United States of America v. $421,090.00
Filing
13
ORDER denying 9 Motion for Summary Judgment : For the reasons stated in the attached Memorandum and Order, the government's motion to dismiss the claimant's claim for lack of standing or, in the alternative, for summary judgment is denied. Trial of the case will occur on 10/11/2011. A final pretrial conference will be held on 9/30/2011 at 10:30 AM. Ordered by Judge John Gleeson on 7/27/2011. (Horowitz, Hayley)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA
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Plaintiff,
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-against:
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$421,090.00 in United States Currency,
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Defendant,
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-against:
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MICHAEL MORALES,
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Claimant.
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ONLINE PUBLICATION ONLY
MEMORANDUM
AND ORDER
11-CV-00341(JG)
A P P E A R A N C E S:
LORETTA E. LYNCH
United States Attorney
Eastern District of New York
271 Cadman Plaza East
Brooklyn, New York 11201
By:
Evan S. Weitz
Attorney for Plaintiff
LAZZARO AND GREGORY, P.C.
360 Court Street, Suite 3
Brooklyn, New York 11231
By:
James Warren Kirshner
Attorney for Claimant
JOHN GLEESON, United States District Judge:
On January 21, 2011, the United States filed a verified complaint in rem
against $421,090 in United States currency (the “defendant funds”), seeking civil
forfeiture of the defendant funds pursuant to 21 U.S.C. 881(a)(6). On April 1, 2011,
Michael Morales filed a verified claim asserting an interest in the defendant funds.1 The
government now moves to dismiss Morales’s claim for lack of standing pursuant to Rule
G(8)(c)(ii)(B) of the Supplemental Rules for Admiralty or Maritime Claims and Asset
Forfeiture Actions (“Supplemental Rules”), or, in the alternative, for summary judgment
pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons stated
below, the government’s motion is denied.
BACKGROUND
A.
The Government’s Allegations
The funds were seized on August 12, 2010. According to the
government’s complaint, on that date, agents from the United States Drug Enforcement
Administration (“DEA”) observed Morales open the trunk of a car and look at two black
suitcases inside. Morales then closed the trunk, got into the car, and drove away. The
DEA agents followed and subsequently stopped the car on the basis that it had illegally
tinted windows. As the agents approached the car after the stop, they saw a marijuana
cigarette in Morales’s possession. Morales got out of the car at the direction of the agents
and consented to have it searched. The agents discovered the defendant funds inside the
suitcases in the trunk. The funds were arranged in pre-determined bundles held together
by rubber bands. Upon questioning, Morales claimed that he was borrowing the car from
his brother, who had told him there was some money inside the trunk. Morales said the
money might belong to his brother’s father-in-law, “Charles,” who owned several strip
clubs in New York. Morales explained to the DEA agents that his brother and Charles
1
No other claim of interest has been filed in this case, and any future claim would be
untimely.
2
often traveled to give money to people who had been involved in disasters. Morales
suggested that the defendant funds might have been intended for disaster victims.
B.
Morales’s Allegations
Morales admits that the defendant funds were seized on August 12, 2010
from a vehicle he was driving, but he disputes many of the facts surrounding the seizure.
According to Morales, he did not open the car’s trunk before getting into the car and
driving off. He also denies that the car had illegally tinted windows, and he claims that
he was not holding a marijuana cigarette at the time he was pulled over. He admits that
the DEA agents recovered a marijuana cigarette when they searched the vehicle but
contends that they could not have seen it before they searched the car. According to
Morales, the DEA agents who approached the car after the stop told him that the car had
been involved in a robbery. He claims he was handcuffed the moment he stepped out of
the car, and that he never gave permission to search. In fact, Morales alleges that he
specifically and repeatedly denied the agents permission to open the trunk. Nonetheless,
they eventually did so by pushing buttons on his keychain without his authorization.
