United States of America v. $72,050.00 In United States Currency et al
Filing
42
MEMORANDUM OPINION & ORDER: (1) USA's 28 MOTION for Summary Judgment is GRANTED IN PART and DENIED IN PART. (2) Claimant Vernon Smith's 39 Request for Leave to Late File a Motion for Summary Judgment and Motion for an Extension of Time to Late-File a Reply are GRANTED. (3) Claimant Vernon's 34 Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART. Signed by Judge Joseph M. Hood on April 1, 2013. (AWD) cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION AT LEXINGTON
UNITED STATES OF AMERICA,
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Plaintiff,
v.
$72,050.00 IN UNITED STATES
CURRENCY, ONE FIRST SOUTHERN
NATIONAL BANK CASHIERS CHECK
#062629 IN THE AMOUNT
OF $60,649.64, AND ONE
WHITAKER BANK CASHIERS
CHECK #022175 IN THE AMOUNT
OF $100,000.00,
Defendants.
**
**
MEMORANDUM OPINION AND ORDER
**
**
Civil Action No.
5:08-cv-57-JMH
**
This matter is before the Court upon the Motion for Summary
Judgment [DE 28] filed in this case by the United States of
America.
Claimant Vernon Smith has filed a Response [DE 31], and
the United States has filed a Reply in further support of its
Motion [DE 32].
Claimant Vernon Smith also seeks leave to late-
file a Motion for Summary Judgment, to which the United States has
objected, and he has filed a reply in further support and has
tendered the pleadings which would be filed if leave were granted
[DE 34, 35, 36, 37, 38], including a Motion for an Extension of
Time to late-file the perhaps late-filed but ultimately only
tendered Reply [DE 39; see also DE 40, United States Response to
Motion for Extension of Time to File Reply; DE 41, Claimant’s Reply
in Further Support].
As an initial matter, the Court concludes that Vernon Smith’s
efforts to move for summary judgment were woefully out of time and
his efforts to supplement discovery already taken and concluded are
not to be applauded.
That said, considering the late date, the
Court has considered those portions of these filings which are
relevant to the inquiries before it – by which the Court means that
it will not consider them insofar as they constitute a collateral
attack on the issues at bar and on appeal in Frankfort Criminal
Action
No.
08-31-JMH.
There
is
a
place
and
a
method
for
challenging issues in that matter, and the Court does not consider
the two matters interchangeable although they are related.
The
Court grants his motion to late file a motion for summary judgment
and has considered, as well, the pleadings as materials offered in
further support of his objections to the United States’ Motion for
Summary Judgment.
Accordingly, the Court considers whether forfeiture of certain
currency and two cashier’s checks, found in the home of Claimant
Vernon Smith, is appropriate.
The United States bears the initial
burden of proof and must show by a preponderance of the evidence
that the property is subject to forfeiture, 18 U.S.C. § 983(c),
i.e., that it is more likely than not (1) that the defendant
property was proceeds traceable to a scheme or artifice to defraud
in violation of 18 U.S.C. §§ 1341 and 1343 or (2) that it was
involved in a transaction in violation of 18 U.S.C. §§ 1956, 1957
or 1960.
If the United States meets its initial burden, then the
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claimant must prove by a preponderance of the evidence that the
property is not proceeds of the illegal activity or that he is an
innocent owner. 18 U.S.C. § 983(d).
The Court concludes, as an initial matter, that the United
States has not met its burden of proof with respect to the currency
but that it has demonstrated by a preponderance of the evidence
that the cashier’s checks were proceeds traceable to a scheme or
artifice to defraud in violation of 18 U.S.C. §§ 1341 and 1343, for
the reasons which follow.
The Court then concludes that Claimant
Vernon Smith has failed to show by a preponderance of the evidence
that those cashier’s checks were not the proceeds of illegal
activity or that he is an innocent owner, as that term is defined
in the statute.
I.
Background
A.
Procedural History
On August 9, 2007, the defendant cashier’s checks and currency
were seized pursuant to a search warrant executed at claimant
Vernon Smith’s residence. It is undisputed that the defendant
currency and cashier’s checks were located in a safe in the
basement of a house occupied by Vernon Smith during a search
executed during the investigation which led to Frankfort Criminal
Action 08-31-JMH, United States v. Michael D. Smith, et al.
