Hunter v. United States of America

Filing 16

OPINION AND ORDER denying 9 Respondent's Motion to Dismiss and setting an Evidentiary Hearing for 9/19/2014 at 8:30 am . Signed by U.S. District Judge Robert H. Cleland on 9/4/2014. (lgw)

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION

FRANKIE HUNTER,
Petitioner,
v.

Case No. 13-mc-39

UNITED STATES OF AMERICA,
Respondent.
/
OPINION AND ORDER DENYING RESPONDENT’S
MOTION TO DISMISS
This is an ancillary proceeding to United States v. Michael Lusk, No. 0920314. Petitioner Frankie Hunter seeks to recover $77,488.69 in funds that the
government seized from Regions Bank Account # xxxxxx2011 (“the Bank
Account”). (Dkt. 8, Pg. ID 36.) On March 31, 2014, the government moved to
dismiss his petition. The matter is fully briefed, and no hearing is necessary. See
W.D. Tenn. Local R. 7.2(d). For the following reasons, the court will deny the
government’s motion to dismiss.
I. BACKGROUND
On August 19, 2009, a grand jury indicted Michael Lusk for conspiracy to
commit mail, wire, and bank fraud, and for engaging in monetary transactions in
criminally derived property. The indictment alleged that the conspiracy began
“sometime on or before February 12, 2003” and continued through at least March