Morales admits that he told the agents the car belonged to his brother, but
he claims he never told them that his brother had informed him there was money in the
trunk. Morales also denies that he said anything to the DEA agents about “Charles.” In
answer to Special Interrogatories submitted to him by the government, Morales claimed
that he “received the Defendant Funds from another individual known only as ‘Primo,’
whereby [Morales] would retain $25,000 in United States currency from the Defendant
Funds.” Morales provided no further information about Primo and no corroboration for
3
his claim, except to state that Primo would have knowledge of the facts supporting his
claim.
Also in response to the Special Interrogatories, Morales admitted to four
prior arrests. First, he was arrested in June 2009 for possession of stolen property. He
plead guilty to disorderly conduct. In September 2010, he was arrested for possession of
marijuana. According to Morales, that case is scheduled to be dismissed. Morales was
again arrested for marijuana possession in March 2011, and he plead guilty to disorderly
conduct. Finally, a case is currently pending against Morales for possession of a
controlled substance. In answer to the Special Interrogatories, Morales also admitted that
he did not file federal or state income tax returns between 2005 and 2010.
C.
Procedural History
After the funds were seized on August 12, 2010, the DEA commenced
administrative forfeiture proceedings against them. On November 10, 2010, Morales
filed a claim to the funds with the DEA in the administrative proceedings. The
government filed its complaint in rem in this court on January 1, 2011. On April 1, 2011,
Morales filed his claim in this action. On April 20, 2011, he filed a verified answer to the
complaint. The motion now before me followed on June 24, 2011. Oral argument was
heard on the motion on July 22, 2011.
DISCUSSION
A.
The Legal Framework Governing Civil Forfeiture Actions
Pursuant to 21 U.S.C. § 881(a)(6), “[a]ll moneys . . . furnished or intended
to be furnished by any person in exchange for a controlled substance [and] all proceeds
traceable to such an exchange” are subject to civil forfeiture. Rules governing civil
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forfeiture proceedings are set out in 18 U.S.C. § 983 and Supplemental Rule G. Under 18
U.S.C. § 983(1), where the government executes a seizure pursuant to a civil forfeiture
statute such as 21 U.S.C. § 881, it must provide notice to interested parties. Any person
claiming an interest in the seized property may file a claim with an appropriate official.
18 U.S.C. § 983(2). Where a claim has been filed, the government must commence a
civil action in rem by filing a complaint for forfeiture in an appropriate court. Id. §
983(3)(A); Supp. R. G (1), (2). Any person claiming an interest in the property may then
contest the forfeiture by filing a claim in the court where the civil action is pending. 18
U.S.C. § 983(4); Supp. R. G(5). However, “[b]efore a claimant can contest a forfeiture,
he must demonstrate standing.” Mercado v. U.S. Customs Service, 873 F.2d 641, 644 (2d
Cir. 1989). If a claimant has standing, a court may then proceed to determine whether
the government has established a sufficient basis for forfeiture. See United States v.
38,000.00 in U.S. Currency, 816 F.2d 1538 (11th Cir. 1987).
Pursuant to the Civil Asset Forfeiture Reform Act of 2000 (CAFRA),
Pub.L. No. 106-185, 114 Stat. 202, 18 U.S.C. § 983, the government must prove its right
to forfeiture of an asset by a preponderance of the evidence. 18 U.S.C. § 983(c)(1) (“the
burden of proof is on the Government to establish, by a preponderance of the evidence,
that the property is subject to forfeiture”). In addition, “if the Government’s theory of
forfeiture is that the property was used to commit or facilitate the commission of a
criminal offense, or was involved in the commission of a criminal offense, the
Government shall establish that there was a substantial connection between the property
and the offense.” Id. § 983(c)(3). To prevent forfeiture, a claimant who has standing
“may either rebut the government’s proof of a substantial connection or raise an innocent
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owner defense under CAFRA.” Von Hofe v. United States, 492 F.3d 175, 180 (2d Cir.,
2007). An “innocent owner” is an owner of the property the government seeks to have
forfeited who “(i) did not know of the conduct giving rise to forfeiture; or (ii) upon
learning of the conduct giving rise to the forfeiture, did all that reasonably could be
expected under the circumstance to terminate such use of the property.” 18 U.S.C. §
983(d)(2)(A).
