U.S. v. One Silicon Valley Bank Account, No. L05-CV-295.

CourtUnited States District Courts. 6th Circuit. United States District Court (Western District Michigan)
Writing for the CourtRobert Holmes Bell
Citation549 F.Supp.2d 940
Decision Date31 March 2008
Docket NumberNo. L05-CV-295.,No. 1:06-CR-290.
PartiesUNITED STATES of America, Plaintiff, v. ONE SILICON VALLEY BANK ACOUNT, 3300355711, IN THE AMOUNT OF ONE HUNDRED THIRTEEN THOUSAND NINE HUDRED FIFTY-TWO and 62/100 DOLARS ($113,952.62), Defendant. United States of America, Plaintiff, v. Krista L. Kotlarz Watson, a/k/a "Kris Kotlarz," and Paul Nathan Wright, a/k/a "Jacob Might," "P. Nathan Wright," "Nate Wright," Defendants.
549 F.Supp.2d 940
UNITED STATES of America, Plaintiff,
v.
ONE SILICON VALLEY BANK ACOUNT, 3300355711, IN THE AMOUNT OF ONE HUNDRED THIRTEEN THOUSAND NINE HUDRED FIFTY-TWO and 62/100 DOLARS ($113,952.62), Defendant.
United States of America, Plaintiff,
v.
Krista L. Kotlarz Watson, a/k/a "Kris Kotlarz," and Paul Nathan Wright, a/k/a "Jacob Might," "P. Nathan Wright," "Nate Wright," Defendants.
No. L05-CV-295.
No. 1:06-CR-290.
United States District Court, W.D. Michigan, Southern Division.
March 31, 2008.

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COPYRIGHT MATERIAL OMITTED

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Matthew G. Borgula, U.S. Attorney, Grand Rapids, MI, for Plaintiffs.

Robert C. Ludolph, Pepper Hamilton LLP, Detroit, MI, for Defendants.

OPINION

ROBERT HOLMES BELL, Chief District Judge.


On December 10, 2007, the Court consolidated the ancillary criminal forfeiture proceeding in United States v. Krista L. Kotlarz Watson, et al., File No. 1:06-CR-290, with the civil forfeiture proceeding United States v. One Silicon Valley Bank Account, 3300355711, in the amount of one hundred thirteen thousand nine hundred fifty-two and 62/100 dollars ($113,952.62) ("United States v. One Silicon Valley Bank Account, 3300355711"), File No. 1:05-CV-295. (File No. 1:05-CV-295, Dkt. No. 91, 12/10/2007 Mem. Op.; File No. 1:06-CR-290, Dkt. No. 112, 12/10/2007 Mem. Op.) On January 10, 2008, the Court held a hearing in this consolidated proceeding.

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The January 10 hearing encompassed the ancillary proceeding required by 21 U.S.C. § 853(n)(4-6). and Federal Rule of Criminal Procedure 32.2(c)(1) in United States v. Watson, at which the Court heard from the petitioners in the ancillary criminal proceeding. At the January 10 hearing the Court also heard argument on the two motions filed in United States v. One Silicon Valley Bank Account, 3300355711, the government's motion to dismiss or in the alternative for summary judgment (File No. 1:05-C.295, Dkt. No. 56), and Claimants Bank Midwest N.A. and Solarcom Inc.'s joint motion for summary judgment (File No. 1:05-CV-295, Dkt. No. 41). For the reasons that follow, in United States v. One Silicon Valley Bank Account, 3300355711, Bank Midwest N.A. and Solarcom Inc.'s motion for summary judgment will be denied, the government's motion to dismiss will be denied, and the government's motion for summary judgment will be granted. In United States v. Watson, the proceeds of the nine bank accounts specified in Count 10 of the superseding indictment will be forfeited to the United States.

I. Background

A. CyberNET

Both the civil and criminal forfeiture cases stem from the operations of Cyber-NET. CyberNET consisted of several companies, including Cybernet Engineering, Cyberco Holdings, and CyberNET. The Court will refer to these companies collectively as CyberNET.

CyberNET purchased or leased office and computer equipment from a group of fictitious shell companies. The fictitious suppliers of office and computer equipment were Teleservices Group ("Teleservices"), T-Resources, and Corporate Property Associates. CyberNET obtained financing from a variety of lenders to lease or purchase equipment from the shell companies. The lenders would pay the fictitious supplier for the office or computer equipment, but the fictitious supplier did not actually provide any office or computer equipment to CyberNET. After consummating the lease or purchase, the funds that the lender provided to the fictitious supplier would be transferred to CyberNET. The Cyber-NET principals established an intricate system of false phone numbers, false mailing addresses, false invoices, fake boxes of equipment, and even fake data centers to make all of these transactions appear legitimate. The proceeds of this fraud were then used to personally enrich the Cyber-NET principals. Between 2002 and 2004, CyberNET fraudulently obtained over $100,000,000.

