210 F.3d 96 (2nd Cir. 2000), 98-6273, United States v Funds Benefit of John Wetterer

Docket Nº:Docket No. 98-6273
Citation:210 F.3d 96
Party Name:UNITED STATES OF AMERICA, Plaintiff-Appellee, v. FUNDS HELD IN THE NAME OR FOR THE BENEFIT OF JOHN HUGH WETTERER, and/or ASOCIACION AMIGOS DEL LOS NINOS HOGAR MI CASA, a.k.a. MI CASA, at BANK INTERNATIONAL, LLOYDS BANK INTERNATIONAL and STERLING BANK, including but not limited to BANK OF AMERICA, ACCOUNT NUMBERS IF 1119-9984, 162232 IBF, 10201-01-1
Case Date:April 14, 2000
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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210 F.3d 96 (2nd Cir. 2000)

UNITED STATES OF AMERICA, Plaintiff-Appellee,

v.

FUNDS HELD IN THE NAME OR FOR THE BENEFIT OF JOHN HUGH WETTERER, and/or ASOCIACION AMIGOS DEL LOS NINOS HOGAR MI CASA, a.k.a. MI CASA, at BANK INTERNATIONAL, LLOYDS BANK INTERNATIONAL and STERLING BANK, including but not limited to BANK OF AMERICA, ACCOUNT NUMBERS IF 1119-9984, 162232 IBF, 10201-01-1 AND B-58-05616, LLOYDS BANK INTERNATIONAL BANK NUMBER 00070891 (NASSAU BRANCH) and STERLING BANK ACCOUNT NUMBERS 907-103 AND CD 15590 and all related accounts and funds, Defendants-Appellants.

Docket No. 98-6273

No. 98-6273--

United States Court of Appeals, Second Circuit

April 14, 2000

Argued: August 30, 1999

Claimant appeals from an amended judgment entered in the Eastern District of New York (Spatt, J.), forfeiting to the use and benefit of plaintiff-appellee United States certain funds on deposit in the Bank of America and Sterling Bank.

Reversed and remanded.

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JUNE RESNICK GERMAN, Huntington, N.Y., for Defendants-Appellants.

Susan L. Riley, Assistant United States Attorney, Eastern District of New York (Zachary W. Carter, United States Attorney for the Eastern District of New York, Arthur P. Hui, DEBORAH B. ZWANY, Assistant United States Attorneys, on the brief), for Plaintiff-Appellee.

Before: NEWMAN, CARDAMONE, JACOBS, Circuit Judges.

JACOBS, Circuit Judge:

Claimant in this case is the Asociacion Amigos De Los Ninos Hogar Mi Casa (the "Asociacion"), a not-for-profit corporation organized under the laws of Guatemala which cares for orphaned and abandoned children in that country. The Asociacion's former president, John Wetterer, was indicted in the Eastern District of New York for mail fraud, on the theory that he engaged in a pattern of sexual and physical abuse of boys entrusted to his care by the Asociacion, and that the Asociacion's fund-raising campaign concealed that material fact from donors. The United States District Court for the Eastern District of New York (Spatt, J.) ordered forfeiture of three bank accounts (one in Florida, two in Texas) held in the names of the Asociacion and Wetterer, after finding that the funds on deposit represented the proceeds of mail (and wire) fraud and were used in money laundering transactions. On appeal, claimant contends, inter alia, that the district erred by (i) finding jurisdiction in the Eastern District over the seized bank accounts, (ii) finding that the Asociacion was an alter ego of John Wetterer, and (iii) precluding the Asociacion from availing itself of the innocent owner defense as provided in 18 U.S.C. § 981(a)(2) of the federal civil forfeiture statute.

In this opinion we hold that:

(1) as to account number 05616 at the Bank of America in Florida, the district court lacks forfeiture jurisdiction; and

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(2) as to the two Sterling Bank accounts in Texas, claimant has (a) carried its burden of establishing that it is not an alter ego of Wetterer, and (b) carried its burden of establishing that it is the innocent owner of those funds.

Accordingly, the judgment of the district court is reversed and remanded with instructions for the district court to (A) enter an order promptly releasing all of the seized funds to the claimant, and (B) retain jurisdiction to consider and decide whether the claimant is entitled to an award of pre-judgment interest on those funds.

Claimant additionally raises (and this record presents) several other issues, including (1) whether the government can demonstrate on this record probable cause that Wetterer engaged in money laundering--the predicate offense to forfeiture--with the funds held in the Miami account at the time of seizure; (2) whether the "lowest intermediate balance" analysis employed by this Court for tracing tainted funds in the context of drug proceed forfeitures, see United States v. Banco Cafetero Panama, 797 F.2d 1154, 1159-61 (2d Cir. 1986), applies in a civil forfeiture action where the provision of the civil forfeiture statute allowing for substitute forfeiture of assets, 18 U.S.C. § 984, is inapplicable; and (3) if the lowest intermediate balance analysis does apply in this case, whether the district court erred in allowing for forfeiture of commingled accounts in their entirety. Since we dispose of this case chiefly on the ground that the Asociacion is not the alter ego of Wetterer, this opinion will not address the merits of these and other plausible issues.

