USA v. 927 Cole Street, Golden, Colorado et al

Filing 84

ORDER. ORDERED that the Motion for Summary Judgment [Docket No. 78] filed by plaintiff the United States of America is GRANTED. All right, title, and interest in defendant property 927 Cole Street, Golden, Colorado is forfeited to plaintiff the United States of America. ORDERED that this case is CLOSED by Judge Philip A. Brimmer on 09/10/14.(jhawk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 11-cv-02106-PAB-CBS
UNITED STATES OF AMERICA,
Plaintiff,
v.
927 COLE STREET, GOLDEN, COLORADO,
Defendant.

ORDER

This matter is before the Court on the Motion for Summary Judgment [Docket
No. 78] filed by plaintiff the United States of America (the “United States”). This is a
forfeiture case wherein the United States seeks to forfeit a residence purchased with
money obtained through fraud and used to conduct further fraudulent activity. The
Court's jurisdiction is based on 28 U.S.C. § 1331.
I. BACKGROUND
The following facts are undisputed unless otherwise indicated. In 2007, Richard
and Marie Dalton began operating Universal Consulting Resources, LLC (“UCR”).
Docket No. 78 at 2-3, ¶¶ 1-2; Docket No. 82 at 2, ¶¶ 1-2. UCR was used in a classic
Ponzi scheme. Through UCR, the Daltons solicited investors for two programs: the
“Trading Program,” which purportedly traded in financial instruments, and the “Diamond
Program,” which purportedly traded in precious stones. Docket No. 78 at 3, ¶¶ 3-4;
Docket No. 82 at 2, ¶¶ 3-4. The Daltons guaranteed investors returns of between 48%

and 120% annually. Docket No. 78 at 3, 5, ¶¶ 6(a), 11; Docket No. 82 at 2, ¶¶ 6, 11.
The Daltons commingled investors’ money in UCR’s Bank of America account, from
which investors also received checks for their “profits.” In actuality, funds from new
investors were being used to pay existing investors. Docket No. 78 at 4, 5, ¶¶ 9, 12;
Docket No. 82 at 2, ¶¶ 9, 12.
In July 2009, the Daltons purchased defendant Cole Street, which is residential
property located in Golden, Colorado, with $930,298.08 that they wired from accounts
containing UCR investors’ money to their personal bank account. Docket No. 78 at 6-7,
¶¶ 21-24; Docket No. 82 at 2-3, ¶¶ 21-24. The title for defendant Cole Street is in the
name of Marie Dalton. Docket No. 78 at 7, ¶ 25; Docket No. 82 at 3, ¶ 27. The Daltons
subsequently lived in and operated UCR out of the defendant property. Docket No. 78
at 3, ¶ 2; Docket No. 82 at 2, ¶ 2.
In October 2010, claimant George Magnani, who had invested $100,000.00 with
UCR, filed a complaint against Richard Dalton and UCR in the District Court for the
County of Jefferson, Colorado, alleging breach of contract, civil theft, breach of fiduciary
duty, and fraud. Docket No. 82 at 5, ¶ 14; Docket No. 83 at 2.
On November 16, 2010, the Securities and Exchange Commission (“SEC”) filed
a civil action against Richard Dalton and UCR in the United States District Court for the
District of Colorado. Docket No. 78 at 5, ¶ 13; Docket No. 82 at 2, ¶ 13; see Case No.
10-cv-02794-REB-KLM. The following day, the SEC recorded a Notice of Lis Pendens
in Jefferson County against defendant Cole Street. Docket No. 78 at 5, ¶ 14; Docket
No. 82 at 2, ¶ 14.

