USA v. ALL FUNDS ON DEPOSIT IN LEE MUNDER WEALTH PLANNING RESOURCE ACCOUNT

Filing 91

Judge William G. Young: ORDER entered. MEMORANDUM AND ORDER"The Court has reviewed the Governments Second Amended Complaint, and, with the exception of $67,845.30 of the $17,975,019.96 of the Defendant Conigliaro Property, holds that it does not state sufficiently detailed facts to support a reasonable belief that the government will be able to meet its burden of proof at trial[.] Supp. Rule Civil Procedure G(2)(f). It thus GRANTS the Conigliaro Claimants motion to dismiss, ECF No. 39 , and DENIES as futile the Governments motion for leave to file its Second Amended Complaint, ECF No. 82 . Because equitable restraining orders have entered as to the Defendant Conigliaro Property, judgment shall not enter until two weeks from todays date should the Government wish to seek a stay from the Court of Appeals.SO ORDERED."(Sonnenberg, Elizabeth)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
)
UNITED STATES OF AMERICA,
)
)
Plaintiff,
)
)
v.
)
)
ALL FUNDS ON DEPOSIT IN LEE
)
MUNDER WEALTH PLANNING RESOURCE
)
ACCOUNT NUMBER ***-**1080, HELD IN )
THE NAME OF BARRY J. CADDEN
)
IRREVOCABLE TRUST, UP TO THE
)
AMOUNT OF $1,482,200.26 AS OF
)
DECEMBER 17, 2014, AND ALL INTEREST)
ACCURED THEREAFTER, ET AL., 1
)
)
Defendants.
)
)

CIVIL ACTION
NO. 15-11906-WGY

MEMORANDUM & ORDER
YOUNG, D.J.
I.

January 22, 2016

INTRODUCTION
The Government filed its original Complaint in this in rem

action in May 2015.
No. 1.

See Verified Compl. Forfeiture In Rem, ECF

It filed its First Amended Complaint the next month.

See First Am. Verified Compl. Forfeiture In Rem, ECF No. 9.
Currently before the Court are two motions.

1

One is a motion to

The full caption of this case, which runs four and onehalf pages, is set forth in the Government’s First Amended
Complaint, see First Am. Compl. Forfeiture In Rem, ECF No. 9,
and is incorporated here by reference.

dismiss the Government’s First Amended Complaint, 2 filed by the
Conigliaro Claimants, 3 regarding certain of the properties in
this in rem action (collectively, the “Defendant Conigliaro
Property”). 4

See Claimants’ Mot. Dismiss First Am. Verified

Compl. Forfeiture In Rem (“Mot. Dismiss First Am. Compl.”), ECF
No. 39.

The other is the Government’s motion for leave to file

2

Several claimants filed answers to the Government’s First
Amended Complaint regarding other properties, see, e.g., Answer
Claimant E.R. Cadden and Lisa Cadden, as Next Friend of E.R.
Cadden, to Am. Verified Compl. Forfeiture In Rem, ECF No. 59,
but they are not discussed in this memorandum and order.
3

Per their motion to dismiss, this group includes “Carla R.
Conigliaro, Douglas A. Conigliaro, A. L. Conigliaro, W. D.
Conigliaro, C. D. Conigliaro, Barbara Ann Gulino, as next friend
of D. A. Conigliaro and P. A. Conigliaro, Medical Sales
Management, Inc., and Wilchal, Inc.” Claimants’ Mot. Dismiss
First Am. Verified Compl. Forfeiture In Rem, ECF No. 39.
4

In the interest of brevity, the Court references a
particular account only when it is relevant: for the bulk of the
Court’s analysis, the Court will refer to the Defendant
Conigliaro Property as encompassing all the accounts to which
both the Government and the Conigliaro Claimants assert a claim.
See Reply Brief Supp. United States’ Mot. Leave File Second Am.
Compl. Forfeiture In Rem (“United States’ Reply”), ECF No. 89
(referencing “the 21 defendant properties identified in
paragraphs 2(d)-(x) of the [Second Amended Complaint as] the
‘Defendant Conigliaro Property’”); Claimants’ Mem. Supp. Opp’n
United States’ Mot. Leave Amend First Am. Compl. Forfeiture In
Rem (“Claimants’ Mem.”), ECF No. 85. The legal analysis, except
where otherwise indicated, is the same for all of the various
accounts constituting the Defendant Conigliaro Property.
[2]

its Second Amended Complaint.

