United States v. All Assets Listed in Attachment A (In re Rem), Civil No. 1:14-cv-969

CourtUnited States District Courts. 4th Circuit. United States District Court (Eastern District of Virginia)
Writing for the CourtHon. Liam O'Grady
Decision Date27 February 2015
Docket NumberCivil No. 1:14-cv-969


Civil No. 1:14-cv-969


February 27, 2015

Hon. Liam O'Grady


Before the Court is the government's motion to strike the claims of Finn Batato ("Batato"); Julius Bencko ("Bencko"); Kim Dotcom ("Dotcom"); Sven Echternach ("Echternach"); Bram van der Kolk ("van der Kolk"); Mathias Ortmann ("Ortmann"); and Megaupload Limited, Megapay Limited, Megamedia Limited, Megastuff Limited, and Vestor Limited ("the corporate claimants"). See Mot. to Strike, 1. In this civil in rem action, the United States seeks forfeiture of the assets listed in Attachment A to the complaint. All of the assets identified in Attachment A are located either in Hong Kong or New Zealand.

The government filed a verified complaint for forfeiture in rem on July 29, 2014. (Dkt. No. 1). On August 28, 2014, claims to the assets were filed by Batato, Bencko, Dotcom, Echternach, van der Kolk, Ortmann, and the corporate claimants. (Dkt. Nos. 3-9). On October 10, 2014, the claimants filed a motion to dismiss the forfeiture complaint or in the alternative stay the forfeiture action. (Dkt. No. 19). The government then filed a motion to set a briefing schedule, asking the court to consider the government's motion to strike before ruling on the

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motion to dismiss. (Dkt. No. 31). The court granted the government's request. (Dkt. No. 32). On November 18, 2014, the government moved to strike the claims of the claimants. (Dkt. No. 39).1 The claimants opposed the motion and the government replied. (Dkt. Nos. 45, 46, 48, 66, 67).


On January 5, 2012, indictments were entered in this district against Batato, Bencko, Dotcom, Echternach, van der Kolk, Ortmann, Megaupload Limited, and Vestor Limited.2 See Complaint, ¶ 16. The indictment charged the defendants with multiple crimes, including conspiracy to commit racketeering in violation of 18 U.S.C. § 1962(d); criminal copyright infringement in violation of 17 U.S.C. § 506 and 18 U.S.C. § 2319; conspiracy to commit copyright infringement in violation of 18 U.S.C. § 371; aiding and abetting of copyright infringement in violation of 18 U.S.C. § 2; and conspiracy to commit money laundering in violation of 18 U.S.C. § 1956(h). On February 16, 2012, a superseding indictment was returned, adding wire fraud charges under 18 U.S.C. § 1343. See Superseding Indictment. In summary, the government alleges that the indicted defendants operated a scheme known as the "Mega Conspiracy," an international criminal conspiracy to profit from criminal copyright infringement and launder the proceeds. See Complaint, ¶ 2. The government asserts that the assets listed in Attachment A constitute proceeds of the conspiracy and are thus subject to forfeiture. Id at ¶ 3.

On January 13, 2012, the New Zealand Ministry of Foreign Affairs and Trade received requests from the United States seeking the provisional arrest of the individual defendants in the

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criminal action for the purpose of extraditing them to the United States. See Affirmation of Bethany Ellen Madden, ¶ 2. On or about January 20, 2012, New Zealand authorities arrested Batato, Dotcom, Ortmann, and van der Kolk. See Declaration of FBI Special Agent Rodney J. Hays. They were released on conditions of bail. Bencko remains in Slovakia, his country of citizenship. Echternach is also in his country of citizenship, Germany.

On April 18, 2012, the New Zealand High Court3 registered in New Zealand two restraining orders issued by this court, subject to conditions including monthly living allowance payments for Dotcom, his wife, and van der Kolk. See Order for Registration of Foreign Restraining Orders. The restraining orders were to expire on April 18, 2014. The New Zealand Court of Appeal issued a ruling extending the registration of the U.S. restraining orders to April 18, 2015. The evidence before this Court indicates that New Zealand law does not provide for further extension of the restraining orders.


A. Legal Standard

The claimants assert that this court lacks subject matter jurisdiction over the civil forfeiture complaint because the government has failed to allege violations of federal statutes.4 Rule 12(b) of the Federal Rules of Civil Procedure and Rule G of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions are applicable to this civil forfeiture

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in rem action. Rule G(8)(b) authorizes a claimant to move to dismiss a forfeiture complaint pursuant to Rule 12(b). A motion made pursuant to Fed. R. Civ. P. 12(b)(1) challenges the court's jurisdiction over the subject matter of the case. Generally, the plaintiff bears the burden to establish and preserve jurisdiction. See Kerns v. United States, 585 F.3d 187, 194 (4th Cir. 2009); see also Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991).

