United States v. Rothstein (In re Rothstein)

CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)
Citation717 F.3d 1205
Docket NumberNo. 11–10676.,11–10676.
PartiesIn re ROTHSTEIN, ROSENFELDT, ADLER, P.A., a.k.a. RRA, Debtors. United States of America, Plaintiff–Appellee, v. Scott W. Rothstein, Defendant–Appellee, Todd D. Snyder, Intervenor–Interested Party–Appellee, Herbert Stettin, Chapter 11 Trustee, Interested Party–Appellant, Regions Bank, Petitioner, Solar Air, Inc., Interpleader.
Decision Date12 June 2013

OPINION TEXT STARTS HERE

Madeleine R. Shirley, Evelyn Baltodano–Sheehan, Wifredo A. Ferrer, Alison Whitney Lehr, Kathleen Mary Salyer, Anne Ruth Schultz, U.S. Attys., Miami, FL, Jeffrey Kaplan, Lawrence D. LaVecchio, Paul Schwartz, U.S. Attys., Fort Lauderdale, FL, for PlaintiffAppellee.

Sharon Lee Kegerreis, Isaac Marcushamer, Paul Steven Singerman, Berger Singerman, LLP, Cary Alan Lubetsky, Krinzman, Huss & Lubetsky, Miami, FL, for Interested PartyAppellant.

Marc S. Nurik, Law Office of Robert E. Goldman, Fort Lauderdale, FL, for DefendantAppellee.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT and MARTIN, Circuit Judges, and BUCKLEW,* District Judge.

TJOFLAT, Circuit Judge:

A number of criminal statutes within the Federal Code mandate that a defendant, when convicted, forfeit to the United States as part of his sentence the lucre he acquired as a result of his criminal activity. In this case, the defendant, a lawyer, deposited the lucre in his law firm's bank accounts, where it was commingled with the firm's receipts from legitimate clients. The question this appeal presents is whether the money in the bank accounts at the time the defendant was charged is subject to forfeiture. We hold that it is not.

I.
A.

On November 10, 2009, four creditors of a Miami, Florida, law firm of seventy attorneys, Rothstein, Rosenfeldt and Adler P.A. (“RRA”), petitioned the Bankruptcy Court for the Southern District of Florida to reorganize the law firm under Chapter 11 of the United States Bankruptcy Code.1 Two weeks later, the Bankruptcy Court appointed Herbert Stettin trustee of the bankruptcy estate (the Trustee). On December 1, 2009, the United States Attorney for the Southern District of Florida filed a five-count information charging Scott Rothstein, “a shareholder, Chairman and CEO of RRA,”2 with conspiring to violate the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c),3 by employing RRA to engage in a pattern of racketeering activity, principally mail and wire fraud and money laundering, and with conspiring to commit those substantive offenses.4 These charges were based on a common allegation that Rothstein operated a “Ponzi” scheme5 by

fraudulently inducing investors through the use of false statements, documents, and computer records to (1) loan money to purported borrowers based upon fraudulent promissory notes and fictitious bridge loans, and (2) invest funds based upon anticipated pay-outs from purported confidential settlement agreements which had been reached between and among certain individuals and business entities. These settlement agreements were falsely presented as having been reached between putative plaintiffs in civil cases and putative defendants based upon the forbearance of civil claims in sexual harassment and/or whistle-blower cases.

Information, Record, vol. 1, no. 1, at 4, ¶ 7.A. In addition to seeking Rothstein's conviction for these offenses, the information sought the forfeiture of his interests in the numerous properties, including RRA's bank accounts at Gibraltar Private Bank and Trust (“Gibraltar Bank”) and Toronto Dominion Bank, N.A. (“TD Bank”), listed in the information (and the Appendix of this opinion), on the theory that such interests constituted proceeds of Rothstein's Ponzi scheme or property acquired with such proceeds. 6

Five days after filing the information against Rothstein, the Government moved the District Court pursuant to 18 U.S.C. § 1963(d)(1)(A)7 and 21 U.S.C. § 853(e)(1)(A)8 to enter an order restrainingRothstein and RRA from disposing of any of the property listed in the information, including RRA's accounts at Gibraltar Bank and TD Bank. The court entered the order the next day.9 The Trustee promptly moved the District Court to lift the restraining order to the extent that it applied to these bank accounts on the ground that the bank accounts, and the funds they held, were part of the RRA bankruptcy estate.10 The court denied his motion.

