U.S. v. Kennedy, No. 98-3455

• Decision Date: 28 January 2000
• Docket Number: No. 98-3455
• Citation: 201 F.3d 1324
• Parties: (11th Cir. 2000) UNITED STATES of America, Plaintiff-Appellant, v. Verness R. KENNEDY, Pinellas County Teachers Credit Union, Interested Parties-Appellees, Continental Graphics Corporation, Interested Parties-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1324

201 F.3d 1324 (11th Cir. 2000)

UNITED STATES of America, Plaintiff-Appellant, v. Verness R. KENNEDY, Pinellas County Teachers Credit Union, Interested Parties-Appellees, Continental Graphics Corporation, Interested Parties-Appellants.

No. 98-3455.

United States Court of Appeals Eleventh Circuit.

Jan. 28, 2000.

Appeals from the United States District Court for the Middle District of Florida. (No. 94-00182-CR-T-32A), Steven D. Merryday, Judge.

Before TJOFLAT and CARNES, Circuit Judges, and GARWOOD^*, Senior Circuit Judge.

TJOFLAT, Circuit Judge:

The ultimate question in this case is whether a state divorce court can defease the United States of its interest in property forfeited under the criminal forfeiture provisions of 18 U.S.C. 982 (1994) and 21 U.S.C. 853 (1994). We answer this question in the negative.

I.

A.

On January 27, 1995, a federal grand jury in the Middle District of Florida indicted Byron Kennedy ("Kennedy") on twelve counts of mail fraud in violation of 18 U.S.C. 1341 (1994),¹ and two counts of unlawful monetary transactions in violation of 18 U.S.C. 1957 (1994).² The indictment included a forfeiture count which alleged that Kennedy's interest, to the extent of $177,445.05, in a beach house located at 2910 Sunset Way, St. Petersburg Beach, Florida, was forfeitable to the United States pursuant to 18 U.S.C. 982 because it was acquired with proceeds of criminal activity.³

Continental Graphics, Inc. ("CGI")⁴ was engaged in the business of selling yearbooks to high school students, and Kennedy was its sales representative for several Florida schools. The indictment alleged that between April 1984 and December 1990, Kennedy engaged in a scheme to defraud CGI of over $800,000 by stealing monies paid by students (to their schools) for yearbooks. The scheme was not complicated. On April 4, 1984, Kennedy convinced CGI to cease billing the schools directly, and instead to allow him (through his company, Byron Kennedy & Co.) to bill them. Kennedy told CGI that he would instruct the schools to mail their payments to a post office box in St. Petersburg, Florida, which would be under the control of the Bank of Florida. The bank was to act as an agent of CGI, and to deposit in a CGI account all the monies received. All remittances to the account were to be the sole property of CGI, and Kennedy would not have the right to withdraw or receive any of the account funds, or to collect any of the payments directly from the schools. The April 4 agreement provided that Kennedy would instruct the schools to send their payments to Post Office Box 10933.

Kennedy altered the invoices, however, so as to instruct schools to send their payments to P.O. Box 10937. Only Kennedy had access to Box 10937. When CGI became concerned that the new arrangement had led to an alarming rate of past due invoices, Kennedy told the company that he had no idea why payments were not being received. In the meantime, Kennedy was pocketing thousands of dollars that schools had mistakenly sent to his personal post office box, in violation of 18 U.S.C. 1341. The indictment also alleged that Kennedy had converted $177,445.05 of the stolen money by purchasing a beach house at 2910 Sunset Way in St. Petersburg, in violation of 18 U.S.C. 1957. On the same day the indictment was returned, the Government recorded its notice of lis pendens on the property.

On July 28, a jury found Kennedy guilty on all counts and also returned a special verdict finding that the Sunset Way property "was involved in the unlawful monetary transaction [prohibited by 18 U.S.C. 1957] ..., or is property traceable to property which was involved in the unlawful monetary transaction...." On November 30, the district court issued an order forfeiting all Kennedy's right, title, and interest in the Sunset Way property to the United States, pursuant to 18 U.S.C. 982.⁵ The court also sentenced Kennedy to fifty-seven months imprisonment, three years of supervised release, and ordered restitution in the amount of $832,011 to be paid to CGI.

B.

