Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-15-01743/USCOURTS-ca8-15-01743-0/pdf.json

Nature of Suit Code: 690
Nature of Suit: Other Forfeiture and Penalty Suits
Cause of Action: 

---

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 15-1743

___________________________

United States of America

lllllllllllllllllllll Plaintiff - Appellee

v.

Eleven Million Seventy-One Thousand One Hundred and Eighty-Eight Dollars

and Sixty-Four Cents ($11,071,188.64) in United States Currency, More or Less,

Seized from LaOstriches & Sons, Inc.

lllllllllllllllllllll Defendant

------------------------------

Laura Avila Barraza; LaOstriches and Sons, Inc.

lllllllllllllllllllllClaimants - Appellants

____________

Appeal from United States District Court 

for the Eastern District of Missouri - St. Louis

____________

 Submitted: January 12, 2016

 Filed: June 6, 2016

____________

Before LOKEN, GRUENDER, and KELLY, Circuit Judges.

____________

LOKEN, Circuit Judge.

Appellate Case: 15-1743 Page: 1 Date Filed: 06/06/2016 Entry ID: 4407750 
In December 2012, the United States filed an Amended Verified Complaint

seeking civil forfeiture of $11,071,188.64 held in various banking and brokerage

accounts in the United States by LaOstriches & Sons, Ltd. (“LaOstriches”), on the

ground that the funds were money-laundered drug trafficking proceeds. See 18

U.S.C. §§ 981(a)(1)(A), 1956(a)(1)(B), 1957. LaOstriches, Laura Avila-Barraza, and

Avila-Barraza’s three children filed claims to the property, asserting they are innocent

owners of the funds and other defenses to the government’s claim. See 18 U.S.C.

§§ 983(a)(4) and (d). After protracted pretrial proceedings, the district court

1

dismissed LaOstriches’s claim due to repeated failures to comply with orders that its

corporate treasurer and secretary appear for discovery depositions. After further 2

proceedings, the court granted summary judgment, dismissing Avila-Barraza’s claim

because she failed to establish a sufficient interest in the seized property. LaOstriches

and Avila-Barraza appeal both rulings. We affirm.

I. Background.

The funds were seized in April 2012 fromtwo LaOstriches brokerage accounts

at Wells Fargo Advisors in Miami. The government venued its forfeiture claim in the

Eastern District of Missouri because security transactions in those accounts were

cleared through a brokerage service headquartered in St. Louis. Avila-Barraza

incorporated LaOstriches in the British Virgin Islands on the advice of family

members and other advisors after the 1998 murder of her husband, Humberto OjedaBarraza, a resident of Sinaloa, Mexico. Avila-Barraza is LaOstriches’s president and

sole shareholder. Her sister, Griselda Avila-Barraza, serves as corporate secretary,

The Honorable Carol E. Jackson, United States District Judge for the Eastern 1

District of Missouri. 

Prior to the court’s ruling, Avila-Barraza’s children, who also did not appear 2

for scheduled depositions, withdrew their claims for lack of standing. The children

do not appeal the court’s dismissal of their claims.

-2-

Appellate Case: 15-1743 Page: 2 Date Filed: 06/06/2016 Entry ID: 4407750 
and her father, Jose Sergio Avila-Amezquita, serves as corporate treasurer. AvilaBarraza alleges that the funds are the proceeds of the inheritance from her husband,

invested through LaOstriches for the benefit of her children. 

The government does not contest Avila-Barraza’s claim that the funds are

proceeds derived fromher inheritance. But, the government contends, the funds were

initially provided to LaOstriches by Timber Development, Ltd., a British Virgin

Islands investment company created by Jorge Cifuentes-Villa to launder the proceeds

of his family’s drug trafficking organization, which supplied cocaine to the Sinaloa

drug cartel in Mexico. Cifuentes-Villa was close friends with Avila-Barraza’s

husband before his death. From 2001 to 2012, the government alleges, Timber

Development and LaOstriches traded millions of dollars between their various

banking and brokerage accounts. 

