U.S. v. Funds from First Regional Bank Account

• Decision Date: 11 March 2009
• Docket Number: Case No. C08-0272-JCC.
• Citation: 639 F.Supp.2d 1203
• Parties: UNITED STATES of America, Plaintiff, v. FUNDS FROM FIRST REGIONAL BANK ACCOUNT # XXXXX1859 HELD IN the NAME OF R K COMPANY, INC., d/b/a Cigar Cartel, Totaling $201,147.00 More or Less, and the Proceeds Therefrom, et al., Defendants.
• Court: U.S. District Court — Western District of Washington

639 F.Supp.2d 1203

UNITED STATES of America, Plaintiff, v. FUNDS FROM FIRST REGIONAL BANK ACCOUNT # XXXXX1859 HELD IN the NAME OF R K COMPANY, INC., d/b/a Cigar Cartel, Totaling $201,147.00 More or Less, and the Proceeds Therefrom, et al., Defendants.

Case No. C08-0272-JCC.

United States District Court, W.D. Washington, at Seattle.

March 11, 2009.

Richard Edward Cohen, US Attorney's Office, Seattle, WA, for Plaintiff.

ORDER

JOHN C. COUGHENOUR, District Judge.

This matter comes before the Court on Claimant R.K. Co., Inc, d/b/a Cigar Cartel's ("RK") motion for summary judgment (Dkt. No. 24), the Government's Response (Dkt. No. 31), and RK's Reply (Dkt. No. 35); and Global Trading Corporation of Tampa's ("Global") Motion for Summary Judgment (Dkt. No. 35), the Government's Response (Dkt. No. 40), Global's Reply (Dkt. No. 48), and RK's Second Reply (Dkt. No. 55). The Court has carefully considered these documents, their supporting declarations and exhibits, and the balance of relevant materials in the case file, and has determined that oral argument is not necessary. For the reasons explained below, the Court finds and rules as follows.

I. BACKGROUND

This is a civil forfeiture action brought by the United States (the "Government") concerning bank account funds seized and held in the name of Claimants R.K. Company, Inc. d/b/a Cigar Cartel ("RK") and Global Trading Company of Tampa, Florida ("Global"). Claimants allegedly sold and transported contraband cigarettes to The Trading Post at March Point ("March Point"), a privately-owned Indian smoke shop located on the Swinomish Indian Reservation. RK is a tobacco wholesaler licensed in the State of Washington and Global is a tobacco wholesaler licensed in the State of Florida.

Beginning in 2003, federal officials began an investigation of trafficking in contraband cigarettes in Washington State. (Compl. ¶ 5 (Dkt. No. 1 at 2).) From 2003 and continuing into 2007, unstamped contraband cigarettes were sold to undercover officers from March Point and its related businesses. (Id.) The investigation revealed that the unstamped contraband cigarettes were shipped to March Point from outside Washington. (Id.) Based upon this information, agents from the Bureau of Alcohol, Tobacco, Firearms and Explosives (the "ATF") executed a search warrant on March Point and its related businesses. The ATF located and seized approximately 3,543,820 contraband cigarettes and seized business and financial records evidencing payment and shipment of such cigarettes. (Id.)

Based upon information and evidence gathered during the Government's investigation, it identified payments made by March Point (and its affiliates) for the purchase of the alleged contraband cigarettes. (Id. ¶ 6.) These payments were transferred or deposited into the bank accounts of various suppliers, including Claimants RK and Global. (Id.) Pursuant to a warrant, the Government seized funds from bank accounts in Washington, which included $201,147.00 from First Regional Bank Account # XXXXX1859, held in the name of RK, and $89,240.00 from Bank of America Account # XXXXXX6903, held in the name of Global. (Id. ¶¶ 8-9.) The Government alleges that these funds represent proceeds of trafficking in contraband cigarettes in violation of 18 U.S.C. § 2342 and constitute property involved in money laundering in violation of 18 U.S.C. §§ 1956(a)(1)(A)(i) & 1957. (Id.) The civil forfeiture action is brought pursuant to 18 U.S.C. §§ 981(a)(1)(A), 981(a)(1)(C) & 984. (Id. ¶ 1.)

II. LEGAL STANDARD

Summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). In determining whether an issue of fact exists, the Court must view all evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1996). A genuine issue of material fact exists where there is sufficient evidence for a reasonable factfinder to find for the nonmoving party. Anderson, 477 U.S. at 248, 106 S.Ct. 2505. The inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52, 106 S.Ct. 2505. The moving party bears the initial burden of showing that there is no evidence which supports an element essential to the nonmovant's claim. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the movant has met this burden, the nonmoving party then must show that there is a genuine issue for trial. Anderson, 477 U.S. at 250, 106 S.Ct. 2505. If the nonmoving party fails to establish the existence of a genuine issue of material fact, "the moving party is entitled to judgment as a matter of law." Celotex, 477 U.S. at 323-24, 106 S.Ct. 2548.

