United States v. 1407 N. Collins St.

Decision Date16 August 2018
Docket NumberNo. 17-10624,Cons w/ 17-10626,17-10624
Citation901 F.3d 268
Parties UNITED STATES of America, Plaintiff-Appellee v. REAL PROPERTY LOCATED AT 1407 NORTH COLLINS STREET, ARLINGTON, TEXAS; Real Property Located at 4418 Maple Avenue, Dallas, Texas; Real Property Located at 701 East 5th Street, Austin, Texas; Real Property Located at 9515 Skillman Street, Dallas, Texas; Real Property Located at 5800 Maple Avenue, Dallas, Texas; et al.; Defendants v. Gerald Shults; Gas Pipe, Incorporated; Amy Lynn, Incorporated; Ridglea Complex Management, Incorporated; Rapids Camp Lodge, Incorporated ; Amy Lynn Herrig; Dan Christopher Herrig, Claimants-Appellants United States of America, Plaintiff-Appellee v. Gas Pipe, Incorporated; Amy Lynn, Incorporated; Gerald Shults, also known as Jerry; Amy Herrig; Rapids Camp Lodge, Incorporated ; Ridglea Complex Management, Incorporated, Defendants-Appellants
CourtU.S. Court of Appeals — Fifth Circuit

Joseph Andrew Magliolo, Esq., U.S. Attorney's Office, Northern District of Texas, Dallas, TX, for Plaintiff-Appellee.

Steven Leigh Kessler, Esq., Law Offices of Steven L. Kessler, New York, NY, Michael Mowla, Cedar Hill, TX, for Claimants-Appellants.

Before DAVIS, HAYNES, and DUNCAN, Circuit Judges.

HAYNES, Circuit Judge:

Claimants challenge the pretrial restraint of their property under civil forfeiture laws, arguing the Government failed to show the requisite probable cause. The district court denied Claimants’ motion to release their property. For the reasons set forth below, we AFFIRM.

I. Background

The grand jury’s indictment in this case charges a scheme to sell a designer drug known as "spice" through Gas Pipe, Inc. and Amy Lynn Inc., which has locations throughout Texas and New Mexico. The indictment accused Gerald Shults and his daughter Amy Lynn Herrig1 of conspiring to market the drug as "herbal incense," "potpourri," or "aroma therapy" and then laundering the proceeds through related businesses.

Although these products were labeled as "synthetic cannabinoid free" and "not for human consumption," the indictment alleged that they in fact contained synthetic cannabinoids that were a controlled substance or controlled substance analogues intended for human consumption.

The Government executed civil seizure warrants against Claimants’ accounts at UBS Financial Services. UBS froze the accounts, and the Government filed a civil forfeiture suit which, as amended, listed UBS accounts totaling more than $7 million as defendants in rem. The Government subsequently seized the UBS accounts pursuant to an arrest warrant under Federal Rule of Civil Procedure Supplemental Rule G(3)(b)(ii). The Government alleged that the defendant Claimants used the UBS accounts to receive proceeds of the spice scheme and conceal unlawful activity.

The Government’s civil forfeiture suit also listed several pieces of real property as defendants in rem. The properties include Gas Pipe store locations and properties allegedly purchased with funds traceable to the charged crimes. The Government has not seized this real property, but it filed notices of lis pendens pursuant to 18 U.S.C. § 985.

Claimants filed a motion asking the district court to lift the pretrial restraints on their UBS accounts and real property, arguing the Government failed to show probable cause that the property is subject to forfeiture. The district court denied the motion, and Claimants filed this interlocutory appeal.

II. Jurisdiction

The parties dispute whether we have jurisdiction over this appeal. Claimants invoke 28 U.S.C. § 1292(a)(1), which allows interlocutory appeal of orders "granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions." The Government argues § 1292(a)(1) does not apply because no injunction is involved. We conclude that jurisdiction exists under § 1292(a)(1) because, based on the law in this circuit, the district court’s order has "the practical effect" of granting or denying an injunction. See Abbott v. Perez , ––– U.S. ––––, 138 S.Ct. 2305, 2319–20, ––– L.Ed.2d –––– (2018) ; McLaughlin v. Miss. Power Co. , 376 F.3d 344, 352 (5th Cir. 2004) (per curiam) (quoting Sherri A.D. v. Kirby , 975 F.2d 193, 203 (5th Cir. 1992) ). As to the Government’s seizure of the UBS accounts, we have previously relied on § 1292(a)(1) to review appeals seeking the release of assets in civil and criminal forfeiture cases. See United States v. Melrose E. Subdivision , 357 F.3d 493, 496–98 & n.2 (5th Cir. 2004) (reviewing pretrial restraining order issued under 18 U.S.C. § 983(j)(1)(A) ); United States v. Floyd , 992 F.2d 498, 499–500 (5th Cir. 1993) (reviewing pretrial restraining order issued under 21 U.S.C. § 853(e)(1)(A), stating that "pretrial asset restraining orders are appealable as ‘injunctions’ under § 1292(a)(1)").2

The Government argues Floyd is distinguishable because there the order operated like an injunction by requiring the defendant to do something (i.e., to deposit money subject to forfeiture with the court). But our jurisdictional analysis in Floyd did not rely on that fact. See 992 F.2d at 500. Moreover, in Melrose , the order did not require the defendant to do anything; instead, it simply enjoined the defendant from using the frozen property. See 357 F.3d at 496–97. Yet we cited § 1292(a)(1) and Floyd in treating that order as an immediately reviewable injunction. See id. at 498 n.2. Here, the district court’s order has the same effect—it enjoins Claimants from using the UBS accounts while refusing to order the Government to unfreeze them. We therefore see no principled reason to treat this order differently.3

As to the lis pendens on Claimants’ real property, we have invoked § 1292(a)(1) to review an order releasing real property from a lis pendens. See Beefy King Int’l, Inc. v. Veigle , 464 F.2d 1102, 1104 (5th Cir. 1972) (per curiam). There, the district court lifted the lis pendens from property in a fiduciary duty suit against corporate officers, and the corporation appealed. See id. at 1103. We considered our jurisdiction and concluded that "the case should be treated in the same manner as a denial, dissolution, or modification of an injunction."

Id. at 1104 (citing, inter alia, 28 U.S.C. § 1292(a)(1) ).

Our opinion in Beefy King did not elaborate on the issue. But in discussing the separate issue of why Florida law allowed courts to discharge a notice of lis pendens in the same way courts dissolve injunctions, we observed that "the effect of a lis pendens on the owner of property ... is constraining." Id. "For all practical purposes, it would be virtually impossible to sell or mortgage the property because the interest of a purchaser or mortgagee would be subject to the eventual outcome of the lawsuit." Id.

The same rationale explains our conclusion in Beefy King that an order releasing property from a lis pendens is immediately appealable under § 1292(a)(1).4 See id. Although here we deal with an order declining to release property from a lis pendens, our emphasis in Beefy King on how a lis pendens restrains the owner’s use of property has even more force in this context. Cf. 15A CHARLES A. WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 3914.2 (2d ed. 2018) (stating that case law "belie[s] any prospect of a simple rule that appeal can be taken from orders denying security but not orders granting security"). We conclude, therefore, that we also have jurisdiction to entertain Claimants’ appeal as to the lis pendens.

III. Standard of Review

We review the district court’s decision de novo because whether to grant or deny injunctive relief by denying a motion to lift pretrial property restraints turns on whether probable cause exists. "[T]he question of whether the facts are sufficient to constitute probable cause is a question of law" subject to de novo review. Melrose , 357 F.3d at 498. Whether the district court applied the proper standard of proof is also a question of law reviewed de novo. Id.

IV. Discussion

The Government may restrain property prior to trial when there is probable cause to think the property is forfeitable. See Kaley v. United States , 571 U.S. 320, 323–24, 134 S.Ct. 1090, 188 L.Ed.2d 46 (2014) ; Melrose , 357 F.3d at 503–04 (holding that continuing a pretrial restraining order under 18 U.S.C. § 983(j)(1)(A) requires a showing of probable cause, consistent with "the standard for obtaining the alternative device for preserving assets subject to forfeiture: outright seizure"). For probable cause to exist, "[t]here must be probable cause to think (1) that the defendant has committed an offense permitting forfeiture, and (2) that the property at issue has the requisite connection to that crime." Kaley , 571 U.S. at 323–24, 134 S.Ct. 1090.

The probable cause standard "is not a high bar," requiring "only the kind of fair probability on which reasonable and prudent people, not legal technicians, act." Id. at 338, 134 S.Ct. 1090 (internal quotation marks and alteration omitted). "Previous forfeiture cases have defined probable cause as ‘a reasonable ground for belief ... supported by less than prima facie proof but more than mere suspicion.’ " Melrose , 357 F.3d at 505–06 (quoting United States v. 1988 Oldsmobile Cutlass Supreme 2 Door , 983 F.2d 670, 674 (5th Cir. 1993) ). The court considers "all of the circumstances" and takes a "common sense view to the realities of normal life."

Id. A grand jury indictment establishes probable cause to think a defendant committed an offense permitting forfeiture. Kaley , 571 U.S. at 340–41, 134 S.Ct. 1090.

A. Forfeiture Based on Money Laundering
1. Sufficiency of the Complaint

We first address Claimants’ argument that the district court wrongly reviewed the Government’s forfeiture allegations as to money laundering based on "the minimal standards applicable to a motion to dismiss ... in an ordinary civil case," instead of the more stringent standard applied to civil forfeiture suits. See FED. R. CIV. P. SUPP. R. G(2)(f) ...

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    ...practical effect’ of granting or denying an injunction" may be appealed under § 1292(a)(1). See United States v. Real Prop. Located at 1407 N. Collins St. , 901 F.3d 268, 272 (5th Cir. 2018) (quoting Abbott v. Perez , ––– U.S. ––––, 138 S. Ct. 2305, 2319–20, 201 L.Ed.2d 714 (2018) ). We hav......
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