244 F.3d 888 (11th Cir. 2001), 97-4578, United States v Gilbert

Docket Nº:97-4578
Citation:244 F.3d 888
Party Name:UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT, v. MICHAEL GILBERT, DEFENDANT-APPELLEE, KAREN GILBERT, MICHAEL GILBERT FAMILY IRREVOCABLE TRUST, THIRD PARTY CLAIMANTS-APPELLEES
Case Date:March 16, 2001
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit
 
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Page 888

244 F.3d 888 (11th Cir. 2001)

UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT,

v.

MICHAEL GILBERT, DEFENDANT-APPELLEE,

KAREN GILBERT, MICHAEL GILBERT FAMILY IRREVOCABLE TRUST, THIRD PARTY CLAIMANTS-APPELLEES

No. 97-4578

United States Court of Appeals, Eleventh Circuit

March 16, 2001

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Appeal from the United States District Court for the Southern District of Florida D.C. Docket No. 89-00879-CR-NCR

Before Tjoflat, Edmondson and Kravitch, Circuit Judges.

Tjoflat, Circuit Judge

This appeal represents the latest - and we hope final - chapter in a protracted RICO prosecution which has already commanded the attention of four panels of this court.1 Following our 1996 mandate setting aside the criminal forfeiture of Michael Gilbert's interest in a California limited partnership, the Government moved the district court to force Michael Gilbert and his family2 to file third-party petitions to reclaim their interests pursuant to 18 U.S.C. § 1963(l), and to restrain the Gilberts from the use and enjoyment of the previously forfeited property pending the outcome of the section 1963(l) hearing. The Government contends that although the judgment forfeiting Michael Gilbert's partnership interest has been set aside, the Gilberts should be forced to file third-party petitions because Michael derived his partnership interest as a subsequent transferee of Benjamin Kramer, one of his co-defendants whose silent interest in the limited partnership remains forfeited to the United States.

We conclude that the district court did not abuse its discretion in denying the Government's request. The statutory scheme outlined in section 1963(l) does not permit the Government's attempt to force the Gilberts to file third-party petitions. Moreover, we note that even if section 1963(l) did allow such an action by the Government, the subsequent proceeding would be needless because the order of forfeiture upon which the Government relies is invalid. Accordingly, we affirm the district court's denial of the Government's motion to force the Gilberts to file third-party petitions pursuant to 18 U.S.C. § 1963(l) and to restrain the Gilberts from the use and enjoyment of their property.

I.

A.

The Bell Gardens Bicycle Club (the "Club") was created on December 5, 19833 as a joint venture between two California partnerships: LCP, a general partnership,4 and Park Place Associates, a limited partnership ("PPA").5 PPA had received

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an exclusive license from the City of Bell Gardens to operate a card club in 1982, but was unable at that time to raise enough money to buy land and begin construction. PPA thus entered into a joint venture agreement with LCP, which offered to find the funds necessary to finance the Club's construction. For its part, PPA agreed to contribute its rights to property in the City of Bell Gardens as well as the gaming license it had already obtained.6

Unbeknownst to PPA, one source of funding located by LCP was a large-scale money laundering operation.7 From 1982 to 1987, Benjamin Kramer and three of his partners (Randy Lanier, George Brock, and Gene Fisher) were involved in an intricate scheme to import large quantities of marijuana into the United States. See United States v. Kramer, 73 F.3d 1067, 1070 (11th Cir. 1996); United States v. Kramer, 807 F.Supp. 707, 710 (S.D. Fla. 1991); see also United States v. Kramer, 955 F.2d 479 (7th Cir. 1992). The details of this bold undertaking and the elaborate money laundering operation that followed are described in great detail in Kramer, 807 F.Supp. at 710-736. Of significance in the instant appeal is that approximately $12.6 million of the initial $22 million needed to build the Club came from proceeds of Kramer's marijuana smuggling operation. 8

The level of complicity in the money laundering plan varied among the LCP partners. The three original LCP partners - Dale Lyon, Julie Coyne, and David Pierson - were brought together in 1983 by Michael Gilbert's father, Sam Gilbert. Sam, a wealthy Los Angeles businessman, was the first Gilbert to establish ties with the Kramer family when he befriended Benjamin Kramer's father, Jack Kramer, in 1978. At that time, Jack Kramer and Sam Gilbert came up with the idea of building a legal card club for the purposes of laundering Benjamin Kramer's dirty money. By 1983, Sam Gilbert was in contact with David Pierson, who was himself thinking of building a card club and was looking for legitimate investors. Pierson gave Sam Gilbert a prospectus, Sam liked what he saw, and Sam agreed to arrange the financing for the project in return for a sixty percent share of Pierson's ownership interest in the Club.

