Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-03055/USCOURTS-cand-4_04-cv-03055-3/pdf.json

Nature of Suit Code: 625
Nature of Suit: Drug Related Seizure of Property
Cause of Action: 21:881 Forfeiture Property-Drugs

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United States District Court

For the Northern District of California

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UNITED STATES OF AMERICA, )

)

 )

)

 v. ) C—04-3055 DLJ

) CR-04-40127-DLJ (related case)

THOMAS GROSSI,LAURETTA WEIMER )

and ALBERT B. DEL MASSO )

 )

In the matter of $608,916.58 ) ORDER

IN U.S. CURRENCY, AS SUBSTITUTE )

RES FOR REAL PROPERTY LOCATED AT )

2638 MARKET STREET, OAKLAND, )

CALIFORNIA )

_____________________________ )

 In 2004, Thomas Grossi was the owner of a warehouse located at

2638 Market Street, Oakland. This property was found to be the

site of a large scale indoor marijuana grow. Grossi was convicted

of offenses related to the property, and the property has now been

forfeited. Following seizure the property had been sold and the

proceeds are now held subject to appropriate distribution orders by

the Court. 

I. Background

On June 8, 2007 the Court held a hearing to determine

Petitioner Lauretta Weimer’s legal interest in the forfeited

property. Following the hearing, the Court ordered that the

forfeiture should not apply to a $100,000 loan made by Weimer to

her brother, the Defendant Grossi. The Court found that this money

had been used by the defendant to purchase the Market Street

property. In making that determination, the Court relied in part

on a promissory note executed by Grossi in favor of Weimer which

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United States District Court

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reflected the terms of the loan. The terms of the promissory note

called for repayment in full on or before November 30, 2006. At

the June 8, 2007 hearing the Court did not have before it any

evidence regarding possible repayment of the loan. Consequently,

the Court deferred deciding on the amount of payment due back from

the Government to Weimer, and ordered that Grossi file with the

Court evidence on any payments made by Grossi on the loan, both as

to interest and to principal. 

On June 13, 2007, in response to the Court’s order, a “Notice

of Payments on Lauretta Weimer Loan re: Preliminary Order of

Forfeiture” was filed with the Court. This document states in part

that “[f]rom the date 1 January 2004 . . . to 4 June 2004 .. .five

monthly payment of $3,133.64 were made, of which total amount

approximately $3335.00 represented interest . . . and $12,333.20

represented principal” leaving an amount of unpaid principal of

$87,666.80. See Notice of Payments on Lauretta Weimer Loan dated

June 13, 2007 at Par. 1. This filing also states that,

“[s]ubsequent to 4 June 2004, Grossi continued sending funds to his

sister, Lauretta Weimer, until an amount equal to his obligation to

her under the promissory note had been paid over.” 

As this document is signed by Attorney David Michael as

counsel for Lauretta Weimer, by its order of June 27, 2007 the

Court informed the parties that it would proceed on the assumption

that Weimer shared in the above interpretation of the status of the

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promissory note and that it would rule in accordance with that

assumption. The Court further stated that “[i]f for any reason,

the Court’s interpretation of the June 13, 2007 filing is

incorrect” the parties had 10 days from the date of the order to

clarify Weimer’s position on the status of the repayment.

On July 9, 2007 counsel Michael filed a document entitled

“Petitioner Lauretta Weimer’s Supplemental Memorandum re

Modification and Clarification of Preliminary Order of Forfeiture.” 

Despite its title, the memorandum does not, as specifically

requested by this Court, address Weimer’s position directly. In

part this filing argues that “denying Petitioner any part of her

$100,000" would be an excