United States of America v. $4,480,466.16 in funds seized from Bank of America account ending in 2653 et al

Filing 298

MEMORANDUM OPINION AND ORDER: The Court DENIES the 148 , 151 , 153 , 155 , 157 , 159 motions to dismiss. (Ordered by Judge Brantley Starr on 11/17/2020) (twd)

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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
UNITED STATES OF AMERICA,

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Plaintiff,
v.
$4,480,466.16 IN FUNDS SEIZED
FROM BANK OF AMERICA
ACCOUNT ENDING IN 2653; et al.
Defendants in rem.

Civil Action No. 3:17-CV-02989-X

MEMORANDUM OPINION AND ORDER
In 2017, the United States seized the claimants’ property and then filed this
civil forfeiture action, alleging that the property is statutorily forfeitable due to its
relationship to criminal activity. Each claimant moved separately to dismiss the
government’s Third Amended Complaint [Doc. Nos. 148, 151, 153, 155, 157, 159]. For
the reasons outlined below, the Court DENIES the motions to dismiss.
I. Factual Background
The United States Department of Veterans Affairs (the Department) offers
education benefits programs, including the GI Bill. The GI Bill provides financial
support to service members, veterans, and eligible dependents who attend approved
education or training programs—including 100% tuition and fee coverage paid
directly to the school. Approved schools must also receive approval from the “state
approving agency” of the state in which it is located. The approval process requires
the schools to certify that “‘the school will not utilize advertising of any type which is
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erroneous or misleading, either by actual statement, omission, or intimation’”; “‘the
school will not provide any commission, bonuses, or other incentive payment based
directly or indirectly on success in securing enrollments or financial aid to any person
or entities engaged in student recruiting or admission’”; and that the school complies
with the 85-15 rule, which prevents the Department from approving a veteran’s
enrollment in a course “‘for any period during which more than 85 percent of the
students enrolled in the course are having all or part of their tuition, fees or other
charges paid for them by the educational institution or by the [Department] . . . .”. 1
The Texas Veterans Commission, the state approving agency in Texas, requires
schools to annually certify compliance with various statements of assurance.
Retail Ready Career Center (Retail Ready) offered training in heating,
ventilation, and air conditioning, through a six-week “boot camp style” course. Most
students at Retail Ready were veterans who paid for the course using their GI Bill
benefit, but courses were open to other participants as well. Retail Ready regularly
supplied statements of compliance with the appropriate regulations, signed by
Jonathon Davis, the founder and CEO of Retail Ready.
The United States, however, alleges that Davis and other individuals behind
Retail Ready consistently violated the regulations and fraudulently concealed the
non-compliance in a scheme to defraud the Department out of significant sums of
money. The government further claims that the subject property—currency from
several bank accounts, various luxury cars, and three parcels of real property—are

1

Doc. No. 137 at 9–10, 15.

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proceeds (or are derived from proceeds) of specified unlawful activity and therefore
forfeitable under the Federal Civil Forfeiture Statute. The United States obtained a
warrant and seized the subject property in September 2017, filing this forfeiture
action shortly thereafter. But to date there has been no criminal indictment related
to this matter.

This is the government’s Third Amended Complaint, and the

claimants each moved separately to dismiss for failure to state a claim.
II. Legal Standards
The Federal Rules of Civil Procedure Supplemental Rules govern the pleading
requirements in civil forfeiture actions. 2 Under Supplemental Rule G(2), a legally
sufficient forfeiture complaint must:
(a)
(b)
(c)
(d)
(e)
(f)

be verified;
state the grounds for subject-matter jurisdiction, in rem
jurisdiction over the defendant property, and venue;
describe the property with reasonable particularity;
if the property is tangible, state its location when any seizure
occurred and—if different—its location when the action is filed;
identify the statute under which the forfeiture action is brought;
and
state sufficiently detailed facts to support a reasonable belief that
the government will be able to meet its burden of proof at trial. 3

This standard is higher than Rule 12(b)(6), but it retains the general standard “that
the complaint sufficiently notify the defendant of the incident in dispute and afford a
reasonable belief that the claim has merit,” with sufficient particularity to enable a
claimant to conduct a “meaningful investigation of the facts and draft[] a responsive

2

FED. R. CIV. P. SUPP. G(1).

3

FED. R. CIV. P. SUPP. G(1)(a)–(f).

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Case 3:17-cv-02989-X Document 298 Filed 11/17/20

pleading.” 4

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A complaint that satisfies Rule (G)(2) therefore also satisfies Rule

12(b)(6). 5
A claimant who establishes standing may move to dismiss the action under
Rule 12(b). 6 The Court evaluates the pleadings by “accepting all well-pleaded facts
as true and viewing those facts in the light most favorable to the plaintiff.” 7 In
determining the sufficiency of the pleadings, the Court considers the complaint and
supporting affidavits, even if filed under seal, so long as the claimants have access. 8
In actions governed by 18 U.S.C. § 983(a)(3)(D), “the complaint may not be dismissed
on the ground that the government did not have adequate evidence at the time the
complaint was filed to establish the forfeitability of the property”—governed by Rule
(G)(2). 9
III. Application
A. Sufficiency of the Complaint
The Federal Civil Asset Forfeiture Statute establishes the forfeitability of
specified property that is tied to criminal activity, including:
(a)(1)(A) Any property, real or personal, involved in a transaction or
attempted transaction in violation of section 1956, 1957 or 1960 of this
title, or any property traceable to such property. . . .
4

United States v. Mondragon, 313 F.3d 862, 865, 867 (4th Cir. 2002).