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After learning through the SEC complaint that investor funds had been used to
purchase defendant Cole Street, Mr. Magnani filed an action on May 12, 2011 against
Marie Dalton in the District Court for the County of Jefferson, alleging civil conspiracy,
civil theft, conversion, unjust enrichment, and aiding and abetting a breach of fiduciary
duty. Docket No. 78-11.
On October 19, 2011, the Daltons were charged in a criminal case on a
nineteen-count indictment with, inter alia, wire fraud, mail fraud, money laundering, and
civil conspiracy. See Case No. 11-cr-00430-CMA.
On August 11, 2011, the United States filed its Verified Complaint for Forfeiture
in Rem [Docket No. 1] in this case seeking forfeiture of defendant Cole Street.1 On
August 18, 2011, the United States recorded a Notice of Lis Pendens in Jefferson
County against defendant Cole Street. Docket No. 78-12.
On November 18, 2011, the court in Jefferson County entered a default
judgment against Marie Dalton and in favor of Mr. Magnani in the amount of
$910,356.44, plus post-judgment interest, attorney’s fees, and costs. Docket No. 78 at
8, ¶ 29; Docket No. 82 at 3, ¶ 29. On December 1, 2011, the United States recorded a
second Notice of Lis Pendens against defendant Cole Street. Docket No. 78-14. On
December 12, 2011, Mr. Magnani recorded a Transcript of Judgment in Jefferson
County, listing the judgment debtors as Marie Dalton and the Cole Street property.
Docket No. 78-15.

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The United States also sought forfeiture of an automobile, which it obtained
through default judgment granted in February 2013. See Docket Nos. 63 and 64.
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On March 27, 2012, Mr. Magnani’s counsel was first served with a copy of the
United States’ civil forfeiture complaint. Docket No. 82 at 7, ¶ 25; Docket No. 82-7;
Docket No. 83 at 2. On April 12, 2012, Mr. Magnani filed a verified claim [Docket No.
47] in this case, asserting an interest in defendant Cole Street on the basis of a
recorded judgment. Docket No. 78 at 8, ¶ 32; Docket No. 82 at 3, ¶ 32. No other
parties have filed claims in this action.
In February 2012, the SEC obtained an award against the Daltons and UCR in
the amount of $15,842,948.00. Docket No. 82-8 at ¶ 5; Case No. 10-cv-02794-REBKLM, Docket No. 99. The court ordered that defendant Cole Street be sold in order to
pay part of the judgment. Id. at ¶ 7.
On February 21, 2013, Marie Dalton pled guilty to the charge of conspiracy to
commit mail fraud, wire fraud, and money laundering in violation of 18 U.S.C. § 371.
Case No. 11-cr-00430-CMA, Docket No. 156. On the same day, Richard Dalton pled
guilty to the charge of money laundering in violation of 18 U.S.C. §§ 2 and 1957. Id. at
Docket No. 159. On June 10, 2013, Marie Dalton was sentenced to a term of sixty
months in prison and Richard Dalton was sentenced to a term of 120 months. Id. at
Docket Nos. 211, 212, 214, and 217. The Daltons agreed to the forfeiture of defendant
Cole Street in their plea agreements. Id. at Docket No. 156 at 12, ¶ K(3); Docket No.
159 at 11, ¶ K(3). On September 24, 2013, the Daltons were ordered to pay restitution
to their victims in the amount of $4,504,161.00. Id. at Docket No. 244.
Mr. Magnani contends that, before recording his judgment lien, he had no
knowledge that defendant property was subject to forfeiture or that a civil forfeiture
action had been filed against it. Docket No. 82 at 8, ¶ 31. The United States admits
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that claimant did not have actual knowledge of these facts, but argues that he had
constructive knowledge as a matter of law. Docket No. 83 at 2, ¶ 31.
II. STANDARD OF REVIEW
Summary judgment is warranted under Federal Rule of Civil Procedure 56 when
the “movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A disputed fact is “material” if
under the relevant substantive law it is essential to proper disposition of the claim.
Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). Only disputes
over material facts can create a genuine issue for trial and preclude summary
judgment. Faustin v. City & Cnty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An
issue is “genuine” if the evidence might lead a reasonable jury to return a verdict for the
nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).
III. DISCUSSION
The United States argues that defendant Cole Street is subject to forfeiture
under 18 U.S.C. § 981 because the Daltons purchased the property with money they
fraudulently obtained from investors and then used the property to further their
fraudulent activity. Docket No. 78 at 11-12.
In a civil forfeiture action, the government bears the burden of proving its
entitlement to forfeiture by a preponderance of the evidence. 18 U.S.C. § 983(c)(1).
Once the government has established, by a preponderance of the evidence, that the
property is subject to forfeiture, the burden shifts to the claimant to establish a defense

