USA v. Woodland Dream et al
Filing
29
MEMORANDUM OPINION & ORDER: (1) ACCEPTING & ADOPTING Magistrate Judge's 12 Order; (2) GRANTING IN PART & DENYING IN PART Bank's 13 MOTION for Reconsideration; granting insofar as the court has considered their arguments & undertak en a review of the Mag Judge's R&R; denied insofar as the court has accepted & adopted the R&R of the Mag Judge & declines to reach the conclusion that the Banks urge; (4) that the mare Woodland Dream shall be sold in a sale conducted in accorda nce w/mechanics & procedures of Supplemental Rule of Civil Procedure G(7); to the extent the parties can agree to sale procedures & proceed allocation, they may tender a proposed agreed order for the court's consideration; if they cannot agree, they may bring any disputes to the court for resolution; sale proceeds are a substitute res subject to forfeiture in place of the property that was sold & must be held in an interest-bearing acct maintained by the USA pending conclusion of the forfeiture litigation; (4) clerk shall file a copy of this Memo Opinion & Order in the record of 5:13-MJ-5181. Signed by Judge Joseph M. Hood on 10/24/13.(KJR)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
UNITED STATES OF AMERICA,
Plaintiff,
v.
WOODLAND DREAM, et al.,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
Civil Case No.
5:13-cv-279-JMH
MEMORANDUM OPINION
AND ORDER
***
This matter is before the Court upon Claimants Richard
Banks
and
Travis
Banks’
Motion
to
Appeal
the
Order
of
the
Magistrate Judge to sell the mare Woodland Dream. [D.E. 13]. The
United States filed a Response to the motion. [D.E. 14]. This
matter having been heard for argument on October 18, 2013, and
the Court being otherwise sufficiently advised, this matter is
now ripe for review.
I. Procedural Background
This matter arose in a preliminary forfeiture action before
Magistrate Judge Wier. See United States v. Johnston, 5:13-mj5181-REW. Magistrate Judge Wier granted Plaintiff’s motion for a
pre-indictment
temporary
restraining
order.
[D.E.
12
at
1].
Plaintiff then moved for a ninety-day extension of the temporary
restraining
order.
Id.
Magistrate
Judge
Wier
construed
this
motion as a motion to convert the temporary restraining order
into an injunction under 21 U.S.C. § 853(e)(1), and granted
Plaintiff’s motion. [D.E. 12 at 2].
Magistrate
Judge
Wier
then
scheduled
an
evidentiary
hearing, which took place over two days, to allow the parties to
present evidence on the issue of whether the mare Woodland Dream
should be sold. [D.E. 12 at 2, 19, 20]. After considering the
evidence presented at the hearing, Judge Wier issued an order
recommending that Woodland Dream be sold based on the risks to
her value and the specialized costs of upkeep attributable to
this mare. [D.E. 12]. Specifically, Judge Wier stated:
there is a substantial risk that Woodland Dream’s
value will diminish significantly if she is not sold
at this time, thereby rendering her current value,
effectively unavailable for forfeiture. Pregnancy,
foaling risks, and age threaten the mare’s worth.
Accruing and unpaid expenses dilute any owner’s equity
in the mare. The horse plainly is perishable and in
danger of diminished value. A sale now preserves her
current value against the indeterminacy of future
risks and the assured equity loss from upkeep of this
worrisome mare. There is good cause to sell the mare,
premised on the nature of the asset, her peculiar
history and properties, and timely access to a
location sure to offer the most efficient and
knowledgeable of marketplaces for property of this
type, Keeneland.
[D.E. 12 at 17]. Judge Wier further directed that any appeal of
his
decision
should
be
made
to
this
Court,
based
upon
the
pendency of a related civil forfeiture in rem action before this
Court. Id. at 18.
2
The Banks’ then filed their motion appealing Judge Wier’s
order to sale the mare Woodland Dream. Because the United States
is requesting injunctive relief under 21 U.S.C. § 853(e)(1), the
Court entered an order treating Judge Wier’s order as a report
and recommendation and the Banks’ motion as an objection to the
report and recommendation. See 28 U.S.C. § 636(b)(1); [D.E. 5].
