United States v. Coffman

• Decision Date: 11 May 2015
• Docket Number: No. 14-5298,No. 14-5134,14-5134,14-5298
• Citation: United States v. Coffman, No. 14-5134, No. 14-5298 (6th Cir. May 11, 2015)
• Parties: UNITED STATES OF AMERICA, Plaintiff-Appellee, v. BRYAN COFFMAN, Defendant, BANIEL, LLC; DACORTA, LLC; MEGAN COFFMAN, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

UNITED STATES OF AMERICA, Plaintiff-Appellee, v. BRYAN COFFMAN, Defendant,BANIEL, LLC; DACORTA, LLC; MEGAN COFFMAN, Defendants-Appellants.

No. 14-5134

No. 14-5298

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

May 11, 2015

NOT RECOMMENDED FOR PUBLICATION

File Name: 15a0353n.06

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF KENTUCKY

BEFORE: GUY, BATCHELDER, and MOORE, Circuit Judges

ALICE M. BATCHELDER, Circuit Judge.In 2011, a jury convicted Bryan Coffman of various counts of fraud and money laundering.The same jury acquitted his wife, Megan Coffman, of several counts of money laundering.During the investigation leading up to trial, the government sought to divest Bryan of the proceeds of his money-laundering scheme as well as other assets used to shield the money laundering.Following the guilty verdict, the district court issued a preliminary order of forfeiture that included property to which Megan Coffman and two of her LLCs, the appellants in this case, lay claim.Pursuant to 21 U.S.C. § 853(n), Appellants petitioned the district court for an ancillary hearing, which the district court duly held.Althoughthe district court ruled in Appellants' favor on a few issues, it included in the final order of forfeiture against Bryan the vast majority of what Appellants claim is their property.Appellants now challenge the final order of forfeiture.For the reasons that follow, we AFFIRM the order.

I.

We discussed at length the underlying case against Bryan Coffman and his business partner, Gary Milby, in our disposition of Bryan's appeal of his conviction.SeeUnited States v. Coffman, 574 F. App'x 541(6th Cir.2014).To summarize, during a five-year period beginning in 2004, Bryan and Milby defrauded almost 600 investors out of over thirty-six million dollars through a complex scheme involving shell companies and securities in Kentucky oil wells.Bryan and Milby used forty-two bank accounts in perpetrating the fraud.Bryan also funneled investors' money through several bank accounts into an investment account he held with his wife Megan, and he later transferred his interest in the investment account to Megan.He further funneled that money into Megan's companies' accounts, and purchased with it a condominium where his sister-in-law lived, and a yacht which became the property of one of Megan's companies.

Pursuant to a Securities and Exchange Commission investigation, Bryan received a subpoena for his bank account and other financial records in June 2008.Meanwhile, the federal government continued its investigation of Bryan, Milby, and Megan.In December 2008, the government filed a complaint for civil forfeiture in rem against the Coffmans and Milby pursuant to 18 U.S.C. § 981(a)(1)(A) and (C)and18U.S.C. §§ 983and985, designating for forfeiture the funds in thirteen bank accounts, one yacht, one condominium, and the Coffman family home.The government then petitioned for, and the district court granted, a stay in the civil case pending any criminal action.In 2009, a federal grand jury indicted Bryan and Milby for mail fraud, wirefraud, securities fraud, and money laundering, and also indicted Megan for money laundering.As part of the indictment, the government sought through criminal forfeiture from Bryan under 18 U.S.C. § 981(a)(1)(C) a total of approximately thirty-three million dollars, designating the funds in the thirteen bank accounts, the yacht, the condominium, and the Coffman family home as potentially forfeitable, and nine pieces of real property as potential substitute assets if the other property did not satisfy the thirty-three million dollar sum.In a separate forfeiture allegation in the indictment that named both Bryan and Megan, the government sought forfeiture of "any property, real or personal, which constitutes or is derived from proceeds traceable to the commission of the offense, including but not limited to the specific property (financial institution accounts, real property) as referenced above."The case then proceeded to trial.

