United States of America v. Any and All Funds on Deposit in Account Number 0139874788, at Regions Bank, held in the name of Efans Trading Corporation et al

Filing 41

OPINION AND ORDER re: 22 MOTION to Dismiss filed by Unicorn Tire Corporation, Efans Trading Corporation: For the reasons discussed herein, Defendant's motion to dismiss is DENIED. Defendants' motion for a probable cause hear ing is also DENIED. The Clerk of Court is directed to terminate Docket Entries 22 and 31. The parties are hereby ORDERED to appear for a conference on February 10, 2015, at 10:00 a.m. in Courtroom 618 of the Thurgood Marshall Courthouse, 40 Foley Squ are, New York, New York, to set a schedule for discovery. The parties should submit a proposed Case Management Plan to the Court in PDF format by February 5, 2015. Additionally, the parties shall be prepared to address at the conference how to proceed with respect to the one vehicle (currently considered part of Eight Vehicles) to which Claimants deny ownership. (See Clmt. Hrg. Br. 10 n.2; Govt. Hrg. Opp. 5 n.3). (Signed by Judge Katherine Polk Failla on 1/20/2015) (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------X
:
UNITED STATES OF AMERICA,
:
:
Plaintiff,
:
:
v.
:
:
ANY AND ALL FUNDS ON DEPOSIT IN
:
ACCOUNT NUMBER 0139874788, AT
:
REGIONS BANK, HELD IN THE NAME OF :
EFANS TRADING CORPORATION, et al.,
:
:
Defendants-in-rem. :
:
------------------------------------------------------ X

13 Civ. 7983 (KPF)
OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:
On November 8, 2013, the United States of America (the “Government”)
filed a verified complaint seeking civil forfeiture of certain assets — here, 48
cars and funds contained in four bank accounts — allegedly derived from
illegal activities. Claims over these seized assets (the “Defendants-in-rem”)
have been filed by Unicorn Tire Corporation (“Unicorn”) and Efans Trading
Corporation (“Efans”) (collectively, “Claimants”). Claimants argue that the
Government is unable to establish a violation of export laws; that it has failed
adequately to plead its mail and wire fraud claims; that it has failed to
establish in rem jurisdiction over 36 of the 48 cars seized outside the Southern
District of New York; and that it has failed to plead how funds from one of the
four bank accounts at issue facilitated the allegedly unlawful activities.
Separately, Claimants seek a hearing to determine whether the Government

had probable cause to seize the assets. For the reasons stated in this Opinion,
Claimants’ motions are denied in their entirety.
BACKGROUND 1
A.

The Alleged Scheme
The cornerstone of the Government’s allegations regarding a fraudulent

scheme lies in its assertion that “[a] high-end exotic vehicle … will often net
double or triple its value overseas.” (Am. Compl. ¶ 19). There exists, in
consequence, an arbitrage opportunity for vehicle brokers — individuals who
purchase cars in the United States for immediate export to other countries.
(See id.).
In an attempt to prevent such activity, automobile manufacturers have
contracted with dealerships to require that new automobiles made for sale
within the United States not be sold to individuals or companies intending to
export the new automobiles outside the United States. (Am. Compl. ¶ 9).
Automobile manufacturers impose this prohibition because, it is alleged,

1

The facts contained in this Opinion are drawn from the Amended Complaint (“Am.
Compl.”) (Dkt. #21), and are taken as true for purposes of the pending motion. Faber v.
Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (when reviewing a complaint for
failure to state a claim, the court will “assume all well-pleaded factual allegations to be
true” (internal quotation marks omitted)); accord In re 650 Fifth Ave. & Related
Properties, 777 F. Supp. 2d 529, 541-42 (S.D.N.Y. 2011) (applying this standard in the
context of a claimant’s motion to dismiss a civil forfeiture complaint).
Two sets of briefs have been filed by the parties in this action: one set of briefs related to
the motion to dismiss, and one set of briefs related to the motion for a probable cause
hearing. For convenience, the parties’ briefs for the first motion are referred to as
“Clmt. Br.” (Dkt. #23), “Gov’t Opp.” (Dkt. #29), and “Clmt. Reply” (Dkt. #30); and the
parties’ briefs for the second motion are referred to as “Clmt. Hrg. Br.” (Dkt. #32), “Gov’t
Hrg. Opp.” (Dkt. #34), and “Clmt. Hrg. Reply” (Dkt. #35).

2

unauthorized exports of their new automobiles cause “numerous financial
problems … including, among other things, by creating problems in the
manufacturers’ distribution markets, causing market infringement problems,
harming franchise dealerships, and causing problems relating to vehicle recall
registration and service.” (Id. at ¶ 10). The contractual agreements between
the manufacturers and dealerships often carry monetary penalties, commonly
called “charge backs,” which the manufacturers may assess against
dealerships if the manufacturers determine that dealerships are selling new
automobiles to purchasers who intend to export them rather than use them in
the United States. (Id. at ¶ 11).
Such contractual arrangements do not stop vehicle brokers from
attempting to purchase automobiles from dealerships by concealing the fact
that the vehicle is intended for immediate export. (Am. Compl. ¶ 15). Vehicle
brokers have difficulty purchasing the vehicles directly, however, because
manufacturers maintain and distribute to the dealerships so-called “AutoExporter” lists. (Id. at ¶ 13). Dealers are prohibited from selling a vehicle to an
individual or company on the list. (Id.). As a result, vehicle brokers may utilize
a “straw buyer” — an individual who is recruited to consummate the
transaction, and who receives a small amount of compensation for his or her
cooperation — to make the purchase from the dealer. (Id. at ¶ 15). The straw
buyer purchases the vehicle, without test driving it or negotiating a price, and
then immediately turns it over to the broker who recruited him or her to make
3

the purchase. (Id.). There is as well an issue of insurance: Because an
uninsured vehicle will not be permitted to leave the dealership, the straw buyer
or the broker must obtain an insurance policy in order to get the vehicle off of
the lot. (Id. at ¶ 17). The insurance policy is then typically cancelled before
any payments are made on it. (Id.).
According to the Amended Complaint, the buyers and brokers make false
statements to automobile dealerships and insurance companies concerning the
buyer’s intended use of the vehicle. (Am. Compl. ¶¶ 16-17). In some cases, the
buyer signs a form representing to the dealership that the vehicle will not be
exported out of the United States for a period of at least 12 months. (Id. at
¶ 16). Similarly, in some cases, the insurance company is told that the vehicle
will be garaged at the home of the straw buyer, and not immediately handed
over to the broker for export. (Id. at ¶ 17).
Additionally, the Government alleges that the brokers authorize Shipper’s
Export Declarations (“SEDs”), which are shipping forms required by U.S.
Customs and Border Protection (“CBP”), to be completed for the vehicles in a
manner that furthers the scheme. (Id. at ¶ 18). Specifically, the Government
alleges that the brokers cause the Vehicle Identification Numbers (“VINs”) to be
omitted from the SEDs so that the manufacturers remain unaware that the
automobile has been exported. (Id. at ¶¶ 33-36).
The Government alleges that “[m]anufacturers, dealerships, and
insurance companies … stand to suffer, and have suffered, significant harm
4

from the scheme, which has caused a discrepancy between the benefits they
reasonably anticipate from the transactions and the actual benefits they
receive.” (Am. Compl. ¶ 20). More specifically, the Government alleges that
manufacturers have spent hundreds of millions of dollars to repair cars in
other countries that were specifically designed to operate on octane fuel
available in North America; that dealerships have been assessed monetary
penalties by the manufacturers for selling cars that have been exported
pursuant to the scheme; and, finally, that insurance companies have expended
unnecessary employee hours and incurred other costs in creating and issuing
insurance policies that were obtained under false pretenses and cancelled
almost immediately. (Id. at ¶ 20(a)-(c)).
B.