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to forfeiture. Real property is subject to forfeiture if it is “involved in a transaction or
attempted transaction in violation of [18 U.S.C. §§] 1956, 1957, or 1960.” 18 U.S.C.
§ 981(a)(1)(A). Section 1956, which prohibits money laundering, provides that “[a]ny
person who conspires to commit any offense defined in this section or section 1957
shall be subject to the same penalties as those prescribed for the offense the
commission of which was the object of the conspiracy.” 18 U.S.C. § 1956(h). Section
1957 prohibits “knowingly engag[ing] or attempt[ing] to engage in a monetary
transaction in criminally derived property of a value greater than $10,000.” 18 U.S.C.
§ 1957(a).
Richard Dalton pled guilty to money laundering in violation of § 1957. Case No.
11-cr-00430-CMA, Docket No. 159 at 2. Marie Dalton pled guilty to a conspiracy to
launder money and to commit mail and wire fraud. Docket No. 78-1 at 1-2. Richard
Dalton admitted that he and his wife purchased the defendant property with the
proceeds of their fraudulent activity and operated UCR out of that address. Case No.
11-cr-00430-CMA, Docket No. 159 at 4, 6; Docket No. 78-1 at 4, 7. Mr. Magnani does
not dispute that these facts satisfy the government’s burden of proving, by a
preponderance of the evidence, that defendant Cole Street is subject to forfeiture. See
Docket No. 82 at 10. However, Mr. Magnani claims that he is an innocent owner under
18 U.S.C. § 983(d) (“An innocent owner’s interest in property shall not be forfeited
under any civil forfeiture statute.”).
To avail himself of the innocent owner defense, Mr. Magnani must prove, by a
preponderance of the evidence, that (1) he was a bona fide purchaser for value and
(2) he “did not know and was reasonably without cause to believe that the property was
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subject to forfeiture” at the time he acquired his interest in the property. Id. at
§ 983(d)(3)(A).
The Court begins by considering the second element of this test. Mr. Magnani
argues that he did not know and was reasonably without cause to believe that
defendant Cole Street was subject to forfeiture because, although he was aware of the
SEC action before he filed his state court case against Marie Dalton, the SEC action
sought only civil remedies and did not mention forfeiture. Docket No. 82 at 14-15. He
argues that “there was no other interest in or claim to the title” of defendant property at
the time. Id. at 15. He states that the “fact that a Notice of Lis Pendens was filed by
Plaintiff does not negate the fact that subjectively and objectively, claimant did not know
and was reasonably without cause to know the property was subject to forfeiture.” Id. at
15-16.
Claimant implies that the relevant inquiry under the second element of the
innocent owner test is his knowledge of the forfeitability of the property at the time he
filed his state court action against Marie Dalton. See, e.g., Docket No. 82 at 14 (“at the
time claimant instituted the state court action against Marie Dalton, he still did not know
and was reasonably without cause to know the property was subject to forfeiture”) and
15 (“Claimant commenced the state court action against Marie Dalton in May of 2011
. . . . At that time, there was no other claimed interest related or cloud on the title to the
defendant property; there only existed a Notice of Lis Pendens for the SEC action.”)
(citation omitted).
Under the statute, however, it is claimant’s knowledge at the time he acquired his
interest in the property that is determinative. See 18 U.S.C. 983(d)(3)(A) (“With respect
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to a property interest acquired after the conduct giving rise to the forfeiture has taken
place, the term ‘innocent owner’ means a person who, at the time that person acquired
the interest in the property . . . (ii) did not know and was reasonably without cause to
believe that the property was subject to forfeiture.”) (emphasis added). Claimant did
not acquire his interest in the defendant property until he recorded his judgment against
it.2 Claimant does not dispute that, at the time he recorded his judgment, plaintiff had
already recorded two notices of lis pendens regarding the instant forfeiture action. See
Docket No. 82 at 6-7, ¶¶ 20, 23, 24. Thus, the question is whether plaintiff’s notices of
lis pendens provided claimant notice of the forfeiture.
Claimant argues that the “fact that a Notice of Lis Pendens was filed by Plaintiff
does not negate the fact that subjectively and objectively, claimant did not know and
was reasonably without cause to know the property was subject to forfeiture.” Docket
No. 82 at 15-16.
“[I]n federal forfeiture proceedings, ownership interests . . . are defined by state
law.” United States v. Andrews, 530 F.3d 1232, 1238 (10th Cir. 2008). Under Colorado