After the court entered its order of forfeiture, three parties filed petitions in the district court seeking to adjudicate their interests in the Sunset Way property in accordance with 21 U.S.C. 853(n)(2)⁶ (1) CGI; (2) Verness Kennedy ("Mrs.Kennedy"), Kennedy's former spouse; and (3) the Pinellas County Teachers Credit Union (the "Credit Union"), which held a mortgage on the Sunset Way property. The district court assigned the case to a magistrate judge who held a hearing and made appropriate findings of fact. Following, we summarize the findings of fact adopted by the district court pertaining to the interests of CGI, Mrs. Kennedy, and the Credit Union.

In June 1989, the Kennedys entered into a real estate contract to purchase the Sunset Way beach house for $542,500. By then they had been married for almost thirty-one years. Their four sons were grown. Mrs. Kennedy considered their old house too large and costly to upkeep, and she no longer liked their old neighborhood. To her, the beach house she had spotted for sale offered more. Her husband, however, did not share her enthusiasm. Because of his reluctance and her desire for change, Mrs. Kennedy committed much of her personal wealth to convince him to join her in purchasing the residence.

Mrs. Kennedy had worked throughout most of the marriage. She taught in the public school system, modeled, refinished furniture, and owned (and continues to own) Patti and Friends Antique Mall, a business that rents booths to about eighty vendors. She had inherited securities after her mother's death in 1968, and knew by June 1989 that she could expect to receive a significant inheritance due to her father's recent death. Consequently, Mrs. Kennedy thought she would have the financial means to contribute toward the purchase of the new home.

Unfortunately, at the time she wanted to execute a contract on the Sunset Way property, Mrs. Kennedy did not have the means in hand. Her inheritance had not come through, and the Kennedys had not yet sold their old residence. Therefore, in June 1989, Mrs. Kennedy promised to repay her husband if he would make the $50,000 earnest money deposit. Kennedy agreed, telling his wife that he would borrow the money from his business.

The couple acquired the property in September 1989. At the closing, they paid the sellers $134,445.05 in cash and assumed an existing $356,000 mortgage held by the Credit Union. As with the earnest money deposit, Kennedy advanced the cash payment (again telling his wife that he was borrowing the money from his business) with the understanding that Mrs. Kennedy would repay him either when she received her inheritance or when their old house sold. Though Mrs. Kennedy was unaware of her husband's improprieties, it is undisputed that the $184,445.05.⁷ contributed by Kennedy toward the purchase of the beach house was money stolen from CGI.

The district court found that when the Kennedys closed on the beach house in September 1989, they owned the property as tenants by the entireties, meaning that each spouse had "an indivisible right to own and occupy the entire property." United States v. One Single Family Residence With Out Bldgs., 894 F.2d 1511, 1515 (11th Cir.1990). Despite their joint ownership, Mrs. Kennedy kept her promise to repay her husband almost the full amount of the funds that he had contributed toward the purchase of the residence. After her inheritance came through, and the couple's old house sold, Mrs. Kennedy wrote her husband three checks totaling $180,000.⁸

Mrs. Kennedy first learned of her husband's fraud in May 1991. As noted above, Kennedy was indicted on charges of mail fraud and unlawful monetary transactions a little less than four years later, on January 27, 1995; this was the same day that the Government recorded its notice of lis pendens on the Sunset Way residence. Two months later, Mrs. Kennedy filed for a divorce. At a domestic mediation conference held to establish the financial terms of the divorce, the parties agreed that Mrs. Kennedy had a "special equity" in the beach house; this was largely because, including the funds Mrs. Kennedy had used to repay her husband for his contributions at the time of purchase, Mrs. Kennedy produced checks totaling more than $392,412 that she had invested in the property.⁹ Accordingly, Kennedy agreed to transfer any rights he possessed in the property to her. On September 19, 1995, the state court entered a divorce decree which adopted the mediation agreement, awarded the Sunset Way property to Mrs. Kennedy because of her agreed upon special equity in the residence, and dissolved the marriage.¹⁰ More than a month later on November 30, 1995, the United States District Court for the Middle District of Florida entered its order forfeiting to the United States all Kennedy's right, title, and interest in the Sunset Way property.

C.

Under 21 U.S.C. 853(n)(6), third party petitioners can establish their interest in forfeited property in only two ways. See United States v. Reckmeyer, 836 F.2d 200, 203 (4th Cir.1987) ("Subsection (n) provides the only means for third parties to establish their interest in forfeited property."). The statute provides:

If, after the hearing, the court determines that the petitioner has established by a preponderance of the evidence that-

(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...