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United States v. Emor

United States District Court, District Circuit

June 18, 2013

UNITED STATES OF AMERICA
v.
CHARLES IKE EMOR, Defendant.

OPINION

PAUL L. FRIEDMAN, United States District Judge.

After a lengthy evidentiary hearing, this Court concluded that over $2 million and a 2006 Lexus seized by the government were criminal proceeds of the wire fraud scheme to which Charles Emor, the defendant in this case, pled guilty. The Court issued a preliminary order of forfeiture directing that the property be forfeited to the United States, after which the government published notice of the forfeiture and sent written notification to known potential claimants. One petitioner came forward, claiming an interest in the property and seeking to challenge its forfeiture: SunRise Academy, a private school in the District of Columbia formerly headed by Mr. Emor. The government has moved to dismiss SunRise’s petition for lack of standing. Because no other petitioners have claimed an interest in the property, the government also moves for a final order of forfeiture. For the reasons set forth below, the Court will grant the government’s motion, dismiss SunRise’s petition, and enter a final order of forfeiture.[1]

I. BACKGROUND

Charles Emor pled guilty in August 2011 to one count of wire fraud arising from his misuse of funds from the bank accounts of SunRise Academy, a private school that Mr. Emor founded for special needs students. The funds came from monthly payments made to SunRise by the District of Columbia as reimbursement for educational and related services. Mr. Emor’s plea agreement provided that the Court would determine the amount of loss caused by his wire fraud scheme, the identity of his victims and the restitution owed to them, the amount of any forfeiture money judgment, and whether the property seized by the government was subject to criminal forfeiture. See United States v. Emor, 850 F.Supp.2d 176, 179-81 (D.D.C. 2012).

After an evidentiary hearing spanning eleven days, featuring testimony from eleven witnesses and the admission of over 200 exhibits, and after extensive pre- and post-hearing briefing, the Court found the amount of loss caused by Mr. Emor’s fraud scheme to be $2, 358, 536.40. United States v. Emor, 850 F.Supp.2d at 201-02. This figure was a combination of two amounts: $271, 536.40 that Mr. Emor spent or caused to be spent on purchases and payments benefitting himself and his family members and associates, and $2, 087, 000.00 that Mr. Emor caused to be transferred from SunRise to the bank accounts of Core Ventures, LLC — a for-profit company that, the Court found, was created by Mr. Emor to disguise his misuse of SunRise funds and ensure their continued availability upon his imminent imprisonment (and likely deportation) for an earlier conviction. Id.

In addition, the Court ordered Mr. Emor to pay $2, 358, 536.40, in restitution to the District of Columbia, which the Court held was the ultimate victim of his fraud scheme and the source of the funds he misappropriated. United States v. Emor, 850 F.Supp.2d at 203, 210-15.[2] No restitution was due to SunRise, the Court held, because it functioned as Mr. Emor’s alter ego during his fraud scheme and, independently, because restitution to SunRise was barred by the “coconspirator exception” to the Mandatory Victims Restitution Act. See id. at 201-10.

With respect to forfeiture, the Court ordered the entry of a money judgment of $2, 358, 536.40 against Mr. Emor. It also concluded that the property seized by the government — $2, 035, 307.27 held by Core Ventures that had been transferred from SunRise and a 2006 Lexus purchased by Core Ventures with similarly transferred funds — constituted proceeds of Mr. Emor’s fraud scheme and thus was subject to criminal forfeiture. See United States v. Emor, 850 F.Supp.2d at 218-19. Specifically, the Court entered a preliminary order of forfeiture holding the following property forfeited to the United States: (a) $1, 810, 165.29 seized from BB&T Bank account number # xxxxx9526, held in the name of Core Ventures; (b) $225, 141.98 seized from BB&T Bank account number # xxxxx3943, held in the name of Core Ventures; and (c) a 2006 Lexus LX470, VIN: JTJHT00W264011238, registered to Core Ventures. Id. at 219. Further background and details are available in the Court’s lengthy Opinion, Findings of Fact, and Conclusions of Law.[3]

SunRise now seeks modification of the Court’s preliminary order of forfeiture, claiming a legal interest in the money seized by the government from Core Ventures’ bank accounts and in the Lexus. This marks the second time that SunRise has sought to obtain this property: After the government first seized the money and the Lexus, but before Mr. Emor’s guilty plea, SunRise and Core Ventures filed a joint motion for their return, “claiming that they [were] the legal owners of the seized funds and that the funds [were] not subject to criminal forfeiture.” Sunrise Academy v. United States, 791 F.Supp.2d 200, 201 (D.D.C. 2011). The Court denied that motion — albeit without prejudice — because third parties may not intervene in a criminal proceeding before conviction or plea in order to contest the forfeitability of seized property; instead, those parties must wait until “an ancillary proceeding held after the entry of a preliminary order of forfeiture in the criminal case.” Id. at 204 (citing, inter alia, Libretti v. United States, 516 U.S. 29, 44 (1995)).

