USA v. 12 Parcels of Real Property located in Carlisle, Nicholas County, Kentucky et al
Filing
32
MEMORANDUM OPINION & ORDER: IT IS ORDERED that Claimant's 26 Motion to Dismiss the Second Amended Complaint is DENIED. Signed by Judge Joseph M. Hood on 9/29/2017. (KM)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
UNITED STATES OF AMERICA,
Plaintiff,
v.
12 PARCELS OF REAL PROPERTY
LOCATED IN CARLISLE, NICHOLAS
COUNTY, KENTUCKY, et al.,
Defendants.
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Civil Case No.
16-CV-43-JMH
MEMORANDUM OPINION & ORDER
***
I.
This
case
commenced
when
the
United
States
filed
a
Complaint seeking in rem civil forfeiture of approximately 1,300
acres of farmland in Nicholas County owned by Earl and Suzanna
Planck and various trusts and entities owned by the Plancks. [DE
1.] Claimants Earl and Suzanna Planck moved to dismiss the first
Complaint on the grounds that Plaintiff failed to allege any
legitimate basis for forfeiture under 18 U.S.C. § 981(a)(1)(A),
which
applies
to
property
“involved
in”
a
money
laundering
offense in violation of 18 U.S.C. §§ 1956 and 1957, when a
person conducts or attempts to conduct a financial transaction
with the proceeds from specified unlawful activities.
[DE 5].
That Motion to Dismiss was dismissed as moot when the United
States filed, first, an Amended Complaint seeking the forfeiture
of two AgriBank money market accounts containing approximately
$500,000, one in the name of B.S. Land and Cattle Co., Inc., and
one
in
the
name
of
Earl
Planck,
Jr.,
and
a
Second
Amended
Complaint adding a claim for the forfeiture of twelve checks in
the amount of $86,510.62 made payable from Farmers Warehouse to
Tonya Fryman, the Planck’s daughter.
Both amended complaints
added a claim for forfeiture under 18 U.S.C. § 981(a)(1)(C) for
the forfeiture of property constituting or derived from proceeds
traceable to a violation of 18 U.S.C. § 1014 (False Statements
or Reports Concerning Crop Insurance), 18 U.S.C. § 287 (False,
Fictitious, or Fraudulent Claims), 18 U.S.C. § 371 (Conspiracy),
18
U.S.C.
§
1341
(Mail
Fraud),
and
18
U.S.C.
§
1343
(Wire
Fraud), each of which is a specified unlawful activity for 18
U.S.C. §§ 1956 and 1957 (Money Laundering).
Claimants
Second
Amended
argue
in
Complaint
their
present
[DE
26]
Motion
that
the
to
Dismiss
Second
the
Amended
Complaint [DE 21], as were its predecessors, is void of any
factual basis and constitutes mere speculation because, at the
end
of
a
two
year
investigation,
the
United
States
“cannot
produce a single witness to corroborate its allegation that Earl
Planck filed fraudulent crop loss claims or . . . hid undamaged
tobacco by giving it to others to sell on his behalf” [DE 26-1
at 5, PageID#: 684], bribed insurance adjustors, or sold tobacco
“under the barn.”
The Court concludes that Claimants confuse
2
the
requirement
of
detailed
allegations
with
the
concept
of
evidentiary proof and denies their Motion.
II.
When
a
claimant
files
a
motion
to
dismiss
a
civil
forfeiture complaint under Rule G(8)(b) of the Federal Rules of
Civil
Rules,
Procedure
the
Supplemental
Admiralty
Court
Rule
must
and
apply
G(2)(f).1
See
Maritime
the
Rule
Claims
standard
8(b)(ii).
Supplemental
set
forth
Rule
in
G(2)(f)
provides that the complaint must “state sufficiently detailed
facts to support a reasonable belief that the government will be
able to meet its burden of proof at trial.” See also United
States v. Sum of $70,990,605, 4 F. Supp. 3d 189, 196–97 (D.D.C.
2014). “[T]hese standards are more stringent than the general
pleading requirements set forth in the Federal Rules of Civil
The Court declines to scrutinize the proceedings under the
heightened pleading standard set forth in Federal Rule of
Civil Procedure 9(b), which does not apply to civil
forfeiture actions where there is already the heightened
pleading requirement found in Supplemental Rule G. See
United States v. $15,270,885.69 Formerly on Deposit, et
al., No. 99-Civ-10255(RCC), 2000 WL 1234593 (S.D.N.Y. Aug.
