United States of America v. Funds, $25,511.65 in US et al

Filing 26

ORDER denying 8 Motion to Dismiss Complaint; denying 9 Motion to Strike. Ordered by Judge Hugh Lawson on 09/17/10. (mbh)

United States of America v. Funds, $25,511.65 in US et al

Doc. 26

IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF GEORGIA V AL D O S T A DIVISION U N IT E D STATES OF AMERICA, : : P la in t if f , : : v. : : $ 2 5 ,5 1 1 .6 5 IN UNITED STATES : FUNDS, : F ir s t Named Defendant : : P r o p e r t y, : : $ 1 2 7 ,6 0 6 .2 7 IN UNITED STATES : FUNDS, : S e c o n d Named : D e fe n d a n t Property. : : _______________________________ ORDER T h is case is before the Court on the Motion to Strike (Doc. 9) and the Motion to Dismiss Complaint (Doc. 8) filed by claimants Chi Sun Royal and W illie J. Royal ("th e Royals"). For the following reasons, the motions are denied. I. F AC T U AL AND PROCEDURAL BACKGROUND W h e n deciding a motion to dismiss, a court accepts all factual allegations in th e complaint as true and construes them in the light most favorable to the plaintiff. Hill v. W h ite , 321 F.3d 1334, 1335 (11th Cir. 2003). On March 28, 2005, Chi Royal opened a bank account, ending in numbers 3 1 2 3 , with First State Bank & Trust. (Compl. ¶ 12). From June 26, 2006 through O c to b e r 1, 2007, fifty-five cash deposits were made into the account, in amounts that

C ivil Action No. 7 : 0 9 -C V -1 3 0 (HL)

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never exceeded $10,000. (Compl.¶ 14). Forty-one of the deposits were in amounts g re a te r than $9,000, but less than $10,000. (Id.). On October 1, 2007, First State B a n k & Trust sent a certified letter to Chi Sun Royal notifying her that it was closing th e account because of federal regulation requirements. (Compl. ¶ 16). On April 8, 2005, Chi Sun Royal opened another bank account, ending in n u m b e rs 2252, with Bemiss Citizens Bank ("BCB"). (Compl. ¶ 17). Between

D e c e m b e r 17, 2007 and May 21, 2008, eleven cash deposits were made into the a c c o u n t, in amounts that never exceeded $10,000. (Compl. ¶¶ 18-19). Five of th o s e deposits were in amounts greater than $9,000, but less than $10,000. (Compl. ¶ 19). On May 29, 2008, a cashiers check, in the amount of $65,000 was issued fro m the BCB account. (Compl. ¶ 21). On December 31, 2003, a bank account was opened in the name of Royal's B o u tiq u e , ending in numbers 7024, with Bank of America ("BOA"). (Compl. ¶ 23). The Royals are the only signatories on the account. (Id.). Between May 1, 2008 th ro u g h April 27, 2009, at least one-hundred and five cash deposits were made into th e account, in amounts that never exceeded $10,000. (Compl. ¶¶ 24-25). Seventys ix of those deposits were in an amounts greater than $9,000, but less than $10,000. (C o m p l. ¶ 25). On June 3, 2008, $37,318.07, was withdrawn from the account. (Compl. ¶ 27). On November 4, 2008, another $25,288.20 was withdrawn from the a c c o u n t. (Compl. ¶ 28). W illie Royal opened a BOA certificate of deposit account, ending in numbers 2