Mr. Emor’s plea and the evidentiary hearing contemplated by the plea agreement then ensued. Upon issuance of the Court’s findings and its preliminary order of forfeiture, SunRise filed a verified petition for an ancillary hearing to adjudicate the validity of its interest in the seized property, in accordance with the procedures set forth in 21 U.S.C. § 853(n)(2). After holding such an ancillary hearing upon petition, a court must amend its preliminary forfeiture order if the petitioner establishes, by a preponderance of the evidence, that it “has a legal right, title, or interest in the property” that “renders the order of forfeiture invalid in whole or in part” because the right, title, or interest “was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property[.]” 21 U.S.C. § 853(n)(6)(A). Alternatively, a petitioner may obtain amendment of a preliminary order by establishing that it is “a bona fide purchaser for value of the right, title, or interest in the property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture.” 21 U.S.C. § 853(n)(6)(B). These are the only two circumstances under which a third party can succeed in modifying a preliminary order and preventing criminal forfeiture of property in which it claims an interest.

SunRise’s petition was signed and verified under penalty of perjury by Leonard Ozoemena, Chairman of SunRise Academy’s Board of Directors, who testified at the evidentiary hearing but who, the Court found, had “no direct knowledge of anything with respect to the events at issue in this case, since he was not involved with SunRise from 2002 until June 2010, ” and whose testimony regarding the relationship between SunRise and Core Ventures the Court found “wholly incredible.” United States v. Emor, 850 F.Supp.2d at 185-86.[4]

In moving to dismiss SunRise’s petition, the government argues that SunRise lacks statutory and Article III standing to assert an interest in the seized property. Even assuming otherwise, the government maintains, SunRise’s petition must be dismissed because it fails to allege circumstances that could entitle SunRise to prevail in an ancillary proceeding and obtain a modification of the Court’s preliminary order of forfeiture. This matter, being fully briefed, is ripe for decision.

II. LEGAL STANDARD

Criminal forfeiture proceedings are governed primarily by 21 U.S.C. § 853 and Rule 32.2 of the Federal Rules of Criminal Procedure. After property that has been seized by the government is made subject to a preliminary order of forfeiture, any third party may file a verified petition with the district court claiming an interest in the property and contesting its forfeiture. “When a third party files a petition asserting an interest in property that the government seeks to forfeit, the district court is required to conduct an ‘ancillary proceeding.’” United States v. Corpus, 491 F.3d 205, 208-09 (5th Cir. 2007) (citing Fed. R. Crim. P. 32.2)); see United States v. Oregon, 671 F.3d 484, 487-88 (4th Cir. 2012) (describing criminal forfeiture procedures). Although this ancillary proceeding arises in the context of a criminal action, “it closely resembles a civil proceeding.” United States v. Corpus, 491 F.3d at 209.

Before conducting an ancillary hearing, however, a court “must first consider any motion by the United States to dismiss the petition for lack of standing, ” United States v. Oregon, 671 F.3d at 488, and “a court may dismiss a third-party petition for lack of standing.” United States v. Salti, 579 F.3d 656, 667 (6th Cir. 2009); see Fed. R. Crim. P. 32.2, Advisory Committee Notes, Subdivision (c) (noting “areas in which procedures analogous to those in the Civil Rules may be followed, ” including “the filing of a motion to dismiss a claim”). Under Rule 32.2, “a motion to dismiss a third-party petition in a forfeiture proceeding prior to discovery or a hearing should be treated like a motion to dismiss a civil complaint under Federal Rule of Civil Procedure 12(b).” United States v. Oregon, 671 F.3d at 488 (quoting Pacheco v. Serendensky, 393 F.3d 348, 352 (2d Cir. 2004)); accord United States v. Marion, 562 F.3d 1330, 1342 (11th Cir. 2009); United States v. Corpus, 491 F.3d at 209.