2008. In mid-May 2012, Lusk entered into a plea agreement. Pursuant to the
plea agreement, Lusk (hereinafter, “Lusk, Sr.”) quitclaimed his interest in a parcel
of real property located at 4919 Rosebrook, Southaven, Mississippi, (“the
Property”) to his son, Michael Lusk, Jr. (“Lusk, Jr.”). On September 18, 2012, the
court sentenced Lusk to the statutory maximum of 60 months’ imprisonment.
On April 29, 2013, Lusk, Jr. transferred the Property to Hunter via a
warranty deed. Hunter claims that in consideration for this transfer, he agreed to
prevent the Property from going to a tax sale, and to provide financial support for
the children of Lusk, Sr. (Dkt. # 8-1, Pg. ID 40.) The day after this transfer, Lusk,
Sr. gave Hunter power of attorney to care for Lusk, Sr.’s children. (Id.) Hunter
sold the Property on July 15, 2013, and deposited the proceeds of the sale into
the Bank Account. (Id.)
On August 16, 2013, the court entered its preliminary order of forfeiture.
Approximately one month later, the government moved to amend the preliminary
order of forfeiture after it learned that Lusk, Jr. was no longer living at the
Property and that the proceeds from the sale were being held in the Bank
Account controlled by Hunter. After considering the evidence submitted in the
government’s motion, which included transcripts of telephone conversations held
between Hunter and Lusk, Sr., the court amended the preliminary order of
forfeiture to authorize the government’s seizure of the Bank Account as substitute
assets subject to forfeiture. The government seized the Bank Account on
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September 13, 2013.
II. STANDARD
Federal Rule of Criminal Procedure 32.2(c) allows third parties to file a
petition asserting an interest in property that is identified as subject to forfeiture in
a preliminary order of forfeiture. The court may dismiss a petition “for lack of
standing, for failure to state a claim, or any other lawful reason.” Fed. R. Crim. P.
32.2(c)(1)(A). “[A] motion to dismiss a third-party petition in a forfeiture
proceeding prior to discovery or a hearing should be treated like a motion to
dismiss a civil complaint under Federal Rule of Civil Procedure 12(b).” United
States v. Salti, 579 F.3d 656, 667 (6th Cir. 2009). “For the purposes of the
motion, the facts set forth in the petition are assumed to be true.” Fed. R. Crim.
P. 32.2(c)(1)(A).
Title 21, section 853 allows only two avenues of relief, requiring that the
petitioner show by a preponderance of the evidence that either:
(A) the petitioner has a legal right, title, or interest in the property, and
such right, title, or interest renders the order of forfeiture invalid in
whole or in part because the right, title, or interest was vested in the
petitioner rather than the defendant or was superior to any right, title,
or interest of the defendant at the time of the commission of the acts
which gave rise to the forfeiture of the property under this section; or
(B) the petitioner is a bona fide purchaser for value of the right, title, or
interest in the property and was at the time of purchase reasonably
without cause to believe that the property was subject to forfeiture
under this section.
21 U.S.C. § 853(n)(6); United States v. Monea Family Trust I, 626 F.3d 271, 277
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(6th Cir. 2010). “[A] third party has no right to challenge the preliminary order’s
finding of forfeitability; rather, the third party is given an opportunity during the
ancillary proceeding to assert any ownership interest that would require
amendment of the order.” United States v. Andrews, 530 F.3d 1232, 1236–37
(10th Cir. 2008). “If the property really belongs to the third party, he will prevail
and recover his property whether there were defects in the criminal trial or the
forfeiture process or not; and if the property does not belong to the third party,
such defects in the finding of forfeitability are no concern of his.” Id. at 1237
(brackets, ellipsis, and citation omitted).
III. DISCUSSION
A. Constitutional Standing
At the outset, the court must address the government’s argument that
Hunter lacks Article III standing to bring his petition. “With respect to Article III
standing, . . . a claimant must have a colorable ownership, possessory or security
interest in at least a portion of the . . . property.” United States v. $515,060.42,
152 F.3d 491, 497 (6th Cir. 1998). “[A]n owner or possessor of property that has
been seized necessarily suffers an injury that can be redressed at least in part by
the return of the seized property.” Id. Although Hunter need not prove the merits
of his claim to establish Article III standing, he must establish a facially colorable
interest in the seized property.” Id. at 497–98.
Hunter satisfies this test. It is undisputed that he held the Bank Account
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solely in his name, thereby giving him both a possessory and ownership interest
in the Bank Account at the time the government seized it. Although the
government argues that Hunter functioned as a mere nominee of Lusk, Sr.
(discussed infra), Hunter’s possession and ownership interest in the Bank
Account is sufficient to establish a “facially colorable interest” in the seized
property.
B. Superior Interest in the Bank Account
The government argues that Hunter cannot establish that he had a
“superior interest” in the Bank Account within the meaning of § 853(n)(6)(a)
because Hunter acted as a mere nominee of Lusk, Sr.
Normally, a petitioner needs to show that he has both a legal interest in the
property and that his interest predates the commission of the acts which gave rise
