundering, and two counts of violation of the Clean Air Act. See ECF No. 109. On August 22, 2012, the Court ordered the preliminary forfeiture of 156 assets. ECF Nos. 118, 118-1.
On October 1, 2012, the government deposed Mrs. Hailey. ECF No. 134-2. Throughout the deposition, Mrs. Hailey objected to and did not answer many questions, claiming the spousal privilege against adverse testimony. See generally id.
On October 16, 2012, Mrs. Hailey claimed an interest in several forfeited assets. ECF No. 128; see also 129, 132 (amendments). As stated by Mrs. Hailey, her claimed property interests are:
Asset No. Description of Nature of Date Circumstances Property Interest in Interest of Acquisition Property Acquired of Interest 4 2008 Mercedes Registered Owner 4/26/10 Gift from Benz S550 Rodney Hailey VINWDDNG86XX8A 203803 (Count 11)1 8 2007 BMW 650IC Registered Owner 5/5/10 Gift from Convertible Rodney Hailey VINWBAEK13507C N80532 (Count 14) 13 2005 Rolls Registered Owner 5/28/10 Gift from Royce Phantom Rodney Hailey VINSCA1S68455U X07532 (Count 19)
14 Real property located at Tenants by the 6/3/10 Purchased with funds 10801 Catron Road, Entirety with from Rodney Hailey's Perry Hall, MD Rodney Hailey business (Count 20) 19 2009 Ferrari F 430FB Registered Owner-Joint 7/20/10 Gift from VINZFFEW58A490 with Rodney Rodney Hailey 166292 (Count 24) Hailey 20 Real property Tenants by the 7/30/10 Purchased with funds located at Entirety with Rodney from Rodney Hailey's 9149 Rexis Hailey business Avenue, Perry Hall, MD (Count 25) 23 2010 Maserati Registered Owner 8/10/10 Gift from Rodney Quattroporte, Hailey VINZAM39JKA7A0 049840 (Count 28) 33 White gold diamond Owner 3/1/10 Gift from Rodney ring, setting has 48 Hailey princess cut smaller diamonds (approx. 3.75 ct) with a larger diamond in the center (approx. 4.18 ct) (pp: $19,600) (Count 36) 34 Diamond bracelet, white Owner 8/25/10 Gift from Rodney gold with detailed Hailey clasp (pp: $12,000) (Count 37) 35 Diamond round hoop Owner 12/10/10 Gift from Rodney earrings, white gold Hailey with round cut diamonds set throughout earrings (pp: $10,900) (Count 38) 36 Diamond Three Prong Owner 12/10/10 Gift from Rodney "Tennis Necklace," Hailey white gold and contains single round cut stones set throughout the whole necklace (approx. 1 inch wide and 8 inches long with approx. 23.94 ct in diamonds) (pp: $26,000) (Count 39) 37 Diamond bracelet, 25.90 Owner 7/31/10 Gift from Rodney ct in diamonds with 137 grams Hailey in 14kt white gold (pp: $13,000) (Count 40) 57 Funds seized Account Owner 6/6/05-5/18/11 Funds from from M& Account Owner Tracey Hailey's T Bank Account employment #9837373027 ($30,289.14) 85 Assorted Jewelry (VL: Owner of most of the Various Some items purchased $5,292.85) items of jewelry by Tracey Hailey earnings; one item gift from Rodney Hailey; other items gifts from other people
86 Assorted Disney Mother and Next February Gifts from Rodney and Collectible Frame Art Friend of her minor 2010 Tracey Hailey to Work (VL: $4,559.50) children children 93 Funds seized from JP Account Owner 6/27/11 Funds from distribution Morgan Chase Account of 974934051 ($5,475.67) Tracey Hailey's GDIT 401(k) Plan 96 2005 Nissan Armada Registered Owner 6/18/05 Loan payments VIN5N1AA08B55N made from 731441 Tracey Hailey's earnings 97 2003 Mercedes Benz Registered Owner 12/19/06 Loan payments made E320 from Tracey Hailey's VINWDBUF65J23A earnings 148 Funds seized from Account Owner 11/4/11 Funds from 2010 SunTrust Account income tax #1000140053496 refunds (IRS and MD), which were based on Tracey Hailey's wages and withholding 152 1 set of Nissan Alloy Owner 6/18/05 Rims/tires go with rims/tires — Hankook #96; are original DynaPro 265/70/18 equipment 153 1 set of BMW rims/tires Owner 5/5/10 Rims/tires go with #8; 255/40/ZR19 are original equipment N/A Funds seized from M & Owner Various Funds represent T Bank accounts in the $61,655 from Tracey amount of $61,655 Hailey's employment (See ECF No. 116 at 2; ECF No. 117 at 3.)
