US v. APPROXIMATELY $133,803.53 IN US CURRENCY, 2:09-cv-0461 FCD KJM.

• Citation: 683 F. Supp.2d 1090
• Decision Date: 10 February 2010
• Docket Number: No. 2:09-cv-0461 FCD KJM.,2:09-cv-0461 FCD KJM.
• Parties: UNITED STATES of America, Plaintiff, v. APPROXIMATELY $133,803.53 IN U.S. CURRENCY SEIZED FROM WASHINGTON MUTUAL BANK, N.A., ACCOUNT # XXXXXXXXXX, HELD IN THE NAME OF ADVANTAGE FINANCIAL Group Holdings Management LLC, and Approximately $328,495.75 In U.S. Currency Seized From Washington Mutual Bank, N.A., Account #XXXXXXXXXX, Held in the Name of Loomis Wealth Solutions LLC, Defendants.
• Court: U.S. District Court — Eastern District of California

683 F.Supp.2d 1090

UNITED STATES of America, Plaintiff, v. APPROXIMATELY $133,803.53 IN U.S. CURRENCY SEIZED FROM WASHINGTON MUTUAL BANK, N.A., ACCOUNT # XXXXXXXXXX, HELD IN THE NAME OF ADVANTAGE FINANCIAL Group Holdings Management LLC, and Approximately $328,495.75 In U.S. Currency Seized From Washington Mutual Bank, N.A., Account #XXXXXXXXXX, Held in the Name of Loomis Wealth Solutions LLC, Defendants.

No. 2:09-cv-0461 FCD KJM.

United States District Court, E.D. California.

February 10, 2010.

Saralyn M. Ang-Olson, United States Attorney's Office, Sacramento, CA, for Plaintiff.

Janet Sherman, Sherman & Sherman, PLC, Santa Monica, CA, for Defendants.

MEMORANDUM AND ORDER

FRANK C. DAMRELL, JR., District Judge.

This matter is before the court on claimant Flagstar Bank's ("claimant" or "Flagstar") motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) as to $320,697.50 of defendant $328,495.75 in U.S. Currency.¹ Plaintiff United States of America ("plaintiff" or the "government") opposes the motion and filed a motion to strike the claim and answer of claimant pursuant to Supplemental Rule G(8) of the Supplemental Rules for Admiralty, Maritime Claims, and Asset Forfeiture Actions ("Supplemental Rules"). For the reasons set forth below,² claimant's motion for judgment on the pleadings is DENIED, and plaintiff's motion to strike Flagstar's Claim and Answer is GRANTED.

BACKGROUND

The government filed this action for forfeiture in rem on February 17, 2009. (Verified Compl.) ("Compl.", filed Feb. 17, 2009.) The funds at issue were seized on or about August 27, 2008, pursuant to valid search warrants. (Decl. of Kathleen Nicolls in Supp. of Compl ("Nicolls Decl."), Ex. A to Compl., filed Feb. 17, 2009, ¶ 4.) The government believes that they are traceable to violations of federal law arising out of loan and credit fraud, identification documents fraud, wire fraud, bank fraud, money laundering, and illegal monetary transactions. (Id. ¶¶ 6-7.) Specifically, the funds are described as:

(1) approximately $133,803.53 in U.S. Currency seized from Washington Mutual Bank, N.A., Account #XXXXXXXXXX, held in the name of Advantage Financial Group Holdings Management LLC, and

(2) approximately $328,495.75 in U.S. Currency seized from Washington Mutual Bank, N.A., Account #XXXXXXXXXX, held in the name of Loomis Wealth Solutions LLC (the "LWS Account").

The government alleges that since at least 2006, directors of Loomis Wealth Solutions ("LWS"), Nationwide Lending Group, the NARAS Secured Fund #2 LLC, and/or related entities, ran a large, multi-tiered Ponzi investment scheme, involving securities fraud and real estate mortgage fraud. (Id. ¶ 13.) Straw buyers, also known as nominee-investors, were used to purchase the properties. (Id. ¶ 14.) They were told that the purchases were investments on which they would receive a handsome return while LWS made the mortgage, tax and insurance payments. However, LWS stopped making payments by spring of 2008. By August 2008, LWS informed investors that they would have to pay their own life insurance payments and cover all the mortgage, tax, and insurance payments coming due on their respective properties, or that their loans would go into default. Ultimately, many loans went into default. (Id.) The alleged fraudulent activities span six states and involve approximately 500 properties; losses are estimated at approximately $100 million. (Id. ¶ 13.)