That
case was tried before a jury in June and July 2010, and Michael D.
Smith and Christopher Cello Smith – the sons of Claimant Vernon
-3-
Smith – were convicted on a number of counts of fraud arising out
of the sale of oil and gas interests to investors in a company
called Target Oil and Gas.
Michael D. Smith was also convicted of
conspiracy to commit fraud.
At trial, the jury considered whether
Michael D. Smith and Christopher Cello Smith’s interests in the
cash and cashier’s checks, which are the defendants in this matter,
were subject to forfeiture and concluded that only their interest
in the cashier’s checks was subject to forfeiture.1
Meanwhile, on November 9, 2007, Vernon Smith filed claims to
the two cashier’s checks and currency with the United States Postal
Inspection Service (USPIS) in a nonjudicial forfeiture proceeding
against the property.
This civil forfeiture action in rem was
filed against the defendant property on February 7, 2008, to
enforce
the
provisions
of
18
U.S.C.
§
981(a)(1)(A)
for
the
forfeiture of personal property which was involved in a transaction
in violation of 18 U.S.C. §§ 1956, 1957 or 1960; and/or is property
which constitutes or is derived from proceeds traceable to a
violation of 18 U.S.C. §§ 1341 and 1343, and thereby subject to
forfeiture pursuant to 18 U.S.C. § 981(a)(1)(C).
Vernon Smith, through counsel, filed a claim and an answer.
This civil action remained stayed pending the outcome of the
1
In light of this conclusion, little more factual information
concerning the cash is relevant to the Court’s inquiry.
The
relevant additional information concerning cashier’s checks is set
forth below.
-4-
related criminal investigation and prosecution, Frankfort Criminal
Action
No.
08-31-JMH.
At
the
conclusion
of
that
criminal
prosecution, the Court lifted the stay in the present case,
discovery took place, and the matter is now before the Court upon
the parties’ motions.
B.
Cashier’s Check #062629
The
defendant
cashier’s
check
062629,
in
the
amount
of
$60,649.64, was purchased by claimant Vernon Smith using a check
drawn on his account 30027263 at First Southern National Bank on
September 19, 2005, at which time his account was closed.
The
cashier’s check shows a remitter as “close account # 30027063" and
is payable to Vernon Smith.
From the time the account was opened
in 1999 through April 2003, the balance in the account ranged from
$8,000.00 to $10,010.12. Four deposits were then made from May 20,
2003, through August 11, 2004, totaling $49,700.00.
The first of these deposits, on May 20, 2003, involved the
deposit of $6,000 from a Citizens National Bank of Jessamine County
cashier’s check (27039) dated May 13, 2003, remitted by Michael
Smith, payable to Michael Smith, and endorsed by Michael Smith.2
Cashier’s check 27039 was purchased with funds from Target Oil &
Gas
Operating
Account
Jessamine County.
2016443
at
Citizens
National
Bank
of
Funds deposited in Account 2016443, which
covered the cost of cashier’s check 27039 were deposits of investor
2
$6,000 was also returned in Cash.
-5-
funds.
The second deposit, in the amount of $41,000, which was made
on July 31, 2003, was from a Citizens National Bank of Jessamine
County cashier’s check 27165 dated July 31, 2003, remitted by
Target Oil & Gas, payable to Michael Smith, and endorsed by “Mike
Smith by Vernon Smith” with a signature that may well be that of
Vernon Smith.
Cashier’s check 27165 was purchased with funds from
Target Oil & Gas Operating Account 2016443 at Citizens National
Bank of Jessamine County. Again, the source of all funds deposited
in the account, which covered the cost of cashier’s check 27165,
were deposits of investor funds.
The third deposit, in the amount of $2,200, was made on June
21, 2004, from a check made payable to Mike Smith by Olen Lee
Cornette and endorsed by Mike Smith.
The fourth deposit, in the
amount of $500.00, resulted from a split deposit of a $961.21 check
made payable to Mike Smith from Blue Grass Stockyards, Inc., of
which $461.21 was returned in cash.
Over time, the funds in the
account earned interest of $939.52.
As for the cashier’s checks 27039 and 27165 deposited in FSNB
Account 30027063 on May 20, 2003, and July 31, 2003, they were paid
for with funds drawn from the Target Oil & Gas Operating Account
No. 2016443 at Citizens Bank.
