United States v. All Funds on Deposit With R.J. O'Brien & Assocs.

• Decision Date: 25 September 2012
• Docket Number: 12 C 1346.,Case Nos. 11 C 4175
• Citation: 892 F.Supp.2d 1038
• Parties: UNITED STATES of America, Plaintiff, v. ALL FUNDS ON DEPOSIT WITH R.J. O'BRIEN & ASSOCIATES, Held in the Name of Bridge Investment, S.L., Bearing Account Numbers XX–X3931 and XXX–X1784, Maintained at Harris Bank, Account Number XXX–171–6, Defendant. Art Insurance Company, et al., Plaintiffs, v. Al Qaeda, Defendant.
• Court: U.S. District Court — Northern District of Illinois

892 F.Supp.2d 1038

UNITED STATES of America, Plaintiff,

v.ALL FUNDS ON DEPOSIT WITH R.J. O'BRIEN & ASSOCIATES, Held in the Name of Bridge Investment, S.L., Bearing Account Numbers XX–X3931 and XXX–X1784, Maintained at Harris Bank, Account Number XXX–171–6, Defendant.

Art Insurance Company, et al., Plaintiffs,

v.Al Qaeda, Defendant.

Case Nos. 11 C 4175, 12 C 1346.

United States District Court,

N.D. Illinois,

Eastern Division.

Sept. 25, 2012.

Brian Hayes, Joel M. Hammerman, United States Attorney's Office, Chicago, IL, for Plaintiff.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge.

The United States filed an in rem action (Case No. 11 C 4175) seeking forfeiture of approximately $6,600,000 held in futures trading accounts. It contends that the money is the property of an affiliate of the Al Qaeda terrorist organization. A number of insurance companies that paid property damage claims arising from the September 11, 2001 terrorist attacks filed claims to the funds and answers to the government's complaint. In addition, a group of individuals asserting personal injury and wrongful death claims arising from the September 11 attacks moved to intervene and filed an answer to the government's complaint. On March 27, 2012, the Court granted the government's motions to strike the insurance company claimants' claims and answers and denied the personal injury claimants' motion to intervene. United States v. All Funds on Deposit with R.J. O'Brien & Assocs., No. 11 C 4175, 2012 WL 1032904, at *1 (N.D.Ill. March 27, 2012).

The insurance company claimants have moved to file amended claims and answers. The government opposes the motion. The insurance company claimants separately registered in this district a judgment they had obtained in the Southern District of New York (Case No. 12 C 1346 in this district). They then sought a writ of execution and served the United States Marshal with a citation to discover assets. The government has moved to quash the writ of execution and the citation.

For the reasons discussed below, the Court denies the government's motion to quash and grants claimants' motion to amend.

Background

The present decision assumes familiarity with the Court's March 27, 2012 decision striking the claimants' answers and claims.

A. The defendant property

In 2003, a commodities futures trading account was opened at R.J. O'Brien & Associates (RJO) in the name of Bridge Investment, S.L., a Spanish corporation. In 2005, Mohammad Qasim al Ghamdi (Al Ghamdi), who was identified as Bridge Investment's general manager, took control of the trading account. Between June and September 2005, he deposited almost $24,000,000 in the account. The account lost money, and by May 2006 only about $6,600,000 remained. Later in 2006, Bridge Investment opened a second account with RJO but did not deposit any additional money into the account.

The government alleges that the money Al Ghamdi deposited in the RJO account was the property of Muhammad Abdallah Abdan Al Ghamdi, also known as Abu al Tayyeb (Al Tayyeb), a member of Al Qaeda and an associate of Al Ghamdi. The government alleges that Al Tayyeb raised money in Saudi Arabia and used it to support Al Qaeda's activity. He provided approximately $35 million to Al Ghamdi, and it was a portion of this money that Al Ghamdi deposited in the RJO account. Saudi Arabian authorities arrested Al Tayyeb in June 2006. At the time, he had been planning or considering several different types of terrorist attacks on Saudi Arabia and the United States.

In June 2007, the United States Department of the Treasury's Office of Foreign Assets Control, using its authority under the International Emergency Economic Powers Act (IEEPA), blocked Bridge Investment's two accounts at RJO. The funds in the accounts remained blocked when the government initiated this forfeitureaction on June 19, 2011. In this action, the government claims that the funds were forfeit as the assets of an individual or entity planning or perpetrating an act of terrorism against the United States or a foreign government in violation of 18 U.S.C. § 981(a)(1)(G)(i) and (iv). Following the filing of the complaint, the Court issued an in rem arrest warrant for the funds, and federal law enforcement agents then seized the funds. The United States Marshal has held the funds since July 15, 2011, placing them in a seized asset deposit fund.

