United States of America v. Real Property Located at 6415 North Harrison Avenue, Fresno, Fresno County, California, APN: 407-751-08

Filing 19

MEMORANDUM DECISION AND ORDER Re: 12 Motion to Dismiss, signed by Judge Oliver W. Wanger on 6/27/2011. (Claimants motion to dismiss is DENIED, without prejudice.) (Gaumnitz, R)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 EASTERN DISTRICT OF CALIFORNIA 6 7 1:11-cv-00304-OWW-SKO 8 UNITED STATES OF AMERICA, 9 Plaintiff, MEMORANDUM DECISION AND ORDER RE: MOTION TO DISMISS (Doc. 12) 10 11 12 13 v. REAL PROPERTY LOCATED AT 6415 N. HARRISON AVE., FRESNO, CALIFORNIA APN:407-751-08, Defendant. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. INTRODUCTION. On February 22, 2011, the United States filed a complaint for forfeiture in rem against Real Property Located at 6415 N. Harrison Avenue, Fresno, Fresno County, California. (Doc. 1). On May 2, 2011, claimants Bok Hee Ee and Judy Ee (“Claimants”) filed a motion to dismiss. opposition on May 27, 2011. June 3, 2011. (Doc. 12). (Doc. 15). The United States filed Claimants filed a reply on (Doc. 16). II. FACTUAL BACKGROUND. The defendant in this action is real property located at 6415 North Harrison Avenue, Fresno, Fresno County, California, APN: 407-751-08 (“the Property”), described as follows: Lot 2 of Tract No. 3600, Craycroft Village, according to the map thereof recorded in Volume 42, Page 1 of Plats, 1 1 Fresno County Records. APN: 407-751-08 2 The recorded owners of the Property are Bok Hee Ee (“Ee”), a widow, 3 and her daughter Judy C. Ee, a single woman, as joint tenants. Bok 4 Hee Ee purchased the Property in 1993. On or about January 23, 5 2001, Bok Hee Ee opened a Home-Equity Line of Credit (“HELOC”) with 6 Bank of the West secured by the equity value of the Property. 7 Ee married Kwan Yong Choi (“Choi”) in October 2004. The 8 complaint alleges that an investigation conducted by Immigration 9 and Customs Enforcement (“ICE”) from February 2009 to February 2010 10 revealed that Ee and Choi used the HELOC to launder funds from 11 fraudulent investment schemes perpetrated by Choi. Choi was 12 indicted on May 27, 2010 for money laundering in violation of 18 13 U.S.C. §§ 1956 and 1957; Choi’s criminal case is pending. 14 According to the complaint, Choi placed fraudulently obtained 15 funds into a Bank of America business account number ***9021 (“9021 16 Account”) and a personal Bank of America account number ***838 17 (“838 Account”). Choi used funds from the 9021 Account and 838 18 Account to fund checks deposited into the following accounts: 19 20 a. Hanmi Bank account number ***753 dba Trinity California Theological Seminary controlled by Choi; 21 b. Bank of America account number *** 575 in the name of Kwan Choi (hereafter “BoA575"); 22 23 c. Bank of the West account number ***286 in the name of Bok Ee (hereafter “BoW286"); 24 d. Bank of the West account number ***166 in the name of Bok Ee (hereafter “BoW166"); and, 25 26 e. Bank of America account number ***159 in the name of Bok Choi, the married name of Bok Ee (hereafter “BoA159"). 27 Funds from these five accounts were used to service the HELOC. 28 2 1 Funds from the HELOC were then placed back into Ee’s Bank of 2 America ***159 and Bank of the West ***166 accounts. III. LEGAL STANDARD. 3 4 Motions to dismiss in rem forfeiture actions are governed by 5 Federal Rule of Civil 6 Supplemental Rules for Admiralty or Maritime Claims and Asset 7 Forfeiture Actions. 8 Dismissal under Procedure Rule 12(b) 12(b)(6) is and Rule appropriate G of where the the 9 complaint lacks sufficient facts to support a cognizable legal 10 theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th 11 Cir.1990). To sufficiently state a claim to relief and survive a 12 12(b) (6) motion, the pleading "does not need detailed factual 13 allegations" but the "[f]actual allegations must be enough to raise 14 a right to relief above the speculative level." Bell Atl. Corp. v. 15 Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). 