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United States v. Sum of $70

United States District Court, D. Columbia.

November 5, 2013

UNITED STATES OF AMERICA, Plaintiff,
v.
SUM OF $70,990,605, et al., Defendants

Page 145

For UNITED STATES OF AMERICA, Plaintiff: Elizabeth Ann Aloi, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Washington, DC.

For HIKMATULLAH SHADMAN, NAJIBULLAH, FAIZY ELHAM BROTHERS, LTD., ROHULLAH, EVEREST FAIZY LOGISTICS SERVICES, HIKMAT SHADMAN LOGISTICS SERVICES COMPANY, HEKMAT SHADMAN GENERAL TRADING, LLC, Claimants: Bryant S. Banes, LEAD ATTORNEY, NEEL, HOOPER & BANES P.C., Houston, TX; James Wallace Porter, III, BRADLEY ARANT BOULT CUMMINGS LLP, Washington, DC.

For AFGHANISTAN INTERNATIONAL BANK, Claimant: Andrew C. Bernasconi, LEAD ATTORNEY, REED SMITH LLP, Washington, DC.

OPINION

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MEMORANDUM OPINION AND ORDER

RICHARD W. ROBERTS, Chief United States District Judge.

Plaintiff United States brings this civil forfeiture in rem action alleging that the defendant funds -- approximately $61.3 million in three different banks -- are the proceeds of a wire fraud and subject to seizure under 18 U.S.C. § § 983 and 984. Claimants Hikmat Shadman Logistics Services Co., Hikmat Shadman General Trading, LLC, Faizy Elham Brothers, Ltd., Everest Faizy Logistics Services, Hikmatullah Shadman, Najibullah, and Rohullah move under § 983(f) for immediate release of the seized funds and additional properties. The United States also moves for leave to file a surreply. Because the claimants have failed to demonstrate that they are entitled in this action to release of their seized funds or additional properties, their motion will be denied. Because a surreply is unjustified, the United States' motion also will be denied.

BACKGROUND

The following facts are alleged by the government in its Second Amended Verified Complaint (" Second Amended Complaint" ), unless otherwise noted.

The United States filed this civil forfeiture action and secured seizure warrants upon a finding of probable cause that the defendant funds were the proceeds of a fraud. The United States alleges that Hikmatullah Shadman, as a subcontractor and owner of Hikmat Shadman Logistics Services Company, " conspired to obtain payments from the United States for the transportation of military supplies in Afghanistan through the illegal and fraudulent use of the wires . . . [by making] bribe payments, fraudulently inflat[ing] prices, and caus[ing] the United States to be invoiced for and to make payments of $77,920,605 to two bank accounts in Afghanistan." 2d Am. Compl. at 6. After the proceeds of the contracts were deposited into an account at Afghanistan International Bank held by Hikmat Shadman Logistics

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Services Company, the funds were transferred in and out of various accounts in the names of Shadman's brothers -- Najibullah (also known as Yaser Elham) and Rohullah, see Claimants' Mem. for Immediate Release of Seized Property Pursuant to 18 U.S.C. § 983(f) (" Claimants' Mem." ) at 5 -- as well as accounts in the name of their companies, Hikmat Shadman Logistics Services, Hekmat Shadman General Trading LLC, Faizy Elham Brothers, Ltd., Everest Faizy Logistics Services, and Yaser Elham at Afghanistan International Bank, Bank Alfalah, and Emirates NBD Bank. In total, the United States has restrained $63,049,141, with $52,949,141 coming from accounts in Bank Alfalah and Emirates NBD Bank, and $10.1 million coming from Afghanistan International Bank under the seizure warrants.

On August 27, 2013, Shadman, Najibullah, and Rohullah filed a verified claim and statement of interest in the seized property, asserting that they are the owners of the seized funds. Verified Claim and Statement of Interest or Right in Property Subject to Forfeiture In Rem (" Verified Claim" ) at 8. They made these claims both individually and on behalf of their companies. Id. at 14-16. It appears that all the accounts are held in the name of the companies, rather than the individuals, except for one of the Emirates NBD Bank accounts. Id. at 8-12.

