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

to