B. The claimants

The claimants are twelve insurance companies: One Beacon Insurance Group, American Alternative Insurance Company, The Princeton Excess & Surplus Lines Insurance Company, Great Lakes UK Insurance Company, Vigilant Insurance Company, Chubb Custom Insurance Company, Chubb Indemnity Insurance Company, Federal Insurance Company, Chubb Insurance Company of New Jersey, Chubb Insurance Company of Canada, Pacific Indemnity Company, and Great Northern Insurance Company. Claimants collectively paid more than $2.5 billion in property damage and business interruption claims arising from the September 11 terrorist attacks. In 2003, they and other similarly situated insurance companies filed suit against Al Qaeda and other defendants in the United States District Court for the Southern District of New York seeking to recover the funds they had paid out. Their case was consolidated with personal injury and wrongful death claims that a group of several thousand individuals injured or killed in the September 11 attacks filed against Al Qaeda and other defendants in 2002.

In April 2006, the district court in New York entered orders of default against the defendants because they had not answered the complaint. In 2007, the insurance companies moved the court to assess damages in the total amount of more than $9.4 billion in favor of all the insurance company plaintiffs, including some plaintiffs who are not claimants here.

The district court, however, took no action on the insurance companies' motion for around four years. On July 13, 2011, the district court referred the motion to a magistrate judge. Consequently, when claimants filed their initial claims and answers in this forfeiture action in August and September 2011, they were able to say only that the New York federal court had determined liability in their favor, and they were unable to specify the amount of their claim.

In October 2011, the magistrate judge in New York recommended awarding the insurance companies the judgment they sought, with only minor subtractions. The district court adopted the recommendation fully and entered judgment in favor of the insurance companies on December 22, 2011. On January 25, 2012, the district court in New York determined that there was no reason for delay and issued final judgments in favor of the insurance companies even though other portions of the consolidated cases were ongoing. The present insurance claimants' share of the judgment amounts to more than $7.5 billion.

On December 5, 2011, the government sought to strike claimants' claims and answers, contending that they did not have standing to assert their claims. On January 27, 2012, claimants sought leave to file amended claims and answers that would reflect their final judgment.

On March 27, 2012, the Court granted the government's motion to strike and denied claimants' motion to amend. The Court concluded that even with the final judgment, claimants were unsecured creditors who lacked an interest in the specific property that was the subject of the forfeiture action, as the civil forfeiture statute and Federal Rules of Civil Procedure require. See18 U.S.C. § 983(a)(2)(C)(ii); Fed.R.Civ.P., Supp. R. G(5)(a)(i)(B). Accordingly, claimants lacked prudential and statutory standing to make a claim. See United States v. $500,000.00, 591 F.3d 402, 404 (5th Cir.2009); United States v. One–Sixth Share of James J. Bulger in All Present and Future Proceeds of Mass Millions Lottery Ticket No. M246233, 326 F.3d 36, 44 (1st Cir.2003).

On February 27, 2012, claimants registered their judgment from the New York district court in this district. That matter was originally assigned to Judge Gettleman as Case No. 12 C 1346. Claimants served a citation to discover assets on the United States Marshal on April 10, 2012, and they obtained a writ of execution ordering the marshal to execute on the defendant funds. See735 ILCS 5/2–1402(a) & (m). On April 13, Case No. 12 C 1346 was transferred to this Court as a related case to the forfeiture action.

Discussion

Claimants contend that by service of the citation to discover assets, they have established a lien on the defendant funds and now have the requisite interest in the funds to assert a claim in the forfeiture proceeding. The government disagrees and moves to quash claimants' citation and writ of execution.

A. Motion to quash

The government contends that the citation and writ violate the sovereign immunity of the United States and the doctrines of prior exclusive jurisdiction and in custodia legis.

1. Sovereign immunity

“[S]overeign immunity bars creditors from attaching or garnishing funds in the Treasury, or enforcing liens against property owned by the United States.” Dep't of the Army v. Blue Fox, 525 U.S. 255, 264, 119 S.Ct. 687, 142 L.Ed.2d 718 (1999) (citation omitted). The government contends that claimants' citation and writ of execution violate its sovereign immunity because the defendant funds have been seized by the government and are in the possession of the United States Marshal. The Court concludes, however, that Congress waived the government's sovereign immunity through the Terrorism Risk Insurance Act (TRIA).

The TRIA provides:

Notwithstanding any other provision of law, ... in every case in which a person has obtained a judgment against a terrorist party based upon an act of terrorism, ... the blocked assets of that terrorist party (including the blocked assets of any agency or instrumentality of that terrorist party) shall be subject to execution or attachment in aid of...