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In re $6, and Accrued Interest

United States District Court, District of Columbia

November 8, 2016

IN RE $6, 871, 042.36, AND ACCRUED INTEREST, IN FUNDS FORMERLY HELD IN ACCOUNT NUMBER *******07, AT MTB BANK IN NEW JERSEY, CURRENTLY ON DEPOSIT IN AN ACCOUNT CONTROLLED

          MEMORANDUM OPINION

          REGGIE B.WALTON, United States District Judge

         On December 18, 2014, this Court issued a Protective Order, pursuant to 28 U.S.C. § 2647 (2012), restraining approximately $6.8 million formerly held in account number *******07, at MTB Bank in New Jersey ("the Venus Account Funds"), and consisting of funds that are the subject of a parallel interpleader action currently pending before this Court. See Protective Order at 5; United States v. Barry Fischer Law Firm, LLC, No. 15-116. Eleanor Fisher and Tammy Fu, the Liquidators of Trade and Commerce Bank ("the Liquidators"), have now brought this Motion to Intervene and Dissolve the Protective Order, and Request for a Hearing. Motion of Trade and Commerce Bank, By and Through its Court-Appointed Liquidators, to Intervene and Dissolve the Protective Order, and Request for a Hearing ("Liquidators' Mot.") at 1-2. After carefully considering the Liquidators' motion, and all memoranda of law relating to that motion, [1] the Court concludes for the following reasons that it must grant the motion to intervene, deny the motion to dissolve the protective order, and deny the request for a hearing.

         I. BACKGROUND

         The Venus Account Funds are the subject of a complex span of litigation. Kesten Development Corporation ("Kesten"), a British Virgin Islands corporation, is the named owner of the MTD bank account that previously held the Venus Account Funds, which have been restrained in one form or another since 2005. See United States v. Federative Republic of Brazil, 748 F.3d 86, 88-89 (2d Cir. 2014).

         A. Prior Venus Account Funds Litigation Pursuant to 28 U.S.C. § 2467

         In December 2004, a Brazilian court issued a warrant to seize the Venus Account Funds pursuant to an investigation into a "Kesten principal . . . and his associates for money laundering, tax evasion, fraud, and other financial crimes violative of Brazilian penal law." LI at 89. Brazil "sought assistance from the United States in executing its seizure warrants pursuant to the nations' mutual legal assistance treaty, " id, and § 2467, which authorizes United States district courts to enforce a "foreign forfeiture or confiscation judgment, " § 2467(c)(1). The United States filed an action with another member of this Court seeking "a temporary restraining order on the [Venus Account] Funds, " which was granted on January 26, 2005. Federative Republic of Brazil, 748 F.3d at 89. The Court vacated its restraining order on September 22, 2010, in light of the District of Columbia Circuit's decision in In re Any and All Funds or Other Assets in Brown Bros. Harriman & Co. Account # 8870792 in the Name of Tiger Eye Invs. Ltd. ("Tiger Eye"), 613 F.3d 1122 (D.C. Cir. 2010). Federative Republic of Brazil, 748 F.3d at 89. In Tiger Eye, the Circuit held that § 2467 only permitted "the issuance of temporary restraining orders only after a foreign court has entered a forfeiture judgment." Id. (quotation marks omitted) (quoting Tiger Eye, 613 F.3d at 1124). Because the Brazilian court had only issued a seizure warrant against the Venus Account Funds, but had not yet entered a forfeiture judgment, the restraining order issued by this Court could not be maintained. Id. at 90.

         B. Liquidators' Litigation Against Kesten

         In August 2010, the Liquidators filed suit against Kesten in the British Virgin Islands, alleging that Trade and Commerce Bank's directors had attempted to launder money through Kesten. Id. When Kesten failed to make an appearance in that case, the British Virgin Islands court entered a default judgment against Kesten in the amount of $15, 936, 369. Id. Thereafter, the Liquidators filed suit against Kesten in the Bankruptcy Court for the Southern District of New York to domesticate the British Virgin Islands default judgment. LI After Kesten failed to make an appearance in the bankruptcy case in New York, the Bankruptcy Court entered a default judgment in the full amount in favor of the Liquidators on October 26, 2010. Id.

         C. The Interpleader Litigation and the Brazilian Forfeiture Judgment

         On October 20, 2010, the United States filed an interpleader action in the Southern District of New York to resolve the competing claims for the Venus Account Funds. Id. The United States named the Liquidators and Brazil, among others, as interpleader defendants. See Complaint in Interpleader ¶ 8, 9, United States v. Barry Fischer Law Firm, No. 15-116, ECF No. 1.

         In February 17, 2012, the Sixth Specialized Federal Court of Sao Paulo, Brazil ("Sao Paulo Court") convicted the Kesten principal who had been under investigation for fraudulent mismanagement of a financial institution and ordered the Venus Account Funds forfeited as proceeds of the fraudulent scheme. Federative Republic of Brazil, 748 F.3d at 90. The United States represents that two other people were also convicted in the Brazilian prosecution, see Ex Parte App. at 11; United States' Reply to Liquidators' Status Report on Interpleader Action and Request for Omnibus Hearing on all Pending Matters at 4, United States v. Barry Fischer Law Firm, No. 15-116, ECF No. 176 ("U.S. Status Report"), but in any event, both sides filed appeals with the Supreme Court of Brazil on March 22, 2016. U.S. Status Report at 4-5. The appeals remain unresolved and according to the United States, "[i]n no appeal was the Brazilian forfeiture of the [Venus Account Funds] set aside." LI As a result of the 2012 Brazilian forfeiture judgment, the Southern District of New York granted Brazil's summary judgment motion in the interpleader action, recognized its superior title to the Venus Account Funds, and ordered the United States to transfer the funds to the Sao Paulo Court. See United States v. Barry Fischer Law Firm, LLC, No. 10-7997, 2012 WL 5259214, *6-7 (S.D.N.Y. 2012). The Second Circuit, however, vacatedthe District Court's award of summary judgment, concluding that "the penal law rule did not permit the district court to grant summary judgment in favor of Brazil based on a criminal forfeiture judgment in the absence of a § 2467 petition by the Attorney General."[2] Federative Republic of Brazil, 748 F.3d at 91. Consequently, the Second Circuit remanded the case to the district court on March 24, 2014, "with instructions that [the district court] afford Brazil and the Attorney General a reasonable amount of time to file a § 2467 enforcement action." Id. at 97. On August 21, 2014, the Southern District of New York issued an order requiring that "[a]ny enforcement action must be filed not later than Monday, November 3, 2014." See Order, United States v. Barry Fischer Law Firm, No. 15-116, ECF No. 131.

         D. The Protective Order Litigation and Transfer of the Interpleader Action

         On May 29, 2014, Brazil submitted to the United States a renewed request for mutual legal assistance, seeking enforcement of the 2004 Brazilian seizure warrant against the Venus Account Funds. Protective Order App. at 4. Upon the Attorney General's certification of the Brazilian seizure warrant pursuant to § 2467(d)(3) and 18 U.S.C. § 983(j), the United States submitted an ex parte application for a protective order in this case on November 3, 2014, requesting that the Court register and enforce the 2004 Brazilian seizure warrant against the Venus Account Funds pending the conclusion of the criminal appeal proceedings in Brazil.[3]United States' Ex Parte Application to Enforce and Register a Foreign Restraining Order Pursuant to 28 U.S.C. § 2467(d)(3) ("Protective Order App.") at 1. On December 18, 2014, this Court granted the United States' application and issued the Protective Order. Protective Order at 5.

         On January 14, 2015, the Southern District of New York sua sponte transferred the interpleader action to this Court to "promote efficiency by consolidating all claims to the subject assets before the same judge." Order at 4, Barry Fischer Law Firm, No 15-116, ECF No. 158. On March 9, 2015, the Liquidators filed their Motion to Intervene and Dissolve the Protective Order and a Request for a Hearing. Liquidators' Mot. at 1-2.

         II. STANDARDS OF REVIEW

         A. Motion to Intervene

         The Liquidators seek to intervene as a matter of right in this matter pursuant to Federal Rule of Civil Procedure 24(a), or, in the alternative, permissively pursuant to Rule 24(b). Liquidators' Mot. at 1-2; Liquidators' Mem. at 16 n.38. Rule 24(a) provides that "[o]n timely motion, " a court must allow a party to intervene if it claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest. Fed.R.Civ.P. 24(a); see also Fund for Animals, Inc. v. Norton, 322 F.3d 728, 731 (D.C. Cir. 2003) (citation omitted). A party seeking to intervene as of right must additionally establish standing under Article III of the Constitution. Id. at 731-32.

         Pursuant to Rule 24(b), "[o]n timely motion, " a court may permit a party to intervene if it "has a claim or defense that shares with the main action a common question of law or fact." Fed.R.Civ.P. 24(b)(1). In determining whether permissive intervention is appropriate, a court "must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties' rights." Fed.R.Civ.P. 24(b)(3). Permissive intervention is "inherently discretionary, " EEOC v. Nat'l Children's Ctr., Inc., 146 F.3d 1042, 1046 (D.C. Cir. 1998), and a court may deny a motion for permissive intervention even if the movant has met all of the requirements of Rule 24(b), id, at 1048.

         B. Motion to Dissolve the Protective Order

         The Liquidators also seek to dissolve the Protective Order issued by this Court. A federal court may issue a protective order pursuant to § 2467 "[t]o preserve the availability of property subject to civil or criminal forfeiture under foreign law." § 2467(d)(3)(A)(i). A protective order is appropriate "when the United States has a treaty or other formal international agreement in effect providing for mutual forfeiture assistance, " id § 2467(a)(1), and when the property subject to the order represents the suspected proceeds of a "violation of foreign law that would constitute a violation or an offense for which property could be forfeited under Federal law if the offense were committed in the United States, " id § 2467(a)(2)(A).

         Judicial review of an application for a § 2467 protective order requires the Court to consider "two sets of procedural prerequisites." Gang Luan v. United States, 722 F.3d 388, 392 (D.C. Cir. 2013) (citation omitted). First, the Court must ensure that none of the following conditions regarding the foreign judgment are present: (1) "the [foreign] judgment was rendered under a system that provides tribunals or procedures incompatible with the requirements of due process of law"; (2) "the foreign court lacked jurisdiction over the subject matter"; or (3) "the judgment was obtained by fraud." See id (citing § 2467(d)(3)(A)(ii)(I)); see also In re Seizure of Approximately $12, 116, 153.16 & Accrued Interest in U.S. Currency, 903 F.Supp.2d 19, 30 (D.D.C. 2012) (summarizing § 2467's requirements). Second, the Court must ensure that the protective order comports with "the procedural due process protections for a restraining order under section 983(j) of title 18." § 2467(d)(3)(A) (ii)(I). As noted by the District of Columbia Circuit,

[t]hat section authorizes three different kinds of restraining orders against property subject to civil forfeiture under U.S. civil forfeiture statutes. First, a federal court may issue a restraining order that lasts during the pendency of forfeiture proceedings, upon the filing of a civil forfeiture complaint alleging that the property with respect to which the order is sought is subject to civil forfeiture. Second, a court may issue a 90-day restraining order prior to the filing of a civil forfeiture complaint after conducting an adversarial proceeding akin to a preliminary injunction hearing. Third, a court may issue a temporary restraining order of not more than 14 days without notice or hearing if there is probable cause to believe that the property is subject to forfeiture and that notice would jeopardize its availability.

Gang Luan, 722 F.3d at 393 (quoting § 983(j)).

         III. LEGAL ANALYSIS

         A.Standing to ...


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