Claimants’ Role in the Alleged Scheme
The Government alleges that Efans is one of the vehicle brokers that has

engaged in this activity. (See Am. Compl. ¶¶ 21-24, 41-42). Efans, which is
located in Memphis, Tennessee, shares a building with Unicorn Tire; the two
companies are owned by the same two individuals (referred to in the Amended
Complaint as “Owner-1” and “Owner-2”). (Id. at ¶ 22).
Efans and Unicorn Tire each maintains a business checking account at
the Regions Bank branch in Cordova, Tennessee (the “Efans Regions Account”
and the “Unicorn Regions Account,” respectively), funds from which are
Defendants-in-rem. (Am. Compl. ¶ 25). The Government alleges that each
month, Owner-1 and Owner-2, who jointly control both accounts, use the
5

Unicorn Regions Account to transfer money to the Efans Regions Account; the
Unicorn Regions Account then “zeroes out” at the beginning and end of each
month, so that Owner-1 and Owner-2 can use the Efans Regions Account to
purchase luxury vehicles for export pursuant to the scheme. (Id. at ¶¶ 26, 29).
Further, Owner-1 and Owner-2 transfer proceeds from the sales of the vehicles
back from the Efans Regions Account to the Unicorn Regions Account. (Id. at
¶ 29).
Efans and Unicorn Tire also each maintains a business checking account
at the Renasant Bank branch in Germantown, Tennessee (the “Efans Renasant
Account” and the “Unicorn Renasant Account,” respectively); funds from the
Unicorn Renasant Account (but not the Efans Renasant Account) are
Defendants-in-rem. (Am. Compl. ¶ 30). The Government alleges that Owner-1
and Owner-2, who control both of these accounts, transfer money from the
Unicorn Renasant Account to the Unicorn Regions Account, which allows
Owner-1 and Owner-2 to use the Unicorn Regions Account to fund the
purchase of the luxury vehicles from the Efans Regions Account. (Id. at ¶¶ 3031).
Homeland Security Investigations (“HSI”), which has investigated Efans’s
export activity, identified a group of instances in which Efans was able to
purchase vehicles and export them from the country. (Am. Compl. ¶ 33).
According to the Amended Complaint, HSI identified a pattern of Efans
purchasing vehicles through the use of straw buyers, who paid for the vehicles
6

in full on the date of the sale, using cashier’s checks drawn on the Efans
Regions Account. (Id. at ¶ 37). Additionally, the Government alleges that,
through interviews of some of Efans’s straw buyers, HSI identified false
statements made to dealerships and insurance companies regarding the straw
buyers’ intended use of these vehicles. (Id. at ¶ 38). Specifically, dealerships
were told that the cars would not be exported for at least 12 months, and
insurance companies were told that the straw buyers intended to drive the cars
and to garage the cars at their homes. (Id. at ¶¶ 38-39). The Government
alleges that these representations were false, and that the automobiles were
purchased for immediate export. (See id.). It further alleges that Efans
authorized the omission of the VINs from the SEDs for vehicles that it exported,
which effectively concealed the vehicles’ export from the manufacturers. (Id. at
¶¶ 35-36).
C.

The Seizures of the Defendants-in-rem
1.

The Bank Accounts

On October 7, 2013, the Honorable Gabriel W. Gorenstein, United States
Magistrate Judge, issued seizure warrants (the “October 7 Seizure Warrants”)
for the Efans Regions Account and the Unicorn Regions Account. (Am. Compl.
¶ 43). 2 Pursuant to the October 7 Seizure Warrants, the Government seized

2

The Government also seized a bank account held in the name of MND Enterprises Inc.
(Am. Compl. ¶¶ 43, 56). According to the Government, no one has claimed these funds.
(Gov’t Opp. 6).

7

approximately $489,316 from the Efans Region Account and approximately
$695,749.49 from the Unicorn Regions Account. (Id.).
The October 7 Seizure Warrants included so-called “damming” language
that directed Regions Bank to disallow any debits or withdrawals from the
Efans Regions Account and the Unicorn Regions Account during the time
period between October 8, 2013, and October 21, 2013. (Am. Compl. ¶ 44).
Nevertheless, on or about October 15, 2013, a check in the amount of
$567,000 was returned to the Unicorn Renasant Account from the Unicorn
Regions Account. (Id.). Regions Bank subsequently informed the Government
that the check had been sent back to the Unicorn Renasant Account for
insufficient funds. (Id.). On or about October 18, 2013, the Government
issued a freeze letter for the Unicorn Renasant Account, on the grounds that
there was probable cause to believe that its contents were subject to seizure
and forfeiture, and on the same date learned that the balance in the Unicorn
Renasant Account exceeded $2,000,000. (Id.).
On November 6, 2013, the Honorable Ronald L. Ellis, United States
Magistrate Judge, issued a seizure warrant for the Unicorn Renasant Account,
finding probable cause to believe that this account was subject to seizure and
forfeiture under Title 19, United States Code, Section 1595a(d). (Am. Compl.
¶ 44). Pursuant to this seizure warrant, the Government seized approximately
$2,320,865.03 from the Unicorn Renasant Account. (Id.).

8

2.

The Automobiles

The Government also seized automobiles that Efans (through straw
purchasers) purchased for export. HSI reviewed SEDs listing the contents of
containers at the Port of New York and New Jersey (the “Port”) to locate any
vehicles belonging to Efans that were scheduled to be shipped overseas. (Am.
Compl. ¶ 45). HSI identified containers at the Port holding 12 vehicles, and
containers on the water holding 28 vehicles that were in the process of being
shipped overseas by Efans (the “Twelve Vehicles” and the “Twenty-Eight
Vehicles,” respectively). CBP placed shipping holds on these containers. (Id. at
¶ 46). On November 6, 2013, Magistrate Judge Ellis issued seizure warrants
for the Twelve Vehicles, which were still located at the Port. (Id.). After the
Twenty-Eight Vehicles left the Port, but before they had reached their
destination overseas, CBP ordered that the vehicles be re-delivered to the Port
for an export examination. (Id. at ¶ 47).
On October 24, 2013, the Government interviewed the employee of a
freight forwarder who worked with Efans to ship automobiles. (Am. Compl.
¶ 49). The employee informed the Government that Efans had planned to ship
eight additional cars (the “Eight Vehicles”) from the Port, but had recently
caused the cars to be moved to a location in Newark, New Jersey. (Id.).
Investigators interviewed employees of a Newark-based freight forwarder — who
confirmed that Efans had been planning to ship the vehicles overseas — and
located the Eight Vehicles. (Id.). The Government seized the Eight Vehicles on
9

the grounds that there was probable cause to believe that the vehicles, which
were purchased by Efans for immediate export in the same manner as the
Twelve Vehicles and the Twenty-Eight Vehicles, were subject to forfeiture. (Id.).
Following the seizure, the Eight Vehicles were processed by HSI at a location
within the Southern District of New York. They are currently being stored, in
HSI’s custody, at a location in New Jersey. (Id.).
D.

