Unites States v. Pokerstars, et al

Filing 249

REPLY MEMORANDUM OF LAW in Support re: 199 MOTION to Strike Document No. 68 (Claim of Robb Evans).. Document filed by United States Of America. (Attachments: # 1 Exhibit A)(Cowley, Jason)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - x
UNITED STATES OF AMERICA,
:
Plaintiff,

:
11 Civ. 2564 (LBS)

- v. -

:

POKERSTARS, et al.

:

Defendants;

:

ALL RIGHT, TITLE AND INTEREST IN THE
ASSETS OF POKERSTARS, et al.;

:
:

Defendants-in-rem.
:
- - - - - - - - - - - - - - - - - - - x

REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF THE
GOVERNMENT’S MOTION TO STRIKE THE CLAIM OF ROBB EVANS
OF ROBB EVANS & ASSOCIATES LLC, RECEIVER

PREET BHARARA,
United States Attorney for the
Southern District of New York

Sharon Cohen Levin
Jason H. Cowley
Michael D. Lockard
Assistant United States Attorneys
- of counsel -

PRELIMINARY STATEMENT
The Government respectfully submits this reply
memorandum of law in further support of its motion, pursuant to
Rule 12(b) and (c) of the Federal Rules of Civil Procedure and
Rule G(8)(c) of the Supplemental Rules for Admiralty and Maritime
Claims, to strike the claim filed in this in rem forfeiture
action by Robb Evans of Robb Evans & Associates LLC, Receiver
(“Robb Evans” or “Receiver” or “Claimant”).

The defendants-in-

rem in this matter include, among others, all right title and
interest in the funds previously held in certain accounts at
Sunfirst Bank in Utah (the “Subject Accounts”).

Notwithstanding

the arguments set forth in Claimant’s opposition brief, and the
new supporting documentation submitted therewith (the “FTC
Materials”), Claimant fails to establish that the Receiver,
standing in the shoes of either Jeremy Johnson, or any corporate
entities actually covered by the Preliminary Injunction Order
establishing the receivership, Federal Trade Commission v. Jeremy
Johnson, et al., Case No. 2:10-cv-02203-RLH-GWF (D. Nev.) (The
“FTC Action”), has standing to assert a claim to the Subject
Accounts.

Because the Claimant has failed to establish such

standing, his claim should be stricken, and leave to amend should
be denied as futile.

ARGUMENT
I.

THE RECEIVER’S CLAIM FAILS TO ADEQUATELY DEMONSTRATE
STANDING
A.

The Law
To have constitutional standing, a claimant must

demonstrate an

“ownership or possessory interest in the seized

or forfeited property.”

United States v. Pokerstars, No. 11 Civ.

2564 (LBS), 2012 WL 1659177, at *2 (S.D.N.Y. May 9, 2012) (citing
United States v. Cambio Exacto, S.A., 166 F.3d 522, 527 (2d Cir.
1999)). “If the claimant cannot show a sufficient interest in the
property to give him Article III standing there is no case or
controversy, in the constitutional sense, capable of adjudication
in the federal courts.”

United States v. New Silver Palace

Restaurant, Inc., 810 F. Supp. 440, 442 (E.D.N.Y. 1992) (internal
quotation marks, alterations, and citations omitted); see also
United States v. U.S. Currency, $81,000.00, 189 F.3d 28, 35 (1st
Cir. 1999); United States v. $9,041,598.68, 163 F.3d 238, 244-45
(5th Cir. 1998); United States v. Contents of Accounts (Friko
Corporation), 971 F.2d 974, 985 (3d Cir. 1992).
B.

Discussion
1.

The Receiver’s Claim and Answer Fails to Allege
Any Specific Interest In the Subject Accounts
Sufficient to Establish Standing

As set forth in the memorandum in support of the
Government’s motion to strike this claim, the Receiver seeks to
allege a property interest in the Subject Accounts based on a
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Preliminary Injunction Order that does not even the name the
entities which hold those accounts (the “Subject Entities,”
described more fully below) as falling within the Receivership
Estate.

