United States of America v. Real Property Located at Layton Utah 84040 et al

Filing 176

MEMORANDUM DECISION granting 161 Motion to Strike; granting 163 Motion for Summary Judgment. Signed by Judge Ted Stewart on 11/15/2011. (tls)

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
NORTHERN DIVISION

UNITED STATES OF AMERICA,
Plaintiff,

MEMORANDUM DECISION AND
ORDER GRANTING THE
GOVERNMENT’S MOTIONS

v.

REAL PROPERTY LOCATED AT
(REDACTED) Layton, Utah 84040, et al.,

Case No. 1:07-CV-6 TS

Defendants.

This matter is before the Court on the United States of America’s (the “Government”)
Motion for Summary Judgment Against Funds Seized from Home Savings Bank Account #
(Redacted) 8618 in the Name of Paul Gotay of at least $381,000.1 Also before the Court is the
Government’s Motion to Strike the Claim of American First Builders (“AFB”).2 For the reasons
discussed below, the Court will grant both motions.

1

Docket No. 163.

2

Docket No. 161.
1

I. BACKGROUND
Around May 2005, law enforcement began investigating John and Susan Ross (the
“Rosses”) for misappropriating money from a federally funded program. Prior to the Rosses
being indicted, but while the Rosses were under investigation, FBI agents served a number of
seizure warrants on accounts held in the names of Susan Ross or John Ross at a number of
financial institutions. When the Rosses realized their assets were being seized they contacted an
attorney, Paul Gotay.
The Rosses hired Mr. Gotay pursuant to a written “Representation Agreement” on May 9,
2005. Under the terms of the Representation Agreement, Mr. Gotay was to receive a $50,000
non-refundable fee up front; $50,000 upon the filing of state or federal charges; and $50,000
upon the commencement of trial. The Representation Agreement also contained a clause
indicating that “non-refundability is conditioned on the absence of default by the Attorney.”3
Moreover, the Representation Agreement provided that “[i]n the event collection or legal
proceedings are necessary regarding payment of any or all fees hereunder, the prevailing party
shall be responsible for all recovery costs, including a reasonable Attorney’s fee.”4 Mr. Gotay
received two payments from the Rosses totaling $56,000 that he deposited into his law firm
business account.
During a discussion as to the seizure of the Rosses assets, Mr. Gotay instructed the
Rosses to contact their various accounts and determine whether all their assets had been seized.

3

Docket No. 166 Ex. F, at 1.

4

Id.
2

The Rosses learned that their Vanguard Group accounts had not been seized. The Vanguard
Group accounts held a total of $381,000. Mr. Gotay advised the Rosses to withdraw the money
from the Vanguard Group accounts and deposit it in a new account where it could be used for
legal fees. On November 6, 2006, the Rosses accompanied Mr. Gotay to Home Savings Bank
where Mr. Gotay opened a new account under his name and deposited the $381,000. The Rosses
were not joint account holders. According to Mr. Gotay, the $381,000 was to act as a litigation
fund.
On November 15, 2006, a federal seizure warrant was issued for the seizure of the Home
Savings Bank account. Subsequently, on November 16, 2006, the FBI served the seizure warrant
and seized the $381,000.
The Rosses were indicted on November 21, 2006. On December 14, 2006, Mr. Gotay
was disqualified from representing the Rosses in their criminal case. Both John and Susan Ross
subsequently entered guilty pleas, pursuant to which they each forfeited any right to the $381,000
held in the Home Savings Bank account.5 Mr. Gotay claims that he has a claim of between
$43,000 and $50,000 for unpaid legal fees from the $381,000 dollars in question.
II. STANDARD OF REVIEW
Summary judgment is proper if the moving party can demonstrate that there is no genuine
dispute as to any material fact and it is entitled to judgment as a matter of law.6 In considering
whether a genuine dispute of material fact exists, the Court determines whether a reasonable jury

5

See id. Ex. A, at 6 & id. Ex. B, at 5.

6

FED . R. CIV . P. 56(a).
3

could return a verdict for the nonmoving party in the face of all the evidence presented.7 The
Court is required to construe all facts and reasonable inferences in the light most favorable to the
nonmoving party.8
III. DISCUSSION
A.