law, a notice of lis pendens constitutes “notice to any person thereafter acquiring, by,
through, or under any party named in such notice, an interest in the real property
described in the notice in the county or counties where recorded that the interest so
acquired may be affected by the action described in the notice.” Colo. Rev. Stat. § 3835-110(1). “Lis pendens filings are designed to provide notice to third parties that there
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Claimant admits that he had no interest in defendant property through his
investment in UCR: “The home was substantially purchased with funds that were only
connected to the 2007 Trading Program, not the 2009 Diamond Program in which
Claimant eventually invested . . . .” Docket No. 82 at 13.
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is a suit involving the property subject to the lis pendens.” Hewitt v. Rice, 154 P.3d 408,
412 (Colo. 2007). “[A]nyone acquiring an interest in the property during the pendency
of the litigation will be bound by its outcome so long as a notice of lis pendens has been
recorded in the office of the county clerk and recorder where the property is located in
accordance with section 38-35-110.” Kerns v. Kerns, 53 P.3d 1157, 1161 (Colo. 2002);
see also Wessler v. Colonial Nat’l Mortg., No. 11-cv-02683-RBJ-KMT, 2012 WL
5949730, at *8 (D. Colo. Aug. 21, 2012) (purchaser of property had actual and
constructive notice of pending quiet title action where plaintiff in that action recorded a
notice of lis pendens). “The underlying policy behind a notice of lis pendens is to
prevent a suit involving rights in real property from being thwarted by transfers of
interests in real property to persons not bound by the outcome of the suit.” Alien, Inc. v.
Futterman, 924 P.2d 1063, 1070 (Colo. App. 1995). A notice of lis pendens must
contain “the name of the court where such action is pending, the names of the parties
to such action at the time of such recording, and a legal description of the real
property.” Colo. Rev. Stat. § 38-35-110(1).
The notice plaintiff filed on August 18, 2011 states, in pertinent part:
NAME OF RECORD TITLE OWNER: Marie Dalton
Notice is hereby given of the pendency of a civil action brought by the
plaintiff against the below described real property by a verified complaint of
forfeiture filed with the Clerk of the United States District Court for the District
of Colorado, which action was brought for the forfeiture of the defendant real
property pursuant to 18 U.S.C. § 981.
The property which is the subject of this action is located at 927 Cole
Street, Golden, Colorado . . . .
For further information concerning the action for forfeiture, reference
may be made to the records of the Clerk of the Court for the United States
District Court, District of Colorado, 901 19th Street, Denver, Colorado,
80294.
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Docket No. 78-12 at 1-2. The December 5, 2011 notice contains the same language.
Docket No. 78-14 at 1-2.
The notices of lis pendens that plaintiff filed satisfy the requirements of Colo.
Rev. Stat. 38-35-110(1). Claimant derives his interest in the property from Marie
Dalton, one of the parties listed in the notice. See id. Claimant acquired his interest in
the property on December 12, 2011, after the notices of lis pendens were filed. Docket
No. 78 at 8, ¶ 31; Docket No. 82 at 3, ¶ 31. Accordingly, under Colorado law, plaintiff
had constructive notice that his interest in the defendant property “may be affected by
the action described in the notice[s].” Colo. Rev. Stat. § 38-35-110(1). Claimant
confirms this conclusion by arguing in his response brief that the “intended purpose for
filing a notice of lis pendens is to provide notice to anyone who may acquire an interest
in the property during the pendency of the litigation so that he or she will be bound by
its outcome.” Docket No. 82 at 17 (citing James H. Moore & Assocs. Realty, Inc. v.
Arrowhead at Vail, 892 P.2d 367, 373 (Colo. App. 1994) (emphasis added in claimant’s
brief)). As claimant has failed to raise a genuine dispute of material fact regarding his
entitlement to the innocent owner defense, plaintiff is entitled to summary judgment.
IV. CONCLUSION
In light of the Court’s finding that claimant does not meet the definition of an
innocent owner under 18 U.S.C. § 983(d)(3), the Court need not consider his remaining
arguments. See Docket No. 82 at 17-19. For the foregoing reasons, it is
ORDERED that the Motion for Summary Judgment [Docket No. 78] filed by
plaintiff the United States of America is GRANTED. All right, title, and interest in

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defendant property 927 Cole Street, Golden, Colorado is forfeited to plaintiff the United
States of America. It is further
ORDERED that this case is CLOSED.

DATED September 10, 2014.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

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