16 Mere "labels and conclusions" or a "formulaic recitation of the 17 elements of a cause of action will not do." Id. Rather, there must 18 be "enough facts to state a claim to relief that is plausible on 19 its face." Id. at 570. In other words, the "complaint must contain 20 sufficient factual matter, accepted as true, to state a claim to 21 relief that is plausible on its face." Ashcroft v. Iqbal, --- U.S. 22 ----, ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal 23 quotation marks omitted). 24 The Ninth Circuit has summarized the governing standard, in 25 light of Twombly and Iqbal, as follows: "In sum, for a complaint to 26 survive a motion to dismiss, the nonconclusory factual content, and 27 reasonable 28 suggestive of a claim entitling the plaintiff to relief." Moss v. inferences from that 3 content, must be plausibly 1 U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.2009) (internal 2 quotation marks omitted). Apart from factual insufficiency, a 3 complaint is also subject to dismissal under Rule 12(b)(6) where it 4 lacks a cognizable legal theory, Balistreri, 901 F.2d at 699, or 5 where the allegations on their face "show that relief is barred" 6 for some legal reason, Jones v. Bock, 549 U.S. 199, 215, 127 S.Ct. 7 910, 166 L.Ed.2d 798 (2007). 8 In deciding whether to grant a motion to dismiss, the court 9 must accept as true all "well-pleaded factual allegations" in the 10 pleading under attack. Iqbal, 129 S.Ct. at 1950. A court is not, 11 however, "required to accept as true allegations that are merely 12 conclusory, 13 inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 14 (9th Cir.2001). "When ruling on a Rule 12(b)(6) motion to dismiss, 15 if a district court considers evidence outside the pleadings, it 16 must normally convert the 12(b)(6) motion into a Rule 56 motion for 17 summary 18 opportunity to respond." United States v. Ritchie, 342 F.3d 903, 19 907 court 20 materials-documents 21 incorporated by reference in the complaint, or matters of judicial 22 notice-without converting the motion to dismiss into a motion for 23 summary judgment." Id. at 908. (9th unwarranted judgment, and Cir.2003). "A deductions it must attached of give may, to fact, the unreasonable nonmoving however, the or party consider complaint, an certain documents 24 Pursuant to Rule G of the Supplemental Rules for Admiralty or 25 Maritime Claims, a forfeiture complaint must "state sufficiently 26 detailed facts to support a reasonable belief that the government 27 will be able to meet its burden of proof at trial." 28 Admiralty or Maritime Cl. and Asset Forfeiture Actions Rule E 4 Supp. R. G for 1 requires the complaint to "state the circumstances from which the 2 claim arises with such particularity that the defendant or claimant 3 will be able, without moving for a more definite statement, to 4 commence an investigation of the facts and to frame a responsive 5 pleading." Supp. R. E(2)(a) for Admiralty or Maritime Cl. and Asset 6 Forfeiture Actions. IV. DISCUSSION. 7 8 9 A. Statute of Limitations Claimants assert that the United States’ action is time 10 barred. 11 “commenced within five years after the time when the alleged 12 offense was discovered.” United States v. 874 Gartel Drive, 79 F.3d 13 918, 922 (9th Cir. 1996) (citing 19 U.S.C. § 1621). 14 statutory period begins to accrue only upon discovery of the 15 offense, not with the commission thereof.” 16 Pursuant to 19 U.S.C. § 1621, a forfeiture action must be According to the complaint, the “The Id. money laundering scheme 17 underlying the United States’ forfeiture action was not discovered 18 until, at the earliest, February 2009, when the United States began 19 its investigation into Choi and Bok Ee. 20 complaint in this action was filed in 2011, within the five-year 21 period proscribed by section 1621. 22 23 24 25 (Compl. at 3). The Claimants invoke the one-year statute of limitations set forth in 18 U.S.C. § 984(b). Section 984 applies: [i]n any forfeiture action in rem in which the subject property is cash, monetary instruments in bearer form, funds deposited in an account in a financial institution...or precious metals. 26 27 18 U.S.C. § 984(a)(1). The United State’s complaint does not seek 28 forfeiture of the types of property 5 identified in section 1 984(a)(1); the 2 property. By its own terms, section 984 does not apply to the 3 instant action. 