BACKGROUND

The facts underlying this appeal have been set forth at length in the opinions of the district court, see United States v. Funds Held in Name or for Benefit of Wetterer; 899 F.Supp. 1013 (E.D.N.Y. 1995) ("Wetterer I"); United States v. Funds Held in Name or for Benefit of Wetterer, 991 F.Supp. 112 (E.D.N.Y. 1998) ("Wetterer II"); United States v. Funds Held in Name or for Benefit of Wetterer, 17 F.Supp.2d 161 (E.D.N.Y. 1998) ("Wetterer III"), and we assume familiarity with them. We recount only such facts as bear upon our resolution of the issues presented on appeal.

A. Basis of This Forfeiture Action

In 1976, John Hugh Wetterer ("Wetterer"), a former New York resident, founded an orphanage in Guatemala City called Mi Casa. Mi Casa is now one of six facilities run by the Asociacion, a not-for-profit corporation that was incorporated under the laws of Guatemala in 1984 to promote the welfare of orphaned or abandoned children in Guatemala by providing food, shelter education and other support services. At the time the incidents underlying this action took place, the Asociacion's board of directors included Wetterer, who served until 1991 as president of the board, and three prominent members of Guatemala's business and political community.

This forfeiture action stems from a series of newsletters about Mi Casa that Wetterer sent to his sponsors and donors in the United States and abroad. These newsletters, which sometimes solicited sponsor donations, depicted Mi Casa as a well run orphanage where abandoned and neglected boys were offered a chance for a better life through shelter, medical care, clothing and education.

This wholesome image of Mi Casa was impaired in early 1989. The television news-magazine "60 Minutes" received information that Wetterer was sexually abusing boys at Mi Casa. After looking into these claims, "60 Minutes" disclosed what it described as a chronic and extensive pattern of sexual abuse by Wetterer at Mi Casa, and aired a segment in which Wetterer was confronted with the allegations and vehemently denied them.

Also in 1989, the United States Postal Service began its own investigation, and concluded that Wetterer had been abusing

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boys at Mi Casa and that his monthly newsletters to sponsors and donors in the United States contained false representations that Mi Casa provided a healthy and stable environment for children. On September 14, 1990, the United States filed a criminal complaint against Wetterer in the Eastern District of New York, and a warrant was issued for his arrest in that jurisdiction. A first indictment charged violation of the mail fraud statute, 18 U.S.C. § 1341, based on Wetterer's allegedly fraudulent representations in the monthly newsletters. A second indictment charged theft and conversion of funds, based on certain funds transfers that Wetterer had made to his brother. Wetterer was notified of the arrest warrant but has not appeared to answer the charges. He remains in Guatemala, a country from which he cannot be extradited, and the United States characterizes him as a fugitive.

This forfeiture action was commenced in the Eastern District of New York on January 22, 1991, when the government moved, pursuant to 18 U.S.C. § 981, to forfeit certain bank accounts held in the name of the Asociacion or Wetterer. The in rem complaint specified mail fraud as the crime underlying the seizure, alleged that Wetterer financed the operation of Mi Casa through contributions solicited in the United States, and concluded that "these solicitations are false and fraudulent insofar as Wetterer represents that Mi Casa provides a healthy and stable environment for its residents, when, in fact, he molests and sexually abuses the boys who reside there."

An arrest warrant in rem authorizing the seizure of named bank accounts was issued the same day, and the government promptly seized the funds on deposit in the following three accounts: (1) Bank of America (Florida) account 05616 held in the name of the Asociacion (the "Miami account"), containing $39,436; (2) Sterling Bank (Texas) account 907-103 held in the name of the Asociacion, containing $27,578.31 (the "Texas checking account"); and (3) Sterling Bank (Texas) account CD 15590 held in the name of Wetterer (the "Texas CD account"), containing $42,312.52 ((2) and (3) together, the "Texas accounts").

B. Details of the Seized Accounts

1. The Miami Account

In the period 1976 through 1988, the financing of Mi Casa's operations was assisted by the American Friends of Children ("AFC"), an organization that Wetterer and several partners founded in Massapequa, N.Y., to raise money and serve the needs of orphaned children. AFC's treasurer, Daniel Mackey, testified that during this time AFC sent Wetterer over $1 million in donations for Mi Casa. Mackey received these donations by mail at a post office box in Massapequa, in the Eastern District of New York. The donations passing through this postal box are the only funds that the government has shown to be "tainted," i.e., they are the only funds shown to have been generated in response to the allegedly fraudulent newsletters, and they are accordingly the only funds referred to as...

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