8926, on June 3, 2008. (Compl. ¶ 30). The initial deposit into the account consisted o f a cashier's check of $65,000 from the BCB account. (Compl. ¶¶ 21, 31). The B C B account was then closed. (Compl. ¶ 22). Also deposited was $37,318.07 from B O A checking account number 7024. (Compl. ¶ 31). A check for $106,339.48 from C o le m a n Talley LLP was deposited as was a check from Dover Miller Stone & K a rra s , P.C. in the amount $91,342.45. (Id.). Chi Sun Royal opened a BOA of certificate of deposit account, ending in n u m b e rs 6719, on November 4, 2008. (Compl. ¶ 32). The initial deposit into BOA c e rtific a te of deposit account 6719 consisted of: (1) $300,000 from BOA certificate o f deposit account 8926; (2) the interest that accrued on the BOA certificate of d e p o s it account 8926, in the amount of $3,394.89; (3) $25,288.20 withdrawn from B O A checking account 7024; and (4) a check for $171,316.91 made payable to Chi S . Royal. (Compl. ¶ 33). On June 3, 2009, the IRS executed a seizure warrant and seized funds from B O A checking account 7024 and BOA certificate of deposit account 6719. (Compl. ¶ 34). A total of $25,511.65 was seized from BOA checking account 7024. The fu n d s seized from BOA checking account 7024 constitute the First Named D e fe n d a n t Property. (Id.). F ro m BOA certificate of deposit account 6719 the IRS seized $507,393.82. (Id .). The funds seized from that account constitute the Second Named Defendant P ro p e rty. (Id.). Later the Plaintiff United States ("the Government") returned a 3

portion of the funds seized from the account to the Royals. (Id. n. 3). The remaining b a la n c e of the Second Named Defendant Property is $127,606.27. (Id.) O n October 26, 2009, the Government filed its complaint for forfeiture (Doc. 1 ) . The complaint alleges that the Royals made structured deposits into BOA c h e c k in g account 7024 and BCB account 2252 with the intent to evade the currency re p o rtin g requirements in violation of 31 U.S.C. § 5324. (Compl. ¶¶ 36, 37). Pursuant to 31 U.S.C. § 5317, the Government seeks forfeiture of the Defendant P ro p e rtie s as traceable to a violation of the reporting statute, 31 U.S.C. § 5324. (Compl. ¶ 36). On November 3, 2009, the Royals filed verified claims (Doc. 6,7) pursuant to R u le G(5) of the Supplemental Rules for Admiralty or Maritime and Asset Forfeiture C la im s . On December 21, 2009, the Royals filed a motion to dismiss the complaint fo r failure to state a claim upon which relief may be granted (Doc. 8) and a motion to strike allegations in the complaint (Doc. 9). The Government filed responses to th e motions on January 11, 2010. The Royals did not reply. II. M O T IO N TO STRIKE T h e Royals have filed a motion to strike paragraphs in the complaint that d is c u s s the First State Bank & Trust account (Doc. 9). A. S ta n d a rd

F e d e ra l Rules of Civil Procedure Rule 12(f) provides that a court "may order s tric k e n from a pleading . . . any redundant, immaterial, impertinent, or scandalous 4

matter." Fed. R. Civ. P. 12(f). Motions to strike are not favored by the courts. Allen v. Life Ins. Co. of North America, 267 F.R.D. 407, 410 (N.D. Ga. 2009). The motions a r e usually denied "unless the matter sought to be admitted has no possible re la tio n s h ip to the controversy, may confuse the issue, or otherwise prejudice a p a rty." Id. (citations omitted). "A motion to strike will be granted if the disputed m a tte r is irrelevant `under any state of facts which could be proved in support' of the c la im s being advanced." Id. (citation omitted). B. D is c u s s io n

T h e Royals argue that the deposits made into the First State Bank & Trust a c c o u n t are irrelevant and impertinent to the forfeiture claims because the

s tru c tu re d funds in the First State Bank & Trust account were not withdrawn and d e p o s ite d into the Named Defendant Properties. They seek to strike the paragraphs th a t mention the First State Bank & Trust account, specifically ¶¶ 12-15 of the c o m p la i n t . T h e Government contends that the deposits made into the First State Bank & Trust account are relevant to setting a foundation for the criminal activity of the R o ya ls from March 2005 to April 2009. It further contends that since the Royals did n o t seek to strike ¶ 16 from the complaint, a paragraph that alleges the bank closed th e First State Bank & Trust account because of federal regulations, the Royals are n o t prejudiced by the paragraphs they seek to strike. T h e Government's allegations regarding the First State Bank & Trust account 5

