United States of America v. $399,101.96, More or Less, in United States Currency Contained in First United Bank, Youfirst Money Market Account #5047816
Filing
38
ORDER DENYING 33 Claimant's Motion for Summary Judgment. Signed by Judge Xavier Rodriguez. (rg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
UNITED STATES OF AMERICA,
§
§
§
Petitioner,
§
§
v.
§
$399,101.96 MORE OR LESS, IN UNITED §
§
STATES CURRENCY CONTAINED IN
§
FIRST UNITED BANK, YOUFIRST
MONEY MARKET ACCOUNT # 5047816, §
§
§
Respondent.
Civil Action No. SA-11-CV-731-XR
ORDER
On this day the Court considered Claimant’s motion for summary judgment (Doc. No.
33). For the following reasons, the Court DENIES the motion.
I. Background
A. Factual Background1
In or around February of 2009, several government agencies began conducting an
investigation into allegations that United States Army Master Sergeant Lawrence Fenti (“Fenti”),
Dr. Heidi Lynn Werner Webster (“Webster”), and others had conspired to defraud the United
States in violation of 18 U.S.C. § 201.2 This investigation was focused upon several United
1
The following factual background summary is predicated on facts contained in Petitioner’s verified complaint for
forfeiture, Claimant’s instant motion for summary judgment, and Petitioner’s response to the instant motion.
2
The agencies involved in the investigation included: (1) the Army Criminal Investigation Division’s Major
Procurement Fraud Unit, (2) the Criminal Investigation section of the Internal Revenue Service, (3) the Defense
Criminal Investigative Service, and (4) the Federal Bureau of Investigation.
1
States Army contracts (the “Army contracts”) awarded to Data Dynamics, Inc., represented here
by its president Gail Martinson (“Claimant”).
The parties appear to agree that, in or around March of 2008, Claimant was contacted by
Webster regarding contracts to provide temporary MRI services to the Brooke Army Medical
Center (“BAMC”) in San Antonio, Texas. Although Claimant had previously contracted with the
United States government, Claimant did not have any prior MRI experience. Nevertheless,
Webster informed Claimant that she was an expert in providing MRI services and would work as
Claimant’s consultant if Claimant was successful in obtaining the MRI contracts. Claimant was
then told that Fenti, who had been Webster’s subordinate from 2003 to 2005 while working at an
Army hospital in Kansas, would contact Claimant regarding these contract opportunities. During
the relevant period, Fenti was employed in the BAMC Radiology Department and often
performed the duties of the radiology department’s Contracting Officer Representative on
procurement contracts. These duties involved monitoring contractor performance while
simultaneously serving as the technical liaison between the contractor and the government’s
Contracting Officer.
Subsequently, Claimant was awarded an MRI contract on June 27, 2008 (“Contract 1”),
under which Claimant was to provide a mobile MRI 1.5T System to the BAMC for twelve
months. The file for Contract 1 showed that Fenti had written both the description of the work as
well as the independent cost estimate. The file further reflected that Fenti had provided a
recommendation that Claimant receive the contract. Under this contract, Claimant received
monthly payments in the amount of $117,940, which were increased to $125,050 when the
contract was extended in June of 2009 through November of 2009.
2
Claimant was also awarded a second MRI contract on July 16, 2008 (“Contract 2”), under
which Claimant was to provide the BAMC: three MRI systems, one modular ancillary building,
two MRI technologies, and one MRI Medical Clerk for twelve months. Again, the contract file
reflected that Fenti had written the work description and cost estimate, as well as a
recommendation that Claimant receive the contract. Under Contract 2 Claimant received
monthly payments in the amount of $307,329. As with the first MRI contract, Contract 2 was
subsequently extended through November 30, 2009.
From the monthly payments received under Contracts 1 and 2, Claimant reserved an
agreed upon amount and wired the remainder to Webster to cover consulting fees and additional
costs. Any remaining funds were then to be split between Claimant and Webster. Claimant now
asserts that Webster provided Claimant with fabricated monthly bills and that Webster had
submitted false invoices to the Army in relation to the contracts. 3 Overall, from September 19,
2008 through May 1, 2009, Claimant transferred $3,402,969.50 to Webster’s account in Kansas.
Throughout the same period, the government’s investigation revealed that money had
been wired from Webster’s account to the account of MJS Consulting, LLC, whose sole manager
is Fenti’s mother. Further, from December of 2007 to April of 2009, approximately $71,015.35
was provided directly to Fenti by wire transfers and checks from Webster’s account.