4 of limitations for the United States’ forfeiture claim. 5 B. Claimants’ Arguments Regarding Traceability 6 Claimants United Id. States seeks only forfeiture of real Section 1621 provides the applicable statute contend that “to forfeit property as direct 7 ‘traceable proceeds’ the government literally has to trace the 8 exact same identifiable assets from the tainting act into the res.” 9 (Motion to Dismiss at 9). Claimants cite no authority in support 10 of their argument, which is contrary to Ninth Circuit law. Tracing 11 of money for the purposes of section 981 does not require that the 12 identical money be traced. 13 in the Amount of $ 58,654.11, 122 F.3d 1263, 1264 (9th Cir. 1997). 14 As the Second Circuit has explained: 15 16 17 18 19 20 21 22 23 24 25 26 27 E.g., United States v. Check No. 25128 Where the credit in a depositor's account represents the net results of transactions that include a deposit of drug money, there is a plausible argument to be made either that the account contains the "traceable proceeds" of the tainted deposit (so long as the balance has not fallen below the amount of the tainted deposit) or that any withdrawal (in excess of the tainted deposit) contains the "traceable proceeds" of such a deposit. Which approach reflects reality in any particular case will depend on the precise circumstances. For example, if a depositor placed a $ 175 check from his automobile insurer in payment of a damage claim into an account that contained $ 100 from a drug sale and the next day paid a $ 175 bill for car repairs, a fact-finder would be entitled to conclude that the $ 175 withdrawal did not contain "traceable proceeds" of the drug transaction but solely the "traceable proceeds of the insurance payment, with the tainted deposit remaining in the account. Obviously few cases will present facts that neatly match untainted deposits with withdrawals, and the real question therefore becomes which side bears the risk of the inevitable uncertainty that will arise in most cases. Congress has answered that question in the Government's favor by assigning it a lenient burden of proof in obtaining forfeiture of "traceable proceeds" of drug transactions. 28 6 1 United States v. Banco Cafetero Panama, 797 F.2d 1154, 1159-1160 2 (2nd Cir. 1986) superceded on other grounds by statute as stated in 3 United States v. Contents in Account No. 059-644190-69, 253 F. 4 Supp. 2d 789, 795 (D. Vermont 2003). 5 The only case cited in Claimants’ motion concerning their 6 traceability argument is United States v. All Funds Presently on 7 Deposit at Am. Express Bank, 832 F. Supp. 542, 560 (E.D.N.Y 1993). 8 The selective quotation from All Funds provided by Claimants, 9 however, is from a passage in which the court was quoting a portion 10 of the legislative history of section 984. Not only is All Funds 11 inapposite, it does not even stand for the proposition Claimants 12 cite it for: that “when proceeds are commingled in a bank account 13 with clean money, the trail of ‘directly traceable proceeds’ ends.” 14 (Motion to Dismiss at 8). 15 The complaint alleges facts sufficient to support a reasonable 16 belief that the government will be able to meet its burden of proof 17 at trial of establishing that the Property is derived, at least in 18 part, from proceeds traceable to offenses identified in section 19 981. 20 1191, 1196 (9th Cir. 1999) (increased equity value of real property 21 traceable to tainted funds subject to forfeiture); see also United 22 States v. 216 Kenmore Ave., 657 F. Supp. 2d 1060, 1069 (D. Minn. 23 2009) 24 laundering activity where monies were used to pay property taxes 25 and conduct See, e.g., United States v. 3814 NW Thurman St., 164 F.3d (holding that real renovations).1 property was Claimants’ “traceable motion to to” money dismiss the 26 27 28 1 There are potential problems with the government's tracing based claims, but Claimants have not identified them. It does not appear that the entire property is subject to forfeiture under the government's tracing-based claims; rather, 7 1 Government’s tracing-based claims is DENIED, without prejudice. 