CyberNET was led by the late Barton Watson. Krista L. Kotlarz Watson was at various times CyberNET's president, vicepresident, director, and treasurer. Paul Nathan Wright was an employee of Cyber-NET and assisted in setting up the various shell companies. Geraldine Watson represented herself to be an employee of Cyber-NET as well as the owner of Corporate Property Associates.

On November 30, 2006, the grand jury indicted Krista L. Kotlarz Watson, Geraldine Watson, and Paul Nathan Wright. On February 26, 2007, Geraldine Watson pleaded guilty to making a false statement to a licensed firearms dealer, 18 U.S.C. § 922(a)(6). On June 5, 2007, the Court sentenced Geraldine Watson to two years of probation, a fine of $1,000, and a special assessment of $100. On August 23, 2007, the government obtained a superseding indictment against Krista L. Kotlarz Watson and Paul Nathan Wright. On August 31, 2007, Paul Nathan Wright pleaded guilty to conspiring to commit bank fraud, mail fraud, and money laundering, 18 U.S.C. §§ 371, 1341, 1344, 1956, 1957. On December 14, 2007, the Court sentenced Paul Nathan Wright to thirty months of imprisonment

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three years of supervised release, restitution of $32,583,952.36, a forfeiture money judgment of $100,000,000, and a special assessment of $100. On September 4, 2007, Krista L. Kotlarz Watson pleaded guilty to conspiracy to commit bank fraud, mail fraud, and money laundering, 18 U.S.C. §§ 371, 1341, 1344, 1956, 1957, and tax evasion, 26 U.S.C. § 7201. On December 11, 2007, the Court sentenced Krista L. Kotlarz Watson to sixty months on the conspiracy count and a consecutive twenty-four months on the tax evasion count, three years of supervised release on each count, to be served concurrently, restitution of $72,872,719.74, a forfeiture money judgment of $100,000,000, and a special assessment of $200.

B. The Seized Assets

In November 2004 the F.B.I, and the I.R.S. seized approximately $4,000,000 in CyberNET assets pursuant to a series of seizure warrants. The F.B.I, and the I.R.S. initially sought to administratively forfeit the seized assets; however, some of the financial institutions who had lent money to CyberNET filed claims of actual ownership, so the F.B.I, and I.R.S. were unable to proceed with administrative forfeiture as to those assets. As a consequence of the financial institutions filing claims the United States could only seek to forfeit the seized assets through filing a civil or criminal forfeiture action. 18 U.S.C. § 983(a)(3). In June 2005 when the United States was confronted with this decision, the United States Attorney's Office was not yet prepared to seek a criminal indictment that included a forfeiture count against the individuals responsible for CyberNET. (File No. 1:05-CV-295, Dkt. No. 92, Gov't's Br. re Consolidated Hr'g 6; File No. 1:06-CR-290, Dkt. No. 126, Gov't's Br. re Consolidated Hr'g 6.) Hence the United States filed ten separate civil forfeiture complaints against the seized bank accounts. Nine of the those ten civil forfeiture actions remain pending.1 Those nine civil forfeiture actions address the same nine bank accounts that are at issue in the ancillary criminal forfeiture proceeding in United States v. Watson; however, only one of the nine civil forfeiture actions was consolidated with the ancillary criminal forfeiture proceeding. (12/10/2007 Mem. Op. 5.) The nine bank accounts that the government seeks to forfeit in the superseding indictment in United States v. Watson, are:

a. One Chemical Bank Shoreline Account Number 50224019400 in the amount of One Hundred Thousand Dollars ($100,000);

b. One Comerica Bank Account Number 6811948139 in the Amount of Seven Hundred Thousand Dollars ($700,000.00);

c. One Fifth Third Bank Account Number 7680526741 in the Amount of Twenty Thousand Two Hundred Ninety-One and 27/100 Dollars ($20,291.27);

d. One Huntington National Bank Account Number 01159630935 in the Amount of Seven Hundred Five Thousand, One Hundred Sixty-Eight and 60/100 Dollars ($705,168.60);

e. One Independence Community Bank Account Number 92043867 in the Amount of Seven Hundred Fifty Thousand Dollars ($750,000.00);

f. One J.P. Morgan Chase Bank Account Number 026073870865 in the Amount of Seven Hundred Fifty Thousand Dollars ($750,000.00);

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g. One Macatawa Bank Account Number 64010200 in the Amount of Twenty-five Thousand Dollars ($25,000.00);

h. One Macatawa Bank Account Number 26-002212 in the Amount of Two Hundred Thousand Dollars ($200,000.00); and

i. One Silicon Valley Bank Account 3300355711 in the Amount of One Hundred Thirteen Thousand Nine Hundred Fifty-two and 62/100 Dollars ($113,952.62). (File No. 1:06-CR-290, Dkt. No. 61, Superseding Indictment 24.)2 The Court will refer to all nine accounts collectively as the "Seized Assets." The last account, item i, is also the subject of the civil forfeiture case that the Court consolidated with the ancillary criminal forfeiture proceeding, the Court will refer to this account as the "Silicon Valley Bank Account." The Court makes no determination as to whether this opinion and the associated orders will have preclusive effect in the other eight civil forfeiture cases.

