U.S. v. One Hundred Thirty–three (133) United States Postal Serv. Money Orders Totaling $127,479.24 In United States Currency

• Decision Date: 28 April 2011
• Docket Number: CIV. No. 10–00200 JMS–RLP.
• Citation: 780 F.Supp.2d 1084
• Parties: UNITED STATES of America, Plaintiff,v.ONE HUNDRED THIRTY–THREE (133) UNITED STATES POSTAL SERVICE MONEY ORDERS Totaling $127,479.24 In United States Currency, Defendant.Life Enhancement Products, Inc.; Will Block; and Samuel Kornhauser, Claimants.
• Court: U.S. District Court — District of Hawaii

780 F.Supp.2d 1084

UNITED STATES of America, Plaintiff,

v.ONE HUNDRED THIRTY–THREE (133) UNITED STATES POSTAL SERVICE MONEY ORDERS Totaling $127,479.24 In United States Currency, Defendant.Life Enhancement Products, Inc.; Will Block; and Samuel Kornhauser, Claimants.

CIV. No. 10–00200 JMS–RLP.

United States District Court, D. Hawai‘i.

April 28, 2011.

Rachel S. Moriyama, Office of the United states Attorney, Honolulu, HI, for Plaintiff.Phyllis E. Andelin, Law Offices of Phyllis E. Andelin, Sausalito, CA, Richard P. Schulze, Jr., Kamuela, HI, for Claimants.Samuel Kornhauser, Law Offices of Samuel Kornhauser, San Francisco, CA, pro se.

AMENDED ORDER GRANTING PLAINTIFF'S MOTION TO DISMISS OR STRIKE AND FOR SUMMARY JUDGMENT ^*

J. MICHAEL SEABRIGHT, District Judge.

I. INTRODUCTION

This is an action brought under the Civil Asset Forfeiture Reform Act of 2000 (“CAFRA”), 18 U.S.C. § 983, against 133 United States Postal Service (“USPS”) money orders valued at $127,479.24 (the “Defendant Money Orders”). The Defendant Money Orders were seized in rem by Plaintiff United States (“Plaintiff” or “the Government”) under 31 U.S.C. § 5317(c)(2). Plaintiff now moves under Rule G(8)(c) of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (“Supplemental Rules”) to strike the Claims and Answers of Claimants Life Enhancement Products, Inc. (“LEPI”), Will Block (“Block”), and Samuel Kornhauser (“Kornhauser”) for lack of standing, and/or for summary judgment.¹ Further, if the Claims are struck, the Government seeks entry of summary judgment on the entire case, asserting it is otherwise undisputed that the Government is entitled to forfeit the Defendant Money Orders. For the reasons set forth, the Motion is GRANTED.

II. BACKGROUND

A. The Seizure of the Defendant Money Orders

On October 6, 2009, the United States Postal Inspection Service (“USPIS”), acting pursuant to warrant, seized the Defendant Money Orders from a Maui Post Office. See Pls.' Concise Statement of Facts (“CSF”) (Doc. No. 31) ¶ 5. ² The Defendant Money Orders were in three parcels addressed to Richard Smith (“Smith”) at his post office box with a return address of “Gail Valentine Jones, 1135 Makawao Ave. # 250, Makawao, HI 96768, Calistoga, CA 94515” (receipts indicated the parcels were in fact mailed from Phoenix, Arizona). Id. ¶ 4.

The seizure resulted from an ongoing USPIS investigation that began in early 2008, after USPS employees reported seeing Smith meeting and making exchanges with people in a Maui post office parking lot and then buying USPS money orders with cash. Compl. (Doc. No. 1) ¶ 7.

When Smith tried to buy money orders with cash exceeding $3,000, USPS employees advised him of United States Treasury Department requirements and that he had to show personal identification.³ Smith then began buying money orders with cash in amounts less than $3,000—often for $2,900. He also began buying multiple money orders for less than $3,000 at other Maui post offices on the same day. Doc. No. 31 ¶ 3. From February 1, 2008 to December 12, 2008, Smith purchased a total of 279 USPS money orders having a combined value of $267,846.74. The Defendant Money Orders are included within these 279–many that were not seized had apparently been cashed. Doc. No. 31 ¶ 6; Doc. No. 1 ¶ 20.

The purchases were structured in a way to avoid reporting requirements; there were repeated instances where cash in amounts exceeding $3,000 was used to purchase money orders on consecutive days or within a few days so as not to be reportable. Money orders were often purchased at different post offices so that the total amount of cash used on a single day exceeded $3,000. Doc. No. 1 ¶ 18. The pattern of making multiple cash purchases on the same or consecutive days, or over a short time span, is consistent with a scheme to avoid reporting requirements. Id. ¶ 19.