II. LaOstriches’s Appeal.

In July 2013, the government noticed depositions of Avila-Barraza, her

children, and LaOstriches’s corporate secretary and treasurer. The depositions were

rescheduled at claimants’ request for the week of September 16. On September 5,

claimants moved for protective orders canceling the depositions. When the district

court denied that motion, claimants other than Avila-Barraza moved for emergency

protective orders, arguing the orders were necessary given their lack of personal

knowledge of the relevant events and the unduly burdensome nature of the

depositions. The government moved to compel their appearances. The district court

denied the claimants’ motions and granted the government’s motion to compel. The

deponents failed to appear. 

In October 2013, the government moved for an order to show cause why

claimants’ claims and answers should not be stricken for failure to comply with

discovery orders. The district court denied the motion. Noting that “dismissal is an

-3-

Appellate Case: 15-1743 Page: 3 Date Filed: 06/06/2016 Entry ID: 4407750 
extreme sanction thatshould be used prudently,” the court instead provided claimants

“one final opportunity to comply with the discovery orders and appear for

depositions.” The court cautioned that it “will not accept any further excuses or

explanations for failure to attend depositions.” The orders stated in bold and

underlined text: “Claimants are warned that failure to appear for depositions will

result in the dismissal of their individual claims along with any additional

sanctions the Court deems appropriate.” The parties then rescheduled the

depositions for December 13 through December 18. Only Avila-Barraza appeared

and was extensively deposed. 

The government moved for dismissal of the claims by LaOstriches and AvilaBarraza’s children (the children then withdrew their claims). The district court

dismissed LaOstriches’s claim. Again rejecting proffered excuses for failure to

comply, the court found that “the extreme sanction ofstriking [LaOstriches’s] claims

and answers is warranted” because LaOstriches “obstructed discovery” when it

“willfully disobeyed” three separate orders directing its corporate officers to attend

properly noticed depositions. LaOstriches sought reconsideration, which the court

denied in a detailed Memorandum and Order, explaining that “[t]he continued failure

of LaOstriches to produce their corporate [treasurer and secretary]that were properly

noticed for deposition by the government issufficient to show that any other sanction

would be ineffective.” 

On appeal, LaOstriches argues the district court abused its discretion by

striking its claim and answer due to repeated failures to comply with discovery

orders. The FederalRules of Civil Procedure expressly authorize sanctions for failure

to comply with a court’s discovery order, including striking pleadings or dismissing

an action in whole or in part. See Fed. R. Civ. P. 37(b)(2)(A)(iii), (v). We review

Rule 37 sanctions for abuse of discretion. See St. Louis Produce Mkt. v. Hughes, 735

F.3d 829, 832-33 (8th Cir. 2013). As the district court recognized, dismissal is an

extreme sanction that should be applied “only where there is an order compelling

-4-

Appellate Case: 15-1743 Page: 4 Date Filed: 06/06/2016 Entry ID: 4407750 
discovery, a willful violation of the order, and prejudice to the other party.” Hughes,

735 F.3d at 832;see Hairston v. Alert Safety Light Prods., Inc., 307 F.3d 717, 719-20

(8th Cir. 2002). “[B]efore dismissing a case under Rule 37(b)(2) the court must

investigate whether a sanction less extreme than dismissal would suffice, unless the

party’s failure was deliberate or in bad faith.” Comstock v. UPS Ground Freight,

Inc., 775 F.3d 990, 992 (8th Cir. 2014) (quotation omitted). 

Here, the district court issued three discovery orders directing LaOstriches to

appear for scheduled depositions through its corporate officers. When given one last

chance to comply, Avila-Barraza attended her long-delayed deposition, but the other

corporate officers -- members of Avila-Barraza’s immediate family -- willfully and

deliberately failed to attend. LaOstriches admitted that it “knew prior to scheduling

and prior to making many representations to the [government] that neither the

corporate secretary nor treasurer would appear for the depositions.” Before striking

LaOstriches’s claim and answer, the district court explained that failure to attend the

December depositions would be “bad faith conduct.” LaOstriches’s assertion that the

government failed to establish bad faith is without merit. Itsrepeated flaunting of the

court’s unambiguous orders demonstrated bad faith. 

LaOstriches argues that the government was not prejudiced by the failure of its

“nominal officers” to appear for their properly scheduled depositions because they

“had no personal knowledge of the business affairs of LaOstriches.” In general,

“[t]he sworn testimony of a party . . . will hardly ever be so irrelevant that it should

be dispensed with on that party’s mere say-so.” In re O’Brien, 351 F.3d 832, 839 (8th

Cir. 2003). That is particularly true in this case. To establish its forfeiture claim, the

government sought to prove that the proceeds of unlawful drug trafficking were

transferred to LaOstriches in financial transactions designed to conceal “the source,

the ownership, or the control of specified unlawful activity.” 18 U.S.C.