In or around August 2008, Excel Funding ("Excel"), an independent mortgage company, authorized the funding of certain loans and released those loan funds for real property purchase transactions. (Id. ¶¶ 52-54.) The loan funds were obtained by Excel through a line of credit with Flagstar. (Id.) The funds were wired from Flagstar to Contemporary Solutions-USA, Inc. ("Contemporary"), an entity used as a title company. (Id. ¶¶ 53-54.) Contemporary, in turn, wired the funds it received to Lender Services Direct ("LSD"). Subsequently, LSD wired the funds it received from Contemporary into the LWS Account in the total amount of $320,697.50. (Id. ¶¶ 52-54, 65-66.) Loomis and others falsified documents and committed other breaches in order to create the appearance that the real estate transactions had properly closed escrow. (Id. ¶ 54.) Because the documents appeared to reflect a proper closing, Excel authorized and released loan funds for the real property transactions. (Id.)

Flagstar claims that is the beneficiary of a constructive trust in the defendant currency as a victim of the alleged fraud (Verified Claim ("Claim"), filed Apr. 22, 2009, at 2.) Specifically, Flagstar contends that it maintains an ownership interest in the currency "which the perpetrator of the fraud wrongfully obtained and the United States Government acquired." (Id.)

STANDARD

A. Supplemental Rule G

Supplemental Rule G provides that "at any time before trial, the government may move to strike a claim or answer... because the claimant lacks standing." Supplemental Rule G(c)(i)(B). A claimant in a forfeiture proceeding bears the burden of showing, as a threshold matter, that he owns or has an interest in the property sought to be forfeited. United States v. $20,193.39 in U.S. Currency, 16 F.3d 344, 346 (9th Cir.1994) While state law determines whether a claimant has a property interest, federal law determines whether or not that interest can be forfeited. Hooper, 229 F.3d at 820. See United States v. Hooper, 229 F.3d 818, 820 (9th Cir.2000) (citing United States v. Lester, 85 F.3d 1409, 1412 (9th Cir.1996)); see also United States v. Alcaraz-Garcia, 79 F.3d 769, 774 (9th Cir.1996).

B. Rule 12(c)

Federal Rule of Civil Procedure 12(c) provides that a party may move for judgment on the pleadings after the pleadings are closed. The standard governing a Rule 12(c) motion for judgment on the pleadings is basically the same as that which governs Rule 12(b) motions. See Hal Roach Studios v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1989).

Under Federal Rule of Civil Procedure 8(a), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." See Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). On a motion to dismiss, the factual allegations of the complaint must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 31 L.Ed.2d 263 (1972). The court is bound to give plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n. 6, 83 S.Ct. 1461, 10 L.Ed.2d 678 (1963). A plaintiff need not allege "`specific facts' beyond those necessary to state his claim and the grounds showing entitlement to relief." Bell Atlantic v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949.

Nevertheless, the court "need not assume the truth of legal conclusions cast in the form of factual allegations." United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n. 2 (9th Cir.1986). While Rule 8(a) does not require detailed factual allegations, "it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 129 S.Ct. at 1949. A pleading is insufficient if it offers mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555, 127 S.Ct. 1955; Iqbal, 129 S.Ct. at 1950 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."). Moreover, it is inappropriate to assume that the plaintiff "can prove facts which it has not alleged or that the defendants have violated the ... laws in ways that have not been alleged." Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983).

In ruling upon a 12(c) motion, the court may consider only the pleadings, any exhibits thereto, and matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. See Hal Roach Studios, Inc., 896 F.2d at 1550; Mir v. Little Co. Of Mary Hospital, 844 F.2d 646, 649 (9th Cir.1988); Isuzu Motors Ltd. v. Consumers Union of United States, Inc., 12 F.Supp.2d 1035, 1042 (C.D.Cal.1998).

ANALYSIS

Through its motion, claimant Flagstar seeks an order granting Flagstar's claim to approximately $328,495,75 and dismissing the forfeiture against this defendant. The government asserts that Flagstar lacks standing, and as such, claimant's motion should be denied and its claim and answer stricken.³

"In every federal case, the party bringing the suit must establish standing to prosecute the action." Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 11, 124 S.Ct. 2301, 159 L.Ed.2d 98 (2004). The standing doctrine establishes "whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues." United States v. Lazarenko, 476 F.3d 642, 649 (9th Cir.2007) (quoting Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975)). Standing jurisprudence is comprised of two strands: "Article III standing, which enforces the Constitution's case-or-controversy requirement; and prudential standing, which embodies judicially self-imposed limits on the exercise of jurisdiction." Newdow, 542 U.S. at 11, 124 S.Ct. 2301 (internal quotations and citations omitted).

Prudential standing encompasses, inter alia, "the requirement that a plaintiff's complaint fall within the zone of interests protected by the law invoked." Lazarenko, 476 F.3d at 650. "The breadth of the zone of interests varies according to the provisions of law at issue." Bennett v. Spear, 520 U.S. 154, 163, 117 S.Ct. 1154, ...