Sam Gilbert went to work putting together a team to undertake the financing side of the project. To that end, Sam

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Gilbert brought in Dale Lyon, a banker and businessman, and Julie Coyne, who had an experienced background in personnel. For some time, Lyon, Pierson, Coyne, and Sam Gilbert discussed the ownership percentages of what would become the LCP general partnership. Then, for little or no consideration, Sam Gilbert gave his entire sixty percent interest in LCP to the newcomers Lyon and Coyne in equal shares9 At the end of the day, Lyon and Coyne each owned a thirty percent interest in LCP and Pierson controlled the other forty percent interest.

While Sam Gilbert, Lyon, Coyne, and Pierson were negotiating their respective interests in LCP, Coyne, Sam Gilbert, and Lyon set up CGL Investment Company, Inc. ("CGL"). CGL was created to pose as a legitimate mortgage broker that would fund and invest in real estate projects, specifically, the Club. Shortly after Sam Gilbert had taken the necessary steps to organize both LCP and CGL, he met with Jack Kramer to explain the money laundering scheme, referring at that time to the new LCP partners and PPA as "your straw people. [The] lily-white people who will be approved by the Gambling Commission." Kramer, 807 F.Supp. at 712-13.

Approximately $12.6 million of Benjamin Kramer and his three associates' drug money was sent to CGL from a sham lending firm named Troon Mortgage Investment company ("Troon"), located in Tortola, which is part of the British Virgin Islands. Troon received the drug money from a trust called the BRT trust, located in Liechtenstein10 Sam Gilbert arranged for the money to be sent from Troon to CGL in the form of a loan. CGL then forwarded the money to the Club, once again in the form of a loan. In appreciation for the loan, Sam Gilbert promised Benjamin and Jack Kramer that they would retain their lender's rights of repayment of principal at a fifteen percent rate of interest (payable over fifteen years). In addition, Troon was to receive a fifteen percent income participation "kicker" payable over the life of the project.

With the necessary funds in hand, construction on the Club began in January 1984. By the fall of the same year, however, it became obvious that an additional $10 million would be needed to finish the project. To this aim, the LCP general partners asked Sam Gilbert to personally guarantee a $5 million loan that LCP had negotiated from a legitimate lending institution. Sam Gilbert refused to provide this guarantee but indicated that his son, Michael Gilbert, might be interested. 11 Sam Gilbert told Michael of LCP's need for additional financing and informed him that a twenty percent interest in LCP was available for $200,000. Michael Gilbert, in turn, discussed this opportunity with his siblings, Robert and Margaret. In November

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1984, after some negotiations with the LCP partners, Michael, Robert, and Margaret bought a twenty percent interest in LCP in exchange for $200,000 and an agreement to guarantee a $5.5 million loan to help finish construction of the Club. Coyne and Pierson each gave up ten percent of their interest in LCP to carve out the twenty percent share. 12

Gilbert and his siblings obtained a $200,000 loan from the Olympic National Bank to purchase the twenty percent interest in LCP. By agreement of the parties, LCP, rather than Michael Gilbert or his siblings, made the interest payments on the loan, and the loan principal was paid directly out of Michael Gilbert's and his siblings' profit distributions. As a result of Michael, Robert, and Margaret buying this twenty percent ownership interest, LCP, which had from its inception been organized as a general partnership, was reorganized into a limited partnership ("LCP, Ltd.") on November 15, 1984.13

The newly acquired twenty percent interest in LCP, Ltd. was divided among the members of the Gilbert family as follows: Michael and Robert each received one-third (or 6.67% each) and the remaining one-third was divided equally among Margaret, Michael's three children, and Robert's four children. Both Michael and Robert placed their children's shares in trust by creating, respectively, the Michael Gilbert Family Irrevocable Trust (the "Trust") and the Robert Gilbert Family Irrevocable Trust. In total, Michael Gilbert and the Trust owned approximately a ten percent interest (9.1675%) in LCP, Ltd.

The Club opened for business on November 30, 1984. Although the Club was not immediately successful, it started turning a substantial profit within six months. In 1989, the Club's after-tax profits were approximately $23 million. Starting in December 1984, the Club made regular mortgage payments on the CGL loan. LCP, Ltd. also paid CGL its fifteen percent profit participation on a monthly basis. In turn, CGL forwarded the mortgage payments and the kicker to Troon. 14

In 1986, the net quickly closed in on Benjamin Kramer's...

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