§ 1956(a)(1)(B)(i). The testimony of LaOstriches’s corporate officers was clearly

relevant to these issues, and to its assertion of the innocent owner defense, even if --

-5-

Appellate Case: 15-1743 Page: 5 Date Filed: 06/06/2016 Entry ID: 4407750 
perhaps particularly if -- these familymembers disclaimed all knowledge ofthe initial

source of LaOstriches’s corporate assets. See 18 U.S.C. §§ 981(k)(2), 984(a)(1). As

these individuals resided outside the country and could not be subpoenaed for trial,

the district court correctly concluded that LaOstriches’s continued failure to produce

its corporate secretary and treasurer officers for depositions reflected its refusal to

participate in discovery and was “sufficient to show that any other sanction would be

ineffective.”

LaOstriches further argues that it should not suffer the “ultimate sanction” of

dismissal for discovery violations that were the fault of claimants’ prior attorney, not

his clients. This contention is without merit. “[T]his court follows the wellestablished principle that a party is responsible for the actions and conduct of [its]

counsel and that, under appropriate circumstances, dismissal or default may be

entered against a party as a result of counsel’s actions.” Everyday Learning Corp. v.

Larson, 242 F.3d 815, 817 (8th Cir. 2001) (quotation omitted). Though dismissal is

a harsh Rule 37 sanction, it is entrusted to the district court’s sound discretion. 

“Thus, even if this Court would have imposed a less onerous sanction, we cannot

substitute our judgment for that of the [District] Court, and we limit our review to

whether the evidence supports the chosen sanction.” In re O’Brien, 351 F.3d at 839. 

There was no abuse of discretion. We decline to take up the question of the prior

attorney’s alleged misconduct.

Finally, LaOstriches argues for the first time on appeal that the district court

violated the Excessive Fines Clause of the Eighth Amendment by striking its claim

and answer, effectively levying an $11 million fine. There was no error, much less

plain error, in the district court’s failure to consider this issue sua sponte. It is true

that the forfeiture of property pursuant to a civil in rem statute which provides an

innocent owner defense is “a payment to a sovereign as punishment for some offense”

and is therefore “subject to the limitations of the Eighth Amendment’s Excessive

Fines Clause.” Austin v. United States, 509 U.S. 602, 622 (1993), quoting Browning-

-6-

Appellate Case: 15-1743 Page: 6 Date Filed: 06/06/2016 Entry ID: 4407750 
FerrisIndus. of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 265 (1989). However,

the district court order merely struck LaOstriches’s claim that it was an innocent

owner of funds the government sought to have forfeited. This was not a forfeiture

order, and it did not extract a payment “as punishment for some offense.” The order

simply terminated LaOstriches’s participation in a civil proceeding to determine

whether the funds should be forfeited because of its willful, bad faith Rule 37

discovery violations. That Avila-Barraza, the remaining claimant, was ultimately

unsuccessful in defeating the government’s forfeiture claim did not convert the order

dismissing LaOstriches’s claim into punishment that was subject to the Eighth

Amendment’s Excessive Fines Clause. Cf. United States v. Union Bank for Sav. &

Invest. (Jordan), 487 F.3d 8, 22-23 (1st Cir. 2007). 

III. Avila-Barraza’s Appeal.

Two months after the dismissal of LaOstriches’s claim, the government moved

for summary judgment dismissingAvila-Barraza’s individual claim. On February 13,

2015, the district court granted summary judgment. Under the Civil Asset Forfeiture

Reform Act of 2000, “the burden of proof is on the Government to establish, by a

preponderance of the evidence, that the property is subject to forfeiture.” 18 U.S.C.

§ 983(c)(1). “If the government satisfies this burden of proof, then the claimant must

prove an affirmative defense to forfeiture, such as the ‘innocent owner defense’

codified in 18 U.S.C. § 983(d).” United States v. 3234 Wash. Ave. N., 480 F.3d 841,

843 (8th Cir. 2007). We review the grant of summary judgment in forfeiture cases

de novo. Id. at 842. The district court granted summary judgment on alternative

grounds because Avila-Barraza failed to establish an ownership interest in the seized

property “either for Article III standing or for an innocent owner defense.” We

disagree with the first reason but agree with the second.