The Receiver attempts to show standing by arguing that

the Subject Entities fall within the Receivership Estate because
the Preliminary Injunction Order includes both the assets of
Jeremy Johnson and the named Corporate Defendants in the FTC
action, including “any subsidiaries, affiliates, any fictitious
business names or business names created or used by these
entities, or any of them, and their successors and assigns . . .”
Receiver Br. at 2 (quoting Preliminary Injunction Order).
Despite reciting this language, the Receiver utterly fails in his
claim or answer to set forth any verified allegation as to how
the Subject Entities fall under this vague definition.
Accordingly, under the standards governing a motion to
dismiss or a motion for judgment on the pleadings pursuant to
Rule 12(b)(6) or 12(c), the Receiver’s claim should be stricken.
In order to avoid dismissal under Rule 12(b)(6) or (c), “the
[claimant] must provide the grounds upon which [its] claim rests
through factual allegations sufficient ‘to raise a right to
relief above the speculative level.’”

ATSI Commc’ns, Inc. v.

Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Bell
Alt. Corp. v. Twombly, 550 U.S. 544, 555 (2007)); Patel v.
Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d

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Cir. 2001) (explaining that same standard governs motions under
Rule 12(c)).

Under this standard, the claim must allege “enough

facts to state a claim to relief that is plausible on its face.”
Starr v. Sony BMG Music Entm’t, 592 F.3d 314, 321 (quotation
omitted).

No such facts have been alleged in the Receiver’s

claim, nor can they.
2.

The FTC Materials Submitted by the Receiver Do Not
Establish Standing for the Receiver in This Action

The Receiver’s assertion that the Receivership Estate
has an ownership interest in the Subject Accounts remains
untenable – notwithstanding the supporting materials from the FTC
Action that the Receiver has now presented to this Court1 – for
the simple reasons that (1) Jeremy Johnson and the named
Corporate Defendants in the FTC action, for whose assets the
Receiver was appointed, have no legal ownership interest in the
Subject Accounts; and (2) the entities that do own the Subject
Accounts – Triple Seven LP, Golden Shores Properties Limited,
Triple Seven, Inc., Kombi Capital, Powder Monkeys, and Mastery
Merchant LLC (collectively, the Subject Entities) – do not fall
within the scope of the Receivership Estate established in the
FTC action.

1

While the Government maintains that the Receiver’s claims
should be stricken based on the Rule 12 standards set forth
above, it nevertheless addresses the arguments related to the
attached filings to demonstrate that leave to file an amended
claim should be denied, as such leave would be futile.
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a.

The Receiver, Standing in the Shoes of Jeremy
Johnson or the Corporate Defendants, Does Not
Have Standing to Assert A Claim to the
Subject Accounts

The Receiver argues that the Receivership Estate in the
FTC Action includes the Subject Accounts because they are either
(1) assets of Jeremy Johnson or (2) assets of “subsidiaries,
affiliates, successors and/or assigns” of the identified
Corporate Defendants in the FTC Action.

(Claim p. 2).

The

Injunction authorizes both “the appointment of a Permanent
Receiver for the Corporate Defendants and the assets of Jeremy
Johnson,” and “the freezing of the assets of Jeremy Johnson and
the Corporate Defendants.”

(Injunction, p. 4, ¶ 7).

The

definition of “Corporate Defendants” includes 61 separate
corporate entities, but none of these are the Subject Entities
that own the Subject Accounts. Compare Injunction pp. 6-7, ¶ 8
(defining “Corporate Defendants”) with Compl., Schedule B, ¶¶ 1-8
(the Subject Accounts).
Because the Receivership authorized by the Injunction
does not include these Subject Entities, the Receiver has no
ownership interest over these accounts.

“The authority of a

receiver is defined by the entity or entities in the
receivership. . . . [A receiver] ‘stands in the shoes of the
corporation and can assert only those claims which the
corporation could have asserted.’”

Eberhard v. Marcu, 530 F.3d

122, 132 (2d Cir. 2008) (quoting Lank v. New York Stock Exch.,
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548 F.2d 61, 67 (2d Cir. 1977)).

A receiver cannot bring claims

on behalf of entities other than the corporation in the
receivership, and a receiver may not bring claims that the
corporation in the receivership could not have brought.