Additionally,
because
Woodland
Dream
is
also
subject
to
forfeiture in the forfeiture in rem action before this Court,
the Court also ordered that all future filings be made in that
action. [D.E. 5]. Thus, the Banks’ Motion for Reconsideration
was
submitted
to
this
Court
and
the
Government
filed
its
Response. The Court held a hearing on the motion on October 18,
2013 in Lexington, Kentucky.
In
their
Motion
to
Reconsider,
the
Banks
make
four
objections to Judge Wier’s report and recommendation. The Banks’
argue (1) that there is no legal precedent for a pre-indictment
interlocutory sale of an asset subject to forfeiture; (2) that
the Government did not show a substantial likelihood that the
property would decrease in value or that the cost of maintenance
of the property exceeded its value; (3) that Magistrate Judge
Wier improperly relied on the filing of a civil forfeiture in
rem action; and (4) that Magistrate Judge Wier’s reliance on the
testimony
of
FBI
Agent
Moutz’s
evidentiary hearing was inappropriate.
3
testimony
given
at
the
II. Standard of Review
Pursuant to this Court’s Order of September 26, 2013, this
matter
is
before
reconsideration
of
the
Court
upon
Magistrate
the
Judge
Banks’
Wier’s
motion
report
for
and
recommendation to order the sale of the mare Woodland Dream. See
[D.E. 5]; 28 U.S.C. § 636(b)(1). In reviewing Magistrate Judge
Wier’s recommendation to sale Woodland Dream, this Court must
make a de novo review of those portions of the report to which
the Banks object. See 28 U.S.C. § 636(b)(1)(C). This Court “may
accept, reject, or modify, in whole or in part, the findings or
recommendations made by” Magistrate Judge Wier. Id.
In performing a de novo review, because the Government’s
motion was made pursuant to § 853(e), the Court must apply the
standards
found
in
§
853(e)
to
determine
if
action
warranted in this matter.
Upon application of the United States, the court may .
. . take any other action to preserve the availability
of property [subject to] forfeiture under this section
. . . prior to the filing of such an indictment or
information, if . . . the court determines that (i)
there is a substantial probability that the United
States will prevail on the issue of forfeiture and
that failure to enter the order will result in the
property
being
destroyed,
removed
from
the
jurisdiction
of
the
court,
or
otherwise
made
unavailable for forfeiture; and (ii) the need to
preserve the availability of the property through the
entry of the requested order outweighs the hardship on
any party against whom the order is to be entered.
21 U.S.C. § 853(e)(1)(B).
4
is
III. Analysis
In reviewing Judge Wier’s determination de novo, see 28
U.S.C. § 636(b)(1), this Court must determine (1) whether §
853(e) grants the authority to order an interlocutory sale of
property pre-indictment and (2) if it does, whether the sale of
the property is appropriate under the circumstances presented by
this case. The authority for entering the interlocutory sale
must be found in § 853(e) because no motion has been made in the
civil forfeiture in rem action requesting a sale under Rule G(7)
of the Supplemental Rules for Admiralty or Maritime Claims and
Asset Forfeiture Actions.
The
Banks’
argue
that
there
is
no
legal
precedent
for
entering an interlocutory sale in a pre-indictment case. [D.E.
13 at 3]. However, the Banks cite no legal precedent holding
that an interlocutory sale is not allowed in a pre-indictment
case. Judge Wier explicitly addressed this issue in his report
and
recommendation.
Judge
Wier
stated
that
“[t]he
authority
granted by § 853(e)(1) to take ‘any other action’ to preserve
the
availability
of
property
subject
to
forfeiture
applies
equally, as a plain matter of the statute’s text and structure,
during the pre- and post-indictment stages.” [D.E. 12 at 11].
The Court agrees with Judge Wier’s reading of the statute
and
finds
support
jurisdictions.
