United States v. All Assets Held at Bank Julius

• Decision Date: 02 April 2020
• Docket Number: Civil Action No. 04-0798 (PLF)
• Citation: 480 F.Supp.3d 1
• Court: U.S. District Court — District of Columbia
• Parties: UNITED STATES of America, Plaintiff, v. ALL ASSETS HELD AT BANK JULIUS, Baer & Company, Ltd., Guernsey Branch, account number 121128, in the Name of Pavlo Lazarenko et al., Defendants In Rem.

480 F.Supp.3d 1

UNITED STATES of America, Plaintiff,

v.ALL ASSETS HELD AT BANK JULIUS, Baer & Company, Ltd., Guernsey Branch, account number 121128, in the Name of Pavlo Lazarenko et al., Defendants In Rem.

Civil Action No. 04-0798 (PLF)

United States District Court, District of Columbia.

Signed April 2, 2020

Daniel Hocker Claman, Adam Jeffrey Schwartz, Teresa Carol Turner-Jones, U.S. Department of Justice, Washington, DC, for Plaintiff.

Bryant Everett Gardner, Winston & Strawn LLP, Washington, DC, Doron Weinberg, Weinberg & Wilder, San Francisco, CA, for Defendants.

OPINION

PAUL L. FRIEDMAN, United States District Judge

This matter is before the Court on the motion [Dkt. No. 554] of the United States to strike the claim of Pavel Lazarenko, also known as Pavlo Lazarenko, to the Balford Trust assets. Upon consideration of the parties’ written submissions, the relevant legal authorities, the arguments of counsel in open court on January 25, 2017, and the entire record in this case, the Court will grant the United States’ motion to strike Mr. Lazarenko's claim to the Balford Trust assets.¹

I. FACTUAL AND PROCEDURAL BACKGROUND

A. History of this Civil Forfeiture Proceeding

The Court's prior opinions summarize the factual and procedural history of this case, starting with the criminal prosecution of Mr. Lazarenko in 2004 and continuing through this long-running in rem civil forfeiture proceeding. See, e.g., United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 307 F.R.D. 249, 250-51 (D.D.C. 2014) ; United States v. All Assets Held at Bank Julius Baer & Co., Ltd. ("All Assets IV"), 959 F. Supp. 2d 81, 84-93 (D.D.C. 2013) ; United States v. All Assets Held at Bank Julius Baer & Co., Ltd. ("All Assets III"), 772 F. Supp. 2d 205, 207-08 (D.D.C. 2011) ; United States v. All Assets Held at Bank Julius Baer & Co., Ltd. ("All Assets I"), 571 F. Supp. 2d 1, 3-6 (D.D.C. 2008). In brief, Mr. Lazarenko was "a prominent Ukrainian politician who, with the aid of various associates, was ‘able to acquire hundreds of millions of United States dollars through a variety of acts of fraud, extortion, bribery, misappropriation and/or embezzlement’ committed during the 1990s." All Assets IV, 959 F. Supp. 2d at 85 (quoting the Amended Complaint at ¶¶ 1, 10).

B. The United States’ Motion to Strike Pavel Lazarenko's Claim to the Balford Trust

As relevant to the present motion to strike, in May 2004, the United States filed an in rem forfeiture complaint seeking forfeiture of inter alia, "[a]ll funds on deposit at Credit Suisse (Guernsey) Limited, in account number 41610 in the name of Samante Limited as Trustees of the Balford Trust." Complaint at ¶ 5(b). The next year, in June 2005, the United States filed an amended complaint identifying an additional bank account in Guernsey, 41950, and increasing the total Balford Trust assets sought to be forfeited to $147,919,401.13. Amended Complaint at ¶ 5(b). The amended complaint also identified an escrow account for the Balford Trust, 41843, with £ 14,308.52 pounds sterling of the United Kingdom. Id. at ¶ 5(c). As described more fully below, Mr. Lazarenko asserts a claim to the Balford Trust assets as the settlor and protector of the Trust. The United States’ motion to strike challenges Mr. Lazarenko's standing to assert such a claim.

Mr. Lazarenko filed an initial claim in this action in June 2004 asserting an interest in some of the defendant assets, but not the Balford Trust. See Claim. One month later in August 2004, Mr. Lazarenko filed an answer to the original complaint in which he: (i) admitted that he transferred approximately $106,975,123 to the Balford Trust account in Guernsey; (ii) admitted he is the settlor and protector of the Balford Trust; (iii) admitted that his family members are the beneficiaries of the trust; and (iv) denied that his family members are "nominal beneficiaries" of the trust. 2004 Answer at ¶¶ 73-74. After the United States filed an amended complaint in June 2005, Mr. Lazarenko filed a claim in July 2005 claiming a "residual and reversionary interest" in the defendant funds in Credit Suisse (Guernsey) Limited, account numbers 41610 and 41950, in the name of Samante Limited as Trustees of the Balford Trust. Amended Claim at 5.

In July 2005, Mr. Lazarenko filed a motion to dismiss the amended complaint, [Dkt. No. 27], which the Court denied in March 2007 [Dkt. No. 63]. Six years later, in November 2011, Mr. Lazarenko filed an answer to the amended complaint in which he once again: (i) admitted that approximately $106,975,123 dollars were transferred to the Balford Trust account in Guernsey; (ii) admitted he is the settlor and protector of the Balford Trust; (iii) admitted that his family members are the beneficiaries of the trust; and (iv) denied that his family members are "nominal beneficiaries" of the trust. 2011 Answer at ¶¶ 81-83.