The United States has offered
evidence of the statement period from May 1, 2003, through May 30,
2003, for that account. This statement period encompasses the time
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periods in which cashier’s check 27039 and 27165 were purchased.
Cashier’s check 27039 was purchased using Target Oil and Gas
Corp. Check 11498 in the amount of $12,000.00 drawn on that
account,
dated
May
13,
2003,
signed
by
Michael
Smith.
The
withdrawal from account 2016443 was posted on May 13, 2003.
There
were twenty-three deposits made to account 2016443 in the statement
period, and the United States has presented evidence that each of
the investor checks were deposited either directly to the Operating
Account or first deposited to one of several other business savings
accounts of Target Oil & Gas (3095452, 306394, and 3096769) and
then transferred to account 2016443.
Each of the deposits to the
respective savings accounts from which deposits were received into
2016443 during this period were determined to have been deposits of
investor checks.
There was a negative balance in account 2016443
at the beginning of the statement period (-$3,191.58), so all funds
in the operating account for the statement period were originally
investor funds and, by extension, the $6,000 deposited to the FSNB
account from the $12,000 cashier’s check 27039 were investor funds.
With respect to the cashier’s check 27165, it was issued by CB
on July 15, 2003, in the amount of $50,000, payable to Mike Smith,
purchased by Michael Smith with Target Oil and Gas check 11899,
dated July 15, 2003, signed by Michael Smith, and drawn on Target
Oil & Gas Operating Account number 2016443. The withdrawal made by
virtue of check 11899 was posted on July 15, 2003.
-7-
The beginning
balance for the period July 1, 2003, to July 31, 2003, was
$97,447.84, from unknown sources.
However, 210 withdrawals to
account 2016443 were posted to account 2016443 prior to the posting
of the withdrawal made by virtue of check 11899 on July 16, 2003.
Those
210
prior
withdrawals
would
have
depleted
all
of
the
$97,447.84 in funds that were present at the beginning of the
statement period.
The only funds left to purchase cashier’s check
27165 were those deposited in the period and which covered check
11899.
These were all derived from investor funds, whether
deposited directly into the operating account or from transfers of
funds from savings accounts 3083454, 3096394, 3096769, 3097668, or
3098257.
Each of these savings accounts received deposits solely
from investor funds. It follows that the $41,000.00 deposited from
the $50,000 cashier’s check 27165 came from investor funds.
Ultimately, $47,000 of the funds used to purchase cashier’s
check 062629 can be traced to investor funds.
B.
Cashier’s Check 022175
As for Whitaker Bank cashier’s check 022175, dated September
19, 2005, in the amount of $100,000, the remitter is Vernon Smith
and it is payable to Vernon Smith.
The cashier’s check was
purchased when Vernon Smith issued a $100,000.00 check against
Whitaker Bank Account 80128961, the account of “Vernon Smith or
Michael Smith”.
The monthly account statement for account 80128961, which
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encompasses the purchase of the cashier’s check, covers a period
ending September 20, 2005.
The account had a beginning balance of
$108,058.32 and an ending balance of $8,607.50, which amount
remained after the $100,000.00 counter check used to purchase
cashier’s check 022175 was posted to the account as a withdrawal.
The United States has offered evidence that the beginning balance
in the account on December 15, 2002, was $16,911.73.
From that
date through September 19, 2005, there was only one deposit that
was not a social security check or interest earned on the account
– a deposit of $75,000.00 on April 9, 2004.
From December 15,
2002, through March 17, 2004, the only deposits were social
security direct deposits and the interest earned on the account
each month, for a total of $7,660.69.
Three withdrawals totaling
$710.80 were made during this period, leaving an account balance of
$23,861.62 on March 17, 2004.
From March 18, 2004, through April
15, 2004, three deposits were made, yielding an ending balance of
$99,379.54: a social security direct deposit of $507.00 on April 2,
2004, a deposit of a $75,000.00 CB cashier’s check 32070 on April
9, 2004, and a $10.92 deposit of interest earned on April 15, 2005.
Between April 17, 2004, and August 17, 2005, the only deposits made
were social security direct deposits and interest earned.
withdrawal of $20.00 was made, as well.
August 17, 2005, was $108,058.32.
One
The account balance on
From August 18, 2005, through
September 20, 2005, the only deposits were, again, from social
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security direct deposit and interest earned.