B.
Morales’s Standing to Contest the Forfeiture
To contest a civil forfeiture action, a claimant must have standing both
under the statute governing the forfeiture proceedings and under Article III of the United
States Constitution. United States v. Cambio Exacto, S.A., 166 F.3d 522, 526 (2d Cir.
1999). The parties agree that Morales has satisfied the procedural requirements for
statutory standing in this case. See Pl.’s Mem. Mot. Dismiss 3 n.1, June 24, 2011, ECF
No. 9. However, the government contends that Morales cannot satisfy Article III
standing, and it therefore moves to strike Morales’s claim pursuant to Supplemental Rule
G(8)(c)(B), which authorizes a governmental motion to strike a claim “because the
claimant lacks standing.”
In order to establish Article III standing, a party must “allege[] such a
personal stake in the outcome of the controversy as to assure that concrete adverseness
which sharpens the presentation of issues upon which the court so largely depends for
illumination of difficult constitutional questions[.]” Baker v. Carr, 369 U.S. 186, 204
(1962). More specifically, “a litigant must allege a distinct and palpable injury to
himself, fairly traceable to the putatively illegal conduct of the defendant, and likely to be
redressed by the requested relief.” Torres v. $36,256.80 U.S. Currency, 25 F.3d 1154,
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1157 (2d Cir. 1994) (internal quotation marks and citations omitted). In this case,
Morales claims an ownership interest in $25,000 of the defendant funds. If Morales
indeed owns $25,000 of the funds, he will suffer a palpable injury – deprivation of the
$25,000 – as a direct result of what he alleges would be an illegal forfeiture. See
Mercado, 873 F.2d at 644-45 (“possession” of funds subject to forfeiture, if defined as
custody plus a “right or interest of proprietorship,” is sufficient to establish standing).
However, because the likelihood of false claims of ownership in civil
forfeiture actions – where the government must publish notice of the proceedings – is
high, the Second Circuit has held that “a naked claim of possession . . . is not enough” to
establish standing. Id. at 645. Rather, “an allegation of ownership and some evidence of
ownership are together sufficient to establish standing to contest a civil forfeiture.”
Torres, 25 F.3d at 1158 (citing United States v. $38,570 U.S. Currency, 950 F.2d 1108,
1113 (5th Cir. 1992)). In Mercado v. United States Customs Services, $181,590 were
found in the luggage of an individual who asserted that he did not know the money had
been there, that he did not know whose money it was, and that he did not care what
happened to it. 873 F.2d at 645. That individual subsequently filed a claim, which was
supported only by a “conclusory, hearsay, on-information-and-belief statement of [his]
lawyer” that the claimant had an unidentified interest in the funds. Id. The Second
Circuit held that the attorney’s “hearsay and conclusory” assertion of an undefined
interest, unsupported by any factual allegations whatsoever, was insufficient to support
standing. Id.
In this case, by contrast, Morales has submitted a notarized, signed
statement of his own articulating a particular interest in a portion of the funds and
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providing a factual account to support that alleged interest. Specifically, he attests that he
received the defendant funds from another individual named Primo, and that he was
entitled to retain $25,000.2 The government argues that Morales has failed to substantiate
his alleged interest in at least a portion of the defendant funds, because he has not
provided identifying information for Primo or offered documentation to support his
claim. But Morales’s asserted interest in the money is corroborated in part by the
government’s own allegation that the money was found in his physical custody. See
$38,570, 950 F.2d at 1113 (where money was seized from vehicle claimant was driving,
claimant “need not have supplemented his claim with additional evidence, because the
government had admitted [his] relationship to the currency in its complaint”). Moreover,
where a claimant alleges a specified interest in seized funds, he “need not explain this
interest in detail . . . so long as he does something more than conclusorily state that he has
some undefined ‘interest.’” United States v. $191,910.00 in U.S. Currency, 16 F.3d
1051, 1057 (9th Cir. 1994) (superseded by statute on other grounds).