See United States’ Mot. Leave

File Second Am. Compl. Forfeiture In Rem, ECF No. 5
The issues have been extensively briefed.

See Claimants’

Mem. Law. Supp. Mot. Dismiss First Am. Verified Compl.
Forfeiture In Rem, ECF No. 40; United States’ Opp’n Conigliaro
Claimants’ Mot. Dismiss Compl. in Part, ECF No. 57; Claimants’
Reply Mem. Law. Further Supp. Mot. Dismiss First Am. Verified
Compl. Forfeiture In Rem, ECF No. 69; United States’ Sur-Reply
Br. Opp’n Conigliaro Claimants’ Mot. Dismiss Compl. in Part, ECF
No. 80; Mem. Supp. United States’ Mot. Leave File Second Am.
Compl. Forfeiture In Rem, ECF No. 83; Claimants’ Mem. Supp.
Opp’n United States’ Mot. Leave Amend First Am. Compl.
Forfeiture In Rem (“Claimants’ Mem.”), ECF No. 85; Reply Brief
Supp. United States’ Mot. Leave File Second Am. Compl.
Forfeiture In Rem (“United States’ Reply”), ECF No. 89.

The

Court held hearings 6 on both motions, see Elec. Clerk’s Notes
October 23, 2015, ECF No. 81; Elec. Clerk’s Notes Dec. 18, 2015,

5

The Government filed a proposed Second Amended Complaint
along with its motion. See Second Am. Verified Compl.
Forfeiture In Rem (“Second Am. Compl.”), ECF No. 84.
6

At a hearing on the Conigliaro Claimants’ motion to
dismiss the First Amended Complaint, the Court allowed the
Government thirty days to file a formal motion for leave to file
its Second Amended Complaint. See Elec. Clerk’s Notes, ECF No.
81.
[3]

ECF No. 90, and took the matters under advisement.

It now

decides them.
II.

ANALYSIS
The Conigliaro Claimants oppose the Government’s motion for

leave to file its Second Amended Complaint because, they argue,
such amendment would be futile.

See Claimants’ Mem. 2-3.

While

the action is one in rem, the Conigliaro Claimants’ motion to
dismiss is formally brought under Federal Rule of Civil
Procedure 12(b).

See Supp. R. 8(b)(i) (“A claimant who

establishes standing to contest forfeiture may move to dismiss
the action under Rule 12(b).”).

“There is no practical

difference . . . between a denial of a motion to amend based on
futility and the grant of a motion to dismiss for failure to
state a claim.”

Glassman v. Computervision Corp., 90 F.3d 617,

623 (1st Cir. 1996).
The Second Amended Complaint contains more detailed factual
allegations than does the First Amended Complaint.

Since the

Court holds that even the Second Amended Complaint is
insufficiently detailed under the relevant pleading standard,
there is no need to analyze whether the First Amended Complaint
would survive a motion to dismiss.
A.

Standard of Review

The Conigliaro Claimants argue, in effect, that the Second
Amended Complaint would fail as matter of law, thus the Court
[4]

ought deny the Government’s motion.

The Court proceeds, then,

by determining if “the complaint, as amended, would fail to
state a claim upon which relief could be granted.”

Id.

(internal citations omitted).
This is not a typical motion to dismiss analysis, however,
because civil forfeiture is at issue, and thus, the parties
agree, Supplemental Rule G(2)(f) provides the relevant pleading
standard.