A. The district court first granted summary judgment on the ground that AvilaBarraza lacked Article III standing. To establish Article III standing to challenge a

-7-

Appellate Case: 15-1743 Page: 7 Date Filed: 06/06/2016 Entry ID: 4407750 
civil forfeiture complaint, a claimant must show “a sufficient ownership interest in

the property to create a case or controversy capable of federal judicial resolution. 

Ownership interest can be shown by actual possession, control, title, and financial

stake.” United States v. 7725 Unity Ave. N., 294 F.3d 954, 956 (8th Cir. 2002). “To

have standing, a claimant need not prove the underlying merits of the claim. The

claimant need only show a colorable interest in the property, redressable, at least in

part, by a return of the property.” United States v. One Lincoln Navigator 1998, 328

F.3d 1011, 1013 (8th Cir. 2003) (quotation omitted). The First Circuit has

characterized this “colorable” requirement as “very forgiving.” Union Bank, 487

F.3d at 22. Ownership interests are typically defined by the applicable state law.

The government argued, and the district court agreed, that Avila-Barraza lacks

Article III standing because she failed to establish her claim that she is the owner of

LaOstriches’s corporate funds as the beneficiary of a resulting trust under Missouri

or Florida law. But that analysis improperly conflates standing with the merits of

Avila-Barraza’s claim that she is an innocent owner. To have standing, a claimant

need not prove ownership, only a colorable interest in the property to be forfeited. 

For example, in 7725 Unity Ave. North, we held that the holder of a junior mortgage

had standing to establish that its loan proceeds were not subject to forfeiture because

they were not the proceeds of illegal activity. 294 F.3d at 956-58. In One Lincoln

Navigator, we held that the grandmother who paid for a car allegedly used for drug

trafficking had standing to assert an innocent owner’s interest because “she has the

greatest financial stake in the car.” 328 F.3d at 1013. 

Here, in addition to asserting the innocent owner affirmative defense, AvilaBarraza’s Answer alleged that the in rem funds are not subject to forfeiture because

they “are not drug proceeds or proceeds of any other specified unlawful activity” and

were not “involved in a transaction or attempted transaction in violation of [the

money laundering statutes].” As the sole shareholder of LaOstriches, Avila-Barraza

isthe person with “the greatest financial stake” in putting the government to its proof

-8-

Appellate Case: 15-1743 Page: 8 Date Filed: 06/06/2016 Entry ID: 4407750 
that these corporate assets are subject to forfeiture. If forfeiture is denied and the

seized funds are returned to LaOstriches, the corporation will hold or use those funds

for the ultimate benefit of its sole shareholder. For this part of her claim, the question

is not whether Avila-Barraza is an innocent owner of the funds; it is whether the

funds themselves are innocent. “[N]either the letter nor the spirit of the forfeiture

statute allows the Government a windfall by forfeiting undisputedly innocent

proceeds.” 7725 Unity Ave. North, 294 F.3d at 958. In these circumstances, we

conclude the district court erred in dismissing Avila-Barraza’s claim on the ground

that she lacks Article III standing.

B. As an alternative ground, the district court ruled that the government was

entitled to summary judgment because Avila-Barraza failed to prove an innocent

owner defense as a matter of law. This defense requires proof that Avila-Barraza is

an “owner” of the seized funds, defined as “a person with an ownership interest in the

specific property sought to be forfeited, including a leasehold, lien, mortgage,

recorded security interest, or valid assignment of an ownership interest”; it does not

include “a person with only a general unsecured interest in, or claim against, the

property or estate of another.” 18 U.S.C. § 983(d)(1), (6). The district court

concluded that Avila-Barraza did not have an ownership interest in the funds to be

forfeited entitling her to assert an innocent owner’s defense.

 

Rather, LaOstriches, in its corporate capacity, possessed legal title and

exercised complete control over the defendant property. Avila-Barraza

did not take formal action as the company’s sole director and

shareholder to dissolve the corporation and gain personal access to the

property or transfer the assets to her own personal accounts. As such,

claimant falls within the category of persons “with only a general

unsecured interest in” the seized corporate property and therefore

without an ownership interest under the statute. § 983(d)(6)(B)(i). 