While the evidence in the record does not prove Morales’s claim of
ownership, it is sufficient to establish “a facially colorable interest in the [forfeiture]
proceedings sufficient to satisfy the case-or-controversy requirement and prudential
considerations defining and limiting the role of the court.” United States v. $557,933.89,
More or Less, in U.S. Funds, 287 F.3d 66, 78 (2d Cir. 2002) (internal quotation marks
omitted)); see also U.S. v. $515,060.42 in U.S. Currency, 152 F.3d 491, 499 (6th Cir.
2
The government contends, and Morales disputes, that at the time of the seizure, Morales
provided a different and incompatible account of the funds’ source. As discussed below, Morales’s
purported statements at the time of the seizure may be inadmissible. They are also in dispute. I am unable
to conclude at this preliminary stage that Morales in fact told the DEA agents about “Charles.”
Furthermore, even if Morales at one time denied ownership of the funds, that would not deprive his
subsequent, sworn statement of its facial plausibility, which is all that is required to confer standing.
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1998) (“While Jellinek’s claim did not provide evidence of its ownership interest, in our
estimation, Jellinek’s claim of ownership, together with its answer to the Government’s
complaint and the Government’s allegations of the nature of Jellinek’s involvement with
part of the seized currency are sufficient to establish its standing.”); $191,910.00, 16 F.3d
at 1057 (“Morgan has clearly claimed at least a possessory interest in the money at issue
here. The government seized the money from his possession, and he had earlier claimed
both possessory and ownership interests in it.”)
Finally, the government contends that even if Morales’s alleged interest in
$25,000 of the funds is colorable, an interest in a portion of seized funds does not support
standing to contest forfeiture of the entire amount. The government disregards “that what
is adjudicated in a judicial civil forfeiture proceeding is the government’s right to the
property, not the claimant’s. $557,933.89, 287 F.3d at 77 (emphasis in original).
Standing is a preliminary question, used to determine only whether a claimant has a
personal stake in the forfeiture proceedings such that he is a proper party to challenge the
government’s right to the property. See Raines v. Byrd, 521 U.S. 811, 818-19 (1997)
(“The standing inquiry focuses on whether the plaintiff is the proper party to bring this
suit,” which turns on whether the plaintiff has alleged “personal injury fairly traceable to
the defendant’s allegedly unlawful conduct and likely to be redressed by the requested
relief.” (internal quotation marks and citations omitted) (emphasis in original)).
Morales’s colorable ownership interest in even a portion of the funds is sufficient to
establish a concrete interest in the proceedings as a whole. Accordingly, because he has
established a facially colorable interest in these forfeiture proceedings, Morales has
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established his standing to contest the government’s proposed forfeiture of the entire
amount.3
C.
The Government’s Summary Judgment Motion
1.
The Legal Standard for Summary Judgment
A motion for summary judgment should be granted only if the pleadings and
documentary evidence “show that there is no genuine issue as to any material fact and
that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2). “An
issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict
for the nonmoving party.” Fincher v. Depository Trust & Clearing Corp., 604 F.3d 712,
720 (2d Cir. 2010). “A fact is material if it might affect the outcome of the suit under the
governing law.” Id. The moving party bears the initial burden of demonstrating that no
genuine factual dispute exists. Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 202 (2d Cir.
1995). If the movant successfully makes this showing, the burden shifts to the nonmoving party to “set forth specific facts showing that there is a genuine issue for trial.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). When applying these
standards, the court must “resolve all ambiguities, and credit all factual inferences that
could rationally be drawn, in favor of the party opposing summary judgment.” Brown v.
Henderson, 257 F.3d 246, 251 (2d Cir. 2001) (internal quotation marks omitted).
3
Mantilla v. United States, 302 F.3d 182 (3d Cir. 2002), which is cited by the government,
is not to the contrary. In Mantilla, the government sought forfeiture of two sets of funds obtained in two
separate seizures. The Third Circuit held that, “[b]ecause Customs obtained the two amounts - $900,000
and $95,000 – under distinct circumstances, [the claimant] must establish his standing as to each.” Id. at
185. Here, by contrast, a single set of funds was seized together, and the propriety of forfeiting those funds
is the subject of a single controversy.