See United States’ Reply 5; Claimants’ Mem. 3;

accord, e.g., United States v. $134,972.34 Seized from FNB Bank,
Account No.-5351, 94 F. Supp. 3d 1224, 1229 (N.D. Ala. 2015)
(applying “the heightened pleading standard of Supplemental Rule
G(2)(f)” to evaluate civil asset forfeiture claim); United
States v. One Gulfstream G-V Jet Aircraft, 941 F. Supp. 2d 1, 13
(D.D.C. 2013) (applying Supplemental Rule G(2)(f) to a civil
forfeiture action) (internal citation omitted).
Supplemental Rule G(2)(f) requires that complaints for
forfeiture actions in rem “state sufficiently detailed facts to
support a reasonable belief that the government will be able to
meet its burden of proof at trial.”

Supp. R. G(2)(f).

At

trial, the Government’s burden is “to establish, by a
preponderance of the evidence, that the property is subject to
forfeiture[.]”

18 U.S.C. § 983(c)(1).

The Court must take the Government’s factual allegations as
true and “liberally construe[]” the Second Amended Complaint in
[5]

its favor. 7

See One Gulfstream G-V Jet Aircraft, 941 F. Supp. 2d

at 14 (stating that “[a] claimant in an in rem proceeding may
move to dismiss in the same form provided by Rule 12(b)” and
that the same standards apply) (internal citations omitted).
B.

Failure to Satisfy the Heightened Pleading Standards
of the Supplemental Rules

The Conigliaro Claimants argue that the Court ought deny
the Government’s motion for leave to file its Second Amended
Complaint because it fails to meet the heightened pleading
standards applicable to civil forfeiture cases.

See Claimants’

Mem. 10-17. 8
The Government’s Second Amended Complaint alleges that the
Defendant Conigliaro Property “constitute[s] or [is] derived
from proceeds traceable to the transfer or concealment of assets
in connection with a [bankruptcy] case . . . in violation of 18
U.S.C. § 152(7)[,]” and is thus subject to forfeiture.

Second

7

While the statute admonishes that “[n]o complaint may be
dismissed on the ground that the Government did not have
adequate evidence at the time the complaint was filed to
establish the forfeitability of the property[,]” 18 U.S.C. §
983(a)(3)(D), the Conigliaro Claimants do not argue that the
Government’s evidence is insufficient, but rather that its
allegations are.
8

The Claimants make at least two other arguments in support
of their motion to dismiss. See Claimants’ Mem. 5-11, 18-19.
Since the Court rules that the ground stated above is
dispositive, however, it declines to address the alternative
grounds the Claimants proffer.
[6]

Am. Verified Compl. Forfeiture In Rem (“Second Am. Compl.”), Ex.
A, Second Am. Compl. Aff. Brian J. Evans (“Evans Aff.”) ¶ 8, ECF
No. 84-1. 9

A conclusory allegation is not enough, of course, so

the Court examines the Government’s Second Amended Complaint to
determine if it contains “sufficiently detailed facts to support
a reasonable belief that the government will be able to meet its
burden of proof at trial.”
1.

Supp. R. G(2)(f).

The Government’s Allegations

Carla Conigliaro was an insider of the New England
Compounding Company (“NECC”): a majority shareholder and a
member of the board of directors (although not an employee).
See Evans Aff. ¶¶ 12-14.

“[Barry J.] Cadden and certain other

defendants named in the Indictment knowingly ran NECC as a
criminal enterprise from at least 2006 until NECC ceased
operations in October 2012.”

Id. ¶ 59.

The Government does not specify Carla Conigliaro’s
involvement in the alleged “criminal enterprise,” other than by
pointing, in Brian Evans’s affidavit, to an indictment.

9

That

The Government also alleges that portions of the Defendant
Conigliaro Property qualify as “properties involved in money
laundering[.]” Evans Aff. ¶ 8. The Conigliaro Claimants argue
that the Government’s money laundering allegation is premised on
bankruptcy fraud. See Claimants’ Mem. Law. Further Supp. Mot.
Dismiss First Am. Compl. Forfeiture In Rem 20, ECF No. 40. The
Government does not appear to dispute this point. See generally
United States’ Sur-Reply Br. Opp’n Conigliaro Claimants’ Mot.
Dismiss Compl. in Part, ECF No. 80; United States’ Reply.
[7]

indictment is attached as an exhibit to the Government’s Second
Amended Complaint.
ECF No. 84-2.