The Instant Litigation 3
On November 8, 2013, the Government initiated the instant forfeiture

action by filing a Verified Complaint against the Efans Regions Account, the
Unicorn Regions Account, the Unicorn Renasant Account, and 47 vehicles that
Efans attempted to export as part of the alleged scheme. (Dkt. #1). The
Government alleged that Claimants committed mail and wire fraud, in violation
of 18 U.S.C. §§ 1341, 1343, and 1349; and used SEDs to further their illegal
activity, in violation of 13 U.S.C. § 305(a)(2).
Claimants filed their claims to the Defendants-in-rem on December 11,
2013, and, on December 12, 2013, requested a pre-motion conference to
3

Claimants in this action attempted to challenge the seizure of property prior to the filing
of the Verified Complaint. On October 29, 2013, Unicorn Tire filed an Emergency
Complaint and Petition for Release of Seized Property Pursuant to Fed. R. Crim.
P. 41(g). The case was assigned to the Honorable Alvin K. Hellerstein, United States
District Judge for the Southern District of New York. Unicorn Tire’s action was
dismissed by Judge Hellerstein on November 13, 2013, as moot because the instant
action afforded Unicorn Tire with a civil remedy to contest the seizure. See Unicorn Tire
Corp. v. United States, No. 13 Civ. 7636, Dkt. #17 (AKH) (S.D.N.Y. Nov. 13, 2013) (“The
pending civil forfeiture proceedings provide an adequate remedy at law and thereby
justifies dismissal of the Rule 41(g) motion. Petitioner has access to a civil remedy to
contest ownership of the property and lawfulness of the seizure and I therefore decline
to exercise equitable discretion to retain jurisdiction over the matter.” (internal
quotation marks and citations omitted)).

10

discuss their anticipated motion to dismiss. (See Dkt. #4-6). On January 16,
2014, the Court held a pre-motion conference and set a briefing schedule for
Claimants’ motion to dismiss. (Dkt. # 19). Claimants filed their motion to
dismiss on February 3, 2014 (Dkt. #15), and on February 24, 2014 — 21 days
after Claimants filed their motion — the Government filed its Amended
Complaint (Dkt. #21), which added a vehicle as a Defendant-In-Rem and made
additional factual allegations. (See, e.g., Am. Compl. ¶¶ 20, 35, 36, 39, 40,
47). 4 On March 3, 2014, Claimants filed their motion to dismiss the Amended
Complaint (Dkt. #22); on March 17, 2014, the Government filed its opposition
brief (Dkt. #29); and on March 27, 2014, the motion was fully briefed upon the
filing of Claimants’ reply brief (Dkt. #30).
Additionally, on April 9, 2014, Claimants filed a Motion to Unseal
Affidavits of Probable Cause, Request for a Probable Cause Hearing and
Demand for the Immediate Release and Return of Seized Property. (Dkt. #31). 5
4

As the Government readily admits, some of the changes were made to address
arguments advanced in Claimants’ pre-motion conference letter, raised by the Court
during the pre-motion conference, and raised in Claimants’ motion to dismiss. (See
Gov’t Opp. 6 n.1). This amendment was made as a matter of course and was timely.
Fed. R. Civ. P. 15(a)(1)(B) (permitting amendments made 21 days after service of a
motion to dismiss under Fed. R. Civ. P. 12(b)). The Court does not accept Claimants’
assertion that this amendment bespeaks “a lack of good faith on the part of the
Government.” (Clmt. Br. 1). The Government expressed a desire to amend the
complaint during the pre-motion conference, noting, for example, that the Complaint
“may … need[] to be amended to list [the Twenty-Eight Vehicles] out in specificity.”
(Dkt. #19 at 8).

5

Although Claimants have captioned their motion to include the “Demand for the
Immediate Release and Return of Seized Property,” they do not address this issue in
their brief. (See, e.g., Clmt. Hrg. Br. 26). Therefore, the Court interprets this motion as
only a motion for probable cause hearing and a motion to unseal affidavits, the latter of
which has been rendered moot by the Court’s Order of June 5, 2014, ordering the
affidavits to be unsealed. (See Dkt. #34, 37).

11

The Government filed its opposition on April 23, 2014. (Dkt. #34). Claimants
submitted a reply on April 30, 2014, at which time the motion was fully
briefed. (Dkt. #35). The Court will now address the pending motions.
DISCUSSION
A.

Applicable Law
“Motions to dismiss in rem forfeiture actions are governed by Federal

Rule of Civil Procedure 12(b) and Rule G of the Supplemental Rules for
Admiralty or Maritime Claims and Asset Forfeiture Actions.” In re 650 Fifth
Ave., 777 F. Supp. 2d at 541; see also Fed. R. Civ. P. 12(b); Rule G of the
Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture
Actions (the “Supplemental Rules” or “Supp. R.”). When considering such a
motion, the Court must “draw all reasonable inferences in Plaintiff’s favor,
assume all well-pleaded factual allegations to be true, and determine whether
they plausibly give rise to an entitlement to relief.” Faber, 648 F.3d at 104
(internal quotation marks omitted) (quoting Selevan v. N.Y. Thruway Auth., 584
F.3d 82, 88 (2d Cir. 2009)). A plaintiff will survive a motion to dismiss if he
alleges “enough facts to state a claim to relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 569 (2007); see also In re Elevator
Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) (“[W]hile Twombly does not
require heightened fact pleading of specifics, it does require enough facts to

12

nudge [plaintiff’s] claims across the line from conceivable to plausible.”
(internal quotation marks omitted)).
Under Supplemental Rule G(2)(f), a complaint must “state sufficiently
detailed facts to support a reasonable belief that the government will be able to
meet its burden of proof at trial.” United States v. $32,507.00 in U.S. Currency,
No. 14 Civ. 5118 (CM), 2014 WL 4626005, at *1 (S.D.N.Y. Sept. 16, 2014);
accord United States v. Real Prop. Known as Unit 5B of Onyx Chelsea Condo.,
No. 10 Civ. 5390 (KBF), 2012 WL 1883371, at *6 (S.D.N.Y. May 21, 2012).
Accordingly, the Government’s complaint must “assert specific facts supporting
an inference that the property is subject to forfeiture.” United States v.
$22,173.00 in U.S. Currency, 716 F. Supp. 2d 245, 248 (S.D.N.Y. 2010)
(citation omitted).
For those forfeiture actions proceeding under 19 U.S.C. § 1595a, such as
this, “the burden of proof set forth in 19 U.S.C. § 1615 applies.” United States
v. Davis, 648 F.3d 84, 96 (2d Cir. 2011). 6 “[T]he initial burden rests on the
government to demonstrate probable cause that the merchandise is subject to
forfeiture. The burden of persuasion then shifts to the claimant to show, by a
preponderance of the evidence, that the merchandise is not subject to
forfeiture.” United States v. Broadening-Info Enters., Inc., 578 F. App’x 10, 17
(2d Cir. 2014) (summary order) (internal citations omitted). The interplay

6

“[T]he burden of proof shall lie upon [the] claimant ... Provided, That probable cause
shall be first shown for the institution of such suit or action, to be judged of by the
court[.]” 19 U.S.C. § 1615 (emphasis in original).

13

between Supplemental Rule G and 19 U.S.C. § 1615 requires the Government
to plead sufficiently detailed facts to support a reasonable belief that it will be
able to establish, at trial, probable cause that the property is subject to
forfeiture. See 19 U.S.C. § 1615; Supp. R. G(2)(f).
B.

Analysis
1.

Defendants’ Motion to Dismiss Is Denied
a.