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2.
The Government’s Right to Forfeiture
The government argues that it is entitled to summary judgment on its
forfeiture claim because (1) Morales’s account of the defendant funds’ source is
implausible; and (2) the record demonstrates by a preponderance of the evidence that the
funds are narcotics proceeds. The first argument misapprehends the initial burden of
proof in a forfeiture proceeding. Before a claimant can be called upon to establish
innocent owner status, the government must first “establish, by a preponderance of the
evidence, that the property is subject to forfeiture.” 18 U.S.C. § 983(c)(1). Moreover, “if
the Government is seeking forfeiture, pursuant to 21 U.S.C. § 881(a)(6), on a theory that
property constitutes proceeds traceable to an exchange for narcotics, it must demonstrate
that those proceeds have a substantial connection to drug trafficking.” United States v.
$22,173.00 in U.S. Currency, 716 F.Supp.2d 245, 250 (S.D.N.Y. 2010); see also United
States v. 90-23 201st Street, --- F.Supp.2d ---, No. 05-CV-5240 (ARR) (SMG), 2011 WL
1281209, at *16 (March 31, 2011). The Government “need not prove that there is a
substantial connection between the property and any specific drug transaction,” but it
must at least “prove more generally, based on totality of the circumstances, that the
property is substantially connected to narcotics trafficking.” United States v. U.S.
Currency in the Sum $185,000, 455 F.Supp.2d 145, 149 (E.D.N.Y. 2006) (citations
omitted).
The government argues that it has established by a preponderance of the
evidence that the seized funds are narcotics proceeds. It contends that possession of a
large amount of cash is probative of narcotics sales, particularly when the cash is
packaged in bundles bound with rubber bands, and particularly when the individual found
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in possession of the cash provides inconsistent, unlikely and unsubstantiated statements
regarding the money’s origins. The government also points to Morales’s “involvement
with narcotics,” citing the marijuana cigarette found in his car and his three prior arrests
for possession of controlled substances. While this evidence may be sufficient to support
a jury finding in the government’s favor, it does not compel such a finding as a matter of
law.4
In United States v. $31,990 in United States Currency, the government
identified six factors that, it argued, together demonstrated a substantial connection
between the seized funds and a narcotics exchange: (1) the amount of cash seized; (2) the
method of bundling cash with rubber bands and plastic bags; (3) the failure of the
individual from whose custody the cash was seized to provide a convincing, detailed
account of the funds’ source; (4) the custodian’s travel itinerary, which paralleled that of
a drug courier; (5) the custodian’s possession of cocaine at the time of seizure; and (6) the
affidavits of two experienced investigators that the seized currency was connected with
the exchange of a controlled substance. 982 F.2d 851, 854-55 (2d Cir. 1993). The
4
Morales contends that the DEA agents were without probable cause to stop the car he
was driving at the time of the seizure because he did not have illegally tinted windows. He further
contends that he did not give the DEA agents permission to search the vehicle, and that they were without
probable cause to do so, in part because they could not have seen the marijuana cigarette before they
conducted the search. The Second Circuit has made clear that “an illegal seizure of property does not
immunize that property from forfeiture, that the property itself cannot be excluded from the forfeiture
action, and that evidence obtained independent of the illegal seizure may be used in the forfeiture action.”
United States v. $37,780 in U.S. Currency, 920 F.2d 159, 163 (2d Cir. 1990). However, the Supreme Court
has held that the exclusionary rule applies to civil forfeiture proceedings. One 1958 Plymouth Sedan v.
