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United States v. All Assets Held at Bank Julius

United States District Court, District of Columbia

April 27, 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 motion [Dkt. 492] of Claimant Pavel Lazarenko, a.k.a. Pavlo Lazarenko (“Lazarenko”), to dismiss the res located in Antigua and Barbuda (“Antigua”) and described in paragraph 5(d) of the First Amended Verified Complaint [Dkt. 20]. 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 deny the motion without prejudice.[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 Guernsey, Liechtenstein, Lithuania, Switzerland, and Antigua and Barbuda. See Am. Compl. ¶ 1. 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).

         In 1997, Lazarenko obtained “an ownership interest in the European Federal Credit Bank Limited (“Eurofed”), an Antiguan bank. United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 959 F.Supp.2d at 86. “In 1999, Antiguan government authorities with responsibility over financial crimes began to investigate Eurofed.” Id. at 86-87. On October 29, 1999, Antigua's Office of Drug and Money Laundering Control Policy obtained a freeze order “prohibiting Lazarenko and several of his associates and affiliated companies from removing any of their funds from Antigua or in any way disposing of or diminishing those funds.” Id. at 87.[2] Lazarenko successfully challenged that order in Antigua's courts, but thereafter the Antiguan High Court of Justice “issued another ex parte order on May 2, 2001, directing that [a]ll the rights and interests of Lazarenko, whether in his name or otherwise, be frozen until further order.” Id. at 88-89 (alteration in original) (internal quotation marks omitted).

         The United States filed this in rem action on May 14, 2004, see Complaint [Dkt. 1], and on May 20, 2004, 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 [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 May 20, 2004. See generally Restraining Order [Dkt. 3]. On May 27, 2004, the Antiguan High Court of Justice issued another freeze order for the same Antiguan res. See Appendix to United States' Opposition at 49-51 [Dkt. 642-4].

         On June 7, 2004, 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., Appendix to Claimant Pavel Lazarenko's Emergency Motion for Status Conference at 73-84 [Dkt. 538-3]; 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). One of the seized assets, described in paragraph 5(c) of the Complaint, was “[a]pproximately $85.5 million in United States dollars held at Bank of Nova Scotia (Antigua) in the name of the Registrar of the High Court of Antigua & Barbuda.” Complaint ¶ 5(c) [Dkt. 1].[3]On April 26, 2005, the United States moved to amend its complaint and thereby its Restraining Order, see Motion for Leave to File First Amended Complaint [Dkt. 15]. The Court granted the United States leave to file its First Amended Verified Complaint on June 30, 2005, 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 on July 8, 2005. See Restraining Order [Dkt. 23]. The 2005 Restraining Order remains the legal basis for the freeze on the Antiguan res, which is now described in paragraph 5(d) of the First Amended Verified Complaint.

         Lazarenko now moves to dismiss the Antiguan res contained in paragraph 5(d) because he argues that - under the Supreme Court's decision in Princess Lida of Thurns and Taxis v. Thompson, 305 U.S. 456 (1939) (“Pincess Lida”) - the May 2, 2001 Antiguan freeze order was part of a prior in rem proceeding that bars the United States from litigating this later-in-time in rem proceeding. See Mot. at 14-16.[4] Lazarenko attaches an affidavit from his Carribean attorney who opines that the 2001 freeze order occurred in the course of an Antiguan in rem proceeding because the Antiguan court issued it pursuant to the Antiguan money laundering statute, thereby qualifying for the Princess Lida rule. See Declaration of Deale Lee ¶¶ 10-28 [Dkt. 493-1]. The United States responds that Lazarenko waived the Princess Lida argument by failing to raise it in the motion to dismiss that he filed in 2005. Opposition at 8-9 [Dkt. 638]. The United States also contends that both the treaty between the United States and Antigua on mutual legal assistance and 28 U.S.C. § 1355(b)(2) “bar[] application of the common law rule embodied in the Princess Lida doctrine in the case of international forfeiture.” Id. at 11-12. Finally, the United States argues that the May 20, 2004 Restraining Order in this case [Dkt. 3] predated the May 27, 2004 Antiguan freeze order and therefore is not subject to the Princess Lida rule. Id. at 20.

