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United States v. All Assets Held at Bank Julius

United States District Court, District of Columbia

August 3, 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.

          ORDER

          PAUL L. FRIEDMAN United States District Judge.

         This matter is before the Court on two separate but related motions: (1) the motion of Claimant Pavel Lazarenko, a.k.a. Pavlo Lazarenko (“Lazarenko”), for reconsideration of the Court's January 10, 2017 Opinion and Order that, inter alia, denied Lazarenko leave to amend his answer to assert an Eighth Amendment excessive fines affirmative defense, see United States v. All Assets Held at Bank Julius, 229 F.Supp.3d 62 (D.D.C. 2017); and (2) the motion of Lazarenko's children, Claimants Alexander, Ekaterina, and Lecia Lazarenko (collectively, “children”), for leave to file an Answer to the Amended Complaint, as permitted by the Court in its January 6, 2017 Opinion. See United States v. All Assets Held at Bank Julius, Baer & Co., Ltd., 228 F.Supp.3d 118 (D.D.C. 2017). The Court addresses the motions together because both Lazarenko and the children seek to assert an Eighth Amendment excessive fines affirmative defense in their answers. See Lazarenko Proposed Amended Answer ¶ 161 (May 1, 2015) [Dkt. 367-1]; Children's Proposed Answer ¶ 161 (Feb. 3, 2017) [Dkt. 877-2]. The children also seek leave to supplement the language they used in pleading two existing affirmative defenses. The United States opposes both motions.

         Upon consideration of the parties' written submissions, the relevant case law, and the entire record in this case, the Court will grant Lazarenko's motion for reconsideration and permit him to plead an Eighth Amendment excessive fines affirmative defense and will grant the children's motion for leave to file an Answer in part and deny it in part. It will not permit the children to plead both the Eighth Amendment excessive fines affirmative defense and the failure to state a claim affirmative defense, but will permit them to add supplemental language to their jurisdiction and probable cause affirmative defenses.[1]

         I. FACTUAL AND PROCEDURAL BACKGROUND

         The Court has previously explained the facts relevant to Lazarenko's attempts to amend his Answer in the January 10, 2017 Opinion and Order of which he seeks reconsideration. See United States v. All Assets Held at Bank Julius, 229 F.Supp.3d at 66-67. Likewise, the facts relevant to the United States' attempt to strike the children's claim (and thereby foreclose them from filing an answer) are contained in the Court's January 6, 2017 Opinion. See United States v. All Assets Held at Bank Julius, Baer & Co., Ltd., 228 F.Supp.3d at 120-22. Nonetheless, the Count will review those facts central to resolving the instant motions.

         A. History Prior to the Instant Motions

         On May 14, 2004, the United States filed its initial Complaint in this case, seeking forfeiture of, inter alia, “[a]ll funds on deposit at Credit Suisse (Guernsey) Limited, in account number 41610 in the name of Samante Limited as Trustees of the Balford Trust.” Compl. ¶ 5(b) [Dkt. 1]. The Court will refer to the funds the United States identified in paragraph 5(b) of the Complaint - and the same funds with an additional account number in the United States' Amended Complaint (June 30, 2005) [Dkt. 20] - as the “Samante assets.” On June 29, 2004, the children filed a claim asserting their beneficial or ownership interest only in the Samante assets. Children's Verified Claim and Statement of Interest [Dkt. 4]. On the same day, Lazarenko filed a claim asserting his ownership interest in other assets. Lazarenko's Verified Claim and Statement of Interest [Dkt. 5]. On August 13, 2004, the children filed an Answer to the Complaint asserting five affirmative defenses: (1) lack of jurisdiction, (2) failure to state a claim, (3) lack of probable cause, (4) statute of limitations, and (5) innocent interest - due process. See Children's First Verified Answer ¶¶ 127-131 [Dkt. 8]. Lazarenko also filed his Answer that same day. See Lazarenko's First Verified Answer [Dkt. 9].

         On June 30, 2005, the United States filed its Amended Complaint as of right, which remains the controlling complaint in this case. See Amended Complaint [Dkt. 20]. On July 25, 2005, Lazarenko's children filed a second Claim, again asserting an interest only in the Samante assets. See Children's Second Verified Claim and Statement of Interest [Dkt. 28]. They never filed an answer to the United States' Amended Complaint. United States v. All Assets Held at Bank Julius, Baer & Co., Ltd., 228 F.Supp.3d at 121. On July 26, 2005, Lazarenko filed a second Claim, see Lazarenko's Second Verified Claim and Statement of Interest [Dkt. 29], and, on November 21, 2011, filed his Answer to the United States' Amended Complaint. See Lazarenko's Second Verified Answer [Dkt. 268].