Our
for
this
sister
reading
court
5
in
in
the
case
law
District
from
of
other
Maryland
found
that
the
rules
of
§
853(e)
“apply
equally
to
pre-
indictment orders issued under Section 853(e)(1)(B) and postindictment orders issued under Section 853(e)(1)(A).” In re PreIndictment Restraining Order, 816 F. Supp. 2d 240, 244 (D. Md.
2011).
In
a
post-indictment
case,
the
District
Court
of
Massachusetts entered the interlocutory sale of a home because
“the equity in the property available to the government in the
event
forfeiture
is
ordered
continues
to
diminish.”
United
States v. Gianelli, 594 F. Supp. 2d 148, 150 (D. Mass. 2009).
The court found that § 853(e)(1) authorized this sale because it
gave the court authority to “take any action to preserve the
availability of property.” Id. (quoting 21 U.S.C. § 853(e)(1));
see also United States v. Boscarino, No. CR 12-1942-TUC-CKJ,
2012 WL 254129, at *1 (D. Ariz. Jan. 27, 2012) (finding that §
853(e)(1)
provides
authority
to
enter
interlocutory
sale
of
property); In re Pre-Indictment Restraining Order, 816 F. Supp.
2d at 244 (“The court’s authority under Section 853(e) is not
limited
to
assets.”);
4739791,
enjoining
United
at
*3
a
States
person
v.
(S.D.N.Y.
from
King,
Nov.
dissipating
No.
12,
10
Cr.
2010)
forfeitable
122,
2010
(ordering
WL
the
interlocutory sale of horses because the expense in keeping them
was excessive and disproportionate to their fair market value).
Thus, if the rules of § 853(e) apply equally pre- and postindictment
and
if
interlocutory
6
sale
is
permitted
post-
indictment, it follows that § 853(e) grants the authority to
order
the
pre-indictment
interlocutory
sale
of
forfeitable
assets.
Having found authority to enter the interlocutory sale of
the assets within § 853(e), the Court must determine whether the
circumstances in this case meet the standards provided by §
853(e). To take action under § 853(e)(1)(B), the court must
determine that
(i) there is a substantial probability that the United
States will prevail on the issue of forfeiture and
that failure to enter the order will result in the
property
being
destroyed,
removed
from
the
jurisdiction
of
the
court,
or
otherwise
made
unavailable for forfeiture; and (ii) the need to
preserve the availability of the property through the
entry of the requested order outweighs the hardship on
any party against whom the order is to be entered.
21 U.S.C. § 853(e)(1)(B).
The Court, having reviewed the affidavit of FBI Agent Moutz
[D.E. 1-2], finds that there is a substantial probability that
the
United
States
will
prevail
on
the
issue
of
forfeiture.
Additionally, there was testimony presented at the evidentiary
hearing
suggesting
that
Seth
Johnston
owns
Woodland
Dream.
Specifically, Dr. Jennifer Smallwood contacted Mr. Johnston with
findings from a necropsy report [D.E. 19 at 38], Sharon Mitchell
boarded Woodland Dream in exchange for legal services provided
by Mr. Johnston [D.E. 20 at 77-78], and Agent Moutz testified
that Mr. Johnston used Woodland Dream as collateral for a loan.
7
[D.E. 20 at 23-24]. Furthermore, the Banks do not object to
Judge
Wier’s
finding
that
a
substantial
probability
of
the
United States prevailing on the issue of forfeiture exists. See
28 U.S.C. § 636(b)(1) (“A judge of the court shall make a de
novo determination of those portions of the report or specified
proposed
findings
or
recommendations
to
which
objection
is
made.”).
The Banks object to Judge Wier’s finding that the property
showed a substantial probability of decreasing in value or that
the cost of maintenance of the property exceeded its value.
[D.E.
13
at
5].
Based
upon
the
evidence
presented
at
the
evidentiary hearing, the Court agrees with the Magistrate Judge
that there is a substantial probability that Woodland Dream’s
value will depreciate so drastically that she would effectively
be unavailable for forfeiture. See 21 U.S.C. § 853(e)(1)(B)(i).