See Second Am. Compl., Ex. 1 (“Indictment”),

That indictment, however, does not name Carla

Conigliaro in its many charges against those running NECC, which
include: racketeering, id. ¶¶ 33-71; conspiracy, id. ¶¶ 72-108;
mail fraud, id. ¶¶ 109-113; and introduction of adulterated
(and, separately, misbranded) drugs into interstate commerce,
id. ¶¶ 114-119.

Instead, it charges her with criminal contempt

for her actions beginning in February 2013 -- a year after the
distributions at issue in this case.

See id. ¶¶ 120-121. 10

Specifically, the distributions at issue here are the
$17,888,750 Carla Conigliaro received from NECC in twice-monthly
payments.

These were denominated “‘distributions,’ ‘tax

distributions,’ or ‘shareholder distributions[.]’”
60.

Evans Aff. ¶

She received these payments between March 2, 2010, and

October 1, 2012.

Id.

2012.

These payments, along with two other

Id. ¶ 34.

NECC filed for bankruptcy on December 21,

10

The indictment also charges Carla Conigliaro with making
structured cash withdrawals between September 2010 and January
2013 to evade currency reporting requirements, id. ¶¶ 129-131,
and illegally structuring transactions to avoid reporting
requirements between February 2013 and March 2014, id. ¶¶ 132137. The money involved in these transactions is, the
indictment alleges, subject to forfeiture -- in that action, not
the instant one. See id. ¶¶ 144-145.
[8]

payments, 11 the Government argues, are avoidable transfers. 12
¶ 63.

Id.

Specifically, the Government asserts that these transfers

from NECC to Carla Conigliaro are avoidable under two
independent legal bases.

See id. ¶ 63 (stating that the

payments to Carla Conigliaro “constituted avoidable transfers
under [two] statutory provisions described [earlier in the
affidavit]”).
2.

The Court will discuss them in turn.
NECC’s Transfers to Carla Conigliaro as
Preferential Transfers

The Government’s first claim for forfeitability is based on
Section 547 of Chapter 11 of the United States Code.

See Evans

Aff. ¶ 9 (citing 11 U.S.C. § 547(b)); United States’ Reply 15.
Specifically, the Government invokes Section 547(b), which
provides that a bankruptcy trustee
may avoid any transfer of an interest of the debtor
[here, NECC] in property-(1) to or for the benefit of a creditor [here, Carla
Conigliaro];

11

These two additional payments, about which the Second
Amended Complaint alleged distinct facts, are discussed infra
note 13 and section II-B.
12

For the Government to succeed on this theory, it must
show that the transfers from NECC to Carla Conigliaro were void
or voidable; it cannot merely rely on the alleged criminal
conspiracy of those running NECC, when it does not allege that
Carla Conigliaro was part of that conspiracy. See infra section
II(B)(3); cf. Raeed N. Tayeh, Implicated But Not Charged:
Improving Due Process for Unindicted Co-Consipirators, 47 Akron
L. Rev. 551 (2014).
[9]

(2) for or on account of an antecedent debt owed by
the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made-(A) on or within 90 days before the date of the
filing of the petition; or
(B) between ninety days and one year before the
date of the filing of the petition, if such
creditor at the time of such transfer was an
insider; and
(5) that enables such creditor to receive more than
such creditor would receive if-(A) the case were a case under chapter 7 of this
title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt
to the extent provided by the provisions of this
title.
11 U.S.C. § 547(b).
The Conigliaro Claimants point out that the Second Amended
Complaint fails to plead facts regarding several essential
elements of Section 547(b).

Specifically, they note that there

is no allegation that Carla Conigliaro was a creditor of NECC,
as required by subsection (1); there is no allegation regarding
any antecedent debt owed to her, as required by subsection (2);
and there is no allegation that NECC was insolvent at any point
in the time period during which Carla Conigliaro was receiving
these transfers, as required by subsection (3).

[10]

Claimants’ Mem.

12.