Additionally, on both October 15, 2008, and February 18, 2009, $50,000 was wired from
Webster’s account to 3MPBW, Inc., a company which belongs to Webster’s father. Finally, on
July 24, 2009, $120,000 was transferred by Webster to the account of the law firm representing
Fenti.
3
Cl.’s MSJ at 5.
3
On July 6, 2011, agents with the Internal Revenue Service seized approximately
$399,101.964 (the “Respondent Property”) from Claimant’s account. The Respondent Property is
made up of payments from the Army to Claimant under the terms of Contracts 1 and 2. Claimant
now asserts rightful ownership of the Respondent Property and requests that it be removed from
the government’s possession and returned.
B. Procedural Background
The United States (“Petitioner”) filed its verified complaint for forfeiture on September 1,
2011. In that verified complaint, Petitioner set out the statutory basis for forfeiture, stated the
grounds for jurisdiction and venue, and set forth facts surrounding the Respondent Property in
support of forfeiture. On October 12, 2011, Claimant filed a statement of claims, and
subsequently filed its answer in November of 2011.
On December 21, 2011, Petitioner filed a motion to stay civil proceedings5 which was
granted by the Court. The stay on discovery and the filing of pretrial motions was subsequently
lifted on May 21, 2012. Thereafter, in December of 2012, Claimant filed its first amended
answer and counterclaim with leave of the Court.
On May 13, 2013, Claimant filed the instant motion for summary judgment on the
grounds that the Respondent Property is not subject to civil forfeiture, or in the alternative, that
Claimant is an “innocent owner” as defined under 18 U.S.C. § 983(d). Petitioner filed a response
to the instant motion and Claimant filed a reply.
4
This amount is comprised of $432,379, reflecting the final monthly payments for Contracts 1 and 2, less $33,600
representing costs and expenses incurred by Claimant. The difference between the Respondent Property that was
seized and this amount ($398,779) is apparently explained by the interest accrued on the money. Cl.’s MSJ at 7-8.
5
Petitioner had moved to stay the case to allow a related criminal investigation to proceed.
4
II. Legal Standard
Summary judgment is appropriate when the record establishes “that there is no genuine
issue as to any material fact and the moving party is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a). The party moving for summary judgment has the initial burden of
demonstrating that it is entitled to summary judgment. To do so, the movant must show by
affidavit or other evidence that there is no genuine issue regarding any material fact. See Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party cannot demonstrate the absence
of a genuine issue of material fact summary judgment is inappropriate, regardless of the
nonmovant’s response. Kee v. City of Rowlett, 247 F.3d 206, 210 (5th Cir. 2001). If, however,
the moving party has carried its initial summary-judgment burden, the nonmovant must go
beyond the pleadings and by its own affidavits or by the depositions, answers to interrogatories,
or admissions on file set forth specific facts showing that there is a genuine issue for trial. FED.
R. CIV. P. 56(c).
To conclude that there is no genuine issue of material fact, the Court must be satisfied
that no reasonable trier of fact could have found for the nonmovant, or in other words, that the
evidence favoring the nonmovant is insufficient to enable a reasonable jury to return a verdict for
the nonmovant. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n.4 (1986). In making
this determination, the court must draw reasonable inferences and construe the evidence in the
light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986). However, the nonmovant may not rely on “conclusory allegations,
unsubstantiated assertions, or only a scintilla of evidence” to create a genuine issue of material
fact sufficient to survive a motion for summary judgment. Freeman v. Tex. Dep’t of Criminal
Justice, 369 F.3d 854, 860 (5th Cir. 2004).
5
III. Discussion
A. Whether the Respondent Property is Subject to Forfeiture
Claimant contends that the Respondent Property does not fall within the scope of 18
U.S.C. § 981(a)(1), the civil forfeiture statute setting out several categories of property that are
subject to forfeiture to the United States. See 18 U.S.C. § 981(a)(1). Specifically, Claimant
refutes Petitioner’s claims that the Respondent Property is subject to forfeiture under sections
981(a)(1)(A) and 981(a)(1)(C).6 Accordingly, for the Court to grant Claimant’s motion for
summary judgment on this basis, there must be no genuine dispute as to whether the Respondent
Property is subject to forfeiture under either of these sections. Because the Court concludes that a
fact issue does exist with regard to the applicability of section 981(a)(1)(C), section 981(a)(1)(A)
need not be considered here.