On October 26, 2012, the government moved to compel Mrs. Hailey to testify at a deposition, and filed a declaration that it would not use any of her testimony in a future criminal prosecution against Mr. Hailey. ECF Nos. 134, 134-3. On November 8, 2012, Mrs. Hailey opposed the motion, ECF No. 137, and on November 13, 2012, the government replied, ECF No. 139. Also on November 13, 2012, the government sought a final order of forfeiture on all unclaimed assets.
On November 19, 2012, the government moved to dismiss Mrs. Hailey's claims on Assets 4, 8, 13, 14, 19, 20, 23, 33, 34, 35, 36, 37, 86, and 153. ECF No. 141. On December 3, 2012, Mrs. Hailey opposed, and on December 6, 2012, ECF No. 146, the government replied, ECF No. 148.
On December 4, 2012, the government sought an order compelling Mrs. Hailey to comply with 21 U.S.C. § 853(n)(3) and permitting discovery. ECF No. 147. On December 21, 2012, Mrs. Hailey responded, ECF No. 152, and on January 2, 2013, the government replied, ECF No. 153.
The government seeks to compel Mrs. Hailey's deposition testimony and production of documents under 21 U.S.C. § 853(m).
Under Fed.R.Evid. 501, the common law of privilege, as interpreted by the federal courts, remains in effect unless it conflicts with the Constitution, a federal statute, or rule. The Supreme Court has recognized the continued validity of two spousal privileges: confidential marital communications and adverse spousal testimony. See Trammel v. United States, 445 U.S. 40, 51, 100 S.Ct. 906, 63 L.Ed.2d 186 (1980). Mrs. Hailey asserts the latter. See ECF Nos. 134-2, 137. In an attempt to defeat the privilege, the government has filed a declaration that it will not use or make derivative use of any information from Mrs. Hailey's deposition in a future criminal prosecution of Mr. Hailey. ECF No. 134-3.
Under Trammel, the witness-spouse holds the privilege and may "refuse to testify adversely" against the defendant-spouse in a criminal proceeding.
There appears to be a single reported decision on point: United States v. Yerardi, 192 F.3d 14 (1st Cir.1999).
On appeal, the First Circuit held that the criminal forfeiture proceeding was sufficiently criminal for potential application of the privilege. Id. at 19. It found that the questions the government was going to ask about the allegedly concealed assets could reasonably lead to Yerardi's prosecution "for tax evasion or related crimes." Id. at 20. However, the government's filing of an affidavit that it would not use or make derivative use of Feghi's testimony in a subsequent prosecution of Yerardi would eliminate the privilege. Id. at 20-21.
The First Circuit expressed skepticism that the recovery of assets alone — without the possibility of a subsequent criminal prosecution — would be sufficiently adverse to trigger the privilege:
Id. at 20. The Yerardi court likened recovery of forfeited assets to a recovery in a civil case, in which a spouse may be compelled to testify, in contrast with "the criminal conviction or incarceration of the other spouse." Id. at 20 (emphasis in original).
Mrs. Hailey asserts that helping the government recover forfeited assets, which — unlike in Yerardi — have not been disclaimed by Mr. Hailey, is sufficiently adverse to Mr. Hailey that she may claim the privilege. ECF No. 137 at 2. The government contends that this is the logic rejected by the First Circuit in Yerardi. ECF No. 139 at 3.