are arguably relevant to proving the intent of the Royals to deposit structured funds in to BOA certificate of deposit account 7024 and BCB account 2252. The Court c a n n o t say that the allegations regarding the First State Bank & Trust account are irre le va n t under any state of facts that could be proved at trial. The allegations, if s u p p o rte d by evidence, could be admissible at trial. The Court does not find any u n d u e prejudice in permitting the allegation to remain in the complaint when the a lle g a tio n s may be admissible into evidence at trial. The Royals have not articulated a n y unfair prejudice. Thus, the Royals' motion to strike (Doc. 9) is denied. III. R U L E 12(b)(6) MOTION TO DISMISS T h e Royals have moved to dismiss the complaint on the basis that it fails to s ta te a claim as to the Second Named Defendant Property. A. Standard

T o withstand a motion to dismiss for failure to state a claim under Rule 1 2 (b )(6 ), a plaintiff must provide the grounds for his entitlement to relief, sufficient to give the defendant fair notice of his claims and the grounds upon which they rest. B e ll Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1964, 167 L .E d .2 d 929 (2007). A court accepts all factual allegations in the complaint as true a n d construes them in the light most favorable to the plaintiff. Hill v. W h ite , 321 F.3d 1 3 3 4 , 1335 (11th Cir. 2003). However, relying merely on conclusory allegations is n o t sufficient to prevent dismissal. Twombly, 550 U.S. at 555. Plaintiffs' complaint, w h e n all allegations are taken as true, must be enough to raise a right to relief above 6

the level of speculation. Id. F o rfe itu re actions in rem are also governed by the Supplemental Rules for A d m ira lty or Maritime and Asset Forfeiture Claims ("the Supplemental Rules"). See S u p p . R. G(1) (setting out standards for "forfeiture action[s] in rem arising from a fe d e ra l statute."). The Supplemental Rules provide that a claimant may move to d is m is s the action under Rule 12(b). Supp. R. G(8)(b). The sufficiency of the c o m p la in t depends on whether the complaint "state[s] sufficiently detailed facts to s u p p o rt a reasonable belief that the government will be able to meet its burden of p ro o f at trial." Supp. R. G(2)(f). According to the advisory committee notes, the s ta n d a rd set forth at Rule G(2)(f) was intended to incorporate the standard imposed in forfeiture cases by the United States Court of Appeals for the Fourth Circuit in U n ite d States v. Mondragon, 313 F.3d 862 (4th Cir.2002). Supp. R. G advisory c o m m itte e 's note (2006). A t the trial of a forfeiture case the Government must prove by a p re p o n d e ra n c e of the evidence that the property is subject to forfeiture. 18 U.S.C.A. § 983(c)(1). Thus, "the complaint must at bottom allege facts sufficient to support a re a s o n a b le belief that the property is subject to forfeiture." Mondragon, 313 F.3d at 8 6 5 -6 6 . B. S ta tu to r y Authority for Forfeiture of Property

A bank is required to file a Currency Transaction Report for any deposit that e xc e e d s $10,000. 31 U.S.C. § 5313(a); 31 C.F.R. § 103.22(b)(1). The law forbids 7

a person from "attempt[ing] to cause a domestic financial institution to fail to file a re p o rt required under section 5313(a)." 31 U.S.C. § 5324(a)(1). The law criminalizes "s tru c tu r[in g ]. . . or attempt[ing] to structure . . . any transaction with one or more d o m e s tic financial institutions." 31 U.S.C. § 5324(a)(3). The government may seize "[a]ny property involved in a violation of section 5 3 1 3 , 5316, or 5324 . . . and any property traceable to any such violation . . . ." 31 U .S .C . § 5317(c)(2).1 B a s e d on these statutes, the complaint here must allege facts sufficient to s u p p o rt a reasonable belief that the Defendant Properties are traceable to the s tru c tu rin g of deposits into other accounts. In other words, the complaint must a lle g e sufficient facts supporting a reasonable belief that the Defendant Properties a re traceable to a violation of the structuring statute, § 5324. Viewing the complaint under the Rule 12(b)(6)'s and Supplemental Rules' s ta n d a rd s , the Court finds that the complaint is sufficient to withstand the Royals' m o tio n to dismiss. C. D is c u s s io n