Section 981(a)(1)(C) states that “[a]ny property, real or personal, which constitutes or is
derived from proceeds7 traceable to … any offense constituting specified unlawful activity (as
defined in section 1956(c)(7) of this title), or a conspiracy to commit such an offense” shall be
subject to forfeiture to the United States. 18 U.S.C. § 981(a)(1)(C) (internal quotation marks
omitted). The Government bears the burden of proving by a preponderance of the evidence that
6
7
See Cl.’s MSJ at 9, 14.
The term “proceeds” is defined as:
(A) In cases involving illegal goods, illegal services, unlawful activities, and telemarketing and
health care fraud schemes, the term “proceeds” means property of any kind obtained directly
or indirectly, as the result of the commission of the offense giving rise to forfeiture, and any
property traceable thereto, and is not limited to the net gain or profit realized from the offense.
(B) In cases involving lawful goods or lawful services that are sold or provided in an illegal
manner, the term “proceeds” means the amount of money acquired through the illegal
transactions resulting in the forfeiture, less the direct costs incurred in providing the goods or
services.
18 U.S.C. § 981(a)(2).
6
the property is subject to forfeiture. Id. at § 983(c)(1); United States v. $157,808.97, More Or
Less, in U.S. Currency, 309 F. App’x 851, 853 (5th Cir. 2009).
Here, it appears to be undisputed that Webster bribed Fenti to induce him to award the
MRI contracts to Claimant, and that such bribery constitutes a “specified unlawful activity”
within the meaning of section 981(a)(1)(C).8 Petitioner has provided enough evidence to support
a finding that the Respondent Property constitutes, or is derived from, proceeds of the bribery
because there is a genuine dispute as to whether the contracts were awarded to Claimant as a
direct result of the bribes. Accordingly, Petitioner has produced enough evidence to withstand
summary judgment on the issue of whether the Respondent Property falls within the purview of
section 981(a)(1)(C). See United States v. St. Pierre, 809 F. Supp. 2d 538, 544 (E.D. La. 2011)
(finding that the defendant’s bribery of a public official, which resulted in procuring two
contracts, could “certainly be said to have generated or produced the [contracts], and therefore
the [contract] revenues were in some sense generated through the illegal transactions resulting in
the forfeiture”).
It appears that Claimant’s only argument that section 981(a)(1)(C) does not cover the
Respondent Property hinges upon this Court’s acceptance of a principle Claimant derives from
United States v. St. Pierre.9 In St. Pierre, the defendant paid bribes and kickbacks to a City of
8
18 U.S.C. § 1956(c)(7) defines the term “specified unlawful activity” in part as “any act or activity constituting an
offense listed in section 1961(1) of this title except an act which is indictable under subchapter II of chapter 53 of
title 31.” 18 U.S.C. § 1956(c)(7)(A). The referenced section, 1961(1), provides a definition of “racketeering
activity” and states that the term means “any act which is indictable under … [s]ection 201 (relating to bribery).” Id.
at § 1961(1)(B). Finally, bribery of a public official is not an act that is indictable under subchapter II of chapter 53
of title 31. See 31 U.S.C. §§ 5311-5332. Accordingly, bribery of a public official in violation of 18 U.S.C. § 201, or
a conspiracy to commit such an offense, constitutes “specified unlawful activity” for purposes of section
981(a)(1)(C) of the civil forfeiture statute. See id.; 18 U.S.C. §§ 981(a)(1)(C), 1956(c)(7)(A), 1961(1)(B).
9
See Cl.’s MSJ at 14-16. The Court acknowledges that Claimant advances other arguments with regard to whether
the Respondent Property is subject to forfeiture; however, these revolve around Claimant’s lack of knowledge of the
unlawful scheme. Although Claimant’s knowledge would be relevant to the Respondent Property’s forfeiture under
section 981(a)(1)(A), such knowledge is not a prerequisite to forfeiture under section 981(a)(1)(C). Rather, section
981(a)(1)(C) allows for forfeiture of property that constitutes or is derived from proceeds traceable to a violation of
certain statutory provisions, regardless of a claimant’s subjective knowledge regarding the grounds for forfeiture.
7
New Orleans official in order to procure a contract for a company in which the defendant had a
twenty-five-percent ownership interest. 809 F. Supp. 2d at 540-41. The court noted that although
all of the revenues under the IT contract were created by the defendant’s criminal activity and
were proceeds under section 981(a)(2)(B), portions of those revenues were diverted to his
business partners before they were ever acquired by the defendant because the defendant only
held a twenty-five-percent interest in the company. See id. at 544-45. Consequently, the court
determined that it would be “unreasonable and inconsistent with the purpose of forfeiture” to
require the defendant to forfeit funds representing the seventy-five-percent interest he had never
acquired. Id. at 545.