Avila-Barraza argues that “[h]er manifest intent in transferring these funds to

accounts she opened and controlled for LaOstriches was to hold them in trust for the

-9-

Appellate Case: 15-1743 Page: 9 Date Filed: 06/06/2016 Entry ID: 4407750 
benefit of her minor children,” and therefore she maintains an “equitable interest in

the forfeited res, [by way of] a resulting trust.” But she cites no cases in which a

resulting trust has been implied by law to permit a corporate shareholder to disregard

the separate corporate entity she intentionally created. 

In general, under Missouri and Florida law, “an extraordinary degree of proof

is required [to establish a resulting trust] . . . . The evidence must be so

unquestionable in its character, so clear, cogent and convincing that no reasonable

doubt can be entertained as to the truth and existence of the trust.” Pizzo v. Pizzo,

295 S.W.2d 377, 385-86 (Mo. banc 1956); see Grapes v. Mitchell, 159 So. 2d 465,

469 (Fla. 1963) (a resulting trust must be “proved by evidence so clear, strong and

unequivocal as to remove from the mind of the chancellor every reasonable doubt as

to the existence of the trust”). Avila-Barraza failed to meet this demanding burden

of proof. Moreover, when a corporate insider attempts to disregard the corporate

entity to protect corporate assets from third party claims -- what has been referred to

as “inside reverse veil piercing,” 1 Fletcher & Jones, Fletcher Cyclopedia of the Law

ofCorporations § 41.70 (2015 rev. vol., 2015-2016 Cum. Supp.) -- judicial reluctance

to imply an equitable ownership interest is even more pronounced:

Although courts will look through corporate organizations to individuals

when necessary to prevent injustice, doing so is the exception rather

than the rule, and, ordinarily, a corporation will be regarded as a

separate legal entity even though there be but a single stockholder.

Love v. Ben Hicks Chevrolet, Inc., 655 S.W.2d 574, 576 (Mo. App. 1983). 

Here, relying on legal and financial experts in asset management for the

wealthy, Avila-Barraza sought and received the benefits of LaOstriches’s corporate

status, including limited shareholder liability and tax benefits from the United States. 

Only now does she claim her intent was to create a resulting trust in which she

-10-

Appellate Case: 15-1743 Page: 10 Date Filed: 06/06/2016 Entry ID: 4407750 
equitably owned the corporate assetsfor the benefit of her children. A court of equity

will not disregard a corporation’s exclusive ownership of assets and claims “where

those in control have deliberately adopted the corporate form in order to secure its

advantages.” Schenley Distillers Corp. v. United States, 326 U.S. 432, 437 (1946). 

The district court did not err in granting summary judgment rejecting Avila-Barraza’s

claim that she is an innocent owner of the funds sought to be forfeited. Cf. United

States v. Tracts 10 & 11 of Lakeview Heights, 51 F.3d 117, 121 (8th Cir. 1995)

(rejecting claim of ownership interest because claimant did not prove the elements of

a constructive trust under Wisconsin law). 

C. There remains one loose end. Affirming the district court’s conclusion that

Avila-Barraza lacked standing to file a claim in the forfeiture proceeding because she

failed to prove she was an innocent owner would end the appeal. But we conclude

that Avila-Barraza did have standing, and in particular, standing to contest the

government’s claim that the funds are drug trafficking proceeds subject to civil

forfeiture. The district court wisely did not ignore this issue. Noting the government

has the burden to prove that property is subject to forfeiture, the court explained:

[Avila-Barraza] does not dispute that the government has met its burden,

and the illegal source of the property at issue is supported by ample

evidence in the record. Therefore, the claimant is deemed to have

conceded the forfeitable nature of the property, and summary judgment

is appropriate for her failure to meet her burden of proof as to innocent

ownership. 

On appeal, neither Avila-Barraza nor LaOstriches challenges this conclusion, and

neither argues that summary judgment was improperly granted on this issue. 

Accordingly, the issue is waived on appeal.

For the foregoing reasons, the judgment of the district court is affirmed.

______________________________

-11-

Appellate Case: 15-1743 Page: 11 Date Filed: 06/06/2016 Entry ID: 4407750