Pennsylvania, 380 U.S. 693, 696 (1965). The Second Circuit has acknowledged that “[t]his circuit’s
exposition of [the Plymouth Sedan] holding remains . . . somewhat unclear,” $557, 933, 287 F.3d at 80, but
it has left open the possibility, and even the likelihood, that evidence other than the funds themselves
obtained pursuant to an illegal seizure and search are inadmissible in a civil forfeiture action. Accordingly,
if the Court were to agree that the DEA agents were without probable cause to stop the vehicle Morales was
driving and without probable cause or permission to search it, any statements that Morales made to the
agents on August 12, 2010 and the marijuana then found in his possession would be inadmissible in these
proceedings. However, because I find that the government cannot prevail on its summary judgment motion
even if this evidence is considered – and even if the government’s account of Morales’s statements about
“Charles” is accepted as true – I need not determine the legality of the August 12 seizure and search or the
admissibility of the evidence recovered that day.
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Second Circuit, “[v]iewing these factors in the light most favorable to the government, . .
. conclude[d] that, taken together, the inferences establish no more than a suspicion that
the money was connected with the exchange of narcotics.” Id. at 856 (emphasis added).
Here, where all inferences must be drawn against the government, a
similar collection of factors is insufficient to establish, as a matter of law, a substantial
connection between the seized funds and narcotics exchange by a preponderance of the
evidence. Specifically, unexplained possession of a large amount of cash “supports an
inference of illegal activity but does not suggest that the seized currency was tied to the
exchange of a controlled substance.” Id. at 855; see also 90-23 201st Street, 2011 WL
1281209, at *17 (“[W]hile Young’s unexplained income supports an inference of illegal
activity, it does not support an inference of narcotics-related activity.”). The same is true
with respect to Morales’s incompatible and unsubstantiated explanations regarding the
money’s origins. The government cites United States v. $37,780 in United States
Currency, 920 F.2d 159, for the proposition that “[e]vidence that a claimant made false,
inconsistent, or implausible statements during the investigation can also demonstrate that
money is subject to forfeiture.” Pl.’s Mem. Supp. Mot. Dismiss 9, June 24, 2011, ECF
No. 9. However, in that case, the Second Circuit stated only that an individual’s
“evasive, confused explanation for carrying such a large sum . . . only further aroused the
suspicions of the government agents.” 920 F.2d at 163. It did not hold that this factor
demonstrated that the money was subject to forfeiture. Instead, it found that the
government had probable cause to believe the money was subject to forfeiture where, by
the time of the forfeiture proceedings, it had “not only determined the falsity of many of
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the statements Hernandez made at the airport, but also established to a convincing degree
his extensive involvement in drug activities.” Id. at 163-64.
In this case – where the standard of proof is higher than in United States v.
$37,780 – the only evidence in the record suggesting narcotics activity is Morales’s
possession of a marijuana cigarette at the time of his arrest and his three prior drugrelated arrests, two of which were for marijuana possession. While those two arrests, and
the marijuana cigarette found in the car, “are relevant to infer personal use of drugs and
access to drug dealers, [they do] not provide a strong inference that [Morales] was
engaged in drug trafficking.” $31,990, 982 F.2d at 855. The most recent arrest admitted
to by Morales in his answers to the Special Interrogatories was for possession of a
controlled substance with intent to distribute. That Morales has once been arrested for
possession of a controlled substance with intent to sell is an insufficient basis for
determining as a matter of law that the government has established by a preponderance of
the evidence that the particular funds found in the trunk of the car he was driving on
August 12, 2010 were substantially related to the exchange of narcotics. See 90-23 201st
Street, 2011 WL 1281209, at *16 (“Standing alone, however, the court finds Young’s
[narcotics] convictions insufficient to establish, as a matter of law, the requisite
connection by a preponderance of the evidence.”). The record before me does not
support a finding that the government has established as a matter of law a substantial
connection between the defendant funds and the exchange of a controlled substance.
Accordingly, the government is not entitled to summary judgment on its forfeiture claim.
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CONCLUSION
For the reasons stated above, the government’s motion is denied. The trial
of the case will occur on Tuesday, October 11, 2011. A final pretrial conference will be
held on Friday, September 30, 2011 at 10:30 AM.
So ordered.
John Gleeson, U.S.D.J.
Dated: July 27, 2011
Brooklyn, New York
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