Based upon the St. Pierre court’s decision, Claimant appears to argue for the principle
that only property that is actually acquired by “wrongdoers” is forfeitable when the section
981(a)(2)(B) definition of “proceeds” is applicable.10 Thus, Claimant argues that the Respondent
Property is shielded because Claimant is not a “wrongdoer.” In addition to noting that this seems
to constitute an unwarranted extrapolation of the St. Pierre opinion, this Court declines to adopt
Claimant’s proposed rule for several reasons.
First, the principle that Claimant derives from St. Pierre is contradictory to the nature of a
civil forfeiture action. Such an action is “in rem,” and thus is one proceeded against the property
itself. United States v. Ursery, 518 U.S. 267, 275 (1996). By resort to a legal fiction, it is the
property that is “held guilty and condemned as though it were conscious instead of inanimate and
insentient.” Id. Since it is not a person that is proceeded against, it does not matter if the
wrongdoer whose conduct forms the predicate for the forfeiture action was ever charged,
convicted, or even acquitted of the misconduct. See id.; United States v. 1700 Duncanville Rd.,
90 F. Supp. 2d. 737, 740 (N.D. Tex. 2000), aff’d, 250 F.3d 738 (5th Cir. 2001). Accordingly, a
10
See Cl.’s MSJ at 16.
8
claimant’s culpability is essentially irrelevant in a civil forfeiture action. See United States v.
Davis, 648 F.3d 84, 92 (2d Cir. 2011). Thus, Claimant’s contention that the operation of the civil
forfeiture statute is affected by the culpability of the subject property’s owner directly conflicts
with the nature of the action itself, which is concerned only with the property’s “culpability.”
Second, the civil forfeiture statute never states that only property that is acquired by
wrongdoers is made subject to forfeiture when section 981(a)(2)(B) is applicable. See generally
18 U.S.C. § 981. Rather, section 981(a)(1) merely states that “[t]he following property is subject
to forfeiture,” and then proceeds to list eight categories of covered property. See id. at §
981(a)(1)(A)-(H). Among these eight is subsection (C), which as noted above applies to “any
property … which constitutes or is derived from proceeds traceable to … any offense
constituting specified unlawful activity.” Id. at § 981(a)(1) (internal quotation marks omitted).
Thus, a plain reading of the statute indicates that it contemplates the forfeiture of property
traceable to “specified unlawful activity” regardless of whether its owner was a wrongdoer in
any sense.
Finally, Claimant’s derived principle is further contradicted by the existence of an
affirmative defense for “innocent owners” within the statute covering the general rules for civil
forfeiture proceedings. See 18 U.S.C. 983(d). In general, this defense operates such that an owner
who acted in good faith and had no knowledge of the conduct giving rise to the forfeiture will
not have to forfeit property that would otherwise be subject to forfeiture under 18 U.S.C. §
981(a)(1). See id. An adoption of Claimant’s principle, however, would serve to render the
“innocent owner” defense a nullity in instances for which it was created. In other words,
Claimant’s proposed rule that only property that is acquired by wrongdoers is subject to
forfeiture when section 981(a)(2)(B) applies, if accepted, would potentially result in the
9
“innocent owner” defense serving no purpose because the issue of the owner’s culpability would
in effect be encompassed within the initial 18 U.S.C. § 981(a)(1) analysis.
Overall, Claimant’s proposed rule finds no support in either controlling civil forfeiture
case law or the relevant statutes.
In consideration of the foregoing analysis, the Court concludes that a genuine issue of
material fact exists as to whether the Respondent Property is subject to forfeiture under 18
U.S.C. § 981(a)(1)(C). Therefore, Claimant’s motion for summary judgment is DENIED with
regard to this issue.
B. Whether Claimant is an “Innocent Owner”
In Claimant’s second argument for summary judgment, Claimant contends that she is an
“innocent owner” under 18 U.S.C. § 983(d), and thus that the Respondent Property is shielded
from forfeiture.11 Because Claimant is the moving party, she bears the initial burden of showing
an entitlement to summary judgment on her affirmative defense. See id. at § 983(d)(1); Celotex,
477 U.S. at 323.
“An innocent owner’s interest in property shall not be forfeited under any civil forfeiture
statute.” Id. As with “proceeds” in 18 U.S.C. § 981, the term “innocent owner” is defined
differently depending upon the nature of the case:
(2)(A) With respect to a property interest in existence at the time the illegal
conduct giving rise to forfeiture took place, the term “innocent owner” means an
owner who-(i) did not know of the conduct giving rise to forfeiture; or
(ii) upon learning of the conduct giving rise to forfeiture, did all that
reasonably could be expected under the circumstances to terminate such
use of the property.