On September 19,
2005, Vernon Smith issued a counter check in the amount of $100,000
to WB.
The remitter was Vernon Smith, and the check was payable to
Vernon Smith.
The check was posted to Account No. 80128961 on
September 19, 2005, leaving a balance of $8,058.32.
CB cashier’s check 32070 in the amount of $75,000.00 was drawn
on Citizen’s Bank.
It is dated April 8, 2004, the remitter is
Target Oil & Gas, the payee was Michael D. Smith, and the check was
endorsed by Michael Smith.
The check was purchased with a counter
check drawn on Citizen’s Bank in the amount of $75,000.00, posted
against Target Oil & Gas account 2016443, signed by Michael Smith.
Ultimately, $75,000.00 of the funds used to purchase cashier’s
check 022175 can be traced to investor funds.
II.
Forfeitability of the Res
The initial determination to be made is whether the currency
and cashier’s checks in which Vernon Smith claims an interest are
subject to forfeiture as proceeds traceable to a scheme or artifice
to defraud in violation of 18 U.S.C. §§ 1341 and 1343 or because
they were involved in a transaction in violation of 18 U.S.C. §§
1956, 1957 or 1960.
The charges set forth in the indictment in
Frankfort Criminal Action No. 08-31-JMH are the basis for the
United States’ forfeiture action in rem since, in the present case,
the government contends that both the currency and the cashier’s
checks are or were derived from proceeds traceable to the mail
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and/or wire fraud committed by the defendants in the criminal
action or that the defendant items were involved in a money
laundering transaction which involved proceeds of that same fraud.
For
the
reasons
which
follow,
the
Court
concludes
that
the
defendant currency is not subject to forfeiture but the defendant
cashier checks are since they are proceeds traceable to a scheme or
artifice to defraud.
A.
Currency
The Court first considers the defendant currency. Ultimately,
a number of defendants entered guilty pleas in Frankfort Criminal
Action No. 08-31-JMH , and Michael D. Smith and Christopher Cello
Smith were found guilty by a jury of various violations of the mail
fraud statute, 18 U.S.C. § 1341.
After reaching that conclusion,
the same jury was asked to consider, as well, whether any interest
that Michael D. Smith and Christopher Cello Smith might have in the
defendant currency was subject to forfeiture under the criminal
forfeiture provisions of the United States Code.
In order to
consider that issue, the jury had to consider first and foremost
whether the currency constituted or were derived from proceeds of
the violations for which Michael D. Smith and Christopher Cello
Smith were adjudged guilty.
On
a
special
verdict
form,
jury
members
recorded
their
conclusion that they could not “unanimously find by a preponderance
of the evidence that the [$72,050.00 in] currency constitute[d] or
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[was] derived from proceeds obtained directly or indirectly as a
result of the violation(s) for which [they] found . . . Michael D.
Smith or . . . Christopher Cello Smith guilty.” In the Preliminary
Judgment of Forfeiture proposed by the United States in Frankfort
Criminal Action No. 08-31-JMH on July 30, 2010 [DE 349] and entered
by this Court on August 2, 2010 [DE 350], there is no reference to
the defendant currency, nor is it included in any of the subsequent
forfeiture orders entered in that matter.
Clearly, the United
States considered the issue of whether the cash was considered the
proceeds of the fraud charged in the indictment to be conclusively
decided with respect to the criminal matter. This Court does, too.
With respect to the present civil matter, however, the United
States takes the position that it may still proceed against the
cash because the criminal and civil actions are separate and
distinct from one another, citing United States v. Lazarenko, 504
F. Supp. 2d 791, 800–801 (N.D. Cal. 2007).
While it is true that
these actions are separate and distinct from one another,
the
United States is bound by the decision of the jury with respect to
the currency under the doctrine of issue preclusion.
As summarized by the United States Court of Appeals for the
Sixth Circuit:
Res judicata, i.e., the preclusive effect of a
judgment, encompasses two distinct doctrines:
claim preclusion and issue preclusion. Taylor
v. Sturgell, 553 U.S. 880, 891–93 (2008).
