U.S. v. Contents of Accounts Numbers 3034504504 and 144-07143 at Merrill Lynch, Pierce, Fenner and Smith, Inc.

• Decision Date: 31 January 1992
• Docket Number: Nos. 91-5470,91-5768,s. 91-5470
• Parties: , 23 Fed.R.Serv.3d 307 UNITED STATES of America v. CONTENTS OF ACCOUNTS NOS. 3034504504 AND 144-07143 AT MERRILL, LYNCH, PIERCE, FENNER AND SMITH, INC. Friko Corporation, Claimant, Friko Corporation, Appellant. . Submitted Under Third Circuit 12(6)
• Court: U.S. Court of Appeals — Third Circuit

Page 974

971 F.2d 974

61 USLW 2143, 23 Fed.R.Serv.3d 307

UNITED STATES of America v. CONTENTS OF ACCOUNTS NOS. 3034504504 AND 144-07143 AT

MERRILL, LYNCH, PIERCE, FENNER AND SMITH, INC.

Friko Corporation, Claimant,

Friko Corporation, Appellant.

Nos. 91-5470, 91-5768.

United States Court of Appeals, Third Circuit.

Submitted Under Third Circuit 12(6)

Jan. 31, 1992.

Decided July 22, 1992.

Rehearing Denied Sept. 22, 1992.

Barry A. Spevack, Monico, Pavich & Spevack, Chicago, Ill., for Friko Corp.

Michael Chertoff, U.S. Atty., Neil R. Gallagher, Asst. U.S. Atty., Office of U.S. Atty., Newark, N.J., for U.S.

Present: SLOVITER, Chief Judge, MANSMANN and HUTCHINSON, Circuit Judges.

OPINION OF THE COURT

HUTCHINSON, Circuit Judge.

These in rem forfeiture proceedings involve two accounts opened with Merrill, Lynch, Pierce, Fenner & Smith in the name of Friko Corporation (Friko), a Panamanian corporation. At Docket No. 91-5470 Friko appeals an order of the United States District Court for the District of New Jersey that struck its claim to those accounts. The district court struck Friko's claim after holding Friko lacked standing to contest the seizure. Not only does Friko contend that it had standing, it also contends that the district court lacked jurisdiction to entertain the forfeiture proceeding because the accounts were not located in the same district in which the in rem forfeiture was filed. At Docket No. 91-5768 Friko also appeals from a subsequent order of the district court denying, as untimely, Friko's motion for reargument of the order striking its claim to the res.

Preliminarily, after examining the district court's jurisdiction, we hold that court had jurisdiction over the dispute between the government and Friko and that venue was properly laid in New Jersey. We also hold, however, that the district court lacked jurisdiction to determine the government's rights to the res versus the rest of the world. On the merits, we hold that the district court, on the evidence before it, did not err in ruling that Friko is nothing more than a straw man, or alter ego, for Johnny Daccarett (Daccarett), the true owner of the accounts. Thus, the district court was correct in concluding that Friko did not have standing to object to the forfeiture. Accordingly, on Friko's appeal No. 91-5470 we will affirm the orders of the district court striking Friko's claim for lack of standing and its consequent order entering a default judgment against Friko, but vacate its order entering a default judgment in favor of the government as to the res itself.

Finally, we have concluded that Friko's motion for reargument is properly treated as a motion for relief under Federal Rule of Civil Procedure 60(b) rather than Rule 59(e). As such, we hold it was timely. Thus, on Friko's appeal at No. 91-5768 we will remand the case to the district court so that it can exercise its discretion to grant or deny that motion.

I.

Following a criminal indictment filed in the United States District Court for the District of New Jersey alleging money laundering against, inter alia, Julio Montes Cardona (Cardona), Daccarett, Friko, and Quasil International Corporation (Quasil), the government filed an amended complaint for civil forfeiture in rem against Friko's accounts 3034504504 (the credit card account) and 144-07143 (the brokerage account) (collectively "the accounts") at Merrill, Lynch, Pierce, Fenner & Smith (the broker) in New York, New York on May 14, 1990 in the United States District Court for the District of New Jersey. A seizure warrant for the arrest of the brokerage account was then served on the broker in the United States District Court for the Southern District of New York. The credit card account had already been arrested.

Friko filed an objection to the forfeiture of the seized property on June 7, 1990. Thereafter, it filed a motion to dismiss the amended complaint on numerous grounds including lack of in rem jurisdiction. On August 31, 1990, the government moved to strike Friko's claim on the ground that Friko had no standing to object to the forfeiture because it was just a straw man for the true claimant, its president Johnny Daccarett, who did not have standing because he is a fugitive.