In assessing whether Woodland Dream would be “unavailable
for forfeiture” the Court believes that borrowing the standards
for entering sale in the Supplemental Rules of Civil Procedure,
while
not
controlling,
provide
guidance
to
the
Court.
Specifically, the two standards at issue here are “whether the
property is perishable or at risk of deterioration, decay, or
injury by being detained in custody pending the action” and
“whether the expense of keeping the property is excessive or is
8
disproportionate to its fair market value.” Supp. R. Civ. Pro.
G(7)(b)(i)(A)-(B).
A review of Woodland Dream’s health shows that her value is
subject to deterioration such that she may, effectively, become
unavailable for forfeiture. By all accounts, Woodland Dream is a
mare that has exhibited multiple reproductive issues. Woodland
Dream’s first foal, Snow Fairy, was a champion racehorse. [D.E.
19 at 58-59]; [D.E. 20 at 46]. Following this successful foal,
Woodland Dream had a period from 2008 to 2011 where she did not
produce a foal. [D.E. 20 at 32]. According to argument at the
motion
hearing
before
this
Court,
it
was
at
this
time
that
Woodland Dream was simply given away by Claiborne Farms to a Mr.
Cook and then from Mr. Cook to the Banks. Thus, at one point in
her life, Woodland Dream was literally considered worthless.
After aborting the foal she was carrying in February 2011
[D.E.
19
at
13],
Dr.
Rolf
Embertson
performed
a
surgery
on
Woodland Dream to repair a defect in her cervix and a perineal
body defect. [D.E. 19 at 69]. Following that surgery, in 2012,
it took four breeding cycles for Woodland Dream to “catch”.
[D.E. 19 at 27]. However, she did successfully carry that foal,
and this Court recently entered an agreed order selling the foal
out of Flower Alley. [D.E. 27].
Testimony at the evidentiary hearing shows the significance
of these reproductive issues as they relate to Woodland Dream’s
9
value. Doug Cauthen, who owns a consulting business in the horse
industry and former President of Windstar Farms, testified that
Woodland Dream’s risks in terms of foaling are “[b]ased on her
history[,] . . . certainly worse than the average mare.” [D.E.
20 at 55]. He further testified that if she were to slip the
current foal it would hurt her value because she would lose the
foal,
which
is
part
of
her
value,
and
it
would
harm
her
reputation. [D.E. 20 at 61]. Moreover, “[i]f you’re 11 years
old, you’re worth X. If you’re 12 years old, you’re worth 10, 20
percent less . . . [Woodland Dream’s] in that window where she’s
not old. She’s just on the cusp.” [D.E. 20 at 32].
Robert Waldman, an expert in purchasing horses, testified
that Woodland Dream “presents too great of a risk to hold on to
her and reasonably expect to get more foals out of her.” [D.E.
19 at 48]. Mr. Waldman further testified that if Woodland Dream
were to abort the foal she is currently carrying “you would be
hard pressed to find anybody who would pay anything other than a
bargain basement price to try to buy her.” [D.E. 19 at 51].
Additionally, while the testimony may not show that the
costs of maintaining Woodland Dream are “disproportionate to her
fair
market
requirements
considered
value,”
of
the
Woodland
“excessive”.
specific
Dream
See
may
Supp.
day-to-day
cause
R.
Civ.
the
P.
maintenance
costs
to
be
G(7)(b)(i)(B)
(“[T]he court may order . . . the property sold if the expense
10
of keeping the property is excessive or is disproportionate to
its fair market value.”). Dr. Jennifer Smallwood, the former
veterinarian
of
Woodland
Dream,
testified
that,
for
Woodland
Dream, the veterinarian costs “would definitely be higher than
the average broodmare.” [D.E. 19 at 28]. She also testified that
there is a possibility the mare has Cushings disease, although
it is not clear from the record what expenses might arise as a
result
of
that
condition
or
how
it
might
affect
the
mare’s
Woodland
Dream,
farm
was
value. [D.E. 19 at 21-23].
