U.S. v. Lazarenko

• Decision Date: 15 August 2007
• Docket Number: No. C00-00284 MJJ.,C00-00284 MJJ.
• Court: U.S. District Court — Northern District of California
• Parties: USA, Plaintiff, v. LAZARENKO, Defendant.

504 F.Supp.2d 791

USA, Plaintiff, v. LAZARENKO, Defendant.

No. C00-00284 MJJ.

United States District Court, N.D. California.

August 15, 2007.

John H. Aspelin, Aspelin & Bridgman, LLP, San Francisco, CA, for Universal Trading and Investment Co.

Patricia Jean Kenney, Peter Benjamin Axelrod, U.S. Attorneys's Office, San Francisco, CA, Matthew J. Jacobs, Peter J. Drobac, McDermott, Will & Emory, LLP, Palo Alto, CA, for Plaintiff.

ORDER:

(1) DENYING UNITED STATES' MOTION FOR A RULING THAT THE COURT LACKS JURISDICTION OVER THE LIQUIDATORS' THREE DEFENSES TO THE MERITS OF THE FORFEITURE AND TO DISMISS THE LIQUIDATORS' PETITION FOR FAILURE TO STATE A CLAIM

(2) DENYING LIQUIDATORS' MOTION FOR RETURN OF ILLEGALLY SEIZED FUNDS

JENKINS, District Judge.

INTRODUCTION

Before the Court are two motions. Claimants Liquidators of European Federal Credit Bank, In Liquidation ("Liquidators") have renewed their Motion For Return Of Illegally Seized Funds (Docket No. 909), which requests the return of assets that were subject to criminal forfeiture -by Plaintiff United States of America ("United States" or "Government") in this criminal action against Defendant Pavel Lazarenko. The Government has also filed a Motion For A Ruling That The Court Lacks Jurisdiction Over The Liquidators' Three Defenses To The Merits Of The Forfeiture; And To Dismiss The Liquidators' Petition For Failure To State A Claim. (Docket No. 1187.) Intervenor and Claimant Universal Trading & Investment Co. ("UTICo") has joined in the Government's motion. (Docket No. 1183.)

For the following reasons, the Court DENIES the Liquidator's Motion and DENIES the Government's Motion.

BACKGROUND FACTS

From 1997 to 1999, Defendant Pavel Lazarenko deposited various monies and Ukranian bonds into the European Federal Credit Bank in Antigua ("Eurofed"). In 1999, Antiguan governmental authorities began an investigation of Eurofed for alleged money-laundering activities, and placed Eurofed into receivership. Antiguan governmental authorities subsequently appointed PriceWaterhouseCoopers partners Donald B. Ward and Charles W.A. Walwyn, as joint liquidators of Eurofed.

In June 2004, a jury returned a guilty verdict against defendant Pavel Lazarenko on conspiracy to money launder, substantive money laundering counts, wire fraud, and interstate transportation of stolen property. (Docket Nos. 811-12.) Following Lazarenko's conviction, but before this Court sentenced Lazarenko, the Government initiated separate civil forfeiture proceedings regarding certain funds and bonds in dispute here by filing a complaint against the res, No. C 05-946 MJJ, in March 2005. In October 26, 2005, this Court dismissed the civil forfeiture action as barred by the application statute of limitations, 19 U.S.C. § 1621. That same day, the Government obtained a criminal seizure warrant for the same res under 21 U.S.C. § 853(f). In these criminal proceedings, by means of a preliminary order of forfeiture issued on April 24, 2006, and a supplemental preliminary order of forfeiture issued on September 29, 2006, the Court ordered that Lazarenko forfeit to the United States all of his right, title and interest in funds and bonds in three Bank of America ("BofA") accounts. (Docket Nos. 947 and 1080.)

On January 17, 2006, Liquidators filed a Motion for Return of Illegally Seized Funds, arguing that the Government's criminal seizure was unlawful, and requesting that the seized assets be returned to the Antiguan liquidation proceedings. (Docket No. 909.) In an April 21, 2006 Order, the Court determined that it should wait until an ancillary proceeding after sentencing to consider the Liquidators' claims. (Docket No. 946.) Liquidators filed an appeal with the Ninth Circuit regarding this April 21, 2006 Order as well as the April 24, 2006 preliminary order of forfeiture, which was dismissed for lack of appellate jurisdiction. United States v. Lazarenko, 469 F.3d 815 (9th Cir.2006), amended by 476 F.3d 642 (9th Cir.2007).