31, 2000); United States v. Any and All Funds on Deposit in
Account Number 0139874788, et al., No. 13-Civ-7983(KPF),
2015 WL 247391 at *8 (S.D.N.Y. Jan. 20, 2015) (“As long as
the Government alleges specific facts supporting an
inference that the funds are traceable to the wire fraud
and mail fraud it has met its burden at this stage of the
proceedings.”); United States v. All Funds on Deposit in,
or Transferred to or Through Banc of America, et al., No.
CV-05-3971(SJF), 2007 WL 2114670 at *7 (E.D.N.Y. July 16,
2007).
1
3
Procedure.” In re 650 Fifth Ave. & Related Properties, 777 F.
Supp. 2d 529, 542 (S.D.N.Y. 2011) (quoting
United States v.
Daccarett, 6 F.3d 37, 47 (2d Cir. 1993)); see also 12 C. Alan
Wright, A. Miller, and R. Marcus, Fed. Prac. & Proc. Civ. § 3242
(2d ed.) (“[The Rule] requires a more particularized complaint
than is demanded in civil actions generally.... Apparently this
requirement for added specifics is thought appropriate because
of the drastic nature of those remedies. Thus, it fortifies the
procedural-due-process protections against improper use of these
remedies.”)
This
procedures
statute,
adequacy
of
the
standard
18
mirrors
U.S.C.
complaint
§
is
the
civil
983(a)(3)(D),
measured
against
forfeiture
in
that
the
the
pleading
requirements of subdivision (2), not against the quality of the
evidence available to the United States when the complaint was
filed. See Advisory Committee Note to Rule G(8)(b) (2006).
The complaint need not set forth all of the facts known to
the
United
States,
nor
is
it
necessary
to
allege
specific
transactions, identify all of the witnesses or otherwise preview
the
United
States’
case.
See
United
States
v.
Funds
in
the
Amount of $45,050.00, No. 06-C-2948, 2007 WL 2323307, *5 (N.D.
Ill. Aug. 9, 2007) (Rule G(2)(f) does not require allegation
tying seized currency to a specific drug transaction); United
States v. 5443 Suffield Terrace, 209 F. Supp. 2d 919, 923 (N.D.
Ill.
2002)
(forfeiture
complaint
4
does
not
have
to
detail
specific
transactions
forfeiture);
supporting
Government’s
theory
of
United States v. Approximately $25,829,681.80 in
Funds, No. 98 Civ. 2682, 1999 WL 1080370, *6 (S.D.N.Y. Nov. 30,
1999) (complaint that alleges underlying fraud scheme and money
laundering
transaction
is
sufficiently
particular;
actual
fraudulent statements need not be alleged); United States v.
Contents of Nationwide Life Ins. Annuity . . . in the Name of
Warshak, No. 1:05–CV–00196, 2008 WL 1733130, *3 (S.D. Ohio April
10, 2008) (rejecting claimant’s argument that CAFRA heightened
the pleading requirement; to the contrary, section 983(a)(3)(D)
makes it clear that the complaint need not detail the tracing of
the property to the underlying crime).
Rather,
a
complaint
in
such
an
action
must
provide
reasonably detailed facts, connect the defendant property to the
offense giving rise to the forfeiture, and provide a good faith
reason to believe that the United States, after the completion
of the discovery process, will be able to meet its burden of
proof. Fed. R. Civ. P. Supp. AMC Rules G(2)(c) & (f); see United
States v. $829,422.42 in U.S. Currency, No. 3:08CV00914, 2009 WL
1743753 (D. Conn. June 18, 2009) (complaint alleging a money
laundering
offense
was
sufficient
to
satisfy
the
reasonable
belief standard in Rule G(2)(f) and G(8)(b); the complaint does
not
have
to
present
evidence
sufficient
to
establish
the
forfeitability of the property); United States v. $335,260.00 in
5
U.S. Currency, No. 1:09-CV-2929, 2010 WL 1416919, *2 (N.D. Ohio
Apr. 6, 2010). The United States does not have to establish
probable cause at the time it files its complaint because to
survive
a
motion
to
dismiss,
it
need
only
satisfy
the
“reasonable belief” standard of Rule G(2)(f). United States v.