The Amended Complaint Adequately Pleads Export
Activities “Contrary to Law”

The forfeiture provision relied upon by the Government in this case
provides that
Merchandise exported or sent from the United States or
attempted to be exported or sent from the United States
contrary to law, or the proceeds or value thereof, and
property used to facilitate the exporting or sending of
such merchandise, the attempted exporting or sending
of such merchandise, or the receipt, purchase,
transportation, concealment, or sale of such
merchandise prior to exportation shall be seized and
forfeited to the United States.
19 U.S.C. § 1595a(d) (emphasis added). Claimants argue that the Government
must, but cannot, establish a violation “contrary to” U.S. Customs law in order
to survive a motion to dismiss. (See Clmt. Br. 10-12). From this, they argue
that the Government’s mail and wire fraud allegations fail to establish such a
violation because they constitute ordinary criminal offenses, and not customsrelated violations. (See id.). Separately, with respect to the allegations
concerning the filing of SEDs in violation of 13 U.S.C. § 305(a)(2) — which is
indisputably a customs-related law — Claimants argue that the Amended
14

Complaint fails to state a claim. (Id. at 12-13). The Government counters that
violations of Title 18, such as mail and wire fraud violations, may be used to
establish forfeitability under § 1595a(d) and that, in any event, the Amended
Complaint states a claim for a violation of customs-related law based on the
omission of VINs from the SEDs. (Gov’t Opp. 10-16).
The Second Circuit’s decision in Davis is both instructive and
corroborative of the Government’s arguments. There, the Government seized
property that was transported into the United States in violation of the National
Stolen Property Act (“NSPA”), 18 U.S.C. §§ 2314, 2315. 648 F.3d at 89. The
Court noted
a strong argument that the phrase “contrary to law” in
Section 1595a[] means exactly what it says: the
government may seize and forfeit merchandise that is
introduced into the United States illegally, unlawfully,
or in a manner conflicting with established law,
regardless of whether the law violated relates to customs
enforcement.
Id. at 90 (emphasis added). At the same time, the Second Circuit
acknowledged as viable the argument, based largely on legislative history, “that
some nexus between international commerce — the subject of the customs
regulations found in Title 19 — and the law violated is necessary to trigger
Section 1595a’s remedies.” Id. (emphasis added). Ultimately, the Court did not
reach the issue of whether the Government could fulfill the requirement of
§ 1595a by alleging a violation of any law, instead finding that “even if such a
nexus is required, the NSPA provides one.” Id.
15

Thus, although the precise meaning of “contrary to law” remains
unsettled, Davis provides this Court with substantial guidance. That said, the
Court disagrees with certain of the parties’ arguments regarding Davis.
Claimants’ gloss on Davis, for instance, would have the Court ask whether the
violation alleged is the “functional equivalent of a Title 19 customs statute”
(Clmt. Reply 2); that is simply not a fair reading of Davis. Instead, at most the
question this Court must answer is whether “some nexus between
international commerce … and the law violated” exists. Davis, 648 F.3d at 90.
To be sure, this is a relatively low threshold — and one that likely reflects the
Second Circuit’s observation that the Government has a strong argument that
§ 1595a applies “regardless of whether the law violated relates to customs
enforcement.” Id. In any event, as in Davis, the Government’s Amended
Complaint meets § 1595a’s requirement of an export “contrary to law” because
there is a nexus between the claims and international commerce.
The Government has alleged that “Efans caused mails and wires to be
used in the execution of this fraudulent scheme, by, inter alia, causing titles for
the vehicles to be delivered to straw purchasers through the mail, and receiving
foreign wire transfers from China in payment for the vehicles.” (Am. Compl.
¶ 41). In other words, the very acts alleged to be violations of the mail and wire
fraud statutes have a close relationship to international commerce. The export
of vehicles to foreign countries bears more than “some nexus” to international
commerce: It is international commerce. And there is — as in Davis — some
16

nexus between “the law violated” and international commerce. See 18 U.S.C.
§ 1343 (requiring that a wire be sent “in interstate or foreign commerce”).
Accordingly, the Government’s mail and wire fraud allegations are sufficient to
establish an export “contrary to law” as required by § 1595a.
Additionally, the Court finds that the Government has sufficiently alleged
a violation of a customs-related law, namely, that Claimants used SEDs to
further their illegal scheme in violation of 13 U.S.C. § 305(a)(2). Claimants
contend that the Government has failed to state a claim for a violation of this
statute, but the pleadings belie that argument. Section 305(a)(2) requires a
showing that a person (i) “use[d] [an] SED” (ii) “to further any illegal activity.”
13 U.S.C. § 305(a)(2). The Government has alleged that Claimants used SEDs
in connection with their exports, and specifically that they omitted certain VINs
so that manufacturers would not discover the alleged export scheme. Because
the Government alleges these omissions were done to “further … illegal
activity,” consisting of the alleged mail and wire fraud scheme, it has
sufficiently pleaded this violation. 7

7

This is not to say that Claimants’ arguments regarding the role SEDs played in the
export process for these vehicles, and the possible ramifications of omitting VINs, lack
merit. (See Clmt. Br. 13-18). However, “a ruling on a motion for dismissal pursuant to
Rule 12(b)(6) is not an occasion for the court to make findings of fact.” Roth v.
Jennings, 489 F.3d 499, 509 (2d Cir. 2007). Whether and to what extent
manufacturers or the Government generally have access to SEDs, to the VINs contained
therein, or to the specific VINs of the vehicles at issue here, are questions of fact that
cannot be resolved by the Court at the motion to dismiss stage. See United States v.
Various Vehicles, No. 13 Civ. 2444 (CMC), 2014 WL 6604057, at *4 (D.S.C. Nov. 20,
2014) (“Taken in the light most favorable to the Government, the Complaint also
adequately alleges violation of [13 U.S.C. § 305].”).

17

b.

The Amended Complaint Adequately Pleads
Mail and Wire Fraud

Claimants next argue that the Government’s mail and wire fraud
allegations are inadequate because they fail to establish (i) “illicit conduct”;
(ii) “actual fraud”; (iii) “a “convergence” of the deceived and the injured; and
(iv) a loss to “money or property.” (Clmt. Br. 20-24). They also argue that the
Government’s allegations regarding fraudulent statements made in connection
with the straw buyers’ insurance applications are legally insufficient. (Id. at
25-26). Taking the allegations in the Complaint as true — as the Court must
at this stage — the Court finds that the Government has adequately pleaded its
mail and wire fraud claims. 8
The “essential elements of a mail or wire fraud violation are [i] a scheme
to defraud, [ii] money or property as the object of the scheme, and [iii] use of
the mails or wires to further the scheme.” United States v. Shellef, 507 F.3d
82, 107 (2d Cir. 2007) (internal quotation marks omitted). To establish a

8

In this regard, Claimants argue that the particularity requirements of Fed. R. Civ.
P. 9(b) apply to this action. (See Clmt. Br. 9-10, 18, 25). But “courts have rejected the
application of Fed. R. Civ. P. 9(b)’s heightened pleading requirement to civil in rem
forfeiture cases.” United States v. All Funds on Deposit in Dime Sav. Bank of
Williamsburg, 255 F. Supp. 2d 56, 68 n.19 (E.D.N.Y. 2003); accord United States v.
Approximately $25,829,681.80 in Funds, No. 98 Civ. 2682 (LMM), 1999 WL 1080370, at
*7 (S.D.N.Y. Nov. 30, 1999) (“This Court has found no precedent for applying Rule 9(b)
to a forfeiture action involving defendant-in-rem property[.] As long as the Government
alleges specific facts supporting an inference that the funds are traceable to the wire
fraud and mail fraud, it has met its burden at this stage of the proceedings.”), aff’d, 56
F. App’x 40 (2d Cir. 2003) (summary order); United States v. $15,270,885.69 on Deposit,
No. 99 Civ. 10255 (RCC), 2000 WL 1234593, at *6 (S.D.N.Y. Aug. 31, 2000) (“The Court
agrees, finding Rule 9(b) inapplicable to civil [in rem] actions because the particularity
requirements applicable in this context are guided by [the Supplemental Rules] in
combination with the comparatively low, probable cause standard[.]”). As discussed
supra, the pleading requirements of Supplemental Rule G apply to the instant action.

