United States of America v. 115-98 Park Lane South, Kew Gardens, NY 11418 et al
MEMORANDUM DECISION AND ORDER denying 112 Motion for Attorney Fees. Please see attached order for further details. Ordered by Judge Brian M. Cogan on 9/4/2012. (Siegfried, Evan)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
DECISION AND ORDER
10 Civ. 3748 (BMC)
115-98 PARK LANE SOUTH, eta!.,
COGAN, District Judge.
The Civil Asset Forfeiture Reform Act, 28 U.S.C. § 2465 ("CAFRA"), provides that "in
any civil proceeding to forfeit property under any provision of Federal law in which the claimant
substantially prevails, the United States shall be liable for reasonable attorney fees and other
litigation costs reasonably incurred by the claimant." Id. § 2465(b)(1 )(A). The Government
brought this civil forfeiture proceeding against several real properties that it deemed to be
proceeds of a criminal bank fraud. Capital Stack Fund LLC ("Capital Stack"), the claimant in
this forfeiture proceeding, held a then-unrecorded mortgage interest in two of the properties. The
instant forfeiture proceeding was resolved when the parties entered into a Settlement Agreement,
Stipulation and Final Order of Forfeiture (the "Settlement Agreement"), which I endorsed on
December 22, 2011.
But because the parties could not agree on whether Capital Stack was entitled to an award
of attorney fees and costs under CAFRA, the Settlement Agreement explicitly allowed Capital
Stack to apply for attorney fees and costs. Capital Stack has moved for an award totaling
$454,726.72. For the reasons set forth below, I find that Capital Stack is not entitled to attorney
fees and costs and, therefore, I do not consider the reasonableness of the proposed award.
This case arises out of a related criminal prosecution, United States v. Irina Khairnov, et
al., No. 08-CR-0074 (BMC) (E.D.N.Y.). Irina Khaimov ("Irina") formed and controlled two
shell corporate entities as part of a scheme to commit mortgage fraud and bank fraud. In 2006,
she used these entities and the proceeds of her fraud to purchase real properties located at 9
Oakley Street, Massapequa, New York and 245 McKinley Avenue, Island Park, New York (the
"Subject Properties"). In July 2008, after federal law enforcement officers told Irina that she was
under investigation, Irina deeded the Subject Properties to her mother, Basanda Khaimov
("Basanda"), through the shell entities.
The next month, a loan broker approached Capital Stack's managing member on behalf
of Alexander Shapiro, who held title to a property in Brooklyn, and Basanda. Capital Stack
entered into an agreement whereby it would loan $650,000 to IBA Management LLC ("IBA''), a
company controlled by Shapiro and Basanda. Shapiro and Basanda deeded the Subject
Properties and the Brooklyn property to IBA to serve as collateral for the loan and then, on
behalf ofiBA, signed a mortgage establishing Capital Stack's interest in the Subject Properties.
According to Capital Stack, it did not know that Basanda had received the Subject Properties
from Irina, that Irina was under criminal investigation, or that anyone associated with IBA was
anything other than a legitimate businessperson acting in good faith. Capital Stack relied on a
settlement agent to record its mortgage interest in the Subject Properties, but the settlement agent
failed to do so.
In February 2009, Irina pled guilty before this Court to conspiracy to commit bank fraud
and the Court entered a Preliminary Order of Forfeiture in the criminal action in May 2010,
forfeiting Irina's interest in a number of assets, including the Subject Properties. Once it
received notice of the forfeiture, Capital Stack's counsel notified the Government of its mortgage
interest in the Subject Properties. Despite this notice, the Government filed Notices of Pendency
relating to the Subject Properties in Nassau County. The Government also initiated the instant
forfeiture proceeding against the defendants-in-rem, including the Subject Properties, and Capital
Stack asserted a claim for the Subject Properties based on its then-unrecorded mortgage interest.