$16,757.00 in U.S. Currency, No. 1:10CV1450, 2010 WL 5662092, *3
(N.D. Ohio Dec. 22, 2010).
The pleading requirement of Rule G
does not demand “that the government must . . . carry its trial
burden at the pleading stage.” United States v. Six Thousand
Dollars in U.S. Currency (citing United States v. Real Prop.
Located at 2323 Charms Rd., Milford Twp., Oakland Cty., Mich.,
946
F.2d
437,
441
(6th
Cir.
1991)).Nonetheless,
forefeiture
statutes should be strictly construed against the government,
and claims must be dismissed if the allegations do not meet
“both the letter and the spirit of the law.” United States v.
One 1936 Model Ford V-8 DeLuxe Coach, Motor No. 18-3306511, 307
U.S. 219, 226 (1939); Manufacturers Acceptance Corp. v. United
States, 193 F.2d 622, 624 (6th Cir. 1951); Jones v. U.S. Drug
Enf’t Admin., 819 F.Supp. 698, 714 (M.D. Tenn. 1993).
III.
Contrary to the Claimants’ assertion, the United States has
met this burden.
In this instance, the United States argues
that it has more than met the reasonable belief standard because
it has established probable cause as it relates to the defendant
6
bank
accounts
and
checks,
as
determined
by
a
United
States
Magistrate Judge, in order to properly obtain seizure warrants
as to the bank accounts and checks with respect to the crimes
alleged.
The
Claimants
those search warrants.
have
not
challenged
the
viability
of
Probable cause is a higher standard than
the reasonable belief required for filing a civil forfeiture
complaint. See United States v. Contents of Accounts, No. 3:10–
CV–228, 2010 WL 2556849, *3 n.8 (W.D. Ky. June 18, 2010) (“a
probable cause finding more than meets the reasonable belief
standard required to maintain the complaint”). Since the United
States has already cleared that higher burden, the motion to
dismiss the complaint against the accounts and checks will be
denied.
Further,
defendant
the
real
United
property
States
by
seeks
means
of
the
forfeiture
of
the
an
“involved
in”
or
facilitation theory of money laundering—not simply a “proceeds”
theory.
[DE
21-2:
Affidavit
at
¶
109-112.]
Money
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. United States v. Coffman, 859 F.
Supp.2d 871, 875 (E.D. Ky. 2012). Moreover, real property that
is used to facilitate underlying specified unlawful activities
which generates proceeds, which are then laundered in violation
7
of federal money laundering statutes, is subject to forfeiture
as property “involved in” a money laundering offense. See e.g.,
United States v. Wyly, 193 F.3d 289, 302 (5th Cir 1999). This
includes real property that was paid for (e.g. taxes, mortgages
and
operating
expenses)
from
operating
accounts
holding
the
proceeds of insurance fraud. United States v. Schlesinger, 261
F. App’x 355, 361 (2d Cir. 2008).
The defendant real property has not been seized and was not
subject to the probable cause analysis before the magistrate
judge
because
seizure
warrants
are
not
sought
against
real
property—meaning, in this instance, the Court is more concerned
with whether the United States has alleged sufficient facts to
support
a
reasonable
belief
that
the
real
property
will
be
forfeitable at trial. Claimants offer no real argument for why
the
information
set
forth
in
Special
Agent
Mary
Trotman’s
affidavit is less than sufficient to support a reasonable belief
that the United States will be able to establish at the trial
that all of the defendant property is forfeitable.
The
U.S.C.
Second
§§
Amended
981(a)(1)(A)
Complaint
and
seeks
981(a)(1)(C),
forfeiture
alleging
under
that
18
the
defendant property was either involved in a money laundering
violation or traceable or derived from proceeds of specified
unlawful
activity.
[DE
21-2:
Affidavit
at
¶
4.]
Section
981(a)(1)(C) authorizes the forfeiture of the proceeds of more
8
than 200 different state and federal crimes. United States v.
All Funds Distributed to Weiss, 345 F.3d 49, 56 n.8 (2nd Cir.
2003).