18

scheme to defraud, the Government must present proof that defendants
possessed a fraudulent intent. United States v. Starr, 816 F.2d 94, 98 (2d Cir.
1987). However, “[i]t need not be shown that the intended victim of the fraud
was actually harmed; it is enough to show defendants contemplated doing
actual harm, that is, something more than merely deceiving the victim.” United
States v. Schwartz, 924 F.2d 410, 420 (2d Cir. 1991); accord United States v.
Novak, 443 F.3d 150, 156 (2d Cir. 2006).
As an initial matter, the Court rejects Claimants’ argument that the
Government has failed to plead “illicit conduct.” Claimants contend that “[t]he
Amended Complaint fails to establish that the purchase and export of luxury
automobiles from the United States to foreign jurisdictions is anything other
than lawful business enterprise that takes advantage of a natural arbitrage
opportunity created by a manufacturer-set disparity between domestic and
foreign car prices.” (Clmt. Br. 19). The appropriate question for this Court to
address is not whether the Government has established that Claimants’
business model of purchasing and exporting luxury automobiles was illegal;
rather, it is whether, taking all allegations in the Amended Complaint as true,
the Government has shown that Claimants’ activity constitutes a “scheme to
defraud.” 9 Upon a careful review of the allegations in the Amended Complaint,
the Court answers this question in the affirmative.

9

Claimants assert that the “Government’s theory of forfeiture is both controversial and
untested.” (Clmt. Br. 19). In support, Claimants cite United States v. Wells Fargo Bank
Account, No. 13 Civ. 716 (SSB) (S.D. Ohio Feb. 4, 2014), an unpublished Order from the

19

First, the Government has satisfied the requirement of showing “actual
fraud” because it has alleged an intent to defraud — rather than a mere intent
to deceive. “[F]raud in the bargaining may be inferable from facts indicating a
discrepancy between benefits reasonably anticipated because of the misleading
representations and the actual benefits which the defendant delivered[.]”
United States v. Regent Office Supply Co., 421 F.2d 1174, 1182 (2d Cir. 1970).
In this case, the Government has alleged that three separate groups were
denied benefits they reasonably anticipated to receive as a result of various
transactions alleged to be integral to the scheme: (i) the manufacturers who
anticipated that they would not have to incur costs to repair vehicles that they

United States District Court for the Southern District of Ohio, in which the court
expressed concern that allegations offered by the Government, which were similar to
those alleged here, failed to sufficiently demonstrate unlawful conduct. Id. at 9-10.
However, the district court in Wells Fargo reached this conclusion after an evidentiary
hearing had occurred. See id. at 10. It is therefore inapposite, in that the court was
not confined to the four corners of the forfeiture complaint. See id. at 9 (“In the Court’s
view, [claimant’s] arguments, evidence and its offer of proof concerning [the agent’s]
declaration, raise a significant question whether the Government has shown probable
cause to continue to hold these assets at this juncture of the case.”); id. at 10 (“Based
on the record developed to date, [claimant] has established a reasonable dispute about
the government’s probable cause showing.”). Moreover, although Claimants assert this
particular forfeiture theory is controversial, it is not wholly “untested.” Following the
briefing on the instant motions, at least one federal district court, in the District of
South Carolina, has denied motions to dismiss similar forfeiture complaints. See
United States v. $795,652.33 in Funds, No. 13 Civ. 2624 (CMC), 2014 WL 6749118, at
*3 (D.S.C. Dec. 1, 2014) (“[T]he Complaint outlines a specific scheme to defraud
dealerships and manufacturers, both of whom have property interests in the vehicles in
question. By the use of ‘straw purchasers,’ material information was concealed from
the dealerships and manufacturers relating to the identity of the ‘true’ purchaser and
the purchaser’s export intentions. These material misrepresentations certainly deprived
the dealerships and manufacturers of property and injured the victims via sale of
vehicles which otherwise may not have occurred.”); Various Vehicles, 2014 WL 6604057,
at *3 (same); cf. United States v. $52,037.96 Held in the Name of Sand Int’l, No. 14 Civ.
591 (WWE), 2014 WL 7399377, at *4 (D. Conn. Dec. 30, 2014) (dismissing complaint,
premised on a similar forfeiture theory, with leave to replead where Government failed
to allege that purchaser made misrepresentations of fact to dealer).

20

never intended would be exported to foreign markets (see Am. Compl. ¶ 20(a));
(ii) the dealers who anticipated that they would not be subject to penalties for
selling vehicles that were exported (see id. at ¶ 20(b)); and (iii) the insurance
companies that anticipated that policies would not be cancelled almost
immediately after incurring costs associated with issuing the policies (see id. at
¶ 20(c)).
The Second Circuit has “drawn a fine line between schemes that do no
more than cause their victims to enter into transactions they would otherwise
avoid — which do not violate the mail or wire fraud statutes — and schemes
that depend for their completion on a misrepresentation of an essential element
of the bargain — which do violate the mail and wire fraud statutes.” Shellef,
507 F.3d at 108 (emphasis added). In Schwartz, the Second Circuit affirmed a
conviction for wire fraud where defendant exported night vision goggles out of
the country to particular “restricted nations,” after promising the dealer of
those goods that he would not do so. 924 F.2d at 421. The dealer asserted
that it would not have contracted with the defendant if not for the explicit
assurance. Id. at 420. Because the promise not to export to particular
countries went “to an essential element of the bargain,” the Second Circuit
upheld the wire fraud conviction. Id. at 421. Further, although no pecuniary
harm was alleged, the Second Circuit noted that the dealer was “deprived … of
the right to define the terms for the sale of its property,” which “cost it … good
will.” Id. at 421.
21

Here, as in Schwartz, the overall scheme depended upon the alleged
misrepresentations for completion. Specifically, the representation that straw
buyers made to dealers that they would not export the purchased vehicles is
alleged to have been essential to the bargain. (Am. Compl. ¶ 16 (“As a result of
these false representations concerning the buyer’s intended use of the vehicle,
which allow the dealership to assure the manufacturer that the vehicle is not
being immediately exported, the dealership sells the vehicle to the straw
buyer.”)). Cf. $52,037.96, 2014 WL 7399377, at *4 (“Here, the government’s
fraud allegations rest on the testimony of the BMW dealership indicating that it
would not have entered into the contract had it known that the BMW would be
immediately sent overseas for resale …. [A]s the alleged misrepresentation was
an act of omission, it seems the government ought to demonstrate a duty on
behalf of the buyer to reveal any plan to export a newly purchased vehicle. No
such duty has been alleged.”). Moreover, the misrepresentations here are
alleged to have caused a more concrete and tangible harm than the loss of
“good will” suffered in Schwartz. The Amended Complaint alleges pecuniary
harm suffered by the dealers, to whom the straw purchasers are alleged to
have made direct misrepresentations, as well as by the manufacturers and
insurers, which are alleged to have been duped by other aspects of the scheme.
Next, Claimants argue that the Government has failed to plead a
“convergence of the deceived and the injured.” (Clmt. Br. 22 (citing United
States v. Evans, 844 F.2d 36, 39 (2d Cir. 1988) (“If a scheme to defraud must
22