On October 14, 2009—after the USPIS seized the three parcels before their delivery—Smith contacted the USPS, inquiring as to their whereabouts but without mentioning their contents. Doc. No. 1 ¶ 15. On November 16, 2009, a postal inspector and Maui County police officers interviewed Smith. Smith acknowledged that the parcels were mailed from Arizona and contained “a lot of money orders.” Id. ¶¶ 21(a) & (b).⁴

The Verified Complaint alleges that Smith explained to the USPIS that his friend Gail Valentine Jones (“Valentine”) “had been involved in a civil lawsuit in which a judgment had been entered against her and he had suggested buying Postal Money Orders as a way to help her to hide her money from people involved in that civil lawsuit.” Id. ¶ 21(c). Smith admitted he knew that buying money orders with amounts of cash over $3,000 triggered reporting requirements. Id. ¶ 21(d). He stated that he kept the purchases under $3,000 “to avoid leaving a paper trail that the plaintiffs in Valentine's lawsuit could track.” Id. ¶ 21(e).

B. The Prior Judgment and Litigation Against Valentine

Valentine had indeed been involved in a California lawsuit-LEPI had obtained a California Superior Court judgment against Valentine on November 28, 2007 for $195,073.56. See Block Decl. (Doc. No. 39) ¶ 9; Doc. No. 40 at 10. Costs of $30,531.94 were later awarded, increasing the judgment to $225,605.50. Doc. No. 39 ¶ 9. Additionally, on March 13, 2008, the California court awarded attorneys' fees of $145,142.50, bringing the total judgment against Valentine to $370,748. Id. ¶ 10; Doc. No. 42 at 13.

The circumstances of the California lawsuit brought by LEPI (and its principal, Block) in 2002 against Valentine are complex, and are beyond the scope of this Order. A few details, however, are important for present purposes.⁵ Valentine is Block's former girlfriend. Doc. No. 39 at 2. Allegedly, as part of that relationship, starting in about 1996 she became an employee of LEPI and was paid approximately $700,000 over a five-year period. Id. at 2–3. LEPI also lent her money to buy a residence in Maui (which she purchased in her own name). Id. at 3. Valentine apparently spent much time in Hawaii during this period. Id.

In September 2002, LEPI and Block filed suit in a California Superior Court against Valentine, seeking (1) damages for embezzlement and other claims, and (2) a declaration that Block was the owner of LEPI and that Valentine had no ownership interest in LEPI. Id. LEPI and Block were originally represented by Kornhauser. In November 2002, however, Kornhauser was disqualified from representing LEPI after a receiver was appointed for LEPI. Id. at 4. Kornhauser apparently represented Block individually during this period, and his claim in this action to the Defendant Money Orders is based upon being their “third party beneficiary” because of unpaid attorneys' fees.⁶ Doc. No. 44 ¶ 5. The litigation against Valentine lasted over five years, and Kornhauser was substituted back as counsel for LEPI on January 22, 2008. Doc. No. 39 at 4; Doc. No. 40 at 6.

As mentioned above, LEPI and Block prevailed, at least in part, in their suit against Valentine. LEPI obtained the November 28, 2007 judgment, and subsequent March 13, 2008 award of attorneys' fees. (The monetary awards were only in favor of LEPI; Block obtained declaratory relief but was not awarded damages or fees.) Doc. No. 39 at 5.

Valentine did not pay the November 28, 2007 judgment. Accordingly, on March 12, 2008, the California Superior Court entered an “Order in Aid of Execution” requiring Valentine to:

assign to the judgment creditor [LEPI] to the extent necessary to pay and satisfy fully the judgment entered herein, ... all right, title and interest held by judgment debtor Gail Valentine in any deposit account, trust account, brokerage account, certificate of deposit, or other type of bank account maintained by judgment debtor Gail Valentine, including Bank of America bank account No. [redacted] and any other type of account in the name of judgment debtor Gail Valentine as Gail Valentine Jones[.]

Doc. No. 44–3 at 2.

Block knew that Valentine owned real property in Maui and that she was apparently receiving rents from it. Notably, LEPI did not timely record the California judgment in Hawaii, and thus no judgment lien attached to the Maui property.⁷ Doc. No. 39 at 5–6. On April 28, 2008, however, the California Superior Court issued a restraining order in the California action providing that “pursuant to Code of Civil Procedure Section 708.520 ... judgment debtor Gail Valentine and any persons and entities acting for her or under her control or in which she has an ownership interest are restrained from assigning or otherwise disposing of the right to or use of payment from any rents.” Doc. No. 44–3 at 4–5. The April 28, 2008 order, however, does not reference any specific property.

Similarly, on May 2, 2008, the California Superior Court entered a “Supplemental Order Granting Motion for Assignment Order in Aid of Execution” in the California action, providing in part:

.... Valentine shall immediately assign to the judgment creditor [LEPI] ... all right, title and interest held by [Valentine] in any rents including, but not limited to, rents from the property located at 2500 Kaupakalua Road, Haiku, Maui, Hawaii 96708, or any other rents paid or received by or on account in the name of [Valentine]

....

.... [Valentine] or any entity she controls or has an ownership interest in shall immediately assign to [LEPI] all right to any rent payment due or to become due from any aforementioned properties.

.... [P]ursuant to Code of Civil Procedure Section 708.520, [Valentine] [is] restrained from assigning or otherwise disposing of the right to payment from any rents.

Doc. Nos. 42 at 22; 44–3 at 7. By its terms, this Supplemental Order specifically ordered Valentine to assign to LEPI any “right to rents” from her Maui property.

By this time, however, Valentine had sold the Maui property. The sale for $1 million had closed on May 1, 2008. Doc. No. 42 at 17–19. Block...