See

Eberhard, 530 F.3d at 133 (“[T]he Receiver here stands only in
the shoes of Todd Eberhard.

He can press only those claims that

Eberhard himself could assert, and Eberhard, as transferor, may
not bring an action to set aside his own fraudulent conveyance”);
Cobalt Multifamily Investors I, LLC v. Arden,2011 WL 4542734, at
*10 (S.D.N.Y. Sept. 30, 2011) (applying to receiverships the rule
“that a bankruptcy trustee can bring claims on behalf of the
bankrupt corporation that she represents, but not on behalf of
that entity’s creditors”) (quoting Shearson Lehman Hutton, Inc.
v. Wagoner, 944 F.2d 114, 118 (2d Cir.1991)).
Even taking the assertions in the Claimant’s FTC
Materials as true, Jeremy Johnson and the named Corporate
Defendants in the receivership could not assert a claim to the
Subject Accounts.

While items such as the Report of Receiver’s

Financial Reconstruction (the “Receiver’s Report”) document
interactions between Johnson and the Subject Entities, and make
conjecture about the relationship between Johnson and the Subject
Entities, those documents also set forth that neither Johnson nor
the Corporate Defendants legally own the Subject Accounts or even
the Subject Entities that do own those accounts.

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It is well settled under the law of New York and other
states2 that once someone deposits funds in a bank or investment
account –- or an account held by another -– they then lack a
particularized interest in those funds.

See Peoples Westchester

Sav. Bank v. FDIC, 961 F.2d 327, 330 (2d Cir. 1992) (as soon as
money is deposited, it is deemed to be the property of the bank,
and the relationship between the bank and the depositor is that
of debtor and creditor); United States v. All Fund On Deposit In
the Name of Khan, 955 F. Supp. 23, 26-27 (E.D.N.Y. 1997)
(abbreviated title) (under New York Law, an individual loses
title to funds once the funds are deposited into an account held
in the name of a third person); United States v. $79,000 at Bank
of New York, No. 96 Civ. 3493 (MBM), 1996 WL 648934, *5 (S.D.N.Y.
Nov. 7, 1996) (abbreviated title) (same).
Additionally, even assuming that Johnson or the actual
Corporate Defendants under the receivership were shareholders or
owners of the Subject Entities that own the Subject Accounts,
they still would not have standing.

See United States v. 479

Tamarind Drive, 2005 WL 2649001, at *4 (S.D.N.Y. Oct. 14, 2005)
(stating that corporate shareholders do not have cognizable
interest in assets held by the corporation); United States v. New
2

In analyzing the question of standing in a forfeiture
action, it is appropriate to look to state law to determine the
nature of the property interest involved. United States v.
Contents of Account Number 11671-8 in the Name of Latino
Americana Express, 90 Civ. 8154 (MBM), 1992 WL 98840, *3
(S.D.N.Y. May 6, 1992).
7

Silver Palace Restaurant, Inc., 810 F. Supp. 440, 443 (E.D.N.Y.
1992); United States v. Real Property Associated with First
Beneficial Mtg. Corp., 2009 WL 1035233, at *3 (W.D.N.C. April 16,
2009) (citing United States v. Two Bank Accounts, 2008 WL 5431199
(D.S.D. Dec. 31, 2008) (sole shareholder has no standing)).
b.

The Subject Entities Are Not Covered by the
Receivership

The Receiver attempts to avoid the black-letter law
cited above by arguing that the Subject Entities themselves fall
within the Court-created receivership as “subsidiaries,
affiliates, successors, and/or assigns” of the named Corporate
Defendants in the FTC action.
number of reasons.

This argument also fails for a

Most importantly, it has not been established

even in the actual FTC Action that the Subject Entities fall
under the Receivership Estate.

Indeed, the Receiver has been

compelled to file a motion in that action “clarifying” the actual
scope of the Receivership Estate in that action and whether it
applies to the Subject Entities.
Declaration.

See Exhibit 2 to Caris

This motion has not been granted, and, in fact, is

strongly contested.

Several entities have filed an opposition,

labeling the Receiver’s motion a motion to “expand” the
receivership.