On a Rule 12(b)(1) motion to dismiss, the plaintiff bears the burden of establishing that the Court has subject matter jurisdiction, see Sierra Club v. Jackson, 813 F.Supp.2d 149, 154 (D.D.C. 2011) (citing Brady Campaign to Prevent Gun Violence v. Ashcroft, 339 F.Supp.2d 68, 72 (D.D.C. 2004)), and a federal court “has no subject matter jurisdiction where the plaintiff lacks standing.” See A.N.S.W.E.R. Coalition v. Kempthorne, 493 F.Supp.2d 34, 41-42 (D.D.C. 2007) (citing Worth v. Jackson, 451 F.3d 854, 857 (D.C. Cir. 2006)). “While the burden of production to establish standing is more relaxed at the pleading stage than at summary judgment, a plaintiff must nonetheless allege ‘general factual allegations of injury resulting from the defendant’s conduct.’” Nat’l Ass’n of Home Builders v. E.P.A., 667 F.3d 6, 12 (D.C. Cir. 2011); see also NB ex. rel. Peacock v. District of Columbia, 682 F.3d 77, 82 (D.C. Cir. 2012) (noting that “at the pleadings stage, the burden imposed on plaintiffs to establish standing is not onerous”) (quotation marks omitted). The Court must accept all well-pled factual allegations as true, see Jerome Stevens Pharms., Inc. v. FDA, 402 F.3d 1249, 1253-54 (D.C. Cir. 2005), and must construe the complaint liberally in the plaintiff’s favor; but the Court need not accept factual inferences drawn by the plaintiff if those inferences are not supported by the facts alleged. See Sierra Club v. Jackson, 813 F.Supp.2d at 154 (citing Primax Recoveries, Inc. v. Lee, 260 F.Supp.2d 43, 47 (D.D.C. 2003)). Nor must the Court accept legal conclusions cast as factual allegations. See Commonwealth of the N. Mariana Islands v. United States, 670 F.Supp.2d 65, 75 (D.D.C. 2009) (citing Primax Recoveries, Inc. v. Lee, 260 F.Supp.2d at 47).

With respect to a petition for an ancillary hearing in the criminal forfeiture context, a claimant at the pleading stage “‘need not prove the merits of his underlying claim, but he must claim a facially colorable interest in the seized property’ to satisfy the requirements of standing.” United States v. Salti, 579 F.3d at 667 (quoting United States v. $515, 060.42 in U.S. Currency, 152 F.3d 491, 497-98 (6th Cir. 1998)). “State law determines a petitioner’s legal interest in the property at issue.” Willis Mgmt. (Vermont), Ltd. v. United States, 652 F.3d 236, 242 (2d Cir. 2011).[5] At the motion to dismiss stage, the petitioner is not required to supply evidence supporting a prima facie case of entitlement to relief, Pacheco v. Serendensky, 393 F.3d at 352, and the facts set forth in the petition, just like those in a complaint in a civil case, are assumed to be true. United States v. White, 675 F.3d 1073, 1077 (8th Cir. 2012) (citing Fed. R. Crim. P. 32.2(c)(1)(A)). But if “a third party fails to allege in its petition all elements necessary for recovery, including those related to standing, the court may dismiss the petition without providing a hearing.” Id. (quoting United States v. BCCI Holdings (Luxembourg) S.A. (Petitions of General Creditors), 919 F.Supp. 31, 36 (D.D.C. 1996)); see Fed. R. Crim. P. 32.2, Advisory Committee Notes, Subdivision (c) (quoting with approval the same passage of BCCI Holdings).

III. DISCUSSION

“Standing is a threshold consideration in all cases, including civil forfeiture cases.” 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, 40 (1st Cir. 2003) (citing United States v. Cambio Exacto, S.A., 166 F.3d 522, 526 (2d Cir. 1999)). “Standing in forfeiture cases has both constitutional and statutory aspects.” United States v. White, 675 F.3d at 1078 (quotation marks omitted); accord United States v. One-Sixth Share, 326 F.3d at 40. “To establish constitutional standing, a party seeking to challenge a forfeiture of property must first demonstrate an ownership or possessory interest in the seized property.” United States v. White, 675 F.3d at 1078 (quotation marks omitted). Such an ownership interest “can be shown by actual possession, control, title, [or] financial stake.” Id.

Statutory standing under 21 U.S.C. § 853(n) and Rule 32.2 likewise requires a party to demonstrate that it has a legal interest in the seized property. See United States v. Timley, 507 F.3d 1125, 1129 (8th Cir. 2007). “Thus, under both § 853 and Rule 32.2, a party seeking to challenge the government’s forfeiture of money or property used in violation of federal law must first demonstrate [a legal] interest in the seized item sufficient to satisfy the court of its standing to contest the forfeiture.” Id. (quoting United States v. Three Hundred Sixty Four Thousand Nine Hundred Sixty Dollars ($364, 960.00) in U.S. Currency, 661 F.2d 319, 326 (5th Cir. 1981) (alteration in original)). Courts should not, however, conflate the constitutional or statutory standing inquiries with the merits determination that comes later in the proceedings. See United States v. One-Sixth Share, 326 F.3d at 41.

SunRise’s petition offers four theories under which it maintains it possesses an interest in the property seized from Core Ventures: (a) “as the secured lender to Core Ventures, ” (b) “because the Forfeited Property at all times remained the property of Sunrise Academy, ” (c) “as the assignee of all interest in the Forfeited Property of Core Ventures, ” and, alternatively, (d) “as the beneficiary of a constructive trust imposed by law for the benefit of SunRise Academy.” Pet. at 2. In its memorandum opposing the government’s motion to dismiss, SunRise offers one more ostensible basis for its standing: (e) “as the victim of Mr. Emor’s ...


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