The claimants now move under 18 U.S.C. § 983(f) to have the funds released. They argue that the funds should be released because the " improper seizure" has caused " extreme and substantial hardships" which " outweigh any risk to the Government of the dissipation of the seized property." [1] Claimants' Mem. at 24. The United States argues that the claimants are not entitled have the seized currency released under § 983(f)(1)(E) and § 983(f)(8), provisions governing assets of a business which has been seized, since this action did not seize a business. United States' Opp'n to Claimants' Mot. for Immediate Release of Seized Property Pursuant to 18 U.S.C. § 983(f) (" Opp'n" ) at 1. Additionally, the United States argues that the claimants have not established the conditions outlined in § 983(f)(1)(A)-(E) entitling claimants to release, such as " sufficient contacts with the community to ensure that the property will be available at trial as required for release of seized assets," and " hardship by the continued restraint of the funds." Id. at 2. Finally, the United States argues that the claimants failed to show " that such purported hardship outweighs the risk to the United States during the pendency of the forfeiture proceedings." Id. Claimants filed a reply, Reply to the U.S.'s Opp'n to Claimants' Mot. for Immediate Release of Seized Property Pursuant to 18 U.S.C. § 983(f) (" Claimants' Reply" ) to which the United

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States seeks leave to file a surreply to " respond[] to two of the material omissions and misstatements" made by the claimants. United States' Motion for Leave to File Surreply (" United States' Mot." ) at 1. The claimants contend that leave should not be granted because they raised the issues to which the United States wants to reply in their original petition. Claimants Opposition to United States' Motion for Leave to File Surreply (" Claimants' Opp'n" ) at 7.

DISCUSSION

Under § 983(f), a claimant may request release of the seized property by filing a petition that sets forth " the basis on which the requirements" for release are met. 18 U.S.C. § 983(f)(3)(B)(i). " [I]f a claimant fails to establish any one of the five criteria, its motion for the release of property must be denied." United States v. Value of Certain E-Metal Accounts at E-Gold Ltd., No. ELH-11-01530, 2013 WL 5664678, at *2 (D. Md. Oct. 17, 2013) (citing United States v. Undetermined Amount of U.S. Currency, 376 F.3d 260, 264 (4th Cir. 2004)). A court is authorized to release the property only if the claimant proves that

(A) the claimant has a possessory interest in the property;
(B) the claimant has sufficient ties to the community to provide assurance that the property will be available at the time of the trial;
(C) the continued possession by the Government pending the final disposition of forfeiture proceedings will cause substantial hardship to the claimant, such as preventing the functioning of a business, preventing an individual from working, or leaving an individual homeless;
(D) the claimant's likely hardship from the continued possession by the Government of the seized property outweighs the risk that the property will be destroyed, damaged, lost, concealed, or transferred if it is returned to the claimant during the pendency of the proceeding; and
(E) none of the conditions set forth in paragraph (8) applies.

18 U.S.C. § 983(f)(1)(A)-(E). In turn, paragraph (8) prohibits release of the seized property if it " is contraband, currency, or other monetary instrument, or electronic funds unless such currency or other monetary instrument or electronic funds constitutes the assets of a legitimate business which has been seized." 18 U.S.C. § 983(f)(8).

I. PARAGRAPH (8) CONDITIONS

Under § 983(f)(8), the court cannot release electronic funds unless they are " the assets of a legitimate business which has been seized." Id. Seizure of electronic fund assets of a business that has not itself been seized in a forfeiture action does not trigger the provision permitting a court to release the electronic funds; rather, the prerequisite under paragraph (8) is the seizure of the business itself in the forfeiture action and not seizure of the assets of the business. See United States v. $159,040.00 in U.S. Currency, Civil Action No. 05-2404 (RBW), at *9 (D.D.C. Aug. 1, 2006) (unpublished order denying the motion for the return of seized property) (" The plain language of the statute would seem to suggest that currency may only be recovered when a legitimate business has been seized." )[2];

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see also United States v. Contents of Account No. 4000393243, No. C-1-01-729, 2010 WL 3398142, at *1 (S.D. Ohio Jan. 2, 2010) (" In this exception, a legitimate business is singular, assets is plural, and has been seized is singular; therefore, has been seized grammatically must refer to a legitimate business, not assets. " ). Furthermore, courts have rejected the notion that seizure of the assets of a business is synonymous with the seizure of the business. See, e.g., United States v. 8 Gilcrease Lane, Quincy Fla. 32351, 587 F.Supp.2d 133, 140-41 (D.D.C. 2008) (" Seizure of currency is not the same as seizure of a business." ); In re Seizure Warrants Issued March 27, 2008, and April 23, 2008, 593 F.Supp.2d 892, 894 (N.D.W.Va. 2008) (finding that, despite petitioner's request that the court decide that " seizure of the currency is tantamount to the seizure of the business," " [t]here appear to be no reported cases in which such a doctrine was applied" ).

Here, no business has been seized. All the defendant properties are funds within bank accounts. See, e.g., Contents of Account No. 4000393243, 2010 WL 3398142, at *1 (" [T]he government has not sought to seize any business, legitimate or otherwise. The Defendants are all bank accounts. By its plain language, then, § 983(f) is inapplicable." ).