In the course of the forfeiture proceeding, the Government and Capital Stack litigated a
number of issues, including Capital Stack's standing to contest forfeiture of the Subject
Properties, whether Capital Stack's interest took precedence over the Government's interest, and
whether Capital Stack qualified as an innocent owner under the forfeiture laws. By
Memorandum Decision and Order dated July 26, 2011, I ruled that Capital Stack had standing to
assert its claim and that, if Capital Stack qualified as an innocent owner, its interest would take
priority over the Government's forfeiture claim. I did not decide, however, whether Capital
Stack in fact qualified as an innocent owner since discovery on that issue was still ongoing. The
Government eventually moved to dismiss its claims voluntarily and without prejudice. Capital
Stack also filed a motion, requesting the Court to find that it qualified as innocent owner. I did
not rule on either motion, however, because the parties negotiated a resolution of their claims.
The terms of that resolution were embodied in the Settlement Agreement, which I endorsed.
The Settlement Agreement only conditionally resolved the claims in this action. It
required Capital Stack to withdraw its claim to the Subject Properties and the Court to order the
Subject Properties forfeited to the Government in exchange for the Government's commitment to
make recommendations concerning Capital Stack's petition for remission to the Asset Forfeiture
Capital Stack subsequently recorded its mortgage interest in December 2010.
and Money Laundering Section ("AFMLS") of the Department of Justice? If AFMLS granted
the petition, the Government would then transfer the Subject Properties to Capital Stack. If,
however, these required predicate events did not occur within a given time period, either because
AFMLS did not approve the petition or the Government did not transfer the Subject Properties to
Capital Stack, the Settlement Agreement would be void, the parties would be allowed to renew
their motions, and Capital Stack's consent to the forfeiture of the Subject Properties would be
deemed withdrawn. Neither of the parties admitted any liability or wrongdoing. The Court
retained jurisdiction to enforce the Settlement Agreement.
AFMLS granted Capital Stack's remission petition in April2012. As of May, the
Government had sent the executed transfer documents and executed deeds to Capital Stack and
the transfer process was ongoing.
The Standard for Granting a Fee Award
Parties to a lawsuit are ordinarily responsible for their own attorney fees "absent explicit
statutory authority" to the contrary. Buckhannon Board & Care Home. Inc. v. W. Virginia Dep't
of Health & Human Res., 532 U.S. 598,602, 121 S. Ct. 1835, 1839 (2001). Under CAFRA, the
United States is liable for attorney fees and costs when the claimant "substantially prevails" in a
civil forfeiture proceeding. 28 U.S.C. § 2465(b)(1)(A). Through this provision, Congress sought
to deter "the government's too-zealous pursuit of civil and criminal forfeiture." United States v.
Khan, 497 F.3d 204,208 (2d Cir. 2007). Capital Stack's entitlement to attorney fees and costs,
therefore, depends on whether it "substantially prevail[ed]" in the instant forfeiture proceeding.
The Settlement Agreement recognized that only the Chief of AFMLS has the authority to rule on Capital Stack's
This circuitous process assisted the parties in clearing title to the Subject Properties.
Courts interpreting federal fee-shifting statutes have held that, in order for a party to
"prevail," it must "receive at least some relief on the merits of [its] claim," Hewitt v. Helms, 482
U.S. 755, 760, 107 S. Ct. 2672, 2675 (1987), which "materially alters the legal relationship
between the parties by modifying [one party's] behavior in a way that directly benefits [the other
party]." Farrarv. Hobby, 506 U.S. 103, 111-12, 113 S. Ct. 566, 573 (1992). A party may
prevail by obtaining "an enforceable judgment ... or comparable relief through a consent decree
or settlement ... [that] directly benefits the [party] at the time of the judgment or settlement."