         On April 17, 2015 - almost ten years later - the United States moved to strike the children's second Claim for lack of standing and failure to file an answer. See United States' Motion to Strike the Claim of Alexander Lazarenko for Himself and as Agent for Lecia Lazarenko and Ekaterina Lazareko [Dkt. 363]. On May 1, 2015, Lazarenko moved for leave to amend his Answer to make several changes and add affirmative defenses, one of which was an affirmative defense that the forfeiture amount in this case represented an excessive fine in violation of the Eighth Amendment to the Constitution. See Claimant Lazarenko's Motion for Leave to Amend Answer to Amended Complaint at 4 [Dkt. 367]. On April 21, 2016, the United States completed and produced the expert report of Michael J. Petron, which “analyze[s] the defendant properties in rem in the First Amended Complaint[], and trace[s] the source of funds for each property through the international banking system.” See Expert Report of Michael J. Petron ¶ 1 at PDF page 59 [Dkt. 844-4] (hereafter, “tracing report”); see also Lazarenko Mot. at 2 (“[The United States] produced its expert tracing report in April 2016.”). Lazarenko never sought leave to file a supplemental brief concerning this tracing report in support of his motion for leave to amend his Answer.

         On January 6, 2017, the Court denied the United States' motion to strike the children's second Claim, finding that “it should excuse claimants' failure to file an answer to the amended complaint in this case because that failure has not at all prejudiced the United States.” United States v. All Assets Held at Bank Julius, Baer & Co., Ltd., 228 F.Supp.3d at 126. The Court noted that the United States in its Amended Complaint did not substantially vary how it pleaded its claims related to the Samante assets in its original complaint, adding only a single bank account number; because the children had filed an Answer to the original complaint there was no prejudice. Id. The children's “failure to file an answer to the amended complaint, therefore, did not cause the United States to guess whether claimants asserted an interest in any of the assets that appear only in the [A]mended [C]omplaint.” Id.[2] Finding no prejudice to the United States by the children's' inaction, the Court permitted the children to move for leave to file an answer, but cautioned them as follows:

The United States is free to again raise the issue of prejudice in its opposition to claimants' motion for leave to file if, for example, claimants' answer (1) varies the responses claimants made in their answer to the original complaint for paragraphs that are identical in the amended complaint, or (2) asserts an interest in the funds in the three additional jurisdictions that the United States added in the amended complaint.

Id. at 126 n.2.

         On January 10, 2017, the Court denied Lazarenko's motion for leave to amend his Answer to, inter alia, assert an Eighth Amendment excessive fines affirmative defense because it concluded that such an amendment would be futile. United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 229 F.Supp.3d at 71. The Court first recounted the relevant legal principles governing the Excessive Fines Clause of the Eighth Amendment. Id. It then concluded that Lazarenko's proposed Eighth Amendment excessive fines affirmative defense was futile because the “forfeiture of roughly $250 million” that the United States seeks in its Amended Complaint is not grossly disproportional to the “‘more than $326 million in payments'” Lazarenko received as a result of the criminal offenses of which he was convicted in 2004 following a jury trial in the United States District Court for the Northern District of California. Id. (quoting United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 571 F.Supp.2d 1, 3 (D.D.C. 2008) (Opinion denying Lazarenko's motion to dismiss)).

         B. The Instant Motions

         Lazarenko moves for reconsideration of the Court's January 10, 2017 Opinion and Order because it (1) “relied on [] now-dated allegations” concerning the $326 million amount of payments Lazarenko received from his crimes, and (2) “did not have the benefit of the Government's April 2016 tracing report.” Lazarenko Mot. at 2. Lazarenko argues that the source of the $326 million figure - this Court's 2008 Opinion denying Lazarenko's motion to dismiss - preceded the Ninth Circuit's 2009 decision vacating Lazarenko's convictions on six of 14 counts of conviction, United States v. Lazarenko, 564 F.3d 1026 (9th Cir. 2009), as well as the 2009 determination of Lazarenko's criminal fine and forfeiture in the United States District Court for the Northern District of California. Lazarenko Mot. at 2-3. Lazarenko also suggests that the United States' tracing report - the accuracy of which Lazarenko disputes - demonstrates that the in rem defendant funds in this case contain only a fraction of the allegedly “tainted” proceeds of Lazarenko's crimes. Id. at 3-4.

         The United States concedes that this Court's January 10, 2017 Opinion and Order “inaccurately described the value of the counts of conviction sustained on appeal, ” but argues that the “severity and scale” of those sustained convictions mean that a forfeiture of $250 million is nevertheless not grossly disproportional. Opp. Lazarenko at 4. The United States also states that Lazarenko waived any excessive fines arguments beyond those related to the money laundering counts. Id. at 5 n.1. With respect to the tracing report, the United States contends that Lazarenko's “commingled funds, ” Opp. Lazarenko at 4-5, are forfeitable under 18 U.S.C. § 981(a)(1)(A), which permits civil forfeiture of “[a]ny property, real or personal, involved in a transaction or attempted transaction in violation of” specific federal criminal statutes including the money laundering statute contained at 18 U.S.C. §§ 1956-57. See United States v. All Assets Held at Bank Julius, ___ F.Supp.3d ___, 2017 WL 1508608, at *2 (D.D.C. Apr. 27, 2017) (explaining all of the United States' forfeiture claims in greater detail). The United States argues that a forfeiture of $250 million is “substantially less” than the potential criminal fine Lazarenko faced for money laundering and therefore is not grossly disproportional. Opp. Lazarenko at 8.

         The children move for leave to file an answer to the United States' Amended Complaint. Children Mot. at 2. Their proposed answer includes an Eighth Amendment excessive fines affirmative defense that did not appear in the children's Answer to the United States' initial complaint in 2004, as well as supplemental language they seek to add to the jurisdiction and probable cause affirmative defenses ...


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