III. ANALYSIS

Claimants RK and Global each bring a motion for summary judgment, requesting that the Court dismiss the Government's Complaint and order the return of the funds seized from their bank accounts. The claimants primarily argue that summary judgment is warranted because the cigarettes sold and transported to March Point were not "contraband" under the Contraband Cigarette Trafficking Act, 18 U.S.C. §§ 2341-2346 (the "CCTA"). Before addressing claimants' arguments, a general outline of the applicable statutes and regulatory regime is in order.

A. Applicable Statutes and Contract Provisions

The CCTA provides that it is "unlawful for any person knowingly to ship, transport, receive, possess, sell, distribute, or purchase contraband cigarettes." 18 U.S.C. § 2342(a). Under the CCTA, "contraband cigarettes" means a "quantity in excess of 60,000 cigarettes which bear no evidence of the payment of applicable State or local cigarette taxes in the State or locality where such cigarettes are found, if the State or local government requires a stamp ...." Id. § 2341(2). The CCTA provides that contraband cigarettes are subject to seizure and forfeiture. Id. § 2344(c). Because the CCTA defines contraband cigarettes by reference to state law, "[a] violation of the state cigarette tax law is a predicate to a CCTA violation." United States v. Gord, 77 F.3d 1192, 1193 (9th Cir.1996); United States v. Smiskin, 487 F.3d 1260, 1263 (9th Cir.2007) ("whether [defendants] transported contraband cigarettes under the CCTA turns on Washington State law"). Accordingly, whether cigarettes are "contraband cigarettes" under the CCTA is determined by reference to the requirements under Washington's cigarette regulatory regime. See Smiskin, 487 F.3d at 1263; United States v. Fiander, 547 F.3d 1036, 1038-39 (9th Cir.2008).

Under Washington law, cigarettes sold in the state must have a stamp showing either that the tax was paid or that the cigarettes were tax exempt. Wash. Rev. Code § 82.24.030(1)-(2); Fiander, 547 F.3d at 1038. A cigarette wholesaler, licensed under Washington state law, is permitted to possess unstamped cigarettes. Wash. Rev.Code § 82.24.250(7)(a). Retailers and consumers cannot possess unstamped cigarettes. Id. § 82.24.050. Cigarettes without the required stamps are deemed contraband under Washington law, and under the CCTA. See Wash. Admin. Code § 458-20-186(506); Grey Poplars Inc. v. One Million Three-Hundred Seventy-One Thousand (1,371,100) Assorted Brands of Cigarettes, 282 F.3d 1175, 1178 (9th Cir. 2002).

In addition, Washington law provides specific restrictions on the transportation of any unstamped cigarettes in the state:

No person other than: (a) A licensed wholesaler in the wholesaler's own vehicle; or (b) a person who has given notice to the board in advance of the commencement of transportation shall transport or cause to be transported in this state cigarettes not having the stamps affixed to the packages or containers.

Wash. Rev.Code § 82.24.250(1). Thus, unless transported in a licensed wholesaler's own vehicle, Washington law prohibits the transportation of any unstamped cigarettes in the State without prior notice to the Washington State Liquor Control Board. See id. § 82.24.010 (defining "board" to mean "the liquor control board"). The Ninth Circuit has found that failure to comply with this pre-notification requirement renders unstamped cigarettes transported in the state "contraband cigarettes" under the CCTA. Fiander, 547 F.3d at 1039; Smiskin, 487 F.3d at 1263.

With some limited exceptions, these same statutes and rules apply to Indian retailers selling cigarettes in Indian Country. Indian retailers selling cigarettes to other tribal members are not subject to the state cigarette tax; however, those cigarettes must be stamped as "exempt" cigarettes. See Wash. Admin. Code § 458-20-192(9)(a)(ii)-(iii). Indian retailers selling cigarettes to non-tribal members are subject to the state tax, except where a tribal tax is collected in lieu of the state tax as provided in an applicable cigarette contract with the tribe. Id. § 458-20-186(403); see Wash. Rev.Code § 43.06.455(3). Generally, an Indian tribal organization may possess unstamped cigarettes but only for the limited time period that it takes to affix the required stamps to the cigarettes, and only if notice is given to the Liquor Control Board prior to the transport of the unstamped cigarettes into the state. Wash. Rev.Code § 82.24.250(7)(c). Failure to provide pre-notification of the transportation of unstamped cigarettes to Indian retailers results in the treatment of those cigarettes as contraband. Id. § 82.24.250; Wash. Admin. Code § 458-20-186(506).

Washington law authorizes the Governor "to enter into contracts concerning the sale of cigarettes" with certain Indian tribes. Wash. Rev.Code § 43.06.455(1)....