Id. (internal citations omitted). Further, any alteration of the legal relationship between the
parties must be "judicially sanctioned." Buckhannon, 532 U.S. at 605, 121 S. Ct. at 1840. In
other words, one party's "voluntary change in conduct, although perhaps accomplishing what
[the other party] sought to achieve by the lawsuit, lacks the necessary judicial imprimatur on the
The Second Circuit has recognized that "judicial action other than a judgment on the
merits or a consent decree can support an award of attorney's fees, so long as such action carries
with it sufficient judicial imprimatur." Roberson v. Giuliani, 346 F.3d 75, 81 (2d Cir. 2003). 4
"[A]ny interim judicial relief that alters the parties' legal relationship," as long as it arises from a
court's assessment of the merits, possesses the requisite judicial imprimatur. See Vacchio v.
Ashcroft, 404 F.3d 663, 673 (2d Cir. 2005). Although "[p]rivate settlements do not entail the
judicial approval and oversight involved in consent decrees," Buckhannon, 532 U.S. at 604 n.7,
By focusing on the judicial imprimatur of a given action, the Second Circuit has rejected the Eighth Circuit's
narrow interpretation of Buckhannon which considers a plaintiff to be a prevailing party "only if it receives either an
enforceable judgment on the merits or a consent decree," Christina A. v. Bloomberg, 315 F.3d 990, 993 (8th Cir.
2003), in favor of the broader approach favored by 1he First Circuit. Pres. Coal. of Erie Cntv. v. Fed. Transit
Admin., 356 F.3d 444, 452 (2d Cir. 2004) ("We agree wi1h the First Circuit that Buckhannon does not limit fee
awards to enforceable judgments on the merits or to consent decrees."). In determining whether a party prevailed,
the First Circuit focuses on the "materiality of a judicial outcome" and "whether the result is purely procedural or
whether it actually accomplishes something substantive for the winning party." Maine Sch. Admin. Dist. No. 35 v.
Mr. & Mrs. R., 321 F.3d 9, 17 (1st Cir. 2004).
121 S. Ct. at 1840 n.7, the Second Circuit has recognized two circumstances in which private
settlements can be found to bear the necessary judicial imprimatur: first, where a district court
has "retained jurisdiction" over the settlement agreement, Roberson, 346 F.3d at 82, and second,
where, the order of dismissal "explicitly incorporates the terms of a settlement" and the district
court intended to place its judicial imprimatur on the settlement. Perez v. Westchester Cnty.
Dep't of Corr., 587 F .3d 143, 152 (2d Cir. 2009).
Capital Stack argues that it substantially prevailed in this proceeding in two ways. First,
Capital Stack prevailed when the Government moved to dismiss its own forfeiture claim
voluntarily following my rulings regarding Capital Stack's standing and the possible superiority
of its interest. Second, Capital Stack prevailed because, through the process provided by the
Settlement Agreement, it obtained a transfer of the Subject Properties from the Government. On
the other hand, the Government argues that this outcome is insufficient to conclude that Capital
Stack prevailed in this proceeding. The transfer of the Subject Properties was, according to the
Government, a result of its voluntary decision to enter the Settlement Agreement and AFMLS'
discretionary grant of remission, not a judicially-sanctioned change in the relationship between
The Court's Rulings and the Government's Motion to Dismiss
Capital Stack makes much of the fact that the Court ruled that it has standing to bring its
claim and that its interest would be superior to the Government's claim if it was an innocent
owner. These rulings alone do not suffice to support a finding that Capital Stack prevailed. See
Hewitt, 482 U.S. at 760, 107 S. Ct. at 2675-76 (concluding that "an interlocutory ruling that
[plaintiff's] complaint should not have been dismissed for failure to state a constitutional claim
... is not the stuff of which legal victories are made."). The Second Circuit's ruling in United
States v. Davis, 648 F .3d 84 (2d Cir. 2011 ), a case involving the forfeiture of artwork, is
instructive. In Davis, the claimant's "partial victory at summary judgment merely narrowed the
issues presented[;]" it did not entitle her to ownership of the artwork and the claimant was
ultimately forced to relinquish possession after losing at trial. Id. at 98. The Second Circuit held
that the claimant did not "substantially prevail" within the meaning of CAFRA because:
[claimant's] purpose was to obtain title to [the artwork], not simply to elucidate
the legal theories under which that title could and could not be defeated, and
because the litigation resulted in that title vesting in the United States, [claimant]
cannot be said to have obtained any of the relief that she sought.