In addition to the funds seized under the warrants in rem, the claimants seek release of property " not identified in the Government's Second Amended Verified Complaint," Claimants' Mot. at 8, and argue that " the United States Government . . ., regardless of which agency within the Government, has seized the entire business assets and records (not just funds) of Claimants Hikmat Shadman Logistics Services Company . . . and has seized over $61 Million of Claimants' monetary funds." Claimants' Reply at 5. This request is problematic in two respects.

First, this action is in rem against the named amounts in the bank accounts, not against any of the businesses of Shadman, Najibullah, or Rohullah. Here, there is no mention of this other property in the Second Amended Complaint, nor has the government seized in this in rem action or under any warrants associated with this in rem action that other property.[3] See Claimants' Mem. at 24; Opp'n at 3 n.3. The court's jurisdiction in an in rem action is over the seized funds themselves. While exercising that jurisdiction, the court " may adjudicate claims of ownership," but the court's jurisdiction does not extend beyond those seized funds.

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See United States v. All Funds in Account Nos. 747.034/278, 747.009/278, & 747.714/278 in Banco Espanol de Credito, Spain, 295 F.3d 23, 25, 353 U.S.App. D.C. 23 (D.C. Cir. 2002) (" In exercising in rem jurisdiction, the court has authority over the property (the res ) and may adjudicate claims of ownership." (emphasis added)); cf. 4A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1070 (3d ed. 1998) (" [W]hen jurisdiction is based on property the resulting judgment can affect only the property that has been brought before the court." ). A court presiding over an in rem action is unable to resolve disputes about other property not properly before it. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) (" Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute . . . . It is to be presumed that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction." (internal citations omitted)). Thus, the rights and interests in the business equipment and documents seized outside this in rem action cannot be adjudicated here. Cf. United States v. BCCI Holdings (Luxembourg), S.A., 980 F.Supp. 2, 8 (D.D.C. 1997) (dismissing portion of the claim on forfeited property because the court lacked jurisdiction over the " assets beyond those funds seized pursuant to the First Order of Forfeiture" ); United States v. BCCI Holdings (Luxembourg), S.A., 923 F.Supp. 264, 265 (D.D.C. 1996) (finding the court lacked subject matter jurisdiction to adjudicate the validity of the claimants interest in the property because the assets were not included in the forfeiture order).

The text of § 981, which outlines the general civil forfeiture provisions, supports this conclusion. The section specifically refers to " motion[s] for the return of property seized under this section. " 18 U.S.C. § 981(b)(3) (emphasis added). The statutory language of § 981 seems to contemplate jurisdiction solely for property seized under this provision and therefore only provides a mechanism for release of property seized in accordance with the forfeiture statutes.

Second, the claimants provide no persuasive legal authority for their proposition that any seizure by any part of the government qualifies them to invoke the exception outlined in § 983(f)(8), or that any seizure by the military establishes jurisdiction to decide whether to release that property. See Claimants' Reply at 9. However, none of the cases that the claimants cite in their reply brief supports the assertion that an alleged seizure by the military should be imputed to the seizing agency in this forfeiture action for the purposes of § 983(f), nor do the cases permit the court to exercise jurisdiction over property not named in the Second Amended Complaint.

The claimants argue that under Tri-State Hospital Supply Corp v. United States, 226 F.R.D. 118 (D.D.C. 2005), " this Court must consider the acts and motives of all federal agencies involved in the seizure of Claimants' entire business, business property, business records, and monetary funds." Claimants' Reply at 9. They further allege that the " seizures of Claimants['] entire business and the seizure of their monetary funds are closely connected which have aggregately caused Claimants' detailed substantial hardship." Id.

Tri-State, however, is inapposite for two reasons. First, it does not stand for the proposition that the claimants can bring other agencies or the military into this in rem action to seek relief for seizures uninvolved in this action. The plaintiff there filed a civil action under the Federal Tort Claims Act " alleg[ing] that the United

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States engaged in malicious prosecution and abuse of process when it issued penalty notices against Tri-State and sued Tri-State for collection." 226 F.R.D. at 122-23. The plaintiff sought discovery about " agencies other than the Customs Service and Commercial Litigation Branch of the Justice Department's Civil Division, which were identified in Tri-State's administrative claim, supplement, and amendment," and the defendant refused, arguing that the information was " simply irrelevant." Id. at 126-27. The court allowed discovery " if that information is relevant to the intent and actions of the government employees and agencies that were named in the administrative claim " and the information about intent and motive was potentially relevant because the plaintiff's claim involved malicious prosecution. Id. at 127 (emphasis added). The court was specifically interested in whether the desired information was discoverable as relevant to the plaintiff's claim, not whether actions by other agencies should be imputed to the agency being sued in Tri-State. Id. Thus, the information about other agencies was relevant to the motives of the agencies named in the claim; the plaintiff was nevertheless limited to seeking relief from the agencies that it sued. Id. The court did not hold that the plaintiff could seek relief from those other agencies through the pending action. See id.

Second, in Tri-State, the court had independent jurisdiction over the parties, rather than in rem jurisdiction over the property. The claimants have offered no proof or even an allegation that there is jurisdiction over either the property that the military seized, or over the Counterinsurgency Force in Afghanistan. By all accounts, the seizures of these other business assets and property were done by the military, and there is no evidence that the seizures were done under any authorization flowing from this case. See Opp'n at 3 n.3 (seizure by Counterinsurgency Task Force); Claimants' Mot. at 7 (seizure by military warrant); Claimants' Mem. at 17 (explaining that the seizure was by U.S. Coalition forces who posed many questions to Shadman that were unrelated to this action). Thus, the seizures that can be considered here are the seizures under the in rem warrants associated with this case. The United States has seized in this case $63,049,141 in assets from the named accounts, but has not seized the claimants' " businesses" for the purposes of 18 U.S.C. § 983(f)(8). See 8 Gilcrease Lane, 587 F.Supp.2d at 140-41 (finding that the seizure of some currency is not sufficient to establish seizure of a legitimate business). Therefore, under § 983(f), the petition to release the seized funds must be denied.

II. § 983(f)(1)-(4) CONDITIONS

Even if there had been a seizure of the claimants' businesses, the claimants would still have to prove that they have " a possessory interest in the property," that they " have sufficient ties to the community," that they will suffer " substantial hardship" and that the " likely hardship . . . outweighs the risk" of loss. 18 U.S.C. § 983(f)(1). While the claimants have plausibly shown that they have a possessory interest in the property and that they will suffer a substantial hardship, they have failed to demonstrate that they satisfy all of the remaining four conditions in § 983(f) because they do not have sufficient ties to the community nor does their likely hardship outweigh the risk of loss.

An ownership interest is sufficient to show that the claimant has a " possessory interest" in the property. Cf. United States v. All Assets Held at Bank Julius Baer & Co., Ltd., Civil Action No. 04-0798 (PLF), 959 F.Supp.2d 81, 2013 WL 4046558, at *16 (D.D.C. Aug. 12, 2013)

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(" A claimant who asserts an 'ownership interest' in the defendant property and who presents 'some evidence of ownership' supporting that assertion has satisfied its burden of demonstrating standing at the summary judgment stage." ). The government argues " because none of the Claimants ha[s] asserted an interest in Seized Asset B, the release of Seized Asset B . . . is not appropriate." Opp'n at 11. The United States makes no other claims in its opposition regarding the claimants' possessory interest. Because the claimants have a colorable claim of interest as the owners of the accounts, they have a sufficient possessory interest to satisfy the first condition. See Verified Claim at 8.

The claimants also satisfy the third condition, namely, that they will suffer substantial hardship without release of the funds. While the only property at issue is the seized funds, the claimants state that the continued seizure of the funds is " interfering with the payments to Claimants' vendors, employees, and suppliers . . . [and] prohibiting Claimants from paying its legitimate business expenses as they come due." Claimants' Mem. at 30. This is likely sufficient for establishing a substantial hardship. See 8 Gilcrease Lane, 587 F.Supp.2d at 147 (finding that the claimant's inability to " fulfill its current obligations" to pay outstanding bills a substantial hardship).

Despite fulfilling those two conditions, the claimants' claim must nevertheless fail because they cannot fulfill the final two conditions.

Claimants are required to have " sufficient ties to the community to provide assurance that the property will be available at the time of trial." 18 U.S.C. § 983(f)(1)(B). The claimants have not demonstrated that they have sufficient ties to this community -- at least the United States, if not the District of Columbia -- " to provide assurance that the property will be available at the time of the trial." See id. The claimants rely on their ties to Afghanistan to establish this factor. Claimants' Mem. at 27-29 (" Claimants have well-established ties to their respective communities to provide assurance of the availability of the seized property at the time of the trial . . . ." ). The claimants argue that " sufficient ties to the community" does not refer in this case to the United States. Claimants' Reply at 12. However, the relevant community in this case is at least the United States, if not the Washington D.C. area. For example, in United States v. $1,231,349.68, the court analyzed whether the claimants, a mother and a daughter, had significant ties to the Washington D.C. area -- because that is where the case was heard -- and determined that because they resided in the area for 22 years and they were U.S. citizens, they had a sufficient tie to the area. 227 F.Supp.2d 125, 128 (D.D.C. 2002).

In contrast, in United States v. 2005 Mercedes Benz E500, a district court in the Eastern District of California found that the claimant did not have sufficient ties despite owning property in the community because the claimant did not reside in that community. 847 F.Supp.2d 1211, 1215 (E.D. Cal. 2012) (" For the purposes of this subsection, sufficient ties to the community are generally found when a individual is 'born and raised' or resides in the community." ). There, despite the claimant's established ties to a neighboring community, that court stated, " Section 983(f)(1)(B) does not allow for strong ties to a neighboring community to suffice as sufficient ties to the relevant community." Id. Thus, in this case, the " community" in § 983(f)(1)(B) must at least be the United States, if not the Washington, D.C. area.

The claimants have no ties to this community or area, nor do they allege that

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they have sufficient ties to this community. Therefore, there is no assurance that the property will be available should the claim go to trial. This alone is sufficient to deny relief since all five conditions under § 983(f)(1)(A)-(E) must be satisfied to secure release of seized property.

Additionally, the claimants fail to satisfy the fourth condition -- that the hardship outweighs the risk of loss if the property were to be released. To satisfy this condition, claimants must prove that " the claimant's likely hardship from the continued possession by the Government of the seized property outweighs the risk that the property will be destroyed, damaged, lost, concealed, or transferred if it is returned to the claimant during the pendency of the proceeding." 18 U.S.C. § 983(f)(1)(D). The claimants state that the release of the funds " would allow the legitimate business operations of [Hikmat Shadman Logistics Services] to continue and make additional revenue to ensure the availability of sufficient funds." Claimants' Mem. at 40. Additionally, in explaining the hardship that the seizure has caused, the claimants referred to their inability to pay their bills and expenses without the funds. Id. at 30. This shows that the claimants intend to use the released funds, making " [t]he likelihood that these funds, if released, [would] be unavailable for trial in these proceedings . . . almost assured." $1,231,349.68 in Funds, 227 F.Supp.2d at 129. As in 8 Gilcrease Lane, where the requested funds were going to be used to pay attorneys and other professionals, this intended use of the funds means that the funds would not be available at trial if they were released. See 8 Gilcrease Lane, 587 F.Supp.2d at 147 (" [T]he [c]ourt is not authorized to order the release of funds that are guaranteed to dissipate upon their release with no guarantee of an equivalent replacement." ). Moreover, " the ease with which cash can be transferred or otherwise disposed of" " weighs strongly in the government's favor," $1,231,349.68 in Funds, 227 F.Supp.2d at 129, particularly since " Section 983(f) places great emphasis on ensuring the preservation of any released property pending the final disposition of forfeiture proceedings," 8 Gilcrease Lane, 587 F.Supp.2d at 147 (quoting Undetermined Amount of U.S. Currency, 376 F.3d at 265). In the claimants' reply, they do not retract or address their statements that they intend to use the seized funds if the funds are released. Therefore, the claimants have failed to show that their hardship outweighs the risk of loss of the funds.

III. UNITED STATES' MOTION FOR LEAVE TO FILE A SURREPLY

" The standard for granting a leave to file a surreply is whether the party making the motion would be unable to contest matters presented to the court for the first time in the opposing party's reply." Lewis v. Rumsfeld, 154 F.Supp.2d 56, 61 (D.D.C. 2001). A surreply is not justified to correct " an alleged mischaracterization." Id.

The United States seeks to file a surreply to address the military tribunal's proceedings, as well as the current status of Shadman's other assets. As the claimants state in their opposition, they discussed the military tribunal's proceedings in their original motion for release of funds. Claimants' Opp'n at 7. Thus, addressing the military tribunal does not justify filing a surreply because the issue is not a new matter, nor is a surreply allowed to correct a " misstatement." Additionally, a surreply addressing Shadman's other assets is not warranted since the claimants did not bring up the current status of Shadman's other assets in their reply.

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CONCLUSION AND ORDER

The claimants have failed to prove that they are entitled to immediate release of the property seized under § 983(f) because there has been no seizure of a business in this case. Even if there had been a seizure of a business, they have failed to satisfy the remaining four conditions for release under § 983(f). Additionally, a surreply is unjustified because the claimants did not bring up new matters in their reply. Accordingly, it is hereby

ORDERED that the claimants' motion [27] to release funds and other property, be, and hereby is, DENIED. It is further

ORDERED that the United States' motion [35] to file a surreply be, and hereby is, DENIED.

SIGNED[4]


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