Willis Mgmt. (vt.) v. U.S.

• Decision Date: 14 July 2011
• Docket Number: Docket No. 10–1616–cv.
• Citation: 652 F.3d 236
• Parties: WILLIS MANAGEMENT (VERMONT), LTD., Venture Reinsurance Company, Ltd., Petitioners–Appellants,Amy Lynn MacKay, Creative Sound, Williston, Town of, Petitioners,v.UNITED STATES of America, Appellee,People's United Bank, Petitioner–Appellee,Kenneth MacKay, Defendant.*
• Court: U.S. Court of Appeals — Second Circuit

652 F.3d 236

WILLIS MANAGEMENT (VERMONT), LTD., Venture Reinsurance Company, Ltd., Petitioners–Appellants,Amy Lynn MacKay, Creative Sound, Williston, Town of, Petitioners,

v.UNITED STATES of America, Appellee,People's United Bank, Petitioner–Appellee,Kenneth MacKay, Defendant.*

Docket No. 10–1616–cv.

United States Court of Appeals, Second Circuit.

Argued: March 30, 2011.Decided: July 14, 2011.

Matthew B. Byrne (Robert B. Hemley, on the brief), Gravel and Shea, Burlington, VT, for Petitioners–Appellants.Carol L. Shea, Assistant United States Attorney, for Tristram J. Coffin, United States Attorney for the District of Vermont, Burlington, VT, for Appellee.Debra L. Bouffard (Eric S. Miller, on the brief), Sheehey Furlong & Behm P.C., Burlington, VT, for Petitioner–Appellee.Before: STRAUB, SACK, and LYNCH, Circuit Judges.STRAUB, Circuit Judge:

Petitioners–Appellants Willis Management (Vermont), Ltd. (“Willis”), and Venture Reinsurance Company, Ltd. (“Venture”), an affiliate of Willis (collectively, the “petitioners”), appeal from a Memorandum and Order and Final Order of Forfeiture entered by the United States District Court for the District of Vermont (William K. Sessions, III, then- Chief Judge) dismissing their petition for an ancillary hearing and rejecting their claim as beneficiaries of a putative constructive trust in Defendant Kenneth MacKay's forfeited assets. The District Court ruled that the remission provision of 21 U.S.C. § 853(i) precluded the imposition of a constructive trust in the petitioners' favor. It also determined that imposing a constructive trust would be inconsistent with the forfeiture statutory scheme provided in § 853. Because we conclude that § 853(i) does not preclude, as a matter of law, recognizing a constructive trust and because a constructive trust is not inconsistent with the forfeiture statutory scheme, we vacate the petitioners' dismissal from the ancillary proceeding, vacate the Final Order of Forfeiture, and remand the case to the District Court for further proceedings.

BACKGROUND

Kenneth MacKay worked for Willis, a business that manages captive insurance companies,¹ from 1996 to 2008. From December 2006 to 2008, MacKay served as Willis's Senior Vice President and had the authority to make payments from Willis's bank accounts and the accounts of its clients and affiliates to various insurance companies and other businesses. In January 2000, MacKay incorporated RCM Financial Corporation (“RCM Financial”), which had an account at People's United Bank (formerly known as Chittenden Bank).² From approximately January 2004 until early 2008, MacKay embezzled money from Willis and its clients and diverted that money to his own personal use through the RCM Financial account and through other means. MacKay used a portion of the embezzled money to build a home in Williston, Vermont. MacKay then obtained a $500,000 home-equity line of credit from People's United Bank secured by a mortgage on his Williston home. MacKay used part of this line of credit to buy a condominium in Orlando, Florida.

On February 19, 2008, Willis and Venture—aware of an ongoing federal investigation into MacKay—filed a civil action against MacKay in Vermont state court alleging fraud and other claims. On the same day, Willis and Venture obtained a state-court writ of attachment on MacKay's Williston and Orlando properties. On February 20, 2008, People's United Bank filed a similar state-court action against MacKay, which was consolidated with Willis's and Venture's case.

On February 27, 2008, the United States filed a criminal complaint against MacKay in the United States District Court for the District of Vermont. That same day, the United States filed civil forfeiture complaints against MacKay's Williston and Orlando properties, which complaints were stayed while the criminal action proceeded. On September 2, 2008, the United States filed an Information charging MacKay with wire fraud, pursuant to 18 U.S.C. § 1343, with tax evasion, pursuant to 26 U.S.C. § 7201, and with money laundering, pursuant to 18 U.S.C. § 1957. A criminal forfeiture allegation included in the Information against MacKay sought forfeiture of both his Williston and Orlando properties pursuant to 18 U.S.C. § 982(a)(1)(2). Forfeiture under that section is governed by the forfeiture provisions of 21 U.S.C. § 853. See 18 U.S.C. § 982(b)(1). On September 25, 2008, MacKay pleaded guilty to the Information and agreed to forfeit his two properties and at least $4 million to the United States. The final, amended judgment of conviction identified Willis as the victim of MacKay's crimes and ordered restitution in the amount of $5,376,534.11.