The Government responds that “NECC owed Ms. Conigliaro a

debt because she was a shareholder[,]” and asks, rhetorically,
“if NECC was not paying Ms. Conigliaro as an insider-creditor,
why was it paying her [a]t all?”

United States’ Reply 15 n.3.

The Government does not appear to offer any argument regarding
the Second Amended Complaint’s silence about NECC’s insolvency
when it made any of the challenged payments to Carla
Conigliaro. 13
The Government’s Second Amended Complaint leaves too much
to the imagination.

Factual allegations regarding many of the

required elements under Section 547(b) are missing, thus the
Court holds as matter of law that, with respect to the
Government’s claim that the Conigliaro Funds are forfeitable
because they were the product of avoidable transfers, the Second
Amended Complaint fails to allege “sufficiently detailed facts
to support a reasonable belief that the government will be able
to meet its burden of proof at trial.”

Supp. R. G(2)(f). 14

13

Thus the allegation regarding the payment made by NECC to
American Express, Evans Aff. ¶ 60, must fail, too, because there
is no allegation that NECC was insolvent at the time it made
such payment.
14

The Court notes that, since NECC filed for bankruptcy on
December 21, 2012, Evans Aff. ¶ 34, section 547(b) only applies
to the last 20 of the 63 challenged transfers from NECC to Carla
Conigliaro. See 11 U.S.C. § 547(b)(2)(4) (covering transfers
made in the year preceding bankruptcy); Second Am. Compl., Ex.
4, NECC Distribution Payments Carla Conigliaro, ECF No. 84-5
(twenty transfers occurring after December 21, 2011).
[11]

3.

NECC’s Transfers to Carla Conigliaro as
Fraudulent Transfers

The Government’s second theory relies on Section 548 of the
Bankruptcy Code.

The Government alleges that the payments from

NECC to Carla Conigliaro were fraudulent transfers, meaning they
were made by NECC “with intent to hinder, delay, or defraud any
person or entity to which [NECC] was indebted or became indebted
on or after the date of the transfer.”

Evans Aff. ¶ 10 (citing

11 U.S.C. § 548(a)(1)(A)).
Section 548 has two provisions that might apply in the
instant case to render the transfers fraudulent: subsection
(a)(1)(A) and subsection (a)(1)(B).

Subsection (a)(1)(A) allows

trustees to avoid a transfer the debtor (here, NECC) incurred
where the debtor “made such transfer . . . with actual intent to
hinder, delay, or defraud any entity to which the debtor was or
became, on or after the date that such transfer was made or such
obligation was incurred, indebted[.]”
(emphasis supplied).

11 U.S.C. § 548 (a)(1)(A)

Subsection (a)(1)(A) targets transfers

that defraud current or future creditors.

It is meant to

protect the Bankruptcy Code; it is not an all-purpose clawback
mechanism akin to a statutory ban on unjust enrichment.
The Conigliaro Claimants argue that “the Government has
failed to allege any particular factual support” for forfeiting
the Defendant Conigliaro property under subsection (a).

[12]

Claimants’ Mem. 12.

They also point out that, again, the

Government’s Second Amended Complaint omits a required element:
that NECC’s transfers were made to defraud some other creditor.
See id. at 12-13.

The Government rebuts by asserting that its

allegations are sufficient, but seems to improperly equate
NECC’s allegedly criminal conduct that led to a viral meningitis
outbreak with an intent to defraud some creditors in favor of
others.

See United States’ Reply 15 (“The [G]overnment has

alleged the dates and amounts of the transfers.

It has alleged

that the transfers were made while NECC was being run as a
criminal operation which ended up selling contaminated drugs
that killed and maimed hundreds of people.”). 15

As such, the

Second Amended Complaint has not pled sufficiently detailed
facts concerning the Defendant Conigliaro Property and NECC’s
transfer of it being fraudulent under Section 548(a)(1)(A) to
satisfy the heightened pleading standards.