Claim
preclusion
“forecloses
‘successive
litigation of the very same claim, whether or
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not relitigation of the claim raises the same
issues as the earlier suit.’ ” Id. (quoting
New Hampshire v. Maine, 532 U.S. 742, 748
(2001)). In contrast, issue preclusion “bars
‘successive litigation of an issue of fact or
law actually litigated and resolved in a valid
court determination essential to the prior
judgment,’ even if the issue recurs in the
context of a different claim.” Id. (quoting
New Hampshire, 532 U.S. at 748-49).3
General Elect. Medical Systems Europe v. Prometheus Health, 394
Fed. App’x 280, 283 (6th Cir. 2010); see also Aircraft Braking Sys.
Corp. v. Local 856, Int'l Union, United Auto., Aerospace and Agric.
Implement Workers, UAW, 97 F.3d 155, 161 (6th Cir. 1996) (applying
federal
issue-preclusion
law
to
determine
whether
to
give
preclusive effect to a prior federal judgment).
While the Court usually must consider whether “the subsequent
action involves the same parties or privities” in determining
whether a subsequent action is barred by res judicata, Kane v.
Magna Mixer Co., 71 F.3d 555, 560 (6th Cir. 1995), the requirement
of
mutuality
may
be
set
aside
in
this
instance
because
“no
constitutional right is violated where the thing to be litigated
3
The Court notes that the cases upon which the United States
relies in its Response brief [DE 37], United States v. One
Assortment of 89 Firearms, 465 U.S. 354, 361-62 (1984); One Lot
Emerald Cut Stones v. United States, 409 U.S. 232, 236-37 (1972);
United States v. Ford, 64 Fed. Appx. 976, 984 (6th Cir. 2003)
United States v. Four Contiguous Parcels, Nos. 98-5292, 98-5317,
1999 WL 701914, at *5 (6th Cir. September 1, 1999), concern
situations where a defendant was acquitted on criminal charges and
a jury never reached the issue of forfeiture of property. These
are not applicable in the present matter.
-13-
was actually litigated in a previous suit, final judgment entered,
and the party against whom the doctrine is to be invoked had full
opportunity to litigate the matter and did actually litigate it.”
Humphreys v. Tann,
487 F.2d 666, 670 (6th Cir. 1973).
By
contrast, “those [litigants] who never appeared in a prior action
. . . may not be collaterally estopped without litigating the
issue. They have never had a chance to present their evidence and
arguments on the claim. Due process prohibits estopping them
despite one or more existing adjudications of the identical issue
which stand squarely against their position.”
Id. at 671 (citing
Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found.,
402 U.S. 313,
329 (1971)).
In the instant matter, the United States had its day in court
with respect to the issue of whether the currency constitutes
proceeds traceable to a scheme or artifice to defraud in violation
of 18 U.S.C. §§ 1341 and 1343.
litigation of that issue.
Issue preclusion bars further
As to whether the currency was involved
in a transaction in violation of 18 U.S.C. §§ 1956, 1957 or 1960,
Plaintiff’s theory relies on whether the currency was proceeds of
a scheme or artifice to defraud.
Thus, in light of the jury
verdict, Plaintiff cannot show, as a matter of law, that the
currency “represent[ed] the proceeds of some form of unlawful
activity,”
was
“criminally
derived,”
or
was
“derived
from
a
criminal offense” as required to demonstrate a violation of 18
-14-
U.S.C. §§ 1956, 1957, and 1960(b)(1), nor has Plaintiff shown that
the currency was involved in a transaction undertaken by “an
unlicensed money transmitting business” as that term is understood
in 18 U.S.C. § 1960. The government has already failed to persuade
the jury of the provenance of the currency, and the Court will not
revisit the issue here.
Plaintiff’s Motion for Summary Judgment
shall be denied with respect to the currency, and Claimant Vernon
Smith’s Motion for Summary Judgment shall be granted in this
regard.
B.
Cashier’s Checks
The cashier’s checks present, however, a different story, and
the Court shall consider the government and claimant’s respective
arguments in this regard.4
The undisputed evidence shows that
funds taken from Target investors during the period of the criminal
indictment were deposited by Michael D. Smith into Vernon Smith's
personal account and then used, along with other funds present in
Vernon
Smith's
account
cashier's
checks.
occasions
in
The
Frankfort
from
other
Court
sources,
has
expressed,
Criminal
4
Action
to
on
purchase
a
08-31-JMH,
the
number
of
that
the
The jury in the criminal trial unanimously found by a
preponderance of the evidence that the two defendant cashier’s
checks “constitute[d] or [were] derived from proceeds obtained
directly or indirectly as a result of the violation(s) for which
[they] found . . . Michael D. Smith or . . . Christopher Cello
Smith guilty.”