Like all common law privileges, the adverse spousal testimony privilege "must be strictly construed." See Trammel, 445 U.S. at 50, 100 S.Ct. 906. Although the exact contours of the adverse spousal testimony privilege are somewhat nebulous, see Yerardi, 192 F.3d at 19, its function is "to exclude evidence of criminal acts." Trammel, 445 U.S. at 51, 100 S.Ct. 906. Mrs. Hailey has not argued that that the location or disposition of Mr. Hailey's assets is per se criminal. Further, criminal "forfeiture represents a penalty, rather than a separate criminal offense or an element of a criminal offense." United States v. Cherry, 330 F.3d 658, 669 (4th Cir.2003). The courts of appeal have also equated in personam
Construing the adverse spousal testimony privilege strictly, a criminal forfeiture proceeding is sufficiently distinct from criminal conviction and imprisonment that the privilege does not apply when the only potential consequence is the recovery of forfeited assets. See Yerardi, 192 F.3d at 20. The government has filed an affidavit that it will not use or make derivative use of any information from Mrs. Hailey in a future prosecution of Mr. Hailey. ECF No. 134-3. Accordingly, there is no criminal risk to Mr. Hailey from Mrs. Hailey's testimony, and the adverse spousal testimony privilege does not apply. The motion to compel will be granted.
The government seeks dismissal of Mrs. Hailey's claims to assets 4, 8, 13, 14, 19, 20, 23, 33, 34, 35, 36, 37, 86, and 153. ECF No. 141. Mrs. Hailey argues that her claim in asset 4 predates the offense and presents "policy reasons" why the Court should not dismiss the others. ECF No. 146.
Under Fed.R.Crim.P. 32.2(c)(1)(A) the Court may dismiss a petition for failure to state a claim. The motion is treated the same as a motion to dismiss a civil complaint under Fed.R.Civ.P. 12(b)(6).
A third-party claimant is entitled to a forfeited asset only if she had an interest vested or superior to the defendant before the commission of the offense or was a bona fide purchaser for value. See 21 U.S.C. § 853(n)(6)(A)-(B); see United States v. Oregon, 671 F.3d 484, 488 & n. 1 (4th Cir.2012). Under 21 U.S.C. § 853(c), property interest that would have belonged to Mr. Hailey "vest[ed] in the United States upon the commission of the act giving rise to forfeiture." All of the assets that the government seeks to dismiss, except for asset 86, were the subjects of the money laundering convictions. See ECF Nos. 109, 132-1.
Mrs. Hailey claims to have a prior interest in Asset 4, the 2008 Mercedes Benz, because she acquired title to the vehicle on April 26, 2010; the indictment alleges that Mr. Hailey engaged in money laundering in this asset on April 27, 2010. ECF No. 146. The government asserts that the car is subject to forfeiture. ECF No. 148.
Because the car was a gift from Mr. Hailey, Mrs. Hailey cannot have acquired her interest before Mr. Hailey acquired his. Because the car was purchased with criminal proceeds, an element of the money laundering offense of which Mr. Hailey was convicted,
The government seeks dismissal of Mrs. Hailey's claim to Asset 86, "Assorted Disney Collectible Frame Art Work," because it is a substitute asset under 21 U.S.C. § 853(p).
The government asserts that under the relation back doctrine,
Mrs. Hailey claims that she acquired an interest in the Disney artwork as mother and next friend of her children in February 2010. ECF No. 132-1 at 2. She claims that the items were "Gifts from Rodney and Tracey Hailey to children." ECF No. 132-1. The portions of the asset attributable to Mr. Hailey's gifts are tainted as substitute assets because February 2010 is after the beginning of the wire fraud scheme. See United States v. Capoccia, 503 F.3d 103, 117-18 (2d Cir.2007); McHan, 345 F.3d at 271-72. However, Mrs. Hailey may have purchased some portions of the collection, leading to a vested interest separate from Mr. Hailey's in at least part of the asset. Because Mrs. Hailey may be entitled to a portion of the artwork, the motion will be denied as to Asset 86.
The government argues that Mrs. Hailey cannot show that she obtained an interest in the remaining assets before Mr. Hailey purchased them with the proceeds of the crime. ECF No. 141. Mrs. Hailey opposes the motion on policy grounds. See ECF No. 146.
The jury found beyond a reasonable doubt that all the assets for which dismissal is sought, except Asset 86, were purchased through laundering the proceeds of Mr. Hailey's crimes. See ECF No. 109. Mrs. Hailey claims an interest because the items were either a gift from Mr. Hailey or purchased with funds from his business. See ECF No. 132-1. Because the jury found that each of these assets was obtained through money laundering, neither Mr. nor Mrs. Hailey ever obtained an interest; title vested in the government upon commission of the offense.