C. Procedural History in United States v. One Silicon Valley Bank Account, 3300355711

On April 21, 2005, the government filed the complaint for forfeiture in rem in United States v. One Silicon Valley Bank Account, 3300355711. The government seeks civil forfeiture under 18 U.S.C. § 981(a)(1)(A), (a)(1)(C), and 28 U.S.C. § 2461(c). On June 20, 2005, Bank Midwest N.A. ("Bank Midwest") filed a statement of verified interest and right. On June 24, 2005, Solarcom Inc. ("Solarcom") filed a verified statement of interest and right.

On November 15, 2006, Bank Midwest and Solarcom jointly filed the motion for summary judgment that is presently before the Court. On November 21, 2006, the government moved to stay all of the civil forfeiture proceedings to permit the government to conduct the related criminal investigation. On December 14, 2006, the Court denied the motion...

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16 practice notes
  • U.S. v. One Hundred Thirty–three (133) United States Postal Serv. Money Orders Totaling $127,479.24 In United States Currency, CIV. No. 10–00200 JMS–RLP.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Hawaii)
    • April 28, 2011
    ...sale. Tracing would be speculative—and so a constructive trust is inappropriate. Cf. United States v. One Silicon Valley Bank Account, 549 F.Supp.2d 940, 955 (W.D.Mich.2008) (“The recognition of a constructive trust requires that the money or property on which the trust is imposed must be ‘......
  • U.S. v. All Assets Held At Bank Julius Baer & Co., Civil Action No. 04–0798 (PLF).
    • United States
    • United States District Courts. United States District Court (Columbia)
    • March 25, 2011
    ...trust arises only at the time that a court orders it imposed as a remedy. See, e.g., United States v. One Silicon Valley Bank Account, 549 F.Supp.2d 940, 954 (W.D.Mich.2008) (“Under Michigan law, a constructive trust does not exist until so ordered by a court.”). Constructive trust doctrine......
  • U.S. v. Thirty-three, CIV. NO. 10-00200 JMS-RLP
    • United States
    • U.S. District Court — District of Hawaii
    • April 28, 2011
    ...Tracing would be speculative--and so a constructive trust is inappropriate. Cf. United States v. One Silicon Valley Bank Account, 549 F. Supp. 2d 940, 955 (W.D. Mich. 2008) ("The recognition of a constructive trust requires that the money or property on which the trust is imposed must ......
  • U.S. v. All Assets Held At Bank Julius Baer & Co., Civil Action No. 04–0798 (PLF).
    • United States
    • United States District Courts. United States District Court (Columbia)
    • March 25, 2011
    ...and the parties.” Restatement (Second) of Conflict of Laws § 145 (1971); see United States v. One Silicon Valley Bank Account, 549 F.Supp.2d 940, 953–54 (W.D.Mich.2008) (in a civil forfeiture action, applying the Restatement to determine which state's law should be applied to constructive t......
  • Request a trial to view additional results
16 cases
  • U.S. v. One Hundred Thirty–three (133) United States Postal Serv. Money Orders Totaling $127,479.24 In United States Currency, CIV. No. 10–00200 JMS–RLP.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Hawaii)
    • April 28, 2011
    ...sale. Tracing would be speculative—and so a constructive trust is inappropriate. Cf. United States v. One Silicon Valley Bank Account, 549 F.Supp.2d 940, 955 (W.D.Mich.2008) (“The recognition of a constructive trust requires that the money or property on which the trust is imposed must be ‘......
  • U.S. v. All Assets Held At Bank Julius Baer & Co., Civil Action No. 04–0798 (PLF).
    • United States
    • United States District Courts. United States District Court (Columbia)
    • March 25, 2011
    ...trust arises only at the time that a court orders it imposed as a remedy. See, e.g., United States v. One Silicon Valley Bank Account, 549 F.Supp.2d 940, 954 (W.D.Mich.2008) (“Under Michigan law, a constructive trust does not exist until so ordered by a court.”). Constructive trust doctrine......
  • U.S. v. Thirty-three, CIV. NO. 10-00200 JMS-RLP
    • United States
    • U.S. District Court — District of Hawaii
    • April 28, 2011
    ...Tracing would be speculative--and so a constructive trust is inappropriate. Cf. United States v. One Silicon Valley Bank Account, 549 F. Supp. 2d 940, 955 (W.D. Mich. 2008) ("The recognition of a constructive trust requires that the money or property on which the trust is imposed must be 'c......
  • U.S. v. All Assets Held At Bank Julius Baer & Co., Civil Action No. 04–0798 (PLF).
    • United States
    • United States District Courts. United States District Court (Columbia)
    • March 25, 2011
    ...and the parties.” Restatement (Second) of Conflict of Laws § 145 (1971); see United States v. One Silicon Valley Bank Account, 549 F.Supp.2d 940, 953–54 (W.D.Mich.2008) (in a civil forfeiture action, applying the Restatement to determine which state's law should be applied to constructive t......
  • Request a trial to view additional results

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