In 2011, the federal jury found Bryan and Milby guilty of almost all the counts against them.The same jury acquitted Megan of the money laundering charges against her.Because the parties elected to have the district judge determine the forfeiture issue rather than submit it to the jury, the district court consolidated the criminal action and the civil forfeiture action, noting that the final order of forfeiture in the criminal action would dispose of the civil action as well.On April 19, 2012, the district court entered a joint-and-several judgment against Bryan and Milby for thirty-three million dollars, which represented the approximate amount of proceeds derived from their scheme.Pursuant to that judgment, the district court adopted a preliminary order of forfeiture of the funds in the thirteen bank accounts, the condominium, and the yacht.Because the monetary value of the property in the preliminary order totaled only about three million dollars, the government petitioned the district court to amend its preliminary order and add to that order two automobiles and eight pieces of real property as substitute property.Over Bryan's objections, the district court granted the government's motion and included in its last preliminaryorder of forfeiture the funds in the thirteen bank accounts, the condominium, the yacht, the two automobiles, and the eight pieces of real property.

Megan Coffman and two companies of which she is sole proprietor filed petitions for ancillary hearings under 21 U.S.C. § 853(n) in order to assert their interests in some of the forfeited property.Megan claimed ownership of the eight pieces of real property and at least part of the funds in nine of the bank accounts; Dacorta LLC("Dacorta") claimed ownership of at least part of the funds in two of the bank accounts; and Baniel, LLC("Baniel") claimed ownership of the yacht.In March 2013, the district court held a two-day ancillary proceeding to determine whether Megan or the two companies had a superior interest to that of the government in any of the property.In January 2014, the district court released an opinion, determining that Megan had proven a superior right to approximately $300,000 and her interest in the joint tenancies that held the eight pieces of real property.Pursuant to this opinion, the district court included in its final order of forfeiture most of the funds in the thirteen bank accounts, the yacht, the two automobiles, and Bryan's interest in the eight pieces of real property.Because of the consolidation of the cases, the final order of forfeiture in the criminal case served as the final order of forfeiture in the civil case as well.

Megan and her two companies appeal the final order of forfeiture in both the criminal action and the civil action.We have consolidated the criminal case and the civil case for purposes of appeal.

II.

Before we begin, some background on the criminal forfeiture procedures, specifically in this particular context, will be helpful.The government sought forfeiture of the bank account funds and the yacht under both 18 U.S.C. § 981("civil forfeiture") and 18 U.S.C. § 982("criminal forfeiture") because civil forfeiture provisions are fully applicable in the criminal forfeiture context.See21 U.S.C. § 853(j).¹First, 18 U.S.C. § 981(a)(1)(C) authorizes the forfeiture of any property "which constitutes or is derived from proceeds traceable to . . . any offense constituting 'specified unlawful activity'" as defined in 18 U.S.C. § 1956(c)(7).Mail and wire fraud are "specified unlawful activities."See18 U.S.C. § 1956(c)(7)(A)(designating as a "specified unlawful activity" any act constituting an offense "listed in section 1961(1) of this title");id.§ 1961(1)(listing mail fraud and wire fraud).Thus, any proceeds of the fraud are forfeitable.Second, 18 U.S.C. § 982(a)(1) further authorizes the forfeiture of any property "involved in" or "traceable to" the underlying criminal prosecution.The crux of the government's forfeiture argument is that any money directly traceable to investors is forfeitable as proceeds of the fraud.The remaining money in the bank accounts, and the yacht if purchased with this remaining money, are forfeitable as property "involved in" the money laundering.

Because the district court entered a judgment for thirty-three million dollars but only three million of it could be found, the government was entitled to petition the court for the inclusion of substitute property.21 U.S.C. § 853(p).Once the district court identified the property the government sought, it submitted a preliminary order of forfeiture listing the property subject to forfeiture, "without regard to any third party's interest in the property."Fed. R. Crim. P. 32.2(b)(2)(A).Following entry of the preliminary order of forfeiture, the government published the required notice of the order in order to determine whether there were any third-party claims to the proposed forfeitable property.21 U.S.C. § 853(n)(1).Any third party may petition the court for a hearing to adjudicate the validity of his alleged interest in the property.Id.§ 853(n)(2).If the court determines at the hearing that the petitioner has established hisinterest, by showing either a superior interest in the property or that he was a bona fide purchaser of the property, the court must amend its order of forfeiture in accordance with that determination.Id.§ 853(n)(6).Regardless of the outcome of the ancillary proceeding, "[w]hen the ancillary proceeding ends, the court must enter a final order of forfeiture."Fed. R. Crim. P. 32.2(c)(2).It is this final order of forfeiture that Megan, Baniel, and Dacorta are appealing.

With this background in mind, our first task is to determine which of Appellants' challenges are properly before us.Appellants' entire first assignment of error, and several portions of their other assignments of...