Sharon
testified
Mitchell,
that
when
who
previously
Woodland
Dream
boarded
left
her
“it
a
little bit of a relief maybe . . . because she was . . .
something that you had to watch literally 24/7.” [D.E. 20 at
73]. While under her care, Woodland Dream was on a low starch
diet, low sugar diet, and was mentally fragile. [D.E. 20 at 71].
She expounded on Woodland Dream’s mental state by stating that
“[y]ou had to be very stringent about who she liked, who she
didn’t,
or
she
would
just
run
the
field
non-stop,
and
it
wouldn’t matter what you did. . . . [S]he was also a little
difficult to work with hands on as well, as well as going to the
breeding shed.” [D.E. 20 at 71].
Ralph Kinder, a claimant in the action who, admittedly,
hopes
to
sell
the
mare,
testified
that
he
would
recommend
selling Woodland Dream because “she’s a high-risk mare, high
11
maintenance, and the daily – daily care of her.” [D.E. 20 at
100].
He
further
stated
that
Woodland
Dream
had
to
have
a
companion with her at all times and that the horse was high
strung and problematic. [D.E. 20 at 100].
Simply put, the age, reproductive history, and countenance
of Woodland Dream present a great risk to her value. If Woodland
Dream aborts her current foal or fails to catch in the next
breeding season, her value, according to the testimony, will
plummet. If this happens, the mare could again simply have to be
given
away.
This
would
effectively
render
Woodland
Dream
unavailable for forfeiture because an asset worth nothing cannot
be said to be “available.” As Woodland Dream may be worth more
today than at any other point going forward, the time to take
advantage of her value is now. This mare presents a substantial
risk of deterioration based on her reproductive history, and her
specialized maintenance costs, which must eventually be paid,
further decreasing her ultimate value, are borderline excessive.
Therefore,
under
§
853(e)(1)
the
Court
finds
a
substantial
probability that Woodland Dream will be “made unavailable for
forfeiture.” 21 U.S.C. § 853(e)(1)(B)(i).
Before ordering an interlocutory sale, the Court must also
determine that “the need to preserve the availability of the
property through the entry of the requested order outweighs the
hardship on any party against whom the order is to be entered.”
12
21 U.S.C. § 853(e)(1)(B)(ii). Converting the horse into a liquid
asset does not create a hardship upon the Banks and does nothing
to change their interest in the property. Any interest the Banks
may have in the horse will be preserved in the substitute res
garnered by the sale.1 That Woodland Dream is a unique asset does
not create enough a hardship to prevent the interlocutory sale.
See United States v. King, No. 10-Cr-122, 2010 WL 4739791, at *3
(S.D.N.Y.
because
Nov.
the
12,
2010)
sale
of
(“The
the
defendant
horses
is
would
thus
prevent
protected
further
deterioration in the value of the assets and the proceeds would
be preserved.”). Furthermore, the Banks’ have not objected to
this portion of Judge Wier’s report and recommendation. See 28
U.S.C. § 636(b)(1)
determination
proposed
of
(“A judge of the court shall make a de novo
those
findings
or
portions
of
recommendations
the
to
report
which
or
specified
objection
is
made.”). Based on the foregoing, the Court agrees with Judge
Wier’s finding that the need to preserve the property outweighs
any hardship upon the Banks.
The Banks final objections to the report and recommendation
are
that
Judge
Wier
improperly
1
relied
on
the
filing
of
a
The Banks have not suggested that there is any reason they would
be precluded from purchasing Woodland Dream at public sale. To
the extent they are confident in their ownership interest in
some portion of the mare and the ability of Woodland Dream to be
profitable in the future, they may purchase the mare at public
sale for market value.
13
complaint
for
forfeiture
inappropriately
relied
on
in
the
rem
and
testimony
that
of
Judge
FBI
Agent
Wier
Moutz.