The Royals ask the Court to dismiss the complaint because according to th e m , the Government impermissibly seeks to extend the traceable theory of

The procedures governing the forfeiture of property pursuant to § 5317(c)(2) are found in 18 U.S.C. § 981(a)(1)(A). 8

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forfeiture to the Second Named Defendant Property.2 In contrast, the United States a rg u e s that the complaint contains adequate facts related to the tracing of the S e c o n d Named Defendant Property. A n analogous case to this case is United States v. 4323 Bellwood Circle, A tla n ta , Georgia, 680 F. Supp. 2d 1370 (N.D. Ga. 2010). In that case, the court first a n a lyz e d the same case that the Royals rely on to support their traceability position, U n ite d States v. Certain Accounts, Together with All Monies on Deposit Therein, 795 F . Supp. 391 (S.D. Fla. 1992). The court found distinctions between Certain The court ultimately concluded that the

A c c o u n ts and the facts of its case.

g o ve rn m e n t's traceability theory upon which its complaint rested was sufficient to s ta te a claim. Taking the approach of the 4323 Bellwood Circle court, this Court will first a d d re s s Certain Accounts and compare the facts of this case to the Certain Accounts facts. Then the Court will address 4323 Bellwood Circle and compare the fa c ts of that case to this case. Like the decision in 4323 Bellwood Circle, this Court fin d s that the Government's complaint creates a reasonable belief that the Second

The Royals also raise three other bases for dismissal of the Second Named Defendant Property: (1) the Second Named Defendant Property was not involved in the alleged structuring of deposits; (2) the Second-Named Defendant Property does not constitute fungible or substitute property; and (3) the statute of limitations for forfeiture of substitute property for the Second-Named Defendant Property has expired. Royal Br. at 10. The Government agrees that under those three bases there is no ground for forfeiture of the Second Named Defendant Property. See Res. Br. at 3. Because the Government does not contest the Royals' three arguments the Court does not address them. 9

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Named Property is subject to forfeiture. In Certain Accounts, the government sought forfeiture of "all monies on d e p o s it in thirty-one bank accounts as funds involved in or traceable to money la u n d e rin g ." 795 F. Supp. at 392. Of the thirty-one accounts, the claimant had d e p o s ite d structured funds into four accounts. Id. at 393. Out of the four accounts, c h e c k s were drawn and deposited into twenty-seven other accounts, called "indirect re c ip ie n t accounts." Id. The government sought forfeiture of the entire balances of a ll thirty-one accounts. Id. The court dismissed the claims seeking forfeiture of the in d ire c t receipient accounts, but found that as to the four direct recipient accounts, th e complaint stated a claim. Id. at 397, 399. The court found that it was insufficient to only claim that the "taint" of the direct recipient accounts was carried over to the e n tire balance of the indirect recipient accounts. Id. at 397-98. C e rta in Accounts is distinguishable from this case. In Certain Accounts, the g o v e r n m e n t sought the forfeiture of the entire balances of the indirect recipient a c c o u n ts , not just the tainted portion of the accounts. In contrast, the Government in this case seeks the forfeiture of only the tainted portion of the Second Named D e fe n d a n t Property, i.e. the property that came from the accounts into which s tru c tu re d deposits were made. Further, in Certain Accounts, the court found that there were no "facts c o n c e rn in g the balance of the account," which made it possible that "unknowing and fa c tu a lly innocent account holders who . . . received an allegedly tainted deposit may 10