Id. Although my rulings here favored Capital Stack, they did not determine whether Capital
Stack was ultimately entitled to a "change in [its]legal relationship" with the Government or to
any relief. See Roberson, 346 F.3d at 83. That decision could not have been made until after
Capital Stack's qualification as an innocent owner was determined.
Although Capital Stack repeatedly asserts that the Government adduced no evidence that
it was anything other than an innocent owner, that argument is speculative. The Government
never conceded this point and maintains to this day that it would have offered evidence to show
that Capital Stack was willfully blind to Irina Khaimov's crimes and, consequently, not entitled
to innocent owner status. See Buckhannon. 532 U.S. at 620, 121 S. Ct. at 1848 (Scalia, J.,
concurring) ("One does not prevail in a suit that is never determined."); see also Union of
Needletrades. Indus., & Textile Emps., AFL-CIO v. INS, 336 F.3d 200, 206 (2d Cir. 2003)
(finding plaintiff ineligible for attorney fees under Buckhannon where the "district court "never
granted any relief on the merits").
The fact that the Government filed a motion to dismiss the forfeiture proceeding
voluntarily and without prejudice does not change this outcome. Numerous courts have ruled in
the CAFRA context that even where, unlike here, a court actually dismisses the proceeding
without prejudice pursuant to the Government's motion, the dismissal does not render the
claimant a "substantially prevailing" party entitled to attorney fees. See United States v. 2007
BMW 335i Convertible, 648 F. Supp. 2d 944,951-52 (N.D. Ohio 2009) ("[T]he Court's order
dismissing the Government's civil forfeiture action without prejudice does not constitute a
judicially sanctioned change in the parties' relationship."); United States v. $13,275.21. More or
Less, in United States Currency, No. SA-06-CA-171-XR, 2007 WL 316455, at *4 (W.D. Tex.
Jan. 31, 2007) (finding that "the Court's dismissal without prejudice is not an enforceable
judgment on the merits"). A dismissal without prejudice merely "return[s] the parties to the
status quo ante and [does] not materially alter their legal relationship" as the Government may
subsequently choose to refile the forfeiture action. $13.275.21, 2007 WL 316455, at *4. The
situation is even more clear here because the Court never granted the Government's motion to
dismiss the action. Instead, the Government chose to withdraw its motion and enter into the
Settlement Agreement. The law is plain that a party's "voluntary change in conduct ... lacks the
necessary judicial imprimatur on the change" to support a fee award. Buckhannon, 532 U.S. at
605, 121 S. Ct. 1840.
The Settlement Agreement
Capital Stack points to the Settlement Agreement to argue that it "substantially prevailed"
because the "ultimate outcome" of the process set forth in the Settlement Agreement was a
vindication of Capital Stack's right to the Subject Properties. Additionally, it argues that the
Settlement Agreement bears many of the hallmarks of judicial imprimatur.
Although the Second Circuit has considered a district court's retention of jurisdiction
over a private settlement to be necessary for a finding that the settlement possesses the requisite
judicial imprimatur, see Torres v. Walker, 356 F.3d 238 (2d Cir. 2004), it has never held that the
district court's retention of jurisdiction or the mere incorporation of settlement terms into a
court's order are themselves sufficient to supply that imprimatur. Indeed, there are important
distinctions between the Settlement Agreement here and the settlements that were at issue in
Roberson and Perez, notwithstanding their superficial similarities. In Perez, the Second Circuit
commented on the district judge's "extensive involvement and close management of the case,"
noting that he conducted settlement conferences, "reviewed and revised the settlement agreement
with the parties," and "played an integral role in the resolution of the suit." 587 F.3d at 147-48,
152. This Court was not nearly as involved in the parties' negotiation of a resolution to this
action. Unlike the district judge in Perez, I did not involve this Court in the parties' settlement
discussions or make any changes to the terms of their settlement. In fact, when the parties jointly
requested a settlement conference, I refused their request.