Subject matter jurisdiction over civil asset forfeiture actions is governed by 28 U.S.C. § 13455 and 28 U.S.C. § 1355(a). Section 1355(a) provides that "[t]he district courts shall have original jurisdiction...of any action or proceeding for the recovery or enforcement of any fine, penalty, or forfeiture, pecuniary or otherwise, incurred under any Act of Congress." 28 U.S.C. § 1355(a) (emphasis added); United States v. Wilson, 699 F.3d 789, 795 (4th Cir. 2012), cert. denied, 133 S. Ct. 2401 (2013) (holding that a procedural deadline for filing a civil forfeiture complaint in the Civil Asset Forfeiture Reform Act of 2000 is non-jurisdictional).

In United States v. $6,190 in U.S. Currency, 581 F.3d 881 (9th Cir. 2009), the Ninth Circuit considered a challenge to subject matter jurisdiction in a civil forfeiture case:

Jurisdiction over civil forfeiture actions brought under 28 U.S.C. § 1355 is not premised on a federal indictment, but rather on a violation of an Act of Congress. See 28 U.S.C. § 1355(a); see also United States v. One Assortment of 89 Firearms, 465 U.S. 354, 361-63, 104 S. Ct. 1099, 79 L. Ed. 2d 361 (1984) (holding that a claimant's assets were subject to forfeiture even though claimant was acquitted on federal criminal charges). To bring a civil forfeiture proceeding under § 1355, the government is required only to show probable cause that the assets in question are traceable to a violation of an Act of Congress. See [United States v.] $493,850.00 in U.S. Currency, 518 F.3d [1159], [] 1167-69 (holding that the Civil Asset Forfeiture Reform Act of 2000 did not alter the probable cause requirement).

$6,190 in U.S. Currency, 581 F.3d at 885 (emphasis added).

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Courts within the Fourth Circuit have used a synonymous "reasonable belief pleading requirement in examining motions to dismiss forfeiture complaints pursuant to Fed. R. Civ. P. 12(b)(6). A motion to dismiss pursuant to this rule tests the sufficiency of a complaint. See, e.g., United States v. $15,860 in U.S. Currency, 962 F. Supp. 2d 835, 838 (D. Md. 2013) ("For the government to meet the pleading requirements [of Fed. R. Civ. P. 12(b)(6)], it must state sufficient facts to support a reasonable belief based on the totality of the circumstances that the defendant property is linked to drug trafficking and, thus, subject to forfeiture") (citing United States v. Mondragon, 313 F.3d 862, 866-67 (4th Cir. 2002)). The $15,860 court noted that its analysis would not change if it were to use the "probable cause" standard applied by the Ninth Circuit. Id. at 840 n.6.

B. Subject Matter Jurisdiction is Satisfied

The forfeiture complaint alleges that the named assets are subject to forfeiture pursuant to 18 U.S.C. § 981 and 18 U.S.C. § 2323, because the assets are traceable to copyright infringement, conspiracy to commit copyright infringement, and money laundering offenses.6 18 U.S.C. § 981(a)(1)(A) provides for forfeiture of property traceable to violations of 18 U.S.C. §§ 1956 and 1957. Section 1956(a)(1) prohibits the use of the proceeds of an unlawful activity where a person knows the illegal nature of the proceeds and conducts or attempts to conduct a financial transaction with the intent to promote carrying out a "specified unlawful activity" or with the knowledge that the transaction is "designed in whole or in part" to conceal the "nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity." 18 U.S.C. § 1956(a)(1). Section 1956(a)(2) prohibits the transmission of such illegal

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funds into or out of the United States. 18 U.S.C. § 1957(a) prohibits engaging in a "monetary transaction in criminally derived property of a value greater than $10,000." 18 U.S.C. § 1957(a).

Section 1956(h) provides criminal liability for conspiracy to commit offenses described in §§ 1956 or 1957. Section 981 subjects to forfeiture any property traceable to "any offense constituting 'specified unlawful activity' (as defined in section 1956(c)(7) of this title), or a conspiracy to commit such offense." 18 U.S.C. § 981(a)(1)(C). Section 1956(c)(7)(D) lists a number of offenses that constitute "specified unlawful activity," including offenses relating to copyright infringement under 18 U.S.C. § 2319. 18 U.S.C. § 1956(c)(7)(D).

Section 2319 sets forth the penalties for a violation of 17 U.S.C. § 506(a)(1), which criminalizes infringement of a copyright (A) for commercial advantage or private financial gain; (B) by reproducing or distributing infringing copies of copyrighted works with a value of over $1,000 in any 180-day period; or (C) by distributing a work being prepared for commercial distribution if the person knew or should have known that the work was intended for commercial distribution. 17 U.S.C. § 506(a)(1). Section 506(b) provides that forfeiture under the statute shall be governed by 18 U.S.C. § 2323. 17 U.S.C....

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