involve the deceptive obtaining of property, the conclusion seems logical that
the deceived party must lose some money or property.”))). As it happens, the
Government has alleged just such a convergence. Although the party most
harmed by the scheme may have been the manufacturers, the Amended
Complaint also contains allegations of harm to dealers, which would establish
a convergence of the deceived and the injured. (See Am. Compl. ¶ 16 (“As part
of the broker’s scheme to purchase the vehicle in this manner, false statements
are often made to the dealership concerning the buyer's intended use of the
vehicle.”); id. at ¶ 20(b) (“Some dealerships have, in fact, been assessed charge
backs by the manufacturers, along with other penalties, for selling cars that
have been exported pursuant to the scheme.”)). Assuming arguendo there were
a convergence requirement, it would be satisfied here.
Significantly, however, “[t]he Second Circuit has not adopted a
convergence requirement, and has explicitly held that lack of convergence is
not a bar to a claim of wire or mail fraud.” United States v. Chalmers, 474 F.
Supp. 2d 555, 563 n.3 (S.D.N.Y. 2007) (internal citation omitted); see also
United States v. Eisen, 974 F.2d 246, 253 (2d Cir. 1992) (declining to adopt
convergence theory); see generally Ideal Steel Supply Corp. v. Anza, 373 F.3d
251, 262-63 (2d Cir. 2004) (“This Court has not held that [a] plaintiff who
alleges mail fraud or wire fraud must have been the entity that relied on the
fraud.”), rev’d in part and vacated in part on other grounds, 547 U.S. 451
(2006); Trautz v. Weisman, 819 F. Supp. 282, 286 (S.D.N.Y. 1993) (rejecting
23

convergence theory); Shaw v. Rolex Watch U.S.A., Inc., 726 F. Supp. 969, 973
(S.D.N.Y. 1989) (same). That the Amended Complaint alleges manufacturers
were harmed, and dealers were lied to, is accordingly sufficient.
Claimants’ argument that the Government has failed to plead a loss of
“money or property” is similarly unavailing. The Evans case, which held that
the United States’ interest in regulating foreign resale of weapons did not
constitute a cognizable property interest, is inapposite. In Evans, the United
States — the party alleged to be injured by the scheme — was deceived, but
“had lost no money or property.” 844 F.2d at 38. Here, unlike in Evans, the
Government has alleged an actual loss of “money or property” as a result of the
scheme. (Am. Compl. ¶ 20(a)-(c)). Accordingly, this element of the
Government’s mail and wire fraud claims is satisfied.
Finally, Claimants argue that the allegations regarding
misrepresentations made to insurance companies are legally insufficient to
support the Government’s mail and wire fraud claims because (i) the
“insurance applications made by [particular straw buyers] do not pertain to
any of the 48 vehicles in the present forfeiture proceeding,” and (ii) the
Amended Complaint does not specify that Efans “requested or even encouraged
anyone to make false statements to insurance companies.” (Clmt. Br. 25-26).
But this argument must fail because Claimants attempt to hold the
Government to a higher burden at the motion to dismiss stage than is proper.
The Government is not required to prove its claims; it must simply “state
24

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). That it has
done.
The Amended Complaint details interactions between and among Efans,
the straw buyers, the dealers, and the insurance companies. Based on these
allegations, it is more than reasonable to believe that the Government, after it
has had the benefit of conducting discovery, will be able to meet its burden of
proof at trial of demonstrating probable cause for the forfeiture of the particular
vehicles seized. See 19 U.S.C. § 1615 (establishing the Government’s burden of
proof). Perhaps more significantly, there is no reason why the representations
made to the insurance companies, which constitute a relatively small part of
the whole scheme, need be scrutinized in a vacuum. The Court has already
determined that the alleged misrepresentations made to the dealers are
sufficient to support the Government’s mail and wire fraud claims at this stage,
and need not determine whether the misrepresentations made to insurance
companies, if alleged alone, would be sufficient.
c.

The Amended Complaint Establishes a Basis for In Rem
Jurisdiction

Claimants also challenge the jurisdiction of this Court over Eight
Vehicles and Twenty-Eight Vehicles. They argue that, because neither group of
Defendants-in-rem was physically present within the Southern District of New
York on November 8, 2013, the date the Government filed its original
Complaint, in rem jurisdiction over Eight Vehicles and Twenty-Eight Vehicles is
25

lacking. (Clmt. Br. 26-27). The Court disagrees, and finds the exercise of in
rem jurisdiction over Eight Vehicles and Twenty-Eight Vehicles to be
appropriate.
“A forfeiture action or proceeding may be brought in … the district court
for the district in which any of the acts or omissions giving rise to the forfeiture
occurred[.]” 28 U.S.C. § 1355(b)(1). Additionally, “[a]ny court with jurisdiction
over a forfeiture action pursuant to [§ 1355(b)] may issue and cause to be
served in any other district such process as may be required to bring before the
court the property that is the subject of the forfeiture action.” Id. § 1355(d).
These provisions extend even to “property … located in a foreign country.” 28
U.S.C. § 1355(b)(2).
Although Claimants argue that the Court should ascribe particular
significance in its jurisdictional analysis to the location of the Defendants-inrem when the Government initially filed suit (see Clmt. Br. 26-27), they cite no
authority for this assertion. 10 This Court will not tarry on this issue, however,

10

Claimants cite a Second Circuit case for the proposition that the location of the res at
the time of filing is critical to the jurisdictional analysis. (See Clmt. Br. 25 (citing United
States v. All Funds on Deposit in any Accounts Maintained in Names of Meza or De
Castro, 63 F.3d 148, 153 (2d Cir. 1995))). But the res in Meza comprised funds located
in a British bank account, and the physical location of the funds remained constant
throughout the various stages of the litigation. There is nothing in Meza that indicates
the location of the res at the time of filing was more important than the location of the
funds at any other point in the litigation. Other cases cited by Claimants are no more
helpful on this point. To the contrary, One Caribou Aircraft, a district court case cited
by Claimants, explicitly holds — albeit in the context of Supplemental Rule C — that
the location of the property at the time of filing has no special significance as long as it
is alleged that the property will subsequently be brought into the district. See United
States v. One Caribou Aircraft Registration No. N-1017-H, 557 F. Supp. 379, 380 (D.P.R.
1983) (“Defendant’s contention is that for the arrest to be valid the property to be
arrested … had to be within the court’s jurisdiction at the time the complaint for

26

as the Government has demonstrated that in rem jurisdiction existed when the
original Complaint was filed, as well as when the Amended Complaint was
filed.
There is no dispute that the Eight Vehicles were seized in Newark, New
Jersey, and that the Twenty-Eight Vehicles were seized while at sea
(presumably outside the territorial waters of the Southern District of New
York). However, pursuant to § 1355(b)(1), the location of the seized property is
immaterial so long as “acts or omissions giving rise to the forfeiture occurred”
within the Southern District of New York. 11 In this case, such acts did occur
within this District. (See Am. Compl. ¶¶ 23, 37, 47).
Nor is there a question of whether the property was seized by the
Government at the time the original Complaint was filed. It is true that “the

forfeiture was filed and that its allegedly illegal transfer to this jurisdiction could not
cure this defect. Defendant’s argument that the property must have been within the
jurisdiction of this court when the libel was filed is defeated by the plain language of the
applicable rule[.]”); see generally Rule C (“In an action in rem the complaint must …
state that the property is within the district or will be within the district while the action
is pending.”). Although Supplemental Rule G applies to this action, its requirement for
forfeiture complaints is even more lenient than Supplemental Rule C when it comes to
the location of the res. Specifically, Rule G requires that the Government merely “state
its location when any seizure occurred and — if different — its location when the action
is filed.”
11

The Court notes that there is no allegation that the property at issue was, at any time,
located in a foreign country. Cf. Meza, 63 F.3d at 153 (requiring a showing of
“constructive control” over funds located in a British bank account). Accordingly, it is
not necessary to consider whether the property was within the “constructive control” of
this Court. To the extent a showing of “constructive control” is necessary in cases
where property is in limbo between the United States and another foreign country, this
showing would be easily met here, where the United States’ control over the property is
manifest. At the request of the Government, CBP placed a hold on the property and the
property was returned to the United States. No cooperation with foreign governments
was alleged to have been required to seize this property, or to secure its return.