More importantly, though, unlike the settlement agreement in Roberson, the Court did
not provide Capital Stack with any relief on the merits of its claim through endorsing the
Settlement Agreement here. The plaintiffs in Roberson challenged various policies regarding the
disposition of applications for food stamps. The parties reached a settlement whereby, in
exchange for the plaintiffs' dismissal of their claims, the defendants were obligated to make
numerous changes to the challenged policies. Because the settlement agreement "condition[ed]
its effectiveness on the district court's retention of jurisdiction," the court's endorsement of the
agreement "effectuated the obligations of the parties." 346 F.3d at 83. The Roberson court
implicitly "gave judicial sanction" to defendants' obligations to change their policies "because
the court has the general responsibility to ensure that its orders are fair and lawful." Id. at 82-
83. 5 This Court has provided no such sanction to Capital Stack's right to the Subject Properties.
The conditional nature of the Settlement Agreement makes this clear.
The terms of the Settlement Agreement do not entitle Capital Stack to any judicial relief
from the Government's forfeiture proceeding. The endorsed Settlement Agreement does not
actually provide Capital Stack with possession of and title to the Subject Properties. The only
satisfaction that Capital Stack received with regard to the Subject Properties was as a result of
the voluntary remission granted by AFMLS. The determination of whether to grant a remission
is entirely within the AFMLS Chiefs discretion. See 28 C.F.R. §§ 9.1(b)(2), 9.4(g). Indeed,
courts have commented that the "remission of a forfeiture is neither a right nor a privilege, but an
act of grace," Concepcion v. United States, 938 F. Supp. 134, 137 (E.D.N.Y. 1996) (quoting In
re $67,470.00,901 F.2d 1540, 1543 (11th Cir. 1990)), and the Second Circuit has recognized, in
the criminal forfeiture context, that a grant of remission is a "non-judicial remedy." DSI Assocs.
v. United States, 496 F.3d 175, 186 (2d Cir. 2007). The fact that the process instituted by the
Settlement Agreement ultimately resulted in Capital Stack receiving possession of and title to the
Subject Properties is of no moment because Capital Stack has not benefitted from any "judicially
sanctioned change in the legal relationship of the parties." Buckhannon, 532 U.S. at 605, 121 S.
Ct. at 1840. See also Pres. Coal. of Erie Cnty., 356 F.3d at 451 (noting that courts focus on the
"materiality of a judicial outcome") (emphasis added). Concluding that AFMLS' grant of
Capital Stack's remission petition is anything other than a "voluntary change in conduct"
insufficient to support a fee award would require this Court to embrace the "catalyst theory" of
prevailing parties that the Supreme Court unequivocally rejected in Buckhannon. 532 U.S. at
The situation in Perez was even more clear. The parties' negotiated settlement afforded plaintiffs much of the
merits-based relief they sought and the district judge "pressed Defendant's counsel on the need to make the
agreement part of an enforceable stipulation." 587 F.3d at 148, 152-53.
604-05, 121 S. Ct. at 1840. 6
The Second Circuit, following Buckhannon, has endorsed the First Circuit's approach
which examines whether the judicial result "actually accomplishes something substantive for the
winning party." Pres. Coal. of Erie Cnty., 356 F.3d at 451-52 (quoting Maine Sch. Admin. Dist.,
321 F.3d at 17)). Here, Capital Stack can hardly be considered "the winning party;" the
Settlement Agreement granted forfeiture to the Government. Nor did the Settlement Agreement
"accomplish something substantive" for Capital Stack; it merely set forth contingent provisions
that would become operative if other entities, AFMLS and the Government, "accomplish[ed]
something substantive" for Capital Stack (or failed to do so).