to the forfeiture of the property. Id. However, because the government seized
the Bank Account as substitute property, the government’s interest did not vest
until after Lusk, Sr.’s conviction and the court order determining that directly
tainted property was out of the government’s reach under § 853(p). United
States v. Erpenbeck, 682 F.3d 472, 477–78 (6th Cir. 2012). In the instant case,
because Lusk, Sr.’s conviction became final on September 18, 2012, and the
court issued its amended order of forfeiture on September 11, 2013, the
government’s interest in the Bank Account did not vest until September 11, 2013.
However, the government does not argue that Hunter’s interest failed to
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vest in a timely fashion; rather, it argues that his interest failed to vest at all
because he has acted as a mere nominee of Lusk, Sr. “A nominee is ‘a party
who holds bare legal title for the benefit of others’ but does not exercise dominion
or control over the property.” United States v. Gamory, No. 1:08-CR-153-1-TWT,
2010 WL 3880880, at *4 (N.D. Ga. Sept. 28, 2010) (quoting Black’s Law
Dictionary 1149 (9th ed. 2009)). “Nominee in its commonly accepted meaning
connotes the delegation of authority to the nominee in a representative or
nominal capacity only, and does not connote the transfer or assignment to the
nominee of any property in, or ownership of, the rights of the person nominating
him.” Braxton v. United States, 858 F.2d 650, 653 n.6 (11th Cir. 1988) (brackets
and citation omitted).
Although the Fourth Circuit uses a “dominion and control” test to ascertain
whether the petitioner acted as a mere nominee, see, e.g. United States v.
Bryson (In re Bryson), 406 F.3d 284, 291 (4th Cir. 2005); United States v.
Morgan, 224 F.3d 339, 343 (4th Cir. 2000), the Sixth Circuit looks to state law to
determine the nature of a property interest involved in a forfeiture proceeding.
United States v. Smith, 966 F.2d 1045, 1054 n.10 (6th Cir. 1992); United States
v. O’Dell, 247 F.3d 655, 680 n.9 (6th Cir. 2001) (applying state law and noting a
split with the Fourth Circuit); see also United State v. Hooper, 229 F.3d 818, 820
n.5 (9th Cir. 2000) (rejecting the Fourth Circuit’s dominion and control test). In
this case, given that the Property is located in Mississippi, the court will apply
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Mississippi law. See O’Dell, 247 F.3d at 680.
Following the court’s order for supplemental briefing (Dkt. # 14, Pg. ID
91–92), the government clarified that Hunter has at least a facially valid legal
interest in the Bank Account under Mississippi law derived from his sale of the
Property via the warranty deed he received from Lusk, Jr. on April 29, 2013. “The
government does not dispute that . . . Hunter had a property interest in the
account and its contents.” (Dkt. # 15, Pg. ID 96–97.)
Instead, by asserting that Hunter acted as a mere nominee for Lusk, Sr.,
the government challenges whether Lusk is able to show that he had a superior
interest in the Bank Account pursuant to § 853(n)(6)(A). See, e.g., United States
v. Weiss, 467 F.3d 1300, 1303 n.1 (11th Cir. 2006) (“A person cannot have a
vested interest in property if he is found to be acting as a nominee for persons
whose property is subject to the forfeiture.”); Bryson, 406 F.3d at 291 (“To
prevent manipulation of ownership by criminals, we must look beyond bare legal
title and whether [the petitioner] had a property interest under state law in
determining whether he had a legal interest in the property.”) (internal quotation
marks omitted); United States v. 526 Liscum Drive, Dayton, Montgomery County,
866 F.2d 213, 217 (6th Cir. 1989) (“A failure to look beyond bare legal title would
foster manipulation of nominal ownership to frustrate [the intent to deprive
criminals of the tools and proceeds of their illegal activities].”), rev’d on other
grounds by United States v. James Daniel Good Real Property, 510 U.S. 43
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(1993), as recognized in United States v. Certain Real Property Located at 16510
Ashton, Detroit, Wayne Cnty., Mich., 47 F.3d 1465, 1470 (6th Cir. 1995).
United States v. Warner, 968 F.2d 1217, 1992 WL 1632428, at *3 (6th Cir.
1992) (per curiam) (unpublished), is instructive. In Warner, the Sixth Circuit
affirmed the district court’s order denying third-party claims to the subject
property. Crucially though, the district court had held a hearing pursuant to §
853(n)(5) during which it received evidence demonstrating that despite the
petitioners’ claim that they were record owners of the subject property, they were
“merely straw owners and that the property had actually been purchased and the
mortgage payments and taxes had been paid by [the criminal] defendant.” Id.
(quotation marks omitted) For example, the district court found several
statements by the third-party petitioners incredible, particularly one petitioners’
statement that he paid an $18,000 down-payment for the subject property with his
own money, despite making only $3 to $4 dollars an hour at the time. Similarly,
the second petitioner testified that “she had no idea where the $18,000 used as a
down payment came from.” Id. After reviewing the record, the Sixth Circuit
concluded that “[a]ll of these facts support the district court’s conclusion that
although appellants . . . were the record owners [of the subject property], they
were in reality merely straw owners and the property had actually been
purchased and the mortgage payments and taxes had been paid by [the criminal]
defendant.” Id.