In an opinion and judgment entered on April 8, 1991, the district court denied Friko's motion to dismiss and granted the government's motion to strike Friko's claim. The district court held that it had jurisdiction over the forfeiture proceeding because Friko and Daccarett had been indicted in United States v. Cardona, No. 90-69 (D.N.J.), a related criminal case. The district court struck Friko's claim for lack of standing after concluding that Friko, as a straw man for the true claimant, Daccarett, had no standing and held that Daccarett himself was not entitled to challenge the seizure because he was a fugitive. The government then moved for an order that Friko had defaulted by failing to assert any cognizable right in the res. That motion was granted on April 19, 1991. Subsequently, a default judgment which awarded the res to the government was entered on the forfeiture complaint on May 24, 1991.

Unaware that a default judgment had been entered awarding the government full ownership of the res, see infra note 10, Friko filed a motion for reargument on the order striking its claim to the res. The motion for reargument was filed the same day the default judgment awarding the res to the government was entered. It was returned to Friko's attorneys because they had failed to set forth a return date for the motion.

On May 31, 1991, Friko filed a proper motion for reargument on the order striking its claim. In its renewed motion for reargument, Friko also asked that the April 19, 1991 default order entered due to its failure to assert a cognizable right in the res be vacated. In addition, on the same day, May 31, 1991, Friko filed a timely notice of appeal from the order striking its claim. As stated, we docketed that appeal at No. 91-5470. ¹ The government opposed the motion for reargument. On July 31, 1991 the district court denied the motion for reargument as an untimely Rule 59(e) motion for reconsideration, and refused to set aside the default. On September 24, 1991, Friko filed its second notice of appeal, docketed at No. 91-5768, from both the April 8 order and the July 31 denial of reconsideration.

II.

This forfeiture is part of the government's efforts to halt money laundering by drug dealers in the United States. According to the government, after drug dealers in the United States with suppliers in South America collect the cash proceeds of their illicit sales they face the problem of transferring money back to South America to pay the suppliers. Our federal banking laws are structured to minimize the use of our banking system to channel these illegal cash proceeds to South America.

Accordingly, any time a financial institution is involved in an all cash transaction that exceeds an amount specified by a banking regulation, it must be reported by the financial institution involved. See 31 U.S.C.A. § 5313 (West 1983). Current regulations require cash transactions exceeding $10,000.00 to be reported. See 31 C.F.R. § 103.22(a)(1) (1991). If the reporting requirement is not observed, criminal penalties are imposed. 31 U.S.C.A. § 5322 (West Supp.1992). It is also illegal to structure transactions intentionally to avoid the financial institution's reporting requirement. Id. § 5324 (West Supp.1992). Thus, systematic cash deposits in an amount less than $10,000.00 that are made for the purpose of avoiding section 5313's bank reporting requirement subjects the depositor to that section's criminal penalties. Purchasing money orders and then depositing the money orders in a bank account in order to avoid the section 5313 reporting requirement also subjects the depositor to section 5324's penalties.

Friko was formed in September of 1980. Its principal directors and corporate officers were all members of the Daccarett family. Jorge Daccarett, Friko's Secretary, has signed an authorization that allows Johnny and Delia Daccarett to obligate the company. Friko opened the accounts in question in Panama in October of 1983 and believed them to be located there. In fact, the brokerage account is held in New York, while certain free credit balances are held in the United Kingdom. ²

The indictment charged that Cardona ran a money laundering operation in New Jersey and that Friko, Daccarett and Quasil, a Panamanian company owned by Daccarett, inter alia, participated in that operation. The investigation uncovered evidence that substantial sums passed between the accounts of Quasil and Friko. Quasil's Florida accounts show deposits from the Cardona money laundering operation of 351 money orders of small denominations totaling $224,000.00 over an eight-month period, many of which were sequentially numbered. Moreover, a $41,000.00 check from Friko's brokerage account was used to open a New York savings account by Luis Saad, who also had dealings with the Cardona operation and another Quasil account in Panama. The government states that its investigation has not uncovered any business activities for Friko or Quasil except for a series of transactions in various bank accounts on which they are shown as holders of legal title.

Friko "present[s] itself as a money exchanger in Colombia['s] parallel market." Brief of Appellant in No. 91-5470 at 6. In support it presented an affidavit of Mohammad Haris Jafri, an economist formerly with the International Money Fund. Jafri stated that South American businesses frequently hold dollars in American banks as a hedge against the volatility of South American currencies. Saad also filed an affidavit on Friko's behalf. He stated that he worked for his father's textile business and went regularly to New York to buy textiles. Saad says he had no cash to buy the textiles because his money was all tied up in...