Section
981(a)(1)(A)
permits
the
forfeiture
of
all
property involved in a money laundering offense—not just the
proceeds being laundered. The affidavit – beginning at paragraph
34 – sets forth with specificity how the defendant property is
connected to offenses that give rise to forfeiture: 1) that the
investigative
(e.g.,
information
validly
obtained
was
gathered
search
from
warrants,
numerous
witness
sources
interviews,
property records, and complaints submitted to RMA between 2009
and 2013); 2) strong indicia of fraudulent behavior stemming
from Claimants lengthy history of claiming large losses through
insurance claims (¶ 34-35); 3) reporting harvests that are only
a fraction of the pounds per acre compared to county averages (¶
36-39);
4)
claiming
heavily
wooded
crops
and
not
were
being
suitable
grown
land
that
is
crops
for
on
(¶
42-
46);
5)
evidence of insurance adjusters who were complicit in filing
false claims associated with this land (¶ 44); 6) tobacco sales
contracts
despite
filed
low
with
acreage
RMA
yield
and
records
Claimants
from
were
PMI
showing
consistently
that
nearly
fulfilling their contractual amounts of tobacco (¶ 47-52); 7)
discrepancies
contracts
to
between
sell
Claimant
tobacco
to
Suzanna
PMI
and
Planck’s
the
FSA
multi-year
records
only
showing her insuring tobacco in the early 2000s (¶ 52-53); 8)
9
admissions
evidence
by
the
that
they
Claimants’
were
daughter
claiming
to
and
farm
son-in-law
tobacco
when
and
they
clearly were not (¶ 54-63) (their statements to USDA and receipt
of food stamp benefits is a further indication of fraudulent
behavior according to Plaintiff) (¶ 58); 9) a detailed pattern
of financial transactions involving Jessie Smith that indicate
use of his bank account as a pass-through account for Claimants
to launder money illegally obtained through the filing of false
claims, as well as insurance loss claims filed by Smith on farms
on which Claimants and others also filed claims in different
years (¶ 64-70); and 10) ARMtech records indicating insurance
indemnity payments based upon false information and duplicate
photos utilized by Claimants’ adjuster and agent (¶ 71-73).
The Second Amended Complaint also alleges sufficient facts
to
reasonably
support
the
belief
that
the
defendant
real
property was involved in or facilitated money laundering. It
specifies two ways in which the property was involved: 1) it is
traceable to illegal proceeds, and 2) the property facilitated
the
underlying
fraud
which
generated
the
laundered
proceeds.
Investigators analyzed voluminous bank records and identified a
pattern of transactions beginning in December 2013 through April
2015
wherein
Tobaccorp
deposited
over
$3.6
million
from
the
Claimants and their affiliates. [DE 21-2: Affidavit at ¶ 74-79.]
These payments to Tobaccorp (and also AG-Wood) appear at first
10
glance to be for tobacco, but all or a large portion of the
payments
are
affiliates
being
through
returned
Farm
to
Credit
the
Claimants
lines
of
and
credit,
their
loans
or
AgriBank money market accounts. Id. Understood together, this
activity
creates
a
reasonable
belief
that
Claimants
were
actually hiding production so that insurance claims could be
filed for “lost or damaged crops,” and thus there was no need to
actually purchase large orders of tobacco from a warehouse to
fulfill the contracts. Consequently, the bank accounts and lines
of credit reviewed during this investigation were being used to
promote the alleged tobacco insurance fraud (including paying
expenses
of
the
defendant
real
properties,
and
commingling
laundered funds into a farm operating accounts –rendering it
irrelevant
that
the
real
property
at
bar
constitutes
twelve
properties some of which were not farmed). [Id. at ¶ 80-88]. It
is curious and checks received from sales of tobacco on tobacco
contracts
that
the
Claimants
designated
for
the
purchase
of
tobacco from a warehouse were instead applied towards lines of
credit and re-deposited into money market accounts in the names
of the Claimants and their affiliates. [Id. at ¶ 82-87.] In
fact, the checks seized as defendant property in this matter
were
made
payable
to
Claimants’
daughter,
a
person
who
the
United States avers was, by her own admission, a straw farmer
for the Claimants. And the real property, of course, was the
11
linchpin
that
allowed
this
alleged
fraud
to
unfold.
If
the
allegations are true, its use in the fraud scheme was vital and
intentional.