Then in May 2015, after the government had moved to strike the claim filed by Mr. Lazarenko's children to the Balford Trust [Dkt. No. 363], Mr. Lazarenko moved for leave to file an amended answer [Dkt. No. 367], saying he wanted to "make it clear that he was the beneficial owner of the Balford Trust's assets." Mot. for Leave to File Amended Answer at 3. Once the Court granted the motion, however, the amended answers that Mr. Lazarenko subsequently filed said nothing about whether he was the beneficial owner of the Balford Trust assets. The only difference between the earlier answers and those filed in 2017 was that Mr. Lazarenko now admitted his family members are nominal beneficiaries. Compare 2004 Answer at ¶ 73 and 2011 Answer at ¶ 81 with 2017 Answer at ¶ 81 and Second 2017 Answer at ¶ 81.

In January 2016, the United States filed the instant motion – a motion to strike Mr. Lazarenko's claim to the Balford Trust assets. See Mot. to Strike. The United States brought this as a motion for summary judgment and argued that Mr. Lazarenko had no interest in the Balford Trust assets, having divested himself of any interest when he settled the funds in the trust. Mr. Lazarenko filed an opposition arguing that his roles as settlor and protector of the Balford Trust gave him an interest in the Balford Trust assets. See Opp. The United States filed a reply. See Reply.² On January 25, 2017 the Court held a hearing on the United States’ motion to strike Mr. Lazarenko as a claimant. See Jan. 25, 2017 Hearing Tr. [Dkt. Nos. 886, 887]. At the Court's request, the parties submitted supplemental briefing on the relevance of U.S. tax law after the hearing. See Dkt. Nos. 878, 897-1, 916.

C. The Balford Trust

The Court must determine what interest Mr. Lazarenko has, if any, in the Balford Trust assets. The parties agree that the Mr. Lazarenko's legal rights and limitations with respect to the Balford Trust are set forth in the Declaration of Trust. See Reply at 4; Opp. at 9 n. 6 (noting that the Balford Trust Declaration "controls [Mr. Lazarenko's] interest in the funds"). The Balford Trust Declaration says that Guernsey law governs the trust. Balford Trust Declaration ("Trust Decl.") at ¶ 2(a) [Appx. 219]. The Court therefore must look to Guernsey law and the Balford Trust Declaration to determine what interest Mr. Lazarenko may have in the Balford Trust.

Under Guernsey law, "[a] trust exists" when a trustee "holds or has vested in him ... property which does not form ... part of his own estate" either "for the benefit of another person," a beneficiary, or "for any purpose" other than for the benefit of the trustee. See The Trusts (Guernsey) Law, 2007 ("Guernsey Trust Law") at ¶ 1(a) [Appx. 346]. Upon creation of a trust in Guernsey, the settlor – the person creating the trust – "divest[s] himself of legal ownership of the trust assets," and legal title to the assets is vested in the trustee. See OGIER , Offshore Trusts at 1-2 [Appx. 412-13]. The Balford Trust Declaration specifies that the trustees "shall stand possessed of the Trust Fund and the income thereof" during the trust period. Trust Decl. at ¶ 3 [Appx. 220]. Under Guernsey law, then, Mr. Lazarenko divested himself of those assets upon settling his assets in the Balford Trust, and he no longer holds legal title to the assets in the Trust. The corporate trustee, Samante Limited, is the legal owner of the Balford Trust. See Trust Decl. at Establishment Checklist [Appx. 215].

The Balford Trust is a discretionary trust. See Davidson Decl. at 10, ¶ 37; Ferguson Decl. at 5; Le Poidevin Decl. at 3, ¶ 17. Samante Limited has broad discretion as trustees under the terms of the Balford Trust: the trust declaration refers to the trustees’ "absolute discretion" throughout the founding document. See, e.g., Trust Decl. at ¶ 11(a) [Appx. 223] ("The Trustees shall exercise the powers and discretions vested in them as they shall think most expedient for the benefit of [the beneficiaries]"); id. at ¶ 11(b) ("[E]very discretion vested in the Trustees shall be absolute and uncontrolled and every power vested in them shall be exercisable at their absolute and uncontrolled discretion and the Trustees shall have the same discretion in deciding whether or not to exercise any such power."); id. at Sixth Schedule, ¶ 1 [Appx. 229] ("the Trustees shall in relation to the Trust Fund have all the same powers as a natural person acting as the beneficial owner of such property").

The Balford Trust names four beneficiaries: Alexandre, Tamara, Lecia, and Ekaterina Lazarenko. Trust Decl. at Establishment Checklist [Appx. 215]. Under Guernsey trust law, the beneficiaries of a trust have a "beneficial interest" in the trust, which is "personal property." Guernsey Trust Law at ¶ 10 [Appx. 352]. Under Guernsey trust law, the settlor can be a beneficiary, id. at ¶ 8(4) [Appx. 352], but Mr. Lazarenko is not a named beneficiary of the Balford Trust, see Trust Decl. at Establishment Checklist [Appx. 215]. The beneficiaries are an "open class" because the trustees can add new beneficiaries. See Trust Decl. at ¶ 8(a) [Appx. 222]; Le...