An ancillary proceeding to determine the validity of third parties' claims to the forfeited assets commenced after the Court's entry of the preliminary order of forfeiture. Liquidators are one of two claimants that have filed petitions to adjudicate their interest in the forfeited funds and bonds. (Docket No. 956.)¹ The Liquidators claim ownership of the following forfeited assets (hereafter "Disputed Assets"):

1. approximately $1,379,879.09 in funds plus interest from BofA account # W71-223433;

2. approximately $327,317.85 in funds plus interest and share equity from 923,000 Ukranian bonds in BofA account # W71-224464; and

3. approximately $273,678.30 in funds plus interest from "BofA account # W71-224464 (the same account).

(Docket No. 956.)

The two instant motions are part of the ongoing ancillary proceedings.

DISCUSSION

A. Liquidators Can Challenge The Validity Of The Underlying Forfeiture In An Ancillary Proceeding.

As a threshold issue, the Government contends that this Court should not reach Liquidators' arguments predicated on res judicata, statute of limitations, and act of state theories at all because they are outside the scope of the issues that can be adjudicated in an ancillary proceeding under 21 U.S.C. § 853(n)(6). Specifically, the Government contends that 21 U.S.C. § 853(n)(6)(A) and (B) provide the only two permissible theories cognizable during an ancillary proceeding by which a third party may establish ownership of assets that have been forfeited.

21 U.S.C. § 853(n)(6) provides:

If, after the hearing, the court determines that the petitioner has established by a preponderance of the evidence that —

(A) the petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section; or

(B) the petitioner is a bona fide purchaser for value of the right, title, or interest in the property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture under this section; the court shall amend the order of forfeiture in accordance with its determination.

The government contends that legal arguments such as res judicata and statutes of limitations fall outside the scope of the statutorily-permitted bases that may be raised by third parties for amendment of an order of forfeiture.²

This Court rejects the proposition that third parties are unable to challenge the underlying validity of a forfeiture order by means of a Section 853(n) petition. Appellate courts examining this issue have concluded that it was Congress' clear intention in passing. Section 853(n) that third parties may be awarded relief if they were to show a cognizable interest in the property preliminarily ordered forfeited, including interests vindicated by challenging the validity of the underlying forfeiture itself. Due process requires no less. As the Fourth Circuit, which has expressly analyzed this issue, found:

Nothing in § 853(n) explicitly acknowledges the right of third parties to attack the validity of the forfeiture order by proving that a particular asset was not forfeitable under the terms of the statute. Serious due process questions would be raised, however, if third parties asserting an interest in forfeited assets were barred from challenging the validity of the forfeiture. The determination made at the defendant's criminal trial that the property was subject to forfeiture cannot be considered binding on persons who were not only not parties to the criminal action but were specifically barred from intervening.

United States v. Reckmeyer, 836 F.2d 200, 206 (4th Cir.1987); see also United States v. McHan, 345 F.3d 262, 270 (4th Cir.2003) (reading § 853(n) to allow challenges to the validity of the forfeiture); U.S. v. $20,193.39 U.S. Currency, 16 F.3d 344, 347 (9th Cir.1994) ("The legislative history of § 853(n) and its RICO counterpart reveals that Congress intended to provide a means by which third parties challenging the validity of a forfeiture order could have their claims adjudicated.").³

The Court will therefore reach the merits of the res judicata, statute of limitations, act of state, and comity arguments raised by Liquidators.⁴

B. The Criminal Forfeiture Of The Disputed Assets Was Timely And Is Not Barred By The Statute Of Limitations.

Liquidators contend that the Disputed Assets are not subject to criminal forfeiture because the Government did not seek criminal forfeiture against these specific assets until October 2005, more than five years after Lazarenko's predicate offenses were committed. See 18 U.S.C. § 2382 (establishing five-year period of limitations for criminal charges brought against Lazarenko). The Court disagrees, and finds that the criminal forfeiture of the Disputed Assets was timely.

As an initial matter, this Court has previously found that the predicate charges brought against Lazarenko giving rise to the Criminal forfeiture were timely brought in this action, under the applicable five-year statute of limitations established by 18 U.S.C. § 3282, as extended under 18 U.S.C. § 3292 while the United States was obtaining foreign evidence. (Docket No. 128.) The Liquidators do not challenge that ruling here.

Instead, Liquidators argue that the failure to identify the specific funds and bonds at issue within the limitations period, either in the indictment or the Government's post-verdict motion for forfeiture, precludes forfeiture on the basis of timeliness. Liquidators' position, however, is not supported under present law.

Since adoption in 2000, Federal Rule of Criminal Procedure 32.2 has governed criminal forfeiture proceedings. Rule 322(a) sta...