         After fully briefing the present motion, Lazarenko submitted two “updates” to a separate motion, which described his recent attempts to negotiate with Antigua concerning the res described in paragraph 5(d) of the First Amended Verified Complaint. See Lazarenko's First Update (May 4, 2016) [Dkt. 674]; Lazarenko's Second Update [Dkt. 683]. In addition to those updates, the parties have submitted a number of status reports detailing the most recent facts concerning the Antiguan res. See, e.g., United States' Status Report (July 8, 2016) [Dkt. 744]; Lazarenko's Status Report (Jan. 6, 2017) [Dkt. 848].

         As described in these updates and status reports, Lazarenko's recent negotiations with Antigua stem from a December 24, 2015 order issued by the Antiguan High Court of Justice stating that “all” of Lazarenko's “right, interests and ownership” in “the total sum with interest currently on deposit” in certain accounts - that is, the Antiguan res in this case - “shall be paid forthwith into the Government Forfeiture Fund.” See Order at 2 (Dec. 24, 2015) [Dkt. 717-3, PDF pages 195-96]. The “Government Forfeiture Fund” is akin to Antigua's general treasury because, by the terms of the statute providing the authority for the High Court of Justice's December 24, 2015 Order, the Antiguan government may use the fund “for any [] purpose the Minister may consider proper.” See Mitchell Declaration Appendix at 200 [Dkt. 628-3]. Lazarenko unsuccessfully challenged this order in Antiguan courts, see Dkt. 683-2 at 186-88, and the United States acknowledges that “[o]ne Antiguan official has indicated to [it] that some of the funds may have been utilized for [Antiguan] government purposes.” See United States' Response to Lazarenko's Second Update at 12 n.5 (May 11, 2016) [Dkt. 684].[5]

         At oral argument on January 25, 2017, counsel for Lazarenko represented that “the High Court of Antigua took the money from the registry of the Court and put it into a forfeiture fund, ” and that the res is “just not coming back.” Mot. Hr'g Tr. Jan. 25, 2017 at 88 [Dkt. 886]. Lazarenko's counsel also stated that Lazarenko will not pursue an appeal in the Antiguan courts given the high cost. Id. at 108. Also at oral argument, counsel for the United States represented that he “spoke with the Attorney General of Antigua, ” who “indicated that if it is proven or agreed that the funds are to be disbursed, funds will be made available for that purpose.” Id. at 97.

         II. DISCUSSION

         The Court concludes that Lazarenko likely waived his Princess Lida argument by failing to raise it in his 2005 motion to dismiss, but it declines to decide the issue at this point in the litigation because of recent events in Antigua. The Court therefore will deny the motion to dismiss without prejudice.

         “Civil forfeiture actions are governed by the procedures set forth in 18 U.S.C. § 983 and the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (‘Supplemental Rules'), a subset of the Federal Rules of Civil Procedure.” United States v. All Assets Held at Bank Julius, __ F.Supp.3d __, 2017 WL 189165, at *3 (D.D.C. Jan. 17, 2017) (internal quotation marks omitted). “Courts generally expect claimants to adhere strictly to those requirements.” United States v. All Assets Held at Bank Julius Baer & Co., 664 F.Supp.2d 97, 101 (D.D.C. 2009). Supplemental Rule G(5)(b) states that “[a] claimant waives an objection to in rem jurisdiction or to venue if the objection is not made by motion or stated in the answer.” An objection to in rem jurisdiction is not an objection to subject matter jurisdiction; it is akin to an objection to personal jurisdiction under Rule 12(b)(2) of the Federal Rules of Civil Procedure. “Although Rule 12(b)(2) only refers to ‘jurisdiction over the person, ' the provision presumably is sufficiently elastic to embrace a defense or objection that the district court lacks in ...


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