U.S. v. Totaro

• Decision Date: 08 October 2003
• Docket Number: No. 02-3842.,02-3842.
• Citation: 345 F.3d 989
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Ronald N. TOTARO, Defendant, Adrienne Totaro, Interested Party-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

345 F.3d 989

UNITED STATES of America, Plaintiff-Appellee, v. Ronald N. TOTARO, Defendant Adrienne Totaro, Interested Party-Appellant.

No. 02-3842.

United States Court of Appeals, Eighth Circuit.

Submitted: June 13, 2003.

Filed: October 8, 2003.

COPYRIGHT MATERIAL OMITTED

Ronald A. Parsons, Jr., argued, Sioux Falls, SD (Matthew T. Tobin, on the briefs), for appellant.

Michael E. Ridgway, argued, Asst. U.S. Atty., Sioux Falls, SD, for appellee.

Before BOWMAN, MURPHY and BYE, Circuit Judges.

BYE, Circuit Judge.

This appeal presents the question of how to untangle the real property interests of a criminal from those of the criminal's spouse for purposes of forfeiture pursuant to the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1963(l). Adrienne Totaro appeals from the district court's denial of her claim of legal right, title or interest to the country estate she shared with her husband Ronald Totaro for almost thirty years. We conclude Adrienne proved by a preponderance of the evidence she does hold legal right, title or interest superior to Ronald's in a portion of the improved property. We vacate the forfeiture order in part and remand for further proceedings.

I

This appeal arises from an ancillary proceeding to the conviction of Ronald N. Totaro for sixty-one counts of mail fraud, wire fraud, money laundering, unlawful money transactions and RICO racketeering. See United States v. Totaro, 40 Fed. Appx. 321 (8th Cir.2002) (affirming the conviction). Ronald was sentenced to thirty years in prison and fined $2.3 million for operating an "advance fee" scheme in which he conned investors out of millions of dollars between 1984 and 1999. Id. at 322. Along with the verdict, the jury returned a special verdict form indicating it found, beyond a reasonable doubt, the Totaros's country estate was "acquired or maintained" with the proceeds of Ronald's illegal activities.

Following the verdict and pursuant to the RICO forfeiture statute, 18 U.S.C. § 1963(l)(1), the district court entered a preliminary order of forfeiture and the government caused a notice of forfeiture to be published. Adrienne Totaro, wife of Ronald, and her father Edmund Kotkeiwicz both filed notices of claim of legal right, title or interest in the property pursuant to § 1963(l)(2) and (3). The district judge referred this ancillary proceeding to a magistrate judge who held a hearing pursuant to § 1963(l)(2) and produced a report recommending the district court deny the claims of Adrienne and Mr. Kotkeiwicz. The district court adopted it without further elaboration. Adrienne filed this appeal. Mr. Kotkeiwicz does not appeal from the district court's decision. Ronald, of course, is not a party to this proceeding. His rights to the property have been deemed forfeited.

II

The history of the property is as follows. Ronald and Adrienne married in 1968 and Ronald bought land at 1017 East Quaker Road, East Aurora, NY, in 1972. In April 1974, Ronald signed a quit claim deed conveying the land to himself and Adrienne. In April and November 1974, the Totaros took out mortgages for $55,000 and $45,700, respectively, and used the proceeds to build a house on the land. They moved into their new home in September 1974.

Ronald filed for bankruptcy in 1977. In 1978, Adrienne acquired full legal title to the property by paying $500 to become the assignee of a creditor holding a mechanic's lien on Ronald's undivided half-interest in the property. From that point on Adrienne has been the sole title owner of the parcel at 1017 East Quaker Road. In June 1978, Adrienne obtained another mortgage for $37,639.90, which was consolidated with what remained of the two mortgages taken out in 1974, for a new mortgage of $106,500. In 1982, Adrienne bought a small plot of land next door at 1031 East Quaker Road to "square off" the parcel, making the total size of the estate 8.79 acres. The purchase price and Adrienne's source of funding are unclear in the record below, but she says she bought it with part of a $67,500 loan from her father. This loan was the basis for Mr. Kotkeiwicz's now-abandoned claim to the property.