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In the instant case, the matter is before the court on the government’s
motion to dismiss, therefore all of the facts set forth in the petition are assumed to
be true and are construed in the light most favorable to Hunter. Fed. R. Crim. P.
32.2(c)(1)(A); Salti, 579 F.3d at 667 n.11. In his petition, Hunter extensively
references an affidavit that he attaches to the petition, which explains his version
of the circumstances of his ownership of the Property and the government’s
forfeiture. (Dkt. # 8, Pg. ID 36–37.) In his affidavit, Hunter states that he agreed
to prevent the Property from “going to final tax sale” by paying off back taxes on
the Property in exchange for the deed. (Dkt. # 8-1, Pg. ID 40.) He anticipated
using the funds from his subsequent sale of the Property to provide “financial
support[] and school expenses” for Lusk, Sr.’s three children “in order to carry out
the agreement he made with . . . Lusk, Sr., and Lusk, Jr.” (Id.) “The agreement”
Hunter appears to reference seems to be the power of attorney that Lusk, Sr.
granted Hunter to “care for” Lusk, Sr.’s three children, including Lusk, Jr. (Id.)
Hunter also attaches an unsworn “summary,” which attempts to explain several
taped telephone conversations that he had with Lusk, Sr. regarding the use of the
funds in the Bank Account. (Dkt. # 8-2, Pg. ID 42.)
The government argues that these statements show that Hunter acted as a
mere nominee, receiving directives from Lusk, Sr. regarding how, when, and on
what to spend the funds in the Bank Account. However, at this stage in the
proceedings, the court must construe the petition in the light most favorable to
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Hunter. Read in such light, Hunter appears to claim that Lusk, Sr. gave him
power of attorney over his children, and that he subsequently decided to use said
power to obtain the Property, pay the back taxes, and sell it, all in order to use the
proceeds for the benefit of Lusk, Sr.’s children. He denies that Lusk, Sr.
managed or directed the use of the Bank Account’s funds. It is far from clear that
this is what actually occurred, but nevertheless, it is what Hunter claims
happened.
Warner demonstrates that although a district court may look behind the
bare legal title to the property, in the presence of disputed facts, the more prudent
course is for the court to hold an evidentiary hearing and make credibility
determinations and findings of fact pursuant to § 853(n)(5). Indeed, in many of
the cases the government cites as support for its argument that Hunter acted as a
mere nominee, the district court held a hearing and received evidence before
making a factual finding on the matter. See Weiss, 467 F.3d at 1304; Bryson,
406 F.3d at 287; Morgan, 224 F.3d at 342. At such a hearing, the burden of proof
will be squarely on Hunter to demonstrate by a preponderance of the evidence
that he was not a mere nominee, and that he held a superior legal interest in the
Property. Hunter will be able to testify on his own behalf and to present evidence
and witnesses, and the government will be free to present evidence and
witnesses in rebuttal. See § 853(n)(5). Therefore, because factual disputes
preclude a decision on the merits, the court will deny the government’s motion to
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dismiss.
C. Bona Fide Purchaser for Value
The government also argues that Hunter does not qualify for relief under
§ 853(n)(6)(B) as a bona fide purchaser for value, because he did not acquire the
Property in an arms-length transaction. Rather, the government asserts that the
only value Hunter gave in exchange for the Property was his agreement to
prevent the tax sale and to provide financial support for Lusk, Sr.’s children. (Dkt.
#9, Pg. ID 66.)
“Federal law controls whether a party qualifies as a [bona fide purchaser]
under . . . § 853(n)(6)(B).” United States v. Huntington Nat’l Bank, 682 F.3d 429,
433 (6th Cir. 2012) . “[T]he bona fide purchaser exception is derived essentially
from hornbook commercial law and reflects the common-law rule that an innocent
purchaser for valuable consideration must be protected.” Id. at 434.
Essentially, the government contends that Hunter obtained the Property
through a sham transaction, and that he fully intended to use the proceeds from
its sale in accordance with Lusk, Sr.’s directions, as a mere nominee. Again,
Hunter tells a different story, claiming that he independently intended to use the
funds in the Bank Account to support Lusk Sr.’s children, and that he did not act
at the direction or behest of Lusk, Sr. This basic factual dispute regarding what
Hunter’s intentions were, and what he actually did, will be the subject of the
above-mentioned hearing.
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IV. CONCLUSION
IT IS ORDERED that the government’s motion to dismiss (Dkt. # 9) is
DENIED.
IT IS FURTHER ORDERED that the parties are DIRECTED to appear for
an evidentiary hearing on this matter, pursuant to 21 U.S.C. § 853(n)(5), on
September 19, 2014, at 8:30 a.m. in Courtroom #5, on the Third Floor of the
United States District Courthouse in Memphis, Tennessee. Hunter will bear
the burden of proof by a preponderance of the evidence.

s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: September 4, 2014

I hereby certify that a copy of the foregoing document was mailed to counsel of
record on this date, September 4, 2014, by electronic and/or ordinary mail.
s/Lisa Wagner
Case Manager and Deputy Clerk
[phone]

S:\Cleland\JUDGE'S DESK\C2 ORDERS\13-0039.Hunter.GrantMotDismiss.jac.wpd

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