On January 27, 2010, Rothstein, pursuant to a plea agreement, pled guilty to all charges and forfeited to the United States “all of his right, title and interest to all assets listed in the Information.” Record, vol. 2, no. 69, at 3. On April 19, 2010, the District Court issued a preliminary order of forfeiture, in which Rothstein forfeited to the United States [a]ll right, title and interest ... in the property set forth in [the information].” Record, vol. 3, no. 134, at 3.11 Pursuant to §§ 853(n)(1) and 1963( l)(1), notice of forfeiture was published on May 5, 2010. On June 9, 2010, the court sentenced Rothstein to concurrent prison terms of fifty years and, as part of his sentence, ordered that his “right, title and interest to the property identified in the preliminary order of forfeiture” be forfeited to the United States. Record, vol. 8, no. 290, at 6. Immediately after Rothstein was sentenced, the Government attempted to seize the funds RRA held in some of the listed bank accounts. TD Bank rejected the attempt—because of the dispute between the Government and the Trustee—and appeared before the court on June 11 seeking guidance. Following a hearing at which the Trustee was represented, the court ordered the bank to turn over to the Government the bank accounts described in the preliminary order of forfeiture and held by RRA.

B.

Before sentencing, on May 24, 2010, the Trustee petitioned the District Court pursuant to the ancillary hearing procedure provided by 21 U.S.C. § 853(n)12 to order the Government to return the RRA accounts held in Gibraltar Bank and TD Bank. His petition pointed out that, as the information stated, the TD Bank accounts were held in the name of RRA and that he could establish that the Gibraltar Bank accounts were likewise held in the name of RRA. As for the other properties listed in the preliminary order of forfeiture,13 he requested that the court declare that the bankruptcy estate held an interest in such properties—because they were acquired with funds from RRA's bank accounts—that was “vested in the [law firm] rather than [Rothstein or the Government].” See§ 853(n).

On June 11, 2010, the Government moved to dismiss the Trustee's petition, 14 arguing, in effect, that the preliminary order of forfeiture forfeited to the United States the funds RRA held in the bank accounts. On July 9, 2010, the court denied its motion with respect to the bank accounts. It granted the motion, however, as it related to the other properties listed in the information, agreeing with the Government that (1) because the United States “unequivocally represented that [it would] use all forfeited property, less administrative costs, to reimburse qualified victims through restitution ... the restitution process provides the Trustee with an adequate remedy at law”; and (2) [i]t would be patently unequitable to return money to RRA's estate when it can be returned directly to the clients and qualifiedinvestors.” Record, vol. 10, no. 400, at 22.

On August 12, the Trustee moved the District Court for summary judgment as to the RRA accounts with Gibraltar Bank and TD Bank on the ground that it was undisputed that the accounts were RRA accounts.15 While the motion was pending, the court held a § 853(n) ancillary hearing regarding the Trustee's claim to the bank accounts.16 At the conclusion of the hearing, on August 25, the court denied the Trustee's motion, but ordered some portion of six of the bank accounts returned to the Trustee after finding that the funds on deposit did not constitute proceeds of Rothstein's criminal conduct. 17 The Government then moved the court to reconsider its ruling as to three of the bank accounts. On October 14, the court entered an order granting the motion with respect to two of the accounts on the ground that the funds in those accounts more likely than not were “proceeds of fraud.” Record, vol. 14, no. 637, at 6. The funds in those two accounts thus remain in the Government's custody subject to further order of the court.

The Trustee now appeals the District Court's denial of his petition. He challenges, specifically, the court's orders of July 9, August 25, and October 14, 2010, arguing that the bank accounts and the properties listed in the information that were purchased with funds from those accounts constitute assets of the bankruptcy estate. We address first the Trustee's claims with respect to the RRA bank accounts and, second, his claims with respect to the remaining properties—tangible and intangible personal property and real estate. We review the district court's factual findings for clear error and its legal conclusions de novo. United States v. Shefton, 548 F.3d 1360, 1363 (11th Cir.2008).

II.

The Trustee contends, in essence, that the bank accounts could not be forfeited because the funds they held did not constitute proceeds of Rothstein's Ponzi scheme. Further, in his responsive briefing to our questions at oral argument, he contends that the RRA bank accounts contained commingled assets and thus were not subject to proceeds forfeiture.

A.

While the plea agreement and preliminary order of forfeiture both equivocate on the point, it seems to us from the surrounding documents that, in seeking the forfeiture of the law firm's bank accounts, the Government proceeded under the theory that the accounts comprised the proceeds of Rothstein's Ponzi scheme. We have said that proceeds of crime constitute a defendant's “interest” in property, United States v. Conner, 752 F.2d 566, 575–76 (11th Cir.1985);...

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