5 United States v. Real Prop. Known as a Single-Family Residence Located & Situated at 19211
Grey Bluff Cove, San Antonio, Tex., 2016 WL 1255742 at *2 (W.D. Tex. Mar. 3, 2016).
6

FED. R. CIV. P. SUPP. G(8)(b)(i).

7

Stokes v. Gann, 498 F.3d 483, 484 (5th Cir. 2020).

See United States v. $4,480,466.16 in Funds, 2018 WL 1964255 at *6 (N.D. Tex. Apr. 26,
2018) (refusing to consider the government’s sealed, ex parte affidavit in determining the sufficiency
of the complaint); 2018 WL 4096340 at *3 (N.D. Tex. Aug. 28, 2018) (allowing the sealed affidavit’s use
to support the complaint because a copy had been given to the claimants).
8

9

FED. R. CIV. P. SUPP. G(8)(b)(ii).

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(a)(1)(C) Any property, real or personal, which constitutes or is derived
from proceeds traceable to . . . any offense constituting “specified
unlawful activity” . . . or a conspiracy to commit such offense. 10
“Specified unlawful activity,” includes Theft of Government Funds, 11 Mail Fraud, 12
and Wire Fraud. 13 And Money Laundering is an offense contained in section 1956. 14
The United States alleges that the claimants committed Wire Fraud, Mail
Fraud, Theft of Government Funds, Conspiracy to Commit a Specified Unlawful
Activity, and Money Laundering. Property obtained via Wire Fraud, Mail Fraud,
Theft of Government Funds, and Conspiracy to Commit a Specified Unlawful Activity
is subject to forfeiture under section 981(a)(1)(C), and property involved in Money
Laundering is subject to forfeiture under section 981(a)(1)(A).

Supporting its

accusations, the United States offered 17 pages of factual allegations in the complaint
and another 24 pages of factual allegations in the sealed affidavit—which was
provided to the claimants. These factual allegations detail the alleged criminal
activity and identify the forfeitable relationship between the alleged crimes and the
property at issue here. 15
10

18 U.S.C. § 981(a)(1)(A), (a)(1)(C).

See id. § 1956(c)(7)(D) (covering “an offense under . . . section 641 (relating to public money,
property, or records)”).
11

12 See id. § 1956(c)(7)(A) (covering “any act or activity constituting an offense listed in section
1961(1) of this title . . . .”); § 1961(1) (“section 1341 (relating to mail fraud)”).

See id. § 1956(c)(7)(A) (covering “any act or activity constituting an offense listed in section
1961(1) of this title . . . .”); § 1961(1) (covering “section 1343 (relating to wire fraud)”).
13

14

See id. § 1956.

The affidavit from Special Agent Miguel Coias describes in detail the alleged fraudulent
scheme run by the claimants. The scheme includes allegedly falsifying records and offering
scholarships to random veteran students solely to meet the 85-15 Rule, forming two other corporations
to harvest veterans’ information and then solicit their admission to Retail Ready, and offering
commissions and other incentives to employees based on application and enrollment numbers. In
15

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Taken as true, the government’s allegations state the grounds for subjectmatter jurisdiction, in rem jurisdiction over the defendant property, and venue;
describe the property with reasonable particularity; identify the statute under which
the forfeiture action is brought; and state sufficiently detailed facts to support a
reasonable belief that the government will be able to meet its burden of proof at
trial. 16 The pleadings also sufficiently notify claimants “of the incident in dispute
and afford a reasonable belief that the claim has merit,” with enough particularity to
enable the claimants to conduct a “meaningful investigation of the facts and draft[] a
responsive pleading.” 17

Notably, the claimants later filed motions for summary

judgment, which demonstrates the complaint’s efficacy in allowing the claimants to
conduct an investigation and draft responsive pleadings.
Because the United States met its pleading burden under the supplemental
rules, the Court DENIES the motions to dismiss.
B. Claimants’ Objections
The claimants argue that the government’s pleadings contain a host of defects
that are prejudicially fatal to the case. The claimants’ arguments revolve around
Supplemental Rule G(1)(f), which requires the government to “state sufficiently
detailed facts to support a reasonable belief that the government will be able to meet

support, Agent Coias conveys statements from former Retail Ready employees and other nongovernment insiders with knowledge of the facts. The affidavit includes excerpts from Davis’s personal
journal. Finally, the affidavit includes a detailed narrative into the financial investigation and traces
the Department funds, which Retail Ready received, to each bank account and article of property that
the government seized.
16

See FED. R. CIV. P. SUPP. G(1)(a)–(f).

17

See Mondragon, 313 F.3d at 865, 867.

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its burden of proof at trial.” 18 The claimants focus on the words “at trial” and
essentially argue that the United States failed the pleading standard by not including
a complete trial-ready record in the pleadings. Specifically, the claimants argue the
United States failed to designate an expert witness to support its case; conclusively
establish the connection between the property and the criminal violations; and
demonstrate that the property was in fact involved in a crime or constitutes criminal
proceeds or instrumentalities.
But

this argument misconstrues the

pleading

standard under the

supplemental rules. As already discussed, Rule G(1)(f) requires reasonable belief that
the government can meet its burden at trial, not concrete proof that is sufficient to
withstand a trial. The claimants provide no authority which requires the government
to produce trial exhibits or designate a complete list of witnesses in order to pass the
pleading stage. The pleading burden in civil forfeiture cases is indeed higher than in
regular civil litigation, but it does not require trial-ready and trial-proof evidence. As
discussed, the United States met the burden established by the supplemental rules
and relevant case law.
IV. Conclusion
For the reasons outlined above, the Court DENIES the motions to dismiss.
IT IS SO ORDERED, this 17th day of November, 2020
___________________________________
BRANTLEY STARR
UNITED STATES DISTRICT JUDGE
18

FED. R. CIV. P. SUPP. G(1)(f).

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