15

The Second Amended Complaint incorporates the Indictment
against many insiders at NECC, see id. at ¶ 59, but the
indictment alleges nothing with respect to these payments being
fraudulent as against creditors of NECC.
NECC’s tort liability from the meningitis outbreak is
certainly significant. All of the transfers here, however (save
one), occurred before any events alleged that would have
provided notice to NECC of its potential future liability. Per
the Second Amended Complaint, the first relevant event occurred
on September 24, 2012, id. at ¶ 26, which happened after all of
the transfers to Carla Conigliaro at issue, except for the final
one, for $275,000. See NECC Distribution Payments to Carla
Conigliaro. The Government has not alleged that there was
anything different about this final transfer payment.
[13]

Section 548 provides the Government with one more
provision, however.

Section 548(a)(1)(B) allows the avoidance

of transfers when the recipient (here, Carla Conigliaro)
“received less than a reasonably equivalent value in exchange
for such transfer,” 11 U.S.C. § 548(a)(1)(B)(i), and the
transfer is “to or for the benefit of an insider . . . under an
employment contract and not in the ordinary course of
business[,]” id. § 548(a)(1)(B)(ii)(IV).

But this provision,

requiring the transfer to be “under an employment contract[,]”
plainly does not cover shareholder profit distribution payments,
which constitute the lion’s share of the Defendant Conigliaro
Property, see Evans Aff. ¶¶ 60-63 (indicating that $17,888,750
of the total $17,975,019.96 of the Defendant Conigliaro Property
is from NECC “Distribution Payments” to Carla Conigliaro).
The Government’s allegations regarding a particular subset
of the Defendant Conigliaro Property, however, are different.
The Government alleges that the $67,845.30 in transfers Carla
Conigliaro received between December 28, 2011, and November 30,
2012, were classified as payroll, but that she was not an
employee at this time.

Evans Aff. ¶ 62.

These particular

allegations, unlike those discussed above, contain “sufficiently
detailed facts to support a reasonable belief that the
government will be able to meet its burden of proof at trial.”
Supp. R. G(2)(f).
[14]

C.

Dismissal with or without Prejudice

The Conigliaro Claimants ask for dismissal with prejudice.
See Mot. Dismiss First Am. Compl. 1; Claimants’ Mem. 20.

The

Court has discretion to dismiss the complaint with prejudice or
to give the Government leave to seek to amend yet again.

See,

e.g., U.S. ex rel. Gagne v. City of Worcester, 565 F.3d 40, 48
(1st Cir. 2009).

The Second Amended Complaint is the

Government’s third attempt at stating its complaint, and again
it fails to present sufficiently particularized allegations. 16
Thus, except as to the allegations against the $67,845.30 of
allegedly spurious “payroll” expenditures, the Court grants
dismissal with prejudice.

See id. (affirming the denial of

leave to amend where the plaintiff’s second amended complaint
was insufficient).
III. CONCLUSION
The Court has reviewed the Government’s Second Amended
Complaint, and, with the exception of $67,845.30 of the
$17,975,019.96 of the Defendant Conigliaro Property, holds that
it does not “state sufficiently detailed facts to support a

16

Even if the Government lacked the evidence necessary to
support such particularized allegations, it ought have made them
nonetheless and indicated that the relevant evidentiary support
was forthcoming. See Fed. R. Civ. P. 11(b)(3) (parties may
include factual allegations that lack adequate evidentiary
support if those allegations are “specifically so identified . .
. and will likely have evidentiary support after a reasonable
opportunity for further investigation or discovery.”).
[15]

reasonable belief that the government will be able to meet its
burden of proof at trial[.]”
G(2)(f).

Supp. Rule Civil Procedure

It thus GRANTS the Conigliaro Claimants’ motion to

dismiss, ECF No. 39, and DENIES as futile the Government’s
motion for leave to file its Second Amended Complaint, ECF No.
82.

Because equitable restraining orders have entered as to the

Defendant Conigliaro Property, judgment shall not enter until
two weeks from today’s date should the Government wish to seek a
stay from the Court of Appeals.
SO ORDERED.

/s/ William G. Young
WILLIAM G. YOUNG
DISTRICT JUDGE

[16]