The first act forming part of Ronald's RICO crime took place in 1984. From that date forward Ronald funneled some of the proceeds from his RICO crimes into Adrienne's checking account, from which she paid the mortgage payments. Between 1994 and 1997 the Totaros added a tennis court, pool, guest house (sometimes referred to as a pool house), landscaping and new kitchen at a total cost of $339,341.06. Ronald arranged and dealt with the contractors but all payments for these improvements came from Adrienne's checkbook. Between December 1993 and January 1998, 96% of the funds passing through Adrienne's checkbook (a total of $609,800) were proceeds from Ronald's RICO crimes. Ronald often represented himself as owner of the property and he used it as collateral for several loans. A title search revealed several tax liens, judgments and encumbrances against Ronald for the estate between 1992 and 1999. Three tax liens against Adrienne were also listed.

The magistrate judge found Adrienne's income during the relevant period to have been as follows. Between 1974 and 1982 Adrienne earned between $10,000 and $12,000 a year as a substitute teacher. In 1983, she did not work outside the home, but that is the year her father loaned her $67,500. In 1984, Adrienne earned $35,000 working for a toy company. In 1985 and 1986, Adrienne says, she returned to being a part-time substitute teacher and worked as a consultant for her husband for some period of time; she cannot remember what she earned those years. From 1987 to 1989, she earned less than $20,000 per year as a substitute teacher. These figures are Adrienne's own estimates, and not certain amounts, because Adrienne and Ronald did not file taxes after the mid-1980's. Adrienne's reported wages averaged $2,137.70 per year from 1990 to 1999.

III

In reviewing the denial of a third-party claim pursuant to § 1963(l) in a RICO forfeiture proceeding, we review the district court's findings of fact under the clearly erroneous standard and its interpretation and application of the federal forfeiture laws de novo. United States v. O'Dell, 247 F.3d 655, 679 (6th Cir.2001); cf. United States v. Simmons, 154 F.3d 765, 770-772 (8th Cir.1998) (applying de novo review to interpretation of 18 U.S.C. § 1963(a)(3) and clear error to the district court's finding of facts).

Defendants who violate the RICO Act must forfeit "any property constituting, or derived from, any proceeds which the person obtained, directly or indirectly, from racketeering activity...." 18 U.S.C. § 1963(a)(3). RICO forfeiture is an in personam sanction against the individual, not an in rem action; so § 1963 forfeiture reaches only the criminal defendant's interest in the property. See United States v. Alexander, 32 F.3d 1231, 1234, 1235 (8th Cir.1994) (quoting United States v. Sarbello, 985 F.2d 716, 724 (3d Cir.1993)); United States v. Angiulo, 897 F.2d 1169, 1210 (1st Cir.1990); United States v. Ginsburg, 773 F.2d 798, 800-01 (7th Cir.1985).

The government's interest in the property vests at the time of the unlawful activity. 18 U.S.C. § 1963(c) ("All right, title, and interest in property ... vests in the United States upon the commission of the act giving rise to forfeiture under this section."); Ginsburg, 773 F.2d at 801 ("In short, while the government's interest in the profits or proceeds of racketeering activity does not attach until conviction, its interest vests at the time of the act that constitutes the [RICO] violation....") (emphasis in original). With the verdict of forfeiture in the criminal proceeding, the government succeeds the defendant's entire interest in the property. United States v. Anderson, 782 F.2d 908, 917-18 (11th Cir.1986). Third parties who wish to assert a right, title or interest in the forfeited property cannot intervene in the criminal case or file their own separate action against the United States. 18 U.S.C. § 1963(i)(1), (2). Instead, third parties must assert their claims in the forfeited property in the civil proceeding ancillary to the criminal trial. 18 U.S.C. § 1963(l).

Section 1963(l) provides the mechanism by which third parties, also referred to as petitioners, may assert claims to property subject to RICO forfeiture. 18 U.S.C. § 1963(l)(2)-(6); United States v. Gilbert, 244 F.3d 888, 906-07 (11th Cir.2001). It permits petitioners to challenge an order of forfeiture by showing they had a vested or superior legal right, title or interest in the property at the time the criminal acts took place, or they were bona fide purchasers for value. 18 U.S.C. § 1963(l)(6)(A), (B). Adrienne asserts only the first of these — a vested or superior right, title or interest. The governing rule reads:

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

. . .

the court shall amend the order of forfeiture in accordance with its determination.

18 U.S.C. § 1963(l)(6). The court alone is responsible for deciding this question. 18 U.S.C. § 1963(l)(2).

No prior panel of the Eighth Circuit has had occasion to apply § 1963(l). In addition to decisions of other courts that have considered § 1963(l), two other sources guide our analysis. First, § 1963(l) is identical to the drug crimes forfeiture statute, 21 U.S.C. § 853(n), so case law implementing § 853(n) is persuasive in our task of applying § 1963(l...