11
See Cl.’s MSJ at 16-19.
10
(3)(A) With respect to a property interest acquired after the conduct giving rise to
the forfeiture has taken place, the term “innocent owner” means a person who, at
the time that person acquired the interest in the property-(i) was a bona fide purchaser or seller for value (including a purchaser or
seller of goods or services for value); and
(ii) did not know and was reasonably without cause to believe that the
property was subject to forfeiture.
Id. at § 983(d)(2)(A), (3)(A). Here, there is evidence that a public official was bribed in order to
procure the Army contracts under which Claimant received payments making up the Respondent
Property. Accordingly, the Court finds that Claimant’s interest in the Respondent Property was
acquired after the conduct giving rise to the forfeiture, and thus that section 983(d)(3)(A) is
applicable.
To establish the “innocent owner” defense under section 983(d)(3)(A) Claimant must
make a showing that she was a “bona fide” seller of services under the Army contracts. See id. at
§ 983(d)(3)(A)(i). The term “bona fide” is defined as: “in or with good faith.” Kimbell v. United
States, 371 F.3d 257, 263 (5th Cir. 2004); see also Strangi v. Comm’r, 417 F.3d 468, 479 (5th
Cir. 2005) (stating that the term “bona fide” means “in good faith or without fraud or deceit”).
Moreover, a “bona fide sale” is one in which the seller acts in good faith. See Kimbell, 371 F.3d
at 263. In turn, “good faith” is defined as “[a] state of mind consisting in (1) honesty in belief or
purpose … or (4) absence of intent to defraud or seek unconscionable advantage.” BLACK’S LAW
DICTIONARY (9th ed. 2009). Thus, Claimant’s “innocent owner” defense turns on a determination
as to her state of mind.
It is well-settled that courts hesitate to grant summary judgment when a case turns on a
state of mind determination. US ex rel. Taylor-Vick v. Smith, 513 F.3d 228, 230 (5th Cir. 2008);
see also Int’l Shortstop v. Rally’s, Inc., 939 F.2d 1257, 1265 (5th Cir. 1991). Specifically, cases
11
where the moving party’s state of mind is at issue are not well-suited for granting summary
judgment because a party’s state of mind is inherently a question of fact which turns on
credibility. Int’l Shortstop, 939 F.2d at 1265 (citing Miller v. Fed. Deposit Ins. Corp., 906 F.2d
972, 974 (4th Cir. 1990) (stating that summary judgment is seldom appropriate in cases where
states of mind are decisive elements of a claim or defense)). This is so because it is particularly
difficult for the nonmoving party to challenge the movant’s summary judgment evidence as to
his state of mind without the benefit of trial accessories, especially when that evidence is “selfserving.” See id. at 1265-66. Finally, to the extent that summary judgment is rarely appropriate
when state of mind is at issue, it is even less suitable when the moving party bears the burden of
proving his own state of mind. Id. at 1266 n.8.
Here, Claimant’s only evidence as to whether she was a bona fide seller of services
comes in the form of her own, self-serving, affidavit in which Claimant purports to have had no
knowledge of the unlawful bribery scheme.12 However, as noted above, summary judgment is
rarely appropriate when a dispositive issue turns on a party’s state of mind, particularly when the
evidence presented in support of the motion is self-serving. See id. 1265-66. Moreover, because
this is an affirmative defense, Claimant bears the burden of proof with regard to the state of mind
issue, rendering summary judgment further inappropriate. See id. at 1266 n.8. Given the
heightened scrutiny surrounding a moving party’s state of mind in a summary judgment analysis,
and the lack of evidence establishing this element beyond Claimant’s self-serving testimony, the
Court concludes that Claimant has failed to meet the initial summary judgment burden as to her
“innocent owner” defense. Accordingly, summary judgment is inappropriate regardless of
Petitioner’s response. See Kee, 247 F.3d at 210.
12
See generally Cl.’s MSJ, Ex. B.
12
Claimant’s motion for summary judgment is therefore DENIED with regard to
Claimant’s 18 U.S.C. § 983(d) “innocent owner” defense.
IV. Conclusion
In light of the foregoing analysis, Claimant’s motion for summary judgment (Doc. No.
33) is DENIED.
SIGNED this 1st day of August, 2013.
XAVIER RODRIGUEZ
UNITED STATES DISTRICT JUDGE
13
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