2 C. Claimants’ Arguments Concerning 981(a)(1)(A) 3 Claimants contend that the Property was not “involved in” the 4 alleged money laundering transactions within the meaning of section 5 981(a)(1)(A).2 6 Claimants aver that the fact that the line of credit was secured was merely incidental or fortuitous – it did not make the underlying criminal offense “less difficult or more or less free from obstruction or hindrance.” United States v. Schifferli, 895 F.2d 987 (4th Cir. 1990). 7 8 9 (Motion to Dismiss at 10). In Schifferli, the Fourth Circuit 10 adopted the facilitation approach to determining whether property 11 was “involved in” criminal conduct. See Schifferli, 895 F.2d at 12 990. Although section 981(a)(1)(A) does not contain the words 13 “facilitate” or “facilitating,” numerous courts have concluded that 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 only the equity value of the property traceable to tainted funds appears to be subject to forfeiture. See, e.g., NW Thurman St., 164 F.3d at 1196 (holding that increased equity value of real property traceable to tainted funds subject to forfeiture). Several district courts have noted a distinction between forfeiture claims against real property based on “traceability” and claims based on the property’s actual involvement in money laundering. E.g., In re 650 Fifth Ave. & Related Props., 2011 U.S. Dist. LEXIS 34295 *100-101 n. 11 (S.D.N.Y. 2011) (noting distinction between 981(a)(1)(C) claims and 981(a)(1)(A) claims);United States v. Real Prop. at 7401-7403 S. Racine, 2010 U.S. Dist. LEXIS 31465 *24 (N.D. Ill. 2010) (same). Unlike the government’s claim under section 981(a)(1)(A), the government’s tracing-based claim may not apply to the entire value of the property, but rather only to the portion of the equity value traceable to laundered funds. This issue has not been briefed. Ultimately, it appears seems the government’s tracing claims are redundant an unnecessary in light of the government’s section 981(a)(1)(A) claim. Tracing is unnecessary to the extent that the property was “involved in” laundering. 2 Claimants also invoke the “substantial connection” requirement set forth in 18 U.S.C. § 983(c)(3). Section 983(c)(3) sets forth the applicable burden of proof in cases where the government’s theory is that property was involved in the commission of an offense. The government need not satisfy its burden of proof at the pleading phase, however. See, e.g., United States v. $ 11,500.00 in United States Currency, 2010 U.S. Dist. LEXIS 76868 (D. Oregon 2010) (distinguishing pleading burden from burden at trial under section 983). As discussed above, the United State’s has satisfied its pleading burden by alleging facts sufficient to support a reasonable belief that the Property was involved in money laundering. 8 1 the 2 facilitate an offense. 3 Account No. 90-3617-3, 754 F. Supp. 1467, 1473 (D. Hawaii 1991); 4 see also In re 650 Fifth Ave. & Related Props., 2011 U.S. Dist. 5 LEXIS 34295 *92-94 (S.D.N.Y. 2011) (collecting cases).3 6 phrase "property involved in" includes property used to E.g., United States v. All Monies In Property need not be indispensable to the commission of an 7 offense in order to be “involved in” the offense. 8 United States v. 3639-2nd St., N.E., 869 F.2d 1093, 1096 (8th Cir. 9 1989). 10 See, e.g., As the district court explained in All Monies In Account No. 90-3617-3: 11 Facilitating property is forfeitable if it makes the underlying criminal activity less difficult or "more or less free from obstruction or hindrance." There must be more than an incidental or fortuitous connection between the property and the illegal activity, but the property need not be indispensable to the commission of the offense. Nor does the property need to be used exclusively for illegal activity. 12 13 14 15 754 F. Supp. at 1473 (citations omitted). 