The District Court issued Preliminary Orders of Forfeiture on MacKay's Williston and Orlando properties on November 20, 2008. In response, Willis and Venture filed a petition for a criminal ancillary proceeding pursuant to 21 U.S.C. § 853(n), claiming that they were the real owners of the properties because MacKay exclusively used funds stolen from Willis to purchase the homes. People's United Bank also filed a petition for an ancillary proceeding, claiming an interest in both properties as a result of MacKay's outstanding $261,624.95 of indebtedness on his home-equity line of credit. Amy MacKay, Kenneth's wife, filed a petition claiming an interest in both the Williston and Orlando properties. Creative Sound, a creditor of MacKay, sent a letter to the United States Attorney asserting an interest in the Williston property, which letter was construed by the District Court as a petition for an ancillary proceeding. Finally, the Town of Williston filed a petition asserting an interest in the Williston property as a result of MacKay's unpaid property taxes.

The United States subsequently moved to dismiss Willis and Venture from the ancillary proceeding on the ground that the petitioners could not show that they had a “legal ... interest” in the property pursuant to 21 U.S.C. § 853(n)(6)(A).³ The District Court granted the United States' motion (and also dismissed Amy MacKay and Creative Sound from the proceeding) by a Memorandum and Order dated February 11, 2010. The District Court rejected Willis's and Venture's argument that they were the beneficiaries of a putative constructive trust in the properties because the properties were purchased with money stolen from Willis. The District Court first explained that a constructive trust is an equitable remedy that should only be used when an adequate legal remedy is unavailable. The Court then determined that United States v. Ribadeneira, 105 F.3d 833, 837 n. 5 (2d Cir.1997) (per curiam), “supports the conclusion” that the remission provision in 21 U.S.C. § 853(i) is an adequate legal remedy that “preclude[s] the imposition of a constructive trust.” United States v. MacKay, No. 08–cr–106, slip. op. at 12 (D.Vt. Feb. 11, 2010). The District Court did note that in United States v. Schwimmer, 968 F.2d 1570, 1582 (2d Cir.1992), we held that a constructive trust could serve as a “legal interest” superior to the defendant's interest under an analogous forfeiture statute. The District Court, however, “decline[d] to follow Schwimmer and instead follow[ed] Ribadeneira ” because it determined that “as borne out in the later Ribadeneira case, an approach allowing for a constructive trust when a legal remedy is available is ‘inconsistent with the statutory remedial scheme.’ ” MacKay, No. 08–cr–106, slip. op. at 13 (quoting United States v. BCCI Holdings (Lux.), S.A., 46 F.3d 1185, 1191 (D.C.Cir.1995)). The District Court therefore declined to impose a constructive trust and found that, as a result, Willis and Venture had no “legal ... interest” in the property that would allow them to contest the forfeiture of MacKay's assets. Accordingly, the Court dismissed Willis and Venture from the ancillary proceeding.

The District Court ultimately entered a Final Order of Forfeiture on April 14, 2010, based on a settlement agreement reached among the remaining parties. The settlement provided principally that People's United Bank and the Town of Williston would be paid their debts owed, plus interest, while the remainder of the proceeds from the sale of the property would be forfeited to the United States. Willis and Venture now appeal from the Final Order of Forfeiture and the District Court's underlying rulings, including the Memorandum and Order dismissing their petition for an ancillary proceeding. For its part, People's United Bank asserts the alternative argument that any error by the District Court in dismissing the petitioners from the ancillary proceeding was harmless because People's United Bank's interest in the properties should be accorded at least equal priority with any constructive trust recognized in favor of the petitioners. Finally, Willis and Venture urge that the District Court also erred by accepting People's United Bank's status as a valid claimant and by entering the Final Order of Forfeiture pursuant to the remaining parties' settlement agreement without first holding an evidentiary hearing.

DISCUSSION

I

The parties disagree as to the proper standard of review on appeal. The United States and People's United Bank argue that the District Court exercised its discretion in not imposing the equitable remedy of a constructive trust and that therefore an abuse of discretion standard applies. Willis and Venture, on the other hand, argue that because the District Court denied the constructive trust as a matter of law, our review should be de novo.

It is true that we have applied an abuse of discretion standard in reviewing a district court's denial of equitable relief. See Sharkey v. Lasmo (AUL Ltd.), 214 F.3d 371, 374 (2d Cir.2000). However, “[t]he abuse of discretion standard is used to evaluate the court's application of the facts to the appropriate legal standard, and the factual findings and legal conclusions underlying such decisions are...