27

court must have actual or constructive control of the res when an in rem
forfeiture suit is initiated.” Republic Nat. Bank of Miami v. United States, 506
U.S. 80, 87 (1992). But this requirement is satisfied when the property has
been seized and the complaint is filed while the property remains seized, as
happened here. Cf. id. (“If the seizing party abandons the attachment prior to
filing an action, it, in effect, has renounced its claim. The result is to purge
away all the prior rights acquired by the seizure, and, unless a new seizure is
made, the case may not commence.” (internal quotation marks omitted)).
Accordingly, the Court agrees with the Government that the facts alleged are
sufficient to confer jurisdiction over the vehicles.
Moreover, even if the Court could not have exercised jurisdiction in rem
over property located outside this District at the time of filing the original
Complaint, the Government has since sought — and the Clerk of Court has
issued — arrest warrants in rem. (See Gov’t Opp., Ex. B, C). Contrary to
Claimants’ assertion (see Clmt. Reply 10-11), such a procedure is explicitly
contemplated by statute and permitted by the Supplemental Rules. See 28
U.S.C. § 1355(d) (“Any court with jurisdiction over a forfeiture action … may
issue and cause to be served in any other district such process as may be
required to bring before the court the property that is the subject of the
forfeiture action.”); Supp. R. G(3)(b)(i) (“If the defendant[-in-rem] is not real
property … the clerk must issue a warrant to arrest the property if it is in the
government’s possession, custody, or control.”); see also United States v.
28

Certain Funds Located at Hong Kong & Shanghai Banking Corp., 96 F.3d 20, 22
(2d Cir. 1996) (“[T]he statute conferring jurisdiction on federal courts over civil
forfeiture proceedings was amended to provide district courts with in rem
jurisdiction over a res located in a foreign country.”); Meza, 63 F.3d at 152
(“[B]y allowing nationwide service of process, newly adopted § 1355(d) clearly
provides districts courts with the required control over property located within
the United States.”). Accordingly, Claimants’ challenge to the Court’s
jurisdiction over the Eight Vehicles and the Twenty-Eight Vehicles fails.
d.

The Government’s Forfeiture Allegations Regarding the
Unicorn Renasant Account Are Sufficient

Claimants argue that the forfeiture claim to one of the seized
accounts — the Unicorn Renasant Account — must be dismissed because the
funds were not “used to facilitate the exporting or sending of such merchandise.”
(Clmt. Br. 28 (emphasis in Claimants’ brief)). If the operative statutory
provision contained only the portion quoted by Claimants, the Court might
agree. However, as the Government correctly notes (see Gov’t Opp. 29), this
provision contains more. Significantly, “property used to facilitate
the … receipt, purchase, transportation, concealment, or sale of such
merchandise prior to exportation shall be seized and forfeited to the United
States.” 19 U.S.C. § 1595a(d) (emphasis added). The Government has alleged
that funds from the Unicorn Renasant Account were transferred to other bank
accounts, which served as a source of funding for the purchase of
merchandise — luxury cars — by Efans. (See Am. Compl. ¶ 31). Moreover, the
29

link between the Unicorn Renasant Account and the other Defendants-in-rem
is not overly attenuated. The Government alleges that Owner-1 and Owner2 — who control the Unicorn Regions Account and the Efans Regions
Account — also control the Unicorn Renasant Account. (Id. at ¶¶ 29-30).
Funds are alleged to flow through all three accounts during the scheme, with
the object of the funds being the purchase of vehicles for immediate export.
(Id. at ¶¶ 29-31). These allegations are sufficient to support a reasonable belief
that the Government will be able to demonstrate probable cause for forfeiture
of funds from the Unicorn Renasant Account at trial. See 19 U.S.C. § 1615;
Supp. G(2)(f).
Accordingly, for the reasons stated above, Claimants’ motion to
dismiss the Amended Complaint is denied in its entirety.
2.

Defendants’ Motion for a Probable Cause Hearing Is Denied

In addition to attacking the sufficiency of the Government’s forfeiture
complaint, Claimants have also moved for a probable cause hearing to
determine whether the Government “can demonstrate adequate probable cause
to seize and retain possession” of the Defendants-in-rem. (Clmt. Hrg. Br. 2).
The Government opposes this request, arguing that such a hearing is not
required under the Supplemental Rules, the Constitution, or any other binding
authority. (See Gov’t Hrg. Opp. 8-25). The Court agrees.
To begin with, Supplemental Rule G does not afford forfeiture claimants
to personal property with such a remedy. Under Supplemental Rule G,
30

claimants are permitted to file certain pretrial motions, one of which, a motion
to dismiss, Claimants have already filed. See Supp. R. G(8)(b). Under certain
circumstances, Supplemental Rule G affords claimants with the opportunity to
file a Petition to Release Property, see Supp. R. G(8)(d); however, this
subsection only applies to civil forfeiture actions governed by 18 U.S.C.
§ 983(f), and not the Title 19 forfeiture provision at issue in the instant action.
Claimants who seek to have “real property” returned are also permitted the
opportunity to contest the seizure. See Supp. R. G(3) (citing 18 U.S.C. § 985
(“If the court authorizes a seizure of real property …, it shall conduct a prompt
post-seizure hearing during which the property owner shall have an
opportunity to contest the basis for the seizure.”)). This provision self-evidently
does not apply to the claims at issue here, which concern personal property.
Similarly, there are no provisions in Supplemental Rules C and
E — rules that apply in the absence of a contrary provision in Supplemental
Rule G, see Supp. R. G(1) — that afford Claimants the relief they now request.
Supplemental Rule E, which calls for a “prompt hearing at which the plaintiff
shall be required to show why the … attachment should not be vacated” has,
by its own terms, “no application … to actions by the United States for
forfeitures[.]” Supp. R. E(4)(f). In sum, each provision in the Supplemental
Rules that could conceivably authorize the instant motion does not.
Turning to the question of whether the Constitution affords Claimants a
right to a hearing, the Court takes its counsel from the Supreme Court’s
31

decision in Kaley v. United States, 134 S. Ct. 1090 (2014). In Kaley, two
criminal defendants wishing to hire an attorney challenged a pretrial restraint
on their property. 134 S. Ct. at 1105. The Supreme Court held that the
defendants were not constitutionally entitled to a hearing to contest a grand
jury’s prior determination of probable cause to believe they committed the
crimes charged. Id. In so holding, the Court noted it “has repeatedly declined
to require the use of adversarial procedures to make probable cause
determinations.” Id. at 1103.
Here, with respect to all Defendants-in-rem except the Twenty-Eight
Vehicles and the Eight Vehicles, a probable cause determination has been
made by two magistrate judges. That the probable cause determination was
made by two magistrate judges — and not by a grand jury — makes no
difference to the analysis. Significantly, in Kaley, the Supreme Court
reaffirmed its endorsement of a probable cause determination made without
recourse to “adversarial procedures.” Kaley, 134 S. Ct. at 1103. Moreover, a
determination of probable cause by a magistrate judge in this context is
entitled to great deference. See Marine Midland Bank, N.A. v. United States, 11
F.3d 1119, 1125 (2d Cir. 1993) (“In reviewing seizure warrants, we accord great
deference to the probable cause determinations made by the magistrates and
judges who issue warrants; we resolve any doubts in favor of upholding
warrants.”). Consequently, the Court finds that Claimants “have no right to
relitigate th[e] [probable cause] finding.” Kaley, 134 S. Ct. at 1094; see also
32

