US v. Swank Corp., CR 92-59.

• Decision Date: 02 July 1992
• Docket Number: No. CR 92-59.,CR 92-59.
• Citation: 797 F. Supp. 497
• Court: U.S. District Court — Eastern District of Virginia
• Parties: UNITED STATES of America v. SWANK CORPORATION, et al.

797 F. Supp. 497

UNITED STATES of America v. SWANK CORPORATION, et al.

No. CR 92-59.

United States District Court, E.D. Virginia, Richmond Division.

July 2, 1992.

S. David Schiller, G. Wingate Grant, Asst. U.S. Attys., Richmond, Va., for plaintiff.

Brodnax Haskins, and Thomas W. Williamson, Jr., Richmond, Va., for defendants.

MEMORANDUM OPINION

RICHARD L. WILLIAMS, District Judge.

This matter is before the Court on the Defendant's Motion to Modify the Restraining Order entered by the Court on April 20, 1992. Also pending is the Receiver's Application for Determination of Authority to Pay Legal Expenses.

For the reasons stated below, the Defendant's motion is denied in part and granted in part. In addition, the Receiver is instructed to not pay the legal expenses of the Swank Defendants out of corporate funds.

FACTUAL BACKGROUND

In 1972, Donald Swank, Sr. founded the Swank Corporation, an office supplies sales business, and he remains its president and sole stockholder. By the late 1980's, the Swank Corporation had over 600 accounts with businesses, law firms, and other customers situated throughout the eastern portion of the United States, from Philadelphia to Atlanta. It earned gross annual sales of several million dollars per annum.

On April 20, 1992, Swank and eleven of the Corporation's sales representatives were indicted for conspiracy, mail fraud, bank fraud and money laundering. On May 19, 1992, a superseding indictment added additional counts of money laundering and witness tampering. Counts 36-41 of the superseding indictment allege six violations of 18 U.S.C. § 1956(a)(1)(A)(i), which total $4,982,369 in laundered money. Each of these counts demands that the Defendants "forfeit all property ... involved in said offense and all property traceable to such property" pursuant to 18 U.S.C. § 982.

Upon the Government's motion, the Court entered an ex parte order on April 20, 1992, which, inter alia, restrained and enjoined the Swank Defendants from "transferring, conveying, liquidating, encumbering, wasting, secreting, modifying the terms of or otherwise disposing of any real or personal property described in the Indictment in this case or any other property in which they have an interest...." (emphasis added.) The Restraining Order contains only one proviso for relief from its restraint:

In the event that a defendant desires to transfer, convey, liquidate or encumber any property and if the United States consents to such transfer, the transfer may be made upon condition that all sales proceeds shall be placed in escrow in an account(s) approved by counsel for the government. In the event that forfeiture is ultimately ordered, any funds received from the sale of property for the actual property forfeited shall be substituted for the actual property and such funds shall also be available to satisfy an order forfeiting substitute assets pursuant to 21 U.S.C. § 853(p) and 18 U.S.C. § 982(b)(1)(A)....

By Order dated June 9, 1992, leave of Court was granted to Thomas Williamson, Jr. for a special appearance to make the instant motion. The sole purpose of the motion is to permit the release of assets to Mr. Swank to enable him to retain counsel of his choice — namely, the law firm of Williamson & Stoneburner. Swank seeks the entry of an order modifying the Restraining Order for the purpose of permitting Swank to alienate, transfer, convey, liquidate or encumber real estate owned by Donald Swank personally and acquired prior to 1987.

ARGUMENT AND DISCUSSION OF AUTHORITY

I. MOTION TO MODIFY RESTRAINING ORDER

A. Applicable Law: The Substantial Connection Standard

Criminal forfeiture proceedings are actions in personam. United States v. Amend, 791 F.2d 1120, 1128 (4th Cir.1986). Thus, forfeiture is imposed "directly on an individual as part of a criminal prosecution rather than in a separate proceeding in rem against the property subject to forfeiture." United States v. Huber, 603 F.2d 387, 396 (2d Cir.1979). The Government must allege forfeiture in the indictment and must carry the burden of proof beyond a reasonable doubt. Fed.R.Crim.P. 7(c)(2).

The applicable federal criminal forfeiture sections set forth the statutory requisites. 18 U.S.C. § 982(a)(1), provides in pertinent part, as follows:

The Court, in imposing sentence on a person convicted of an offense in violation of ... section 1956 or 1957 of this Title, shall order that the person forfeit to the United States any property, real or personal, involved in such offense, or any property traceable to such offense.