16 Several courts have held that real property is “involved in” 17 a money laundering offense if laundered funds are used to make 18 payments toward purchase of the property and to pay for 19 improvements. See In re 650 Fifth Ave, 2011 U.S. Dist. LEXIS 34295 20 at * 99 (citing United States v. Myers, 21 F.3d 826, 831 (8th Cir. 21 22 23 24 25 26 27 28 3 Claimants attempt to distinguish In re 650 on the basis that, in that case, “the real property being forfeited there was itself the alleged vehicle generating the income from specified unlawful activity.” (Reply at 6). However, the distinction Claimants raise is actually harmful to their position. In re 650 held “here...[t]he Building was merely the source of the money laundered; it was not involved in the laundering itself. The Building as a whole therefore cannot be forfeited as having been ‘involved in’ money laundering.” Id. (emphasis added). The basis for the holding in In re 650 was not that the building was the source of the tainted money; rather, the court held that the building was subject to forfeiture because tainted money was used to maintain the building. Id. at *100. Here, the complaint alleges that tainted money was used to increase the equity value of the Property and that the Property itself was used to facilitate money laundering. 9 1 1994); United States v. 10.10 Acres Located on Squires Road, 386 F. 2 Supp. 2d 613, 616 (D.N.C. 2005); United States v. Schlesinger, 261 3 Fed. Appx. 355, 36 (2nd Cir. 2008); and United States v. 216 4 Kenmore Ave., 657 F. Supp. 2d 1060, 1069 (D. Minn. 2009) (tracing 5 theory)). 6 fraudulent scheme into the business operating accounts of companies 7 he ran at the premises and then used funds from the operating 8 accounts to pay the companies' monthly lease and tax expenses. 9 261 Fed. Appx. At 361. In Schlesinger, a defendant deposited the proceeds of a The Second Circuit affirmed the district 10 court’s finding that the premises “served as a conduit for the 11 proceeds of illegal transactions,” making the premises subject to 12 forfeiture. Id. 13 a forfeitable 14 activity” where a defendant made substantial payments on a real 15 estate contract for the farm and paid for improvements on the farm 16 with laundered funds. 17 farm was Similarly, in Myers, the Eight Circuit held that because it was “involved in criminal Here, the complaint alleges sufficient facts to support a 18 forfeiture claim under the theory that Property was the conduit 19 through which a money laundering scheme was carried out. 20 the Property, Choi and Ee would not have had access to the ELOC, 21 which facilitated numerous transfers of substantial amounts of 22 money to and from accounts involved in the money laundering scheme 23 alleged in the complaint. It cannot be disputed that the Property, 24 through the ELOC, made the alleged money laundering scheme less 25 difficult because it provided access to an apparently legitimate 26 source of funds. 27 Property is of no avail; absent the Property, the $70,000.00 28 equity line of credit would not have been available, and there Absent Claimants’ attempt to separate the ELOC from the 10 1 would have been no source of apparently legitimate funds to deposit 2 into the various accounts held by Ee and Choi. 3 Contrary to Claimants’ repeated contention, the United State’s 4 forfeiture claim under section 981(a)(1)(A) does not rely on the 5 “expanding drop of ink theory;” accordingly, Claimants citation to 6 United States v. $3,148,884.40 (Bital), 76 F.Supp.2d 1063, 1067 7 (C.D. Cal. 1999) for the proposition that “the ‘expanding drop of 8 ink’ or ‘facilitating bank account’” is no longer viable is of no 9 avail. (Motion to Dismiss at 11). The United States claim under 10 section 981(a)(1)(A) is based on the contention that the Property 11 was used to facilitate money laundering, not that the Property is 12 subject to forfeiture because its equity value was paid for in part 13 by tainted funds (this theory is the basis of the United States 14 claims under section 981(a)(1)(C) and 981(a)(1)(D)). 15 motion to dismiss is DENIED, without prejudice. ORDER 16 17 18 Claimants’ For the reasons stated, Claimants’ motion to dismiss is DENIED, without prejudice. 19 20 IT IS SO ORDERED. 21 Dated: hkh80h June 27, 2011 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 22 23 24 25 26 27 28 11

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