Neither the cashier’s checks nor Claimant Vernon
Smith were parties to that action, unlike the United States, and
the Court considers their arguments today.
-15-
defendants’ scheme to defraud investors by means of mail fraud was
so pervasive that it infected the entire scheme and, thus, any
money taken from investors funds can be considered the proceeds of
a scheme or artifice to defraud.
The cashier’s checks were
traceable to those funds and are, themselves, proceeds traceable to
a scheme or artifice to defraud.
Ultimately,
the
Court
concludes
that
the
funds
used
to
purchase some portion of both cashier’s checks were the proceeds
traceable to a scheme or artifice to defraud in violation of 18
U.S.C. §§ 1341 and 1343.
Tracing of funds used to purchase
cashier’s check 062629 revealed that at least $47,000.00 of the
money used to purchase it had been deposited in Vernon Smith’s
account by Michael D. Smith and came from Target accounts.
The
$100,000 check purchased by Vernon Smith using funds from his
account at Whitaker Bank was also purchased on September 19, 2005,
and the tracing evidence shows that at least $75,000.00 of the
funds used to purchase it had been deposited in Vernon Smith’s
account by Michael D. Smith and came from Target accounts.
All the relevant transactions fall within the period of the
indictment, which alleges that the actions in Count I thereof began
on February 18, 2003, and continued through February 28, 2008. [See
United States v. Smith, Frankfort Criminal Action No. 08-31-JMH, DE
1.] It is irrelevant to this Court that the investor funds were
mixed with other funds which the Court assumes, for the purposes of
-16-
its inquiry today, were “innocent funds” belonging to Vernon Smith.
The
tainted
funds
did
not
become
association with “innocent funds.”
innocent
merely
by
their
As discussed below, the Court
determines that these arguably legitimate funds were tainted by
their association with the tainted funds and became subject to
forfeiture.
The Court next turns its attention to whether Vernon Smith is
an owner with standing to protest all or some portion of the
forfeiture of the cashier’s checks and, if he is an owner of all or
some portion of the checks, whether he is an innocent owner subject
to the exception to forfeiture under the statute.
III. Innocent Owner Exception
Under 18 U.S.C. § 983(d)(1), “[a]n innocent owner's interest
in property shall not be forfeited under any civil forfeiture
statute. The claimant shall have the burden of proving that the
claimant is an innocent owner by a preponderance of the evidence.”
In the instant matter, Claimant Vernon Smith urges the Court to
conclude that his interest was in existence at the time the conduct
giving rise to forfeiture took place such that “innocent owner”
would be defined according to 18 U.S.C. § 983(d)(2)(A). The United
States takes the position that Vernon Smith was never an owner of
the cashier’s checks made payable to him and found in a safe in the
basement of his home but was, instead, merely a nominee for Michael
D. Smith and exercised no dominion or control over the property.
-17-
The United States argues, in the alternative, that the Court should
apply subsection 983(d)(3), which deals with property interests
arising after the conduct giving rise to the forfeiture takes
place.
The Court has considered this issue, assuming without
deciding that claimant has at the present time, an adequate
ownership interest in the property to have standing to challenge
the forfeiture.
As an initial matter, the Court is not persuaded
that subsection (d)(2)(A) applies for the reasons set forth below.
Further, having considered whether Claimant is due relief under
subsection (d)(3)(A), the Court concludes that he is not, as set
forth below.
Vernon Smith claims that he bought a sawmill, two bulldozers,
an end loader, a forklift, and a power unit after Michael Smith
finished college around 1980 so that his son could set up a saw
mill business, ultimately “loaning” more than $150,000 to Michael
Smith by financing these purchases. According to Vernon Smith, the
saw mill business never paid enough to make it easy for Michael
Smith to pay back his father. Ultimately, when Michael Smith’s oil
and gas business began making more money after 2000, Vernon Smith
states that he decided he might want money to purchase land and
asked his son to repay some of that loan, that his son sold a drill
rig for $275,000, and that Michael Smith repaid Vernon Smith
$75,000 in 2004 – and that it is from this money that the cashier’s
checks were purchased.
-18-
The evidence demonstrates that, in fact, the cashier’s checks
were purchased from funds derived from Target investor funds and
placed in his account in 2003 and 2004 as set forth earlier in this
memorandum opinion and order – not from the sale of an oil rig.
Further, there is no evidence, other than Vernon Smith’s conclusory
and, frankly, convenient statement that he asked his son to repay
an undocumented loan – of some amount – three decades old, that
such a loan existed.
Most importantly, there is no evidence from
which the Court can conclude that his son had a legal obligation to
repay such a loan, even if it was made.
Accordingly, the Court
cannot conclude that Claimant’s interest in the money used to
purchase the cashier’s checks arose at a time prior to the time
that the money was placed in his bank account – from March 2003
through 2004.
18 U.S.C. § 983(d)(2)(A) does not apply.
Looking instead to 18 U.S.C. § 983(d)(3), the Court considers
whether Vernon Smith was a bona fide seller of something for value
and, thus, received the funds used to purchase the defendant
cashier’s checks. The Court has already rejected the idea that the
funds were placed in the account as a repayment for an old loan,
and the claimant has provided no other theory upon which the Court
might conclude that he was a “bona fide seller for value,” as
required for relief under subsection (d)(3).
At best, the Court
would have to conclude – although it need not and does not – that
the funds were a “gift” from Michael D. Smith to his father under
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Kentucky law.
See Knox v. Trimble, 324 S.W.2d 130, 132 (Ky. 1959)
(holding that for a gift to be made there “must be a gratuitous and
absolute transfer of the property from the donor to the donee which
takes effect immediately and is fully executed by delivery of the
property by the donor and the acceptance thereof by the donee.”).
This would not be enough to permit Vernon Smith to claim relief
under subsection (d)(3)(A) or, for that matter, (d)(3)(B), which
further extends the innocent owner exception to those who receive
items without an exchange in value for the property under certain
circumstances which have not been demonstrated here.
Accordingly,
Claimant Vernon D. Smith is not an innocent owner of the cashier’s
checks for the purposes of 18 U.S.C. § 983(d)(3).5
Further, the Court reaches the conclusion that the cashier’s
checks, as a whole, must be forfeited, relying on United States
v. Huber, 404 F.3d 1047, 1057–58 (8th Cir. 2005) (holding that
legitimate crop-sales proceeds and crop-insurance benefits
that were commingled in accounts with farm program fraud
proceeds were subject to forfeiture as part of the "corpus"
and
that
"[t]he
presence
of
legitimate
funds
made
the
transactions no more lawful because the transactions still
5
Here, the Court notes that it need not and has not made a
finding as to what, if anything, Claimant Vernon Smith knew about
the conduct which gave rise to the forfeiture. The Court notes,
however, that he has steadfastly maintained that he was not aware
of any illegal activity on the part of his sons, Michael D. Smith
and Christopher Cello Smith.
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involved the illegitimate proceeds).
See also United States
v. Funds on Deposit at Bank One Indiana Account 1563632726,
No. 2:02-cv-480, 2010 WL 909091, at *9 (N.D.Ind. Mar. 9, 2010)
(applying Huber with approval and stating that "all money
involved in withdrawals or transfers from commingled account
are subject to forfeiture as the "corpus"); United States v.
Warshak, 562 F. Supp. 2d 986, 1005 (S.D. Ohio 2008).
Accordingly, the United States’ Motion for Summary Judgment
shall be granted in this regard, and Claimant Vernon Smith’s Motion
for Summary Judgment shall be denied in this regard.
IV.
CONCLUSION
The Motion for Summary Judgment of the United States of
America shall be granted in part and denied in part for all the
reasons stated above.
Additionally, the Court grants, in part and
denies in part, Claimant Vernon Smith’s request for leave to latefile a Motion for Summary Judgment and Motion for an Extension of
Time a Reply in Support thereof, again for the reasons stated
above.
Accordingly, IT IS ORDERED:
(1) that the United States’ Motion for Summary Judgment [DE
28] is GRANTED IN PART and DENIED IN PART;
(2)
Claimant Vernon Smith’s request for leave to late file a
Motion for Summary Judgment and Motion for an Extension of Time to
late-file a Reply [DE 34 & 39] are GRANTED.
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(3)
Claimant Vernon Smith’s Motion for Summary Judgment is
GRANTED IN PART and DENIED IN PART.
This the 1st day of April, 2013.
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