[D.E. 13 at 5, 6]. Judge Wier did not improperly rely on the
filing of the civil forfeiture in rem complaint. Judge Wier
merely stated that, based on the filing of the complaint, “it
seems
particularly
appropriate
to
look
to
Rule
G(7)
for
guidance.” [D.E. 12 at 11]. Judge Wier only borrowed from Rule
G(7) to guide him in his analysis under § 853(e) and did not
give it controlling weight.
Judge
Wier
did
not
rely
on
Agent
Moutz’s
testimony
in
coming to his decision to enter the order of Woodland Dream.
Judge
Wier’s
references
to
Agent
Moutz’s
testimony
were
a
summary of what happened at the hearing. Moreover, Agent Moutz
was
allowed
to
testify
at
the
hearing,
but
counsel
was
not
permitted to question Agent Moutz on the issue of ownership.
Simply because the Banks were not permitted to delve into a line
of questioning not relevant to the purpose of the evidentiary
hearing
does
not
mean
that
Judge
Wier
was
precluded
from
considering Agent Moutz’s testimony. Thus, the Banks’ final two
objections are meritless, and Judge Wier did not err in ordering
the sale of Woodland Dream.
IV. Conclusion
The
Court
finds
authority
in
21
U.S.C.
§
853(e)
for
ordering the pre-indictment interlocutory sale of forfeitable
14
assets. Based upon the reproductive history of Woodland Dream,
this mare presents a great risk of declining in value because
another slip or failure to catch would drastically decrease this
mare’s value. As Woodland Dream was once valued at zero, the
ever-present
health
danger
presents
a
of
another
issue
substantial
with
probability
her
reproductive
that
she
will
effectively be rendered unavailable for forfeiture.2
Accordingly, IT IS ORDERED:
(1)
Judge
that the Report and Recommendation of the Magistrate
[D.E.
12]
be,
and
the
same
hereby
is,
ACCEPTED
and
ADOPTED;
(2)
that the Banks’ Motion to Appeal the Order of the
Magistrate Judge [D.E. 13] be, and the same hereby is, GRANTED
IN PART, insofar as the Court has considered their arguments and
undertaken
a
review
of
the
Magistrate
2
Judge’s
report
and
The Court reminds the parties that the Magistrate Judge entered
the contested order in 5:13-mj-5181-REW just after a forfeiture
action in rem, Civil Action No. 5:13-cv-279-JMH, was commenced
against the same res which is the subject of 5:13-mj-5181-REW.
There has yet to be filed a motion for interlocutory sale
pursuant to Supplemental Rule G(7)(b)(i) in Civil Action No.
5:13-cv-279-JMH. While the Court has considered, as it said it
would in its Order of September 26, 2013 [D.E. 5], Supplemental
Rule G(7)(b)(i) in reviewing the report and recommendation of
the Magistrate Judge, the relief ordered remains subject to the
limitations of 21 U.S.C. § 853 and will expire 90 days from the
date of its entry, October 28, 2013, unless that time is
extended. Should any of the parties wish to file a motion under
Supplemental
Rule
G(7)
and
ask
this
Court
to
make
a
determination under that rule, they are free to do so in the
future.
15
recommendation, and DENIED IN PART, insofar as the Court has
accepted
and
adopted
the
report
and
recommendation
of
the
Magistrate Judge and declines to reach the conclusion that the
Banks urge.
(3)
That the mare Woodland Dream shall be sold in a sale
conducted in accordance with the mechanics and procedures of
Supplemental Rule of Civil Procedure G(7). To the extent the
parties can agree to sale procedures and proceed allocation or
disbursement, they may tender a proposed agreed order for the
Court’s
consideration.
If
the
parties
cannot
agree
on
the
mechanics of sale, they may bring any disputes to the Court for
resolution. Consistent with Rule G(7)(b)(iv), sale proceeds are
a substitute res subject to forfeiture in place of the property
that was sold, and the proceeds must be held in an interestbearing
account
maintained
by
the
United
States
pending
the
conclusion of the forfeiture litigation.
(4)
The Clerk shall FILE a copy of this Memorandum Opinion
and Order in the record of 5:13-mj-5181-REW.
This the 24th day of October, 2013.
16
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