The Eighth Circuit's decision in Sierra Club v. Citv of Little Rock, 351 F.3d 840 (8th Cir.
2003), is instructive. There, the district court entered a declaratory judgment in favor of the
plaintiff, ruling that the defendant was in violation of a permit requirement, but refused to enter
an injunction or any remedy based on this judgment. On appeal, the Eighth Circuit reversed the
district court's award of attorney fees to the plaintiff. Although the defendant ultimately acted in
a way that partially satisfied the plaintiff, the Eighth Circuit concluded this conduct was not
"judicially sanctioned relief' because the district court refused to require the defendant to take
Similarly, while the Court ruled that Capital Stack had standing, determined that its claim
to the Subject Properties could be superior to the Government's claim, and endorsed the
Settlement Agreement, the Court never provided Capital Stack with "judicially sanctioned
relief." Nothing in the Court's rulings or its endorsement of the Settlement Agreement required
AFMLS to grant Capital Stack's remission petition or the Government to transfer the Subject
Under the "catalyst theory" a plaintiff is a prevailing party "if it achieves the desired result because the lawsuit
brought about a voluntary change in the defendant's conduct." Buckhannon, 532 U.S. at 601, 121 S. Ct. at 1838.
Properties to Capital Stack. If AFMLS did not grant remission or the Government did not
transfer the Subject Properties, the Court could not sanction AFMLS or the Government. Nor
could the Court give Capital Stack possession of and title to the Subject Properties. The Court
could only allow Capital Stack to withdraw its consent to the forfeiture and reinstate its motion
regarding its innocent owner status. In other words, the Court could only return the parties to the
status quo prior to the Settlement Agreement. Without determining that Capital Stack was an
innocent owner, the Court could not "accomplish something substantive" for Capital Stack
regarding its entitlement to the Subject Properties.
The Settlement Agreement and the processes it sets forth do not constitute a "courtordered change in the legal relationship between" the parties, Buckhannon, 532 U.S. at 604, 121
S. Ct. at 1840, and, therefore, they do not fall within "the type of judicial action that could
convey prevailing party status." Roberson, 346 F .3d at 81.
Capital Stack's Proposed Permissive Standard
Capital Stack has challenged whether Buckhannon and its progeny are even applicable to
a determination of whether a party has "substantially prevailed" under CAFRA. It argues that
CAFRA' s requirement that a party "substantially prevail" is a more permissive standard than the
"prevailing party" standard at issue in the Buckhannon line of cases. Presumably, according to
this position, it would be possible for a party to fail to qualifY as a "prevailing party" but,
nonetheless, be found to have "substantially prevailed."
The Second Circuit and several of its sister circuit courts have concluded that "the terms
'prevailing party' and 'substantially prevails' are fundamentally the same for purposes of
determining whether a plaintiff can recover under a fee-shifting statute." Pres. Coal. of Erie
Cntv., 356 F.3d at 450 n.3. 7 The District of Columbia Circuit has also commented, while
interpreting the Freedom oflnformation Act, that the "addition of the modifier 'substantially'
might possibly be taken as limiting the category of 'prevailing parties,' but it cannot be taken as
expanding the universe of parties eligible for a fee award." Oil, Chern. & Atomic Workers lnt'l
Union, 288 F.3d at 455.
Capital Stack distinguishes this authority, however, because the cases involve fee-shifting
statutes other than CAFRA. It points to one case where a district court remarked that CAFRA
"broadens the class that can receive fees in forfeiture actions to claimants who 'substantially
prevail."' United States v. $60.201.00 in U.S. Currency, 291 F. Supp. 2d 1126, 1130 (C.D. Cal.