This provision goes on to state that property subject to forfeiture under § 982(a)(1), any seizure or disposition thereof, or any judicial proceeding in relation thereto, shall be governed by sections (c) and (e) through (p) of section 413 of the Comprehensive Drug Abuse Prevention and Control Act of 1970 (21 U.S.C. § 853). Id. at § 982(b)(1)(A).

Section 982(a)(1) of Title 18 U.S.C. has been construed as authorizing forfeiture of an entire bank account or business which was used to "facilitate" the laundering of money in violation of 18 U.S.C. § 1956. See, e.g., United States v. All Monies ($477,048.62) in Account No. XX-XXXX-X, 754 F.Supp. 1467, 1473 (D.Haw.1991). The Fourth Circuit has interpreted this concept of "facilitation" to require that the forfeited property be used in "substantial connection" with the criminal activity. To be forfeitable, there must be a substantial connection between the property and the illegal activity. United States v. Schifferli, 895 F.2d 987, 989-990 (4th Cir.1990). There must be more than an incidental connection between the property and the illegal activity, but the property need not be indispensable to the commission of the offense. United States v. Premises Known as 3639-2nd St., N.E., 869 F.2d 1093, 1096 (8th Cir.1989). Nor does the property need to be exclusively used for illegal activities. Schifferli, 895 F.2d at 991. If a portion of the property is used to facilitate the offense, then all of the property is forfeitable. United States v. Santoro, 866 F.2d 1538, 1542 (4th Cir.1989). In sum, any property involved in illegal activity may be said to "facilitate" the criminal activity, and thereby causes such property to be forfeitable.

B. Property Acquired Prior to 1987

Under the "substantial connection" standard, the property in question must be used or intended to be used to commit a crime, or must facilitate the commission of a crime. Schifferli, 895 F.2d at 990. The earliest year in which the Swank Defendants are alleged to have committed criminal offenses is 1987. Prior to 1987, Swank had acquired a number of parcels of real estate. These properties, Swank argues, were not "involved" in the alleged offenses of money laundering nor do they constitute property "traceable to such property." Accordingly, Swank contends that these parcels of real estate are not subject to forfeiture pursuant to 18 U.S.C. § 982 and should not, therefore, be subject to pretrial restraint.

Because there is no "substantial connection" between the restrained property and the criminal activity, Swank maintains that the Restraining Order obtained by the Government works an impermissible restriction on real estate or other property which was purchased or obtained by the Swank Defendants prior to the alleged date of the commission of the specified unlawful activity. In short, Swank asks that be allowed to use such assets as he sees fit, including retaining legal counsel of his choice.

C. Restraint of Pre-1987 Property as "Substituted Assets"

The Government does not disagree with Swank's contention that the assets held by Swank in his individual capacity and acquired prior to 1987 have no "substantial connection" with Mr. Swank's alleged illegal activity. However, with one exception, the Government objects to modifying the Restraining Order. The United States argues that the date of acquisition of Swank's properties is immaterial, as the whole purpose of the statutory provision providing for substitution of assets is to enable the government to satisfy an order of forfeiture out of property which is not otherwise subject to forfeiture. 21 U.S.C. § 853(p); see In re Billman, 915 F.2d 916, 921 (4th Cir.1990) ("the purpose of § 1963(d)(1)(A) is to preserve pending trial the availability for forfeiture of property that can be forfeited after trial"),¹ cert. denied, ___ U.S. ___, 111 S.Ct. 2258, 114 L.Ed.2d 711 (1991).

21 U.S.C. § 853(p) states in full:

If any of the property described in subsection (a), as a result of any act or omission of the defendant — (1) cannot be located upon the exercise of due diligence;

(2) has been transferred or sold to, or deposited with a third party;

(3) has been placed beyond the jurisdiction of this court;

(4) has been substantially diminished in value; or

(5) has been commingled with other property which cannot be divided without difficulty;

the court shall order the forfeiture of any property of the defendant up to the value of any property described in paragraphs (1) through (5).

The superseding indictment charges six discrete counts of money laundering which total $4,982,369 in laundered money. This money is alleged to have been laundered through the corporate accounts of the Swank Corporation. Of the amount of money alleged to have been laundered, $1,482,369 is money that presumably has long since been spent, either through payment of salaries or expenses of the corporation, and any of that money which Donald Swank personally received has likewise been dissipated. The balance of $3,500,000 is within the custody of the Court but, as is discussed below, cannot be used to satisfy an order forfeiting substitute assets. If Mr. Swank is convicted of counts 36-41, he will be personally liable to the United States in a judgment for $4,982,369. The United States maintains that the Court has no choice but to continue to restrain assets worth at least that amount if there is to be...