These entities argue: “The Receiver seeks to take

this extreme action based upon an incomplete investigation and
the flawed conclusions drawn from one-sided discovery that was
deliberately designed to support the Receiver’s theories rather
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than finding the truth.”

Response in Opposition to FTC Motion,

attached as Exhibit A.
Because it has not even been determined within the FTC
Action that the Subject Entities fall within the scope of the
Receivership Estate, the Receiver cannot assert a claim in this
action attempting to stand in the shoes of those Subject
Entities.

See Eberhard, 530 F.3d at 133.
Further, the FTC Materials themselves do not establish

that the Subject Entities fall within the Receivership Estate.
The Receiver provided essentially no analysis of these documents
in his brief, but a cursory review of these documents is telling.
The Receiver’s Report, for example, sets forth the ownership
structure of many of the Subject Entities, including Triple Seven
LP, Kombi Capital, Powder Monkeys, and Mastery Merchant LLC.
Receiver’s Report at 6, 38.

Neither Johnson nor any of the named

Corporate Defendants are owners of these entities.

While the

Receiver’s Report sets forth many financial transactions
involving the Subject Entities, it does not even attempt to
assert that they are legally owned by Johnson or the Corporate
Defendants.

Instead, it seeks to draw self-serving legal

conclusions based on its own analysis of those facts.

Even

assuming that these documents were part of a verified claim, the
Court is “not bound to accept as true a legal conclusion couched
as a factual allegation.”

Ashcroft v. Iqbal, 556 U.S. 662, 678

9

(2009) (quoting Twombly, 550 U.S. at 555); cf. FW/PBS, Inc. v.
City of Dallas, 493 U.S. 215, 231 (1990) (“It is a long-settled
principle that standing cannot be inferred argumentatively from
averments in the pleadings, but rather must affirmatively appear
in the record.”), holding modified on other grounds by City of
Littleton, Colo. v. Z.J. Gifts D-4, L.L.C., 541 U.S. 774 (2004).
Because it has not been established within the FTC
Action that the Subject Entities fall within the Receivership
Estate, the Receiver lacks standing to assert a claim to the
Subject Accounts in this case.
II.

LEAVE TO AMEND SHOULD BE DENIED BECAUSE AMENDMENT WOULD BE
FUTILE
Though a court may generally grant a party leave to

amend its claim, it may also deny a motion to amend a pleading
“where there is ‘undue delay, bad faith, dilatory motives or
undue prejudice to the opposing party,’ or where such amendment
would be futile.”

Orthocraft, Inc. v. Sprint Spectrum L.P., 98

CV 5007 (SJ), 2002 WL 31640477, at *1 (E.D.N.Y. Nov. 16, 2002)
(citing Fed. R. Civ. P. 15(a)); see also In re Tamoxifen Citrate
Antitrust Litig., 466 F.3d 187, 220 (2d Cir. 2006) (“[W]here
amendment would be futile, denial of leave to amend is proper”).
“Granting leave to amend is futile if it appears that plaintiff
cannot address the deficiencies identified by the court and
allege facts sufficient to support the claim.”

Panther Partners

Inc. v. Ikanos Comms., Inc., 347 F. App’x 617, 622 (2d Cir.
10

2009).
As explained above, leave to amend the Receivers’ Claim
would be futile, as no set of facts can establish any more
ownership interest in the contents of the Subject Accounts on the
part of the Receiver than Jeremy Johnson or the actual Corporate
Defendants had – which is to say, no ownership interest.

Because

leave to amend would be futile, the Court should deny the
Receiver leave to amend the Claim.
CONCLUSION
For the foregoing reasons, the Government respectfully
requests that the Court enter an order striking the claim of Robb
Evans of Robb Evans & Associates LLP, Receiver, for lack of
standing, without leave to amend.
Dated:

New York, New York
August 13, 2012
Respectfully submitted,
PREET BHARARA
United States Attorney for the
Southern District of New York
By: :

/s/
Sharon Cohen Levin
Jason H. Cowley
Michael D. Lockard
Assistant United States Attorney
[phone]/2479/2193

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