Mrs. Hailey makes two policy arguments against granting the motion to dismiss: (1) it would deny her a hearing regarding these assets, and (2) would not result in judicial economy. ECF No. 146 at 3. The government asserts that dismissal without a hearing is the purpose of Rule 32.2(c)(1)(A) and that a hearing soon on the other assets is unlikely. ECF No. 148 at 4-5.
Mrs. Hailey is correct that granting the motion to dismiss would deprive her of a hearing on these assets. However, this is the procedure contemplated by Fed.R.Crim.P. 32.2(c)(1)(A). The purpose of a motion to dismiss is to remove claims that, even assuming all alleged facts as true, are not a basis for relief. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (U.S.2007). Because Mrs. Hailey cannot succeed on the merits on the facts alleged, there is no reason for a hearing. See United States v. BCCI Holdings (Luxembourg), S.A., 919 F.Supp. 31, 36 (D.D.C.1996).
Further, judicial economy will be served by not holding a hearing on these assets. The assets may be sold sooner enabling the government access to forfeited funds. An eventual hearing will be shorter and less complex. Accordingly, there is no policy reason to refrain from granting the motion. The government's motion will be granted, except as to Asset 86.
The United States asks the Court to compel Mrs. Hailey to comply with the pleading requirements of 21 U.S.C. § 853(n)(3) and for permission to conduct discovery. ECF No. 147. Mrs. Hailey asserts that her petition is compliant; she does not appear to oppose the discovery request. ECF No. 152.
A petition for a third party interest in forfeited property must
21 U.S.C. § 853(n)(3). The government contends that Mrs. Hailey has not provided sufficient information about her claims to justify her continued ownership and has not stated whether she seeks them as holder of a superior interest or as a bona fide purchaser for value. ECF No. 147; see 21 U.S.C. § 853(n)(6)(A)-(B). Mrs. Hailey asserts that she has met the requirements of § 853(n)(3).
Although the statute is not entirely clear, the availability of a motion to dismiss indicates that to state a claim, one of the § 853(n)(6) bases must be pled.
Conclusionary allegations of ownership and purchase with funds from employment is insufficient under § 853(n)(3). See United States v. Ginn, 799 F.Supp.2d 645, 647 (E.D.La.2010). "[T]he law requires more than a bare assertion of legal title to establish the nature and extent of petitioner's right, title or interest in the subject property." United States v. Edwards, Crim. No. 06-50127-01, 2007 WL 2088608, at *2 (W.D.La. July 20, 2007).
Mrs. Hailey has not adequately stated the nature of the interest that she claims in the property. She claims that several assets derive from her employment, but she does not specify what that employment is or whether it is connected with Mr. Hailey's offenses (thus, potentially making those assets subject to forfeiture). See ECF No. 132-1. Similarly, she has not alleged whether she seeks recovery under § 853(n)(6)(A) or (B). Cf. id.
Rather than seek dismissal for these deficiencies, the government seeks clarification of the petition. See ECF No. 147. Amendment will simplify the Court's inquiry at a hearing and will provide clearer guidance for what discovery is needed. Accordingly, Mrs. Hailey will be ordered to amend her petition to fully state how she gained her interest in the property, particularly the nature of her employment, whether she is seeking relief under § 853(n)(6)(A) or (B),
The government seeks discovery about the assets claimed by Mrs. Hailey. ECF No. 147. Mrs. Hailey has acknowledged the potential utility of discovery. ECF No. 152 at 4.
Under Fed.R.Crim.P. 32.2(c)(1)(B), the Court may order discovery if it "determines that discovery is necessary or desirable to resolve factual issues." Here it appears that there are factual issues to be resolved regarding the source of funds to Mrs. Hailey and the provenance of the Disney artwork. It is desirable that evidence on these issues be disclosed via discovery before a hearing. After Mrs. Hailey has amended her petition, the parties will be permitted to conduct discovery under the Federal Rules of Civil Procedure. The government's motion will be granted.
For the reasons stated above, the government's motions to compel and for discovery will be granted. The motion to dismiss will be granted in part and denied in part.
For the reasons discussed in the accompanying Memorandum Opinion, it is, this 20th day of February, 2013, ORDERED that:
