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United States v. All Funds on Deposit at Bank Julius

United States District Court, District of Columbia

March 23, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
ALL ASSETS HELD AT BANK JULIUS, Baer & Company, Ltd., Guernsey Branch, account number 121128, in the Name of Pavlo Lazarenko et al., Defendants In Rem.

          OPINION AND ORDER

          PAUL L. FRIEDMAN United States District Judge.

         This matter is before the Court on the emergency motion [Dkt. 538] of Claimant Pavel Lazarenko, a.k.a. Pavlo Lazarenko (“Lazarenko”), for clarification of the restraining order [Dkt. 23] in this case. Specifically, Lazarenko seeks an order that: (1) “legal action in the Royal Court of Guernsey, filed on November 3, 2015, does not violate the restraining order”; (2) that “[Lazarenko] and his agents may engage in foreign litigation to challenge the restraints on his foreign assets without violating the Court's restraining order”; and (3) that “[Lazarenko] and his agents may not move or dispose of, or dissipate the funds without approval of this Court.” See Proposed Order at 1 (Dec. 29, 2015) [Dkt. 538-1]. The United States opposes the motion. Upon consideration of the parties' written submissions, the relevant case law, the entire record in this case, and the oral argument on January 25, 2017, the Court will grant Lazarenko's motion for reconsideration in part and deny it in part.[1]

         I. FACTUAL AND PROCEDURAL BACKGROUND

         This is a civil in rem action in which the United States seeks forfeiture of over $250 million dollars scattered throughout bank accounts located in Antigua, Barbuda, Guernsey, Liechtenstein, Lithuania, and Switzerland. See Am. Compl. ¶ 1 (June 30, 2005) [Dkt. 20]. This Court's prior opinions summarize the procedural history of this case, starting with the criminal prosecution of Lazarenko and continuing through this civil forfeiture proceeding. See, e.g., United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 307 F.R.D. 249, 250-51 (D.D.C. 2014); United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 959 F.Supp.2d 81, 84-94 (D.D.C. 2013); United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 571 F.Supp.2d 1, 3-6 (D.D.C. 2008). In brief, Pavel Lazarenko is “a prominent Ukrainian politician who, with the aid of various associates, was ‘able to acquire hundreds of millions of United States dollars through a variety of acts of fraud, extortion, bribery, misappropriation and/or embezzlement' committed during the 1990s.” United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 959 F.Supp.2d at 85 (quoting Am. Compl. ¶¶ 1, 10).

         The United States filed this in rem action in 2004, Complaint (May 14, 2004) [Dkt. 1], and six days later moved for an ex parte Restraining Order “to secure, maintain and preserve the availability for forfeiture of all properties named as defendants in this action.” United States' Ex Parte Motion for a Post-Complaint Restraining Order at 2 (May 20, 2004) [Dkt. 2]. The Court fully reviewed the United States' motion for probable cause to believe that all in rem defendants were subject to forfeiture and, finding such probable cause, signed the proposed Restraining Order on the same day as it was filed. See generally Restraining Order (May 20, 2004) [Dkt. 3]. Shortly thereafter, the United States issued a summons and warrant of seizure for each of the in rem defendant assets in the case, see Docket for June 7, 2004, resulting in the United States making Mutual Legal Assistance Treaty (“MLAT”) requests to various countries to freeze those assets. See, e.g., Lazarenko's Appendix (“Appx.”) at 73-84 [Dkt. 583-3]; see also United States v. All Assets Held at Bank Julius Baer & Co., 772 F.Supp.2d 205, 209 (D.D.C. 2011) (explaining the use of MLAT requests in this case).

         No longer an ex parte proceeding, Pavel Lazarenko and his children - Alexander, Lecia, and Ekaterina Lazarenko - then entered the case by filing claims and answers asserting interests in some or all of the in rem defendant assets. See Children's First Claim (June 29, 2004) [Dkt. 4]; Lazarenko's First Claim (June 29, 2004) [Dkt. 5]; Children's First Answer (Aug. 13, 2004) [Dkt. 8]; Lazarenko's First Answer (Aug. 13, 2004) [Dkt. 9]. Eight months later, the United States moved to amend its complaint and thereby its Restraining Order, see Motion for Leave to File First Amended Complaint (Apr. 26, 2005) [Dkt. 15], which Lazarenko and his children did not oppose. The Court granted the United States leave to file its amended complaint by minute order, see Docket (minute order of June 30, 2005), and, after reviewing the proposed Restraining Order for probable cause and finding it adequate, signed the new Restraining Order. See Restraining Order (July 8, 2005) [Dkt. 23].

         That 2005 Restraining Order governs the conduct of the parties with respect to the in rem defendant assets in this case. As relevant here, the Restraining Order prohibits Lazarenko, his children, and others listed therein:

without prior approval of this Court and upon notice to the United States and an opportunity for the United States to be heard, from attempting or completing any action that would affect the availability or value of the Defendants In Rem including, but not limited to, withdrawing, transferring, assigning, pledging, distributing, encumbering, wasting, secreting or otherwise disposing of or diminishing the value of, by any means, all or any part of the Defendants In Rem.

Dkt. 23 at 7.

         Several of the assets that are the subject of this in rem action are held at Bank Julius Baer & Company, Ltd., Guernsey Branch - also known as Bank Julius Baer (Guernsey) Limited - or Credit Suisse (Guernsey) Limited. Am. Compl. ¶ 5(a)-(c). In December 2015, Lazarenko filed an Application with the Royal Court of Guernsey to “[v]ary the Order” freezing those in rem assets, essentially asking that the freeze be lifted as to a portion of those funds so that he could pay his criminal forfeiture judgment in the United States. See Appx. at 8 [Dkt. 538-3]. The basis for Lazarenko's Application is that the Guernsey order freezing assets was based on an incorrect understanding of the scope of his United States criminal conviction in the U.S. District Court for the Northern District of California. Id. at 6-7. In particular, Lazarenko's Application claims that the order fails to take account of the fact that the Ninth Circuit later vacated six of Lazarenko's 14 counts of conviction. Id. at 7; see United States v. Lazarenko, 564 F.3d 1026 (9th Cir. 2009). Lazarenko did not disclose this Application to the United States until roughly six weeks after he filed it. Appx. at 135 [Dkt. 538-3]. Once notified, the United States responded by “request[ing] that [Lazarenko] immediately withdraw the Guernsey Application” or the United States would “file a motion to show cause as to why Mr. Lazarenko should not be sanctioned and found in civil contempt of [this] court's restraining order.” Appx. at 135. Lazarenko then instructed his attorney in Guernsey “not to undertake any action pending” resolution of the present emergency motion, which Lazarenko filed shortly thereafter. Mot. at 2.

         II. DISCUSSION

         A. Guernsey

         A federal court is authorized, under 18 U.S.C. § 983(j)(1)(A), to enter a restraining order “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, ” in order to preserve the availability of property subject to forfeiture during the pendency of the forfeiture proceedings. The Court finds that Lazarenko's Guernsey Application violates the plain language of the 2005 Restraining Order in this case. Lazarenko does not dispute that the Restraining Order enjoys the full force of law under 18 U.S.C. § 983(j). Nor does he argue that he sought the “prior approval of this Court, ” as the Restraining Order requires, before instituting his Guernsey Application. See Restraining Order at 7. The only dispute, therefore, is whether Lazarenko's Guernsey Application “would affect the availability or value of the Defendants In Rem.” Id. The answer is plainly yes, and Lazarenko's arguments to the contrary are frivolous.

         Lazarenko argues that “the restraining order makes no reference to the initiation of foreign litigation.” Mot. at 9. While the Restraining Order enumerates a laundry list of activities that might “affect the availability or value” of the property at issue and does not expressly include foreign litigation, the phrase “including, but not limited to” precedes the list of actions that are prohibited or restrained. Restraining Order at 7. Cf. SEC v. Bilzerian, 613 F.Supp.2d 66, 69 (D.D.C.) (instituting restraining order that barred “the commencement of any proceedings in any court”), aff'd SEC v. Bilzerian, 75 F. App'x 3, 4 (D.C. Cir. 2003). Moreover, the list of prohibited activities includes “otherwise disposing of or diminishing the value of, by any means, ” all or part of the defendants in rem. Restraining Order at 7 (emphasis added). Lazarenko's Guernsey Application asks to take a portion of the res “to pay” his criminal forfeiture judgment in the United States. Appx. at 8 [Dkt. 538-3]. It strains credulity for Lazarenko to now ...


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