2003). 8 According to Capital Stack, it is inappropriate to compare CAFRA to statutes that
provide fees for prevailing plaintiffs because CAFRA's purpose is to deter the Government's
overzealous use of the forfeiture laws.
The Second Circuit has rejected Capital Stack's argument, albeit in dictum. Khan, 497
F.3d at 209 n.7 ("[W]e think that the Supreme Court's decision in Buckhannon ... should inform
our understanding of the term 'substantially prevails' in CAFRA."). See also Davis, 648 F.3d at
97 (same); 2007 BMW 335i Convertible, 648 F. Supp. 2d at 948-52 (citing cases).
Although I agree with the reasoning of these cases and reject Capital Stack's argument, it
is not necessary for the purposes of this motion to decide whether CAFRA's "substantially
prevails" standard is more permissive than a "prevailing party" standard. Even if CAFRA sets a
See also Sierra Club, 351 F.3d at 845 (applying Buckhannon to the Clean Water Act which authorizes an award of
fee to any "prevailing or substantially prevailing party"); Kasza v. Whitman, 325 F.3d 1178, 1180 (9th Cir. 2003)
(bolding plaintiff"is not a 'prevailing party' (and thus cannot be a 'substantially prevailing party') [under the
Resource Conservation and Recovery Act] because she did not gain by judgment or consent decree a material
alteration of the legal relationship ofthe parties"); Oil. Chern. & Atomic Workers Int'l Union. AFL-CIO v. Dep't of
Energy, 288 F.3d 452, 455 (D.C. Cir. 2002) ("We have seen nothing to suggest that Congress sought to draw any
fme distinction between 'prevailing party' and 'substantially prevail."').
When this language is read in context, however, "it is clear that $60.201.00 merely stands for the proposition that
the [Equal Access to Justice Act's] fee caps do not apply to attorney's fee awards under CAFRA." 2007 BMW 335i
Convertible, 648 F. Supp. 2d at 950 n.S.
lower threshold for establishing an entitlement to an attorney fees award, Capital Stack fails to
meet that threshold. As discussed above, Capital Stack cannot point to any judicial ruling with
regard to its ultimate right to the Subject Properties where it prevailed at all, let alone
"substantially." In fact, the only order the Court issued which affected the legal relationship
between the parties forfeited to Subject Properties to the Government- hardly a judiciallysanctioned victory for Capital Stack.
The policy considerations that Capital Stack highlights do not require a different result.
Capital Stack is undoubtedly correct that, through CAFRA, Congress sought to "deter
government overreaching" by providing that "substantially prevailing" parties are entitled to
fees. Khan, 497 F.3d at 208. But, by the same token, "Congress had no wish to expand
government liability respecting legitimate seizures of property plausibly subject to forfeiture."
Id. This is not a case of Government overreaching. At the time the Government brought this
case, Capital Stack's mortgage interest was still unrecorded. Although the Government was
ultimately wrong about the superiority of its Notices of Pendency relative to Capital Stack's
unrecorded mortgage, there is no indication that the Government asserted its position in bad
faith. As this Court recognized in the Memorandum Decision and Order ruling on the
Government's motion to dismiss, the superiority question "is not straightforward and there is
surprisingly little authority on it." Further, if Capital Stack had promptly recorded its mortgage,
it could have saved itself most, if not all, of the expense it incurred litigating this issue. Lastly,
the Government has suggested that Capital Stack may have been willfully blind to Irinia
Khaimov's crimes, making the forfeiture of its interest in the Subject Properties entirely
appropriate. While CAFRA' s attorney fees provision is meant to help innocent property owners
protect their rights, I am not inclined to extend this provision to situations where the owner's
innocence has not been established.
Capital Stack's motion for attorney fees  is denied.
Dated: Brooklyn, New York
September 4, 2012
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