United States v. Dupree, 781 F. Supp. 2d 115, 133 (E.D.N.Y. 2011) (“[G]iven the
deference to be accorded to the determination of magistrate judges …,
defendants’ request for a hearing to determine whether the least restrictive
means of securing the funds was used is denied.”).
With respect to the Twenty-Eight Vehicles and the Eight Vehicles, which
the Government seized without obtaining a warrant from a magistrate judge,
the direct application of Kaley is less clear. Accordingly, the Court will — as
Claimants suggest (see Clmt. Hrg. Br. 9) — apply the Mathews v. Eldridge
balancing test to determine whether the demands of the Due Process Clause of
the Constitution are satisfied. See Krimstock v. Kelly, 306 F.3d 40, 60 (2d Cir.
2002) (citing Mathews v. Eldridge, 424 U.S. 319, 335 (1976)). 12 The test
considers: (i) the private interest affected; (ii) the Government’s interest; and
(iii) the risk of erroneous deprivation through the procedures used and the
value of other safeguards. Id. Considering those factors, the Court finds that
they tilt in favor of the Government.
To begin the Mathews analysis, Claimants’ interest in having their
property returned is far less significant than the interests implicated in the

12

The Court notes the Government’s opposition to the application of Mathews here. But
to the extent the Supreme Court’s decision in Kaley limits the application of Mathews, it
likely does so only in cases where the claimant seeks a hearing to relitigate a probable
cause determination already made by a neutral party. See Kaley, 134 S. Ct. at 1101
(“We decline to … define the … reach of Mathews … because we need not do so. Even if
Mathews applied here — even if, that is, its balancing inquiry were capable of trumping
this Court’s repeated admonitions that the grand jury’s word is conclusive — the
[defendants] still would not be entitled to the hearing they seek.”); see also id. at 1111
n.4 (Roberts, C.J., dissenting) (“Under our due process precedents, it is clear that the
Mathews test applies in this case[.]”).

33

cases on which they rely. In Krimstock, for example, the seized property also
consisted of vehicles. 306 F.3d at 61. However, these vehicles were not mere
inventory, as they are in this case; rather, they were the personal vehicles used
by individuals who needed them for daily transportation. Id. (“The particular
importance of motor vehicles derives from their use as a mode of transportation
and, for some, the means to earn a livelihood.”).
With respect to the interest in the return of the seized funds, Claimants’
interest pales in comparison to that typically shown by individuals seeking a
hearing to determine whether seized assets should be returned before trial.
Indeed, the prototypical request for such a hearing is predicated upon an
argument of constitutional necessity, as where a defendant in a criminal case
requires the seized funds to retain counsel. See United States v. Bonventre,
720 F.3d 126, 131 (2d Cir. 2013) (affirming Monsanto or “Monsanto-like”
hearings under certain circumstances). 13 Even in such a context, “[t]o even be
entitled to the hearing, [a] defendant[] must first show a genuine need to use
the assets to retain counsel of choice.” Kaley, 134 S. Ct. at 1112 (Roberts,

13

In United States v. Monsanto, 924 F.2d 1186, 1203 (2d Cir. 1991) (en banc), the Second
Circuit concluded, in light of the Fifth and Sixth Amendments, that a criminal
defendant who is seeking to use restrained funds to hire counsel of choice is entitled to
an adversarial, pretrial hearing at which the court evaluates whether there is probable
cause to believe that (i) the defendant committed the crimes that provide the basis for
the forfeiture; and (ii) the contested funds are properly forfeitable. The Court in
Bonventre explained that, in the wake of Monsanto, “[d]istrict courts in this circuit have
found that a defendant may also have the right to a Monsanto-like hearing in the civil
context when, [as in that case], the civil forfeiture action may affect the defendant's
right to counsel in a parallel criminal case. 720 F.3d at 130. As is plain from the
remainder of this Opinion, Claimants can draw no analogy in the present case.

34

C.J., dissenting) (citing Bonventre). Here, Claimants’ interest in the property is
not extraordinary, but rather is that which any company would have in seeking
the return of funds and inventory; more to the point, the pretrial deprivation
here does not touch upon a collateral need that is fundamental, as it does in
the context of Monsanto hearings.
With respect to the second factor, the Court finds that the Government
has a tangible interest in avoiding such a hearing under the circumstances.
At the least, such an adversarial proceeding — think of
it as a pre-trial mini-trial (or maybe a pre-trial not-somini-trial) — could consume significant prosecutorial
time and resources. The hearing presumably would
rehearse the case’s merits, including the Government’s
theory and supporting evidence. And the Government
also might have to litigate a range of ancillary questions
relating to the conduct of the hearing itself[.]
Kaley, 134 S. Ct. at 1101 (majority opinion). For the Government to engage in
such a hearing before discovery has even been exchanged would certainly
constitute a burden. However, much like Claimants’ interest, consideration of
this factor fails to tilt the balance significantly in the Government’s favor.
The remaining factor of the Mathews test — “critical when the
governmental and private interests both have weight” — requires the Court to
consider the risk of erroneous deprivation through the procedures used and
the value of other safeguards. Kaley, 134 S. Ct. at 1103. Under these
circumstances, Supplemental Rule G provides Claimants with an adequate
procedure to contest the seizure of Claimants’ property, namely, trial. See
Supp. R. G(9); see also Kaley, 134 S. Ct. at 1104 (“No doubt the [defendants]
35

could seek to poke holes in the evidence the Government offered … to support
those allegations. No doubt, too, the [defendants] could present evidence of
their own, which might cast the Government’s in a different light[.] Our
criminal justice system of course relies on such contestation at trial[.]”); United
States v. Von Neumann, 474 U.S. 242, 249 (1986) (“[T]he forfeiture proceeding,
without more, provides the post-seizure hearing required by due process.”).
The Court also finds that there is little gained in holding a probable
cause hearing in this case. First, as the Supreme Court has noted, “an
adversarial process is far less useful to the threshold finding of probable cause,
which determines only whether adequate grounds exist to proceed to trial[.]”
Kaley, 134 S. Ct. at 1104. Second, although no neutral party has made a
probable cause determination with respect to the Eight Vehicles and the
Twenty-Eight Vehicles, the risk of error appears low for the simple reason that
a magistrate judge has already found probable cause to seize the Twelve
Vehicles. (See Am. Compl. ¶ 46). Like the Twelve Vehicles, the Eight Vehicles
and the Twenty-Eight Vehicles were located in shipping containers intended for
export. As such, the property seized pursuant to warrants issued by the Clerk
of Court has the same link to the alleged scheme as the property seized
pursuant to the warrant signed by the magistrate judge. In sum, having
considered Claimants’ arguments in light of Kaley and Mathews, the Court
denies Claimants’ request for a probable cause hearing.

36

CONCLUSION
For the reasons discussed herein, Defendant’s motion to dismiss is
DENIED. Defendants’ motion for a probable cause hearing is also DENIED.
The Clerk of Court is directed to terminate Docket Entries 22 and 31.
The parties are hereby ORDERED to appear for a conference on February
10, 2015, at 10:00 a.m. in Courtroom 618 of the Thurgood Marshall
Courthouse, 40 Foley Square, New York, New York, to set a schedule for
discovery. The parties should submit a proposed Case Management Plan to the
Court in PDF format by February 5, 2015.
Additionally, the parties shall be prepared to address at the conference
how to proceed with respect to the one vehicle (currently considered part of
Eight Vehicles) to which Claimants deny ownership. (See Clmt. Hrg. Br. 10
n.2; Govt. Hrg. Opp. 5 n.3).
SO ORDERED.
Dated:

January 20, 2015
New York, New York

__________________________________
KATHERINE POLK FAILLA
United States District Judge

37