be deprived of the use of the funds." Id. at 395. Under the government's approach, "[l]ik e a contagious disease, each direct account could contaminate any account that h a d dealings with it." Id. at 398. In this case, the Certain Accounts court's concern about the seizure of funds fro m innocent account holders is not present. The Royals are the owners of the a c c o u n t from which the Second Named Defendant Property was seized. The Royals a re also the owners of the accounts into which the structured funds were deposited. The Government has not sought the forfeiture of funds seized from accounts of third p a rtie s . M o re on point to this case is 4243 Bellwood Circle. In that case, the claimant m a d e deposits less than $10,000 into his bank account with JP Morgan Chase Bank. 4243 Bellwood Circle, 680 F. Supp. 2d at 1371. The bank sent the claimant a letter in fo rm in g him that federal law prohibits structuring deposits. Id. A few months after re c e ivin g the letter, the claimant used funds from his JP Morgan Chase bank a c c o u n t to purchase a house for $330,000. Id. The government sought forfeiture o f the house. Id. 4243 Bellwood Circle cited United States v. Seher, 562 F.3d 1344 (11th Cir. 2 0 0 9 ) for the standard that the property "must have more than an incidental or fo rtu ito u s connection to criminal activity" to be forfeitable. Id. at 1377 (citation and q u o ta tio n s omitted). The 4243 Bellwood Circle court concluded that the complaint s e t out with sufficient detail the deposits that constituted the unlawful structuring of 11

funds and that the complaint explained with factual specificity the link between the u n la w fu l structuring of funds to the purchase of the house. Id. The complaint

a s s e rte d that "[the claimant] stated he used funds from his business account, JP M o rg a n Chase account number x0468, to purchase the house in order to ultimately d e ve lo p a recording studio." Id. The facts of the complaint, if true, created "more th a n an incidental or fortuitous connection between the Defendant Property and [the c la im a n t's ] alleged structuring of cash deposits." Id. (Citation and quotations

o m itte d ). The court denied the claimant's motion to dismiss the complaint for failure to state a claim. Id. Like the complaint in 4243 Bellwood Circle, the complaint in this case sets fo rth in detail the nature of the deposits into two accounts that constituted the u n la w fu l structuring of funds. (Compl. ¶¶18-19, 24-25). The Government then a lle g e s in the complaint that the BOA certificate of deposit account 6719, the a c c o u n t from which the Second Named Defendant Property was seized, was o p e n e d in the name of Chi Sun Royal. (Compl. ¶ 32). It connects the structured d e p o s its to the Second Named Defendant Property by explaining that the initial d e p o s it for BOA certificate of deposit account 6719 contained funds withdrawn from th e accounts that had received structured deposits. (Compl. ¶ 33). The Royals claim that the Government "now tries to advance a three-step th e o ry of tracing." (Res. Br. at 13). That is true; however, it is also true that the G o ve rn m e n t connects the flow of structured deposits to the Second Named 12

Defendant Property. The Government explains that structured deposits were made in to BCB account 2252. It further explains that structured deposits were made into th e BOA checking account 7024. $65,000 was withdrawn from BCB account 2252 a n d deposited into BOA certificate of deposit account 8926. $37,318.07 was

w ith d ra w n from BOA checking account 7024 and deposited into BOA certificate of d e p o s it account 8926. These funds were then taken from BOA certificate of deposit a c c o u n t 8926 and deposited into BOA certificate of deposit account 6719 ­ the a c c o u n t from which the government seeks forfeiture of funds. The government s e e k s the forfeiture of $65,000 originating in BCB account 2252 and $37,318.07 o rig in a tin g from BOA checking account 7024.3 Although these funds traveled

th ro u g h three accounts, it is clear to the Court that the funds originated from a c c o u n ts that received structured deposits. The Court finds that the Government h a s shown that "more than an incidental or fortuitous connection" between the S e c o n d Named Defendant Properties and the structuring of deposits into accounts. Therefore, the Second Named Defendant Property is traceable to a violation of § 5 3 2 4 . The Government has stated a claim upon which relief may be granted. The R o ya ls ' motion to dismiss is denied.

The government also seeks the forfeiture of $25,288.20 from BOA certificate of deposit account 6719. Those funds were withdrawn from BOA checking account 7024 and deposited into BOA certificate of deposit account 6719. In total, the government seeks the forfeiture of $127,606.27. All the funds are traceable to structured deposits. 13

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IV.

C O N C L U S IO N T h e Royals' Motions to Strike (Doc. 9) and to Dismiss the Complaint (Doc. 8)

a re denied. S O ORDERED, this the 17th day of September, 2010. /s / Hugh Lawson HUGH LAWSON, SENIOR JUDGE

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