Plaintiff
avers
that
Claimants
used
illegal
proceeds both directly and after laundering to pay farm expenses
and fund the farm operating accounts at Citizens Bank. From
these bank accounts, the Claimants paid for contract labor on
these farms, made utilities and water bill payments for the
various
real
insurance
and
properties,
tax
bought
payments
on
farm
the
supplies,
real
and
properties.
made
[Id.
at
¶110.]
The
real
laundering
generated
property
because
the
it
illegal
was
also
allegedly
facilitated
proceeds
the
involved
underlying
laundered.
The
in
money
crime
United
that
States
avers that the Claimants used straw farmers in order to file
false insurance claims against crops farmed on his property.
They could have used only leased farm land to perpetrate his
fraud, but they chose to also use their own land. According to
the
United
States,
Claimants
planted
crops
which
they
never
intended to produce in order to collect more insurance proceeds,
and they grew “hidden” production crops and sold those crops
through third parties to collect on their tobacco contracts. (¶
114-128). The United States avers that, by using their land, the
Claimants were able to conceal a large portion of the fraud and
that,
because
the
real
property
12
was
not
used
sparsely
or
sporadically but rather was used so frequently and over such a
long period of time that it was indispensable to the scheme. The
United States avers that false insurance claims in this scheme
date back to as early as 2010 and have resulted in millions of
dollars in fraudulent claims being paid to the Claimants and
their affiliates, which were then laundered in order to promote
and conceal the fraud scheme – none of which would have been
possible without “using” the farm land which is the subject of
the forefeiture action.
In light of the multiple theories of connection of activity
to the defendant real property, the “but for” test cited by
Claimants in their motion is not dispositive of the complaint
against the defendant real property at the pleading stage in
this case. [DE 26-1: Claimant’s Motion at 16.] In Coffman, 859
F. Supp.2d at 875, this Court held that property that a person
would not have but for the criminal offense can be defined as
proceeds of a fraud. See also United States v. Warshak, 631 F.3d
266,
329-330
business
are
(6th
Cir.
forfeitable
2010)
(all
because
the
proceeds
business
of
was
defendant’s
“permeated
with fraud;” but even if a part of the business was legitimate,
the proceeds of that part are nevertheless forfeitable if the
legitimate side of the business would not exist but for the
“fraudulent beginnings” of the entire operation).
There are
other theories by which property is forfeitable, as well.
13
The
real
question
is
whether
Plaintiffs
have
averred
sufficient facts to support a claim that anyone committed the
fraud alleged.
that
Earl
Claimants insist that it is not enough to aver
Planck
made
insurance
claims
that
amounted
to
a
significant amount of money over time considering the number of
fields allegedly involved in this matter; nor is it enough to
aver that a farmer buys tobacco on the open market to fulfill
contracts
under
which
he
is
obligated
to
provide
a
certain
amount of tobacco over time in order to retain those contracts
in future years; nor is it enough that the Planck’s daughter,
Tonya Planck Fryman, and her husband, David Leech, receive money
to support their farming operations from the Plancks and pay
them
back
from
the
proceeds
from
their
farming
operations.
Those are not the only allegations, though, as set forth above.
Ultimately,
Claimants
argue
that
claims
fails
because
Plaintiff has not yet provided the proof that it must provide as
the case moves forward.
claim
today
nor
does
Plaintiff does not need to prove its
this
decision
deprive
Claimant
of
his
ability to defend himself or his land from purportedly illegal
payments for which he is unaware.
That is the purpose of this
litigation, assuming it proceeds and is not stayed at some point
in the future, to permit the parties to ascertain one anothers’
positions and the evidence upon which they are based.
For now,
the Court is persuaded that Plaintiff has averred sufficiently
14
detailed
facts
to
support
a
reasonable
belief
that
the
government will be able to meet its burden of proof at trial.
No more definite statement is needed.
With respect to the Claimants request for a hearing, the
Court declines to grant it at this time.
Rather, Claimants may
file a motion to stay under 18 U.S.C. § 981(g)(2) or other
proper
authority,
suitable
for
response
with
respect
by
Plaintiff so that proceedings in this case may be established to
bring this matter to a conclusion in due course.
Accordingly,
IT
IS
ORDERED
that
Claimant’s
Motion
Dismiss the Second Amended Complaint [DE 26] is DENIED.
This the 29th day of September, 2017.
15
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