SUMMARY JUDGMENT
The Government argues that there is no genuine issue of material fact that Mr. Gotay is

not an innocent owner of any portion of the $381,000 and, therefore, does not have standing to
challenge the forfeiture of the entire amount of $381,000. Mr. Gotay counters that the
Government has not demonstrated that there is no question of material fact as to whether (1)
there is probable cause to believe the property is subject to forfeiture and (2) whether he lacks
evidence of an affirmative defense that would entitle him to judgment against the Government.
1.

THE ROSSES’ INTEREST

Mr. Gotay first argues that “[t]he Government mistakenly asserts that it has met its
burden of proof since John and Susan Ross pled guilty to a crime.”9 The Government recognizes
that “[i]nitially, ‘the burden of proof is on the Government to establish, by a preponderance of the
evidence, that . . . property is subject to forfeiture.’”10 The Government argues that it has

7

See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986); Clifton v. Craig, 924
F.2d 182, 183 (10th Cir. 1991).
8

See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986);
Wright v. Sw. Bell Tel. Co., 925 F.2d 1288, 1292 (10th Cir. 1991).
9

Docket No. 166, at 1.

10

Docket No. 164, at 10 (quoting 18 U.S.C. § 983(c)(1)).
4

demonstrated, by a preponderance of the evidence, that the $381,000 is proceeds of a copyright
violation and money laundering and is subject to forfeiture through the guilty pleas entered by
John and Susan Ross.
Civil forfeiture proceedings are governed by 18 U.S.C. § 983. Section 983(c) provides
that “[i]n a suit or action brought under any civil forfeiture statute for the civil forfeiture of any
property . . . the burden of proof is on the Government to establish, by a preponderance of the
evidence, that the property is subject to forfeiture.”
Mr. Gotay does not dispute that both John and Susan Ross entered guilty pleas in the
underlying criminal matter. It is also undisputed that both John and Susan Ross agreed to forfeit
all right, title and interest in the funds in question in their respective statements in advance of
plea.11 Furthermore, in each of their statements in advance of plea, the Rosses attest that the
$381,000 in dispute was the “proceeds of the offense alleged.”
Based on these admissions, the Court finds that there is no genuine issue of material fact
that the Government has demonstrated by a preponderance of the evidence that the $381,000 held
in the Home Savings Bank account is subject to forfeiture. Therefore, the Court finds, as a
matter of law, that the Government has met its burden as to forfeiture of the Rosses’ interest in
the Home Savings Bank account.
2.

MR. GOTAY’S INTEREST

Mr. Gotay next argues that he has a declared and acknowledged interest of $50,000 in the
Home Savings Bank account pursuant to his representation agreement with the Rosses. The

11

See Docket No. 164-3, at 5; Docket No. 164-2, at 6.
5

Government asserts that (1) Mr. Gotay has been paid for all the legal work he provided to the
Rosses and is not owed any more money; (2) even if Mr. Gotay is owed $44,000, he has no
ownership interest in the $381,000 because he is an unsecured creditor; and (3) Mr. Gotay is not
an innocent owner because he had reason to believe that the $381,000 was subject to forfeiture.
Mr. Gotay’s claim fails for a number of reasons. First, without arriving at the merits of
Mr. Gotay’s claim for an additional $44,000 under the Representation Agreement, the Court
notes that any such right would not have perfected until after the $381,000 held in the Home
Savings Bank were seized. Under the terms of the Representation Agreement, Mr. Gotay was
entitled to a second installment payment of $50,000 upon filing of an indictment. It is
undisputed that on November 15, 2006, a federal seizure warrant was issued for the seizure of the
Home Savings Bank account and on November 16, 2006, the $381,000 was seized. The Rosses
were subsequently indicted on November 21, 2006. As a result, any right Mr. Gotay may have to
payment of an additional $44,000 did not exist until after the $381,000 had been seized. For this
reason alone, Mr. Gotay cannot claim a ownership interest in the property.
Mr. Gotay’s claim of ownership in the $381,000 also fails because Mr. Gotay does not
qualify as an innocent owner under 18 U.S.C. § 983. Section 983(d) provides a defense for those
who feel that they are innocent owners of property and thus should not lose their rights through
forfeiture. It provides that “[a]n innocent owner’s interest in property shall not be forfeited under
any civil forfeiture statute. The claimant shall have the burden of proving that the claimant is an
innocent owner by a preponderance of the evidence.”12 Section 983(d)(3)(A) further instructs:

12

18 U.S.C. § 983(d)(1).
6

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.
Arguably, Mr. Gotay cannot meet either of the two prongs provided above to qualify as
an innocent owner. First, it is arguable whether Mr. Gotay is entitled to any portion of the
$381,000 based upon the representation agreement. However, that issue is disputed.
Secondly, and most detrimental to Mr. Gotay’s case, is that he knew and had cause to
believe that the property was subject to forfeiture. Mr. Gotay does not dispute that he directed
the Rosses to remove the $381,000 from their Vanguard Group accounts after discovering that
the Rosses other assets had been seized. Indeed, Mr. Gotay recommended the Rosses place the
funds in a “secure account” and informed the Rosses that the Government could “do whatever
they wanted” with regards to the Rosses accounts.13
This Court is persuaded by the reasoning of United States v. $688,670.42 seized from
Regions Bank Acct. XXXXXX5028; and $49,603.68 seized from Regions Bank Acct.
XXXXXX5540.14 In that case, the court found that a check-cashing company, which accepted
fraudulently obtained funds and deposited them into bank accounts from which they were
subsequently seized by the government, was not an “innocent owner” under 18 U.S.C. § 983(d).15
The court reasoned that the company’s conduct, in attempting to disguise the funds by funneling
13

Docket No. 166 Ex. D, at 2.

14

759 F. Supp. 2d 1341 (N.D. Ga. 2010).

15

Id. at 1349.
7

them into two bank accounts that it maintained in the name of another entity, evinced complicity
in, or at least willful blindness to, the underlying unlawful activity. 16
Here, Mr. Gotay professes that he was not attempting to disguise the Rosses’ funds,17 and
yet, he intentionally placed all of the Rosses’ remaining liquid assets in a bank account
exclusively in his name. Moreover, he placed the funds in an account at a bank in which neither
he nor the Rosses had any other accounts.18 The Court finds that Mr. Gotay’s efforts to make the
$381,000 secure manifest, at the very least, complicity in, or willful blindness to, the underlying
unlawful activity. Therefore, the Court finds that Mr. Gotay is not an innocent owner for
purposes of 18 U.S.C. § 983(d).
For the reasons provided above, the Court finds as a matter of law that Mr. Gotay is not
an innocent owner because he had reason to believe that the $381,000 was subject to forfeiture.
B.

MOTION TO STRIKE
The Government asserts that AFB’s Verified Claim should be stricken.19 Subsequent to

the filing of the Government’s Motion to Strike, the Court issued an order to show cause, giving
AFB fourteen days to inform the Court as to the status of the case and its intentions to proceed.20
AFB filed a response to the Court’s order to show cause, indicating that it does not have a valid

16

Id.

17

See Docket No. 166, at 6-8.

18

See id. Ex. C & Docket No. 164-1, at 100-02.

19

See Docket No. 161.

20

Docket No. 174.
8

basis to dispute the Government’s arguments and “the motion of the [Government] to Strike the
Claim of American First Builders may be granted.”21 Based on AFB’s non-opposition and
concession, the Court will grant the Government’s Motion to Strike.
IV. CONCLUSION
It is therefore
ORDERED that the Government’s Motion for Summary Judgment Against Funds Seized
from Home Savings Bank Account # (Redacted) 8618 in the Name of Paul Gotay of at least
$381,000 (Docket No. 163) is GRANTED. It is further
ORDERED that the Government’s Motion to Strike the Claim of American First Builders
(Docket No. 161) is GRANTED. The Clerk of Court is instructed to close this case forthwith.
DATED November 15, 2011.
BY THE COURT:

_____________________________________
TED STEWART
United States District Judge

21

Docket No. 175.
9