United States of America v. $72,050.00 In United States Currency et al
Filing
53
MEMORANDUM OPINION & ORDER: (1) Claimant Vernon Smith's 46 Motion to Correct Mistake Pursuant to Fed R Civ P 60(b)(1) is GRANTED IN PART and DENIED IN PART. (2) Claimant's 50 Motion for an evidentiary hearing is DENIED. Signed by Judge Joseph M. Hood on 8/8/2013. (SCD)cc: COR,6CCA
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
UNITED STATES OF AMERICA,
)
)
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.
)
Civil Case No.
08-cv-57-JMH
MEMORANDUM OPINION & ORDER
***
This matter is before the Court on Claimant Vernon
Smith’s Motion to Correct Mistake Pursuant to Fed. R. Civ.
P.
60(b)(1)
[DE
46].
Response [DE 49].
The
United
States
has
filed
a
The time to file a Reply has expired,
see LR 7.1(c), and Claimant has made no further filing in
support of his Motion.
Claimant has, however, filed an
additional Motion, seeking an evidentiary hearing [DE 51].
The Court has considered that request and will deny
an
evidentiary
hearing
is
not
necessary
to
an
it as
informed
resolution of the motion at hand.
Federal
trial
court
Rule
to
of
Civil
relieve
a
Procedure
party
from
60(b)(1)
a
final
allows
a
judgment
because of mistake, inadvertence, surprise, or excusable
neglect.
A party seeking relief from the judgment must
show the applicability of the rule. Jinks v. Alliedsignal,
Inc., 250 F.3d 381, 385 (6th Cir. 2001) (citing Lewis v.
Alexander,
987
prerequisite
to
F.2d
392,
relief
396
under
(6th
Rule
Cir.
1993))
60(b),
a
(“As
party
a
must
establish that the facts of its case are within one of the
enumerated
relief
reasons
from
contained
judgment.).1
in
Rule
Rule
60(b)
60(b)
that
motions
warrant
are
not
designed to allow a litigant a second chance to convince
1
The
Sixth
Circuit
has
recognized
that
“mistake”
encompasses “a claim of legal error,” and has held that a
“60(b)(1) motion based on legal error must be brought
within the normal time for taking an appeal.” Pierce v.
United Mine Workers of Am. Welfare & Retirement Fund for
1950 and 1974, 770 F.2d 449, 451 (6th Cir. 1985).
Of
course, the filing of a Notice of Appeal generally divests
the district court of jurisdiction; however, where the
notice is filed while a timely motion for relief from a
final judgment is pending, the notice has no effect.
See
Brown v. Univ. Comprehensive Assessment & Training Servs.,
No. 12-cv-123-KSF, 2013 WL 1687886, *1-2 (E.D. Ky. Apr. 18,
2013) (determining that motion under Rule 59(e) was timely
and that jurisdiction remained in district court since
notice of appeal was filed while motion was pending)
(citing Griggs v. Provident Consumer Discount Co., 459 U.S.
56, 58 (1982)); Pittock v. Otis Elevator Co., 8 F .3d 325,
327 (6th Cir. 1993); United States v. Real Property Located
at U.S. Highway S., 23 F. App'x 523, 526 (6th Cir. 2001);
Meyers v. Hurst, 7 F.3d 234, 234 (6th Cir. 1993); Young v.
Rochte, 791 F.2d 936, 1986 WL 16969 at *1 (6th Cir. Apr[.]
18, 1986) (Table)).
Here, Claimant filed his Motion to
Correct several minutes prior to filing his Notice of
Appeal.
Accordingly, Claimant argues that a legal error
was made in a timely motion, and the Court will consider
his argument.
the
Court
to
rule
in
his
favor
by
presenting
explanations, legal theories, or proof. Id.
new
Neither can
Rule 60(b) motions be used to re-litigate the merits of the
forfeiture case or to raise challenges that can be raised
on appeal. See United States v. One Rural Lot No. 10,356,
238 F.3d 76, 78 (1st Cir. 2001).
Claimant’s motion primarily espouses the same legal
theory that he did in his summary judgment filings, which
the Court presumes that he will also present on appeal.
Ultimately, he disagrees with the tracing analysis in the
Court’s Memorandum Opinion and Order of April 3, 2013 [DE
43].
Again, he cites to lengthy portions of Craig Butler’s
affidavit
made.
and
reiterates
many
of
the
arguments
already
This Court had the benefit of Mr. Butler’s affidavit
and the evidence available from other witnesses, as well as
the bank records associated with each cashier’s check, when
it reached its conclusion on the motions before it that
resulted
motion.2
2
in
the
judgment
Clearly,
which
Claimant
is
the
disagrees
subject
with
the
of
this
Court’s
Claimant also argues that there was a procedural error in
the decision making process because he was never able to
“cross-examine” government witness Dale Cannon, upon whose
testimony the United States relies in part to support its
position, because he was not a party at the trial in
Frankfort Criminal Action No. 3:08-cr-31.
Claimant does
not explain, however, why he did not seek to depose Dale
Cannon during the period of discovery available in this
analysis of that evidence.
Court
has
experienced
This does not mean that the
“confusion,”
as
he
suggests,
regarding transactions at bar, nor does it necessarily lead
to the conclusion that the Court made a legal error.
Those
issues may be taken up on appeal in due course but will not
be addressed further by this Court at this time.
He has, however, presented the Court with a compelling
argument which merits further consideration on one issue.
Specifically, Claimant argues that the Court’s decision is
founded, in part, on a legal error because it determined
that
the
commingling
of
tainted
funds
(the
proceeds
of
Target’s fraud) with legitimately obtained funds (Vernon
Smith’s
own
funds
received
from
black
lung
and
social
security benefit payments deposited directly and regularly
into his account) in order to purchase the certificates of
deposit rendered the entire value of the certificates of
deposit purchased with those funds forfeitable, relying on
United States v. Huber, 404 F.3d 1047, 1057–58 (8th Cir.
2005).
He reasons that, in fact, Huber has to do less with
forfeitability of funds because they were briefly combined
with
tainted
funds
in
a
bank
account
than
their
matter or seek to postpone a decision on the merits of the
motion for summary judgment so that he might do just that.
In other words, the Court sees no error which would merit
relief on these grounds.
forfeitability because of the way that those funds were
involved in facilitating a money laundering scheme by the
party claiming an interest in those funds and objecting to
the forfeiture.
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); United
States v. Warshak, 562 F. Supp. 2d 986, 1005 (S.D. Ohio
2008).
The Court understands that Claimant wishes for the
Court to conclude that the value of the cashier’s checks
which
is
attributable
to
funds
drawn
from
his
own
“legitimate” funds (i.e., black lung and social security
benefits and other deposits not traced by the United States
to Target investor funds) in his bank account should not be
subject to forfeiture and that his claim to that amount is
valid because he did not have the requisite knowledge of
the fraudulent provenance of the funds with which his own
untainted funds were co-mingled.
Upon reconsideration and in the absence of evidence to
establish
Target
that
fraud
he
knowingly
itself
or
a
participated
money
in
laundering
either
scheme
the
with
respect to the proceeds of that fraud (i.e., that he knew
or should have known that the money his son deposited in
his account was the proceeds of fraud), the Court agrees.
No one suggests that the funds in Claimant’s bank account –
other than those traceable to Target — were associated with
Target’s
fraud
except,
through commingling.
as
the
government
has
argued,
The government’s own tracing evidence
reveals that some portion of the funds used to acquire the
cashier’s checks came from direct deposits of black lung or
social
security
benefits
which
belonged
were received over time by Claimant.
to
Claimant
and
Nor is there evidence
which, in the Court’s mind, establishes by a preponderance
that
Claimant
knew
or
should
have
known
of
his
son’s
fraudulent activities.
Certainly, no one disputes that Claimant lived near
his son on the same or a contiguous tract of land, that his
son had an office on that property, or that Target’s mail
was received at Claimant’s address for a period of time.
That said, without more, this is not evidence that Claimant
was aware or necessarily should have been aware of the
misrepresentations
visited
on
investors
and
potential
investors in the Target oil and gas scheme or the losses
suffered as a result of the fraud adjudicated in United
States v. Smith, Frankfort Criminal Action No.
08-31-JMH.
The only direct evidence of Claimant’s knowledge is his
sworn
testimony
[Target]
in
no
that
way.”
he
did
[DE
not
28-3
“know
at
one
pp.
thing
about
17–18.]
The
circumstantial evidence presented by the government simply
is
not
enough
to
persuade
a
trier
of
fact
by
a
preponderance of the evidence that Claimant had knowledge
or should have had knowledge sufficient to participate in a
money laundering offense such that his own funds would be
forfeitable.
Under
the
forfeiture
statute,
where
legitimate
and
illegitimate funds are comingled, the funds are forfeitable
only to the extent that the funds can be traced to an
illegal transaction.
United States v. Conner,
No. 90-
3470, 1991 WL 213756, at *4 (6th Cir. 1991) (citing United
States v. Banco Cafetero Panama, 797 F.2d 1154, 1159 (2nd
Cir 1986)); see United States v. Coffman,
859 F.Supp.2d
871, 875 (E.D. Ky. 2012) (Caldwell, D.J.) (addressing the
forfeitability of a criminal defendant’s interest in funds
involved
in
money
laundering
and
stating
that
“[m]oney
laundering forfeiture pursuant to § 982(a)(1) applies to a
larger class of property than proceeds forfeiture under §
981(a)(1)(C)
because
it
applies
to
more
than
just
the
laundered property or proceeds from the laundered property.
Money laundering forfeiture is required for all property
“involved
legitimate
in”
the
money
crime,
that
is
which
can
comingled
include
with
clean
tainted
or
money
derived from illicit sources.”); see also United States v.
Premises Known as 7725 Unity Ave. North, Brooklyn Park,
Minn., 294 F.3d 954, 958–59 (8th Cir. 2002) (citing United
States v. 92 Buena Vista Avenue, 507 U.S. 111, 123 (1993);
United States v. One 1980 Rolls Royce, 905 F.2d 89, 90 (5th
Cir. 1990); United States v. 1980 Lear Jet, Model 35A, 38
F.3d 398, 401 (9th Cir. 1994) (“This notion of an ‘innocent
lienholder’
constitutes
an
exception
to
the
rule
that
property used to facilitate a felony drug transaction will
be forfeited in toto to the federal government.”); United
States v. 15603 85th Avenue North, 933 F.2d 976, 982 (11th
Cir. 1991)) (construing 21 U.S.C. §881(a)(6) and concluding
that loan proceeds commingled with illegal drug proceeds
and claimed by lender were not traceable to illegal drug
money and were not forfeitable where there was no evidence
that lender had knowledge of borrower’s drug activities).
Here,
the
difference
between
the
identity
of
the
claimant in the present case and that in Huber or, for that
matter,
the
situation
addressed
Coffman is of real import.
by
Judge
Caldwell
in
The present case involves a
claim to “innocent” funds commingled with “tainted” funds
by someone who was without knowledge of the fraud or the
fact that proceeds of fraud were being laundered using his
account and his money so as to permit the lawful forfeiture
of otherwise legitimate but commingled funds.
Certainly,
he has no claim to the “tainted” funds for the reasons
described in this Court’s earlier Memorandum Opinion and
Order [DE 43] of April 3, 2013, but the Court concludes
that
he
has
adequately
argued
that
the
value
of
the
cashier’s checks traceable to his own “innocent funds” is
not subject to forfeiture.
In
other
words,
the
Court
reiterates
its
earlier
conclusion that the United States has demonstrated by a
preponderance of the evidence that a portion of the value
of the cashier’s checks — $47,000 of the $60,649.64 value
of
cashier’s
check
#062629
and
$75,000
of
the
$100,000
value of cashier’s check #022175 — are proceeds traceable
to
a
scheme
U.S.C.
§§
opinion
or
1341
of
artifice
and
April
1343
3,
2013
to
defraud
for
the
[DE
in
violation
reasons
stated
43].
However,
of
18
in
its
since
the
evidence does not demonstrate by a preponderance of the
evidence
that
the
remainder
of
the
value—$13,649.64
of
check #062629 and $25,000 of check #022175 for a total of
$38,649.64—represents
proceeds
traceable
to
fraud,
those
funds are not subject to forfeiture simply by virtue of the
commingling of funds in those amounts with funds “tainted”
by fraud.
Further,
the
$38,649.64—belong
Court
to
concludes
Vernon
Smith.
that
Thus,
those
those
funds—
funds
should be returned to him in keeping with 28 U.S.C. ' 2465.
See Fed. R. Civ. P. 56(a).
Accordingly, IT IS ORDERED:
(1)
that Claimant Vernon Smith’s Motion to Correct
Mistake Pursuant to Fed. R. Civ. P. 60(b)(1) [DE 46] is
GRANTED IN PART and DENIED IN PART;
(2)
that
the
Claimant’s
Motion
hearing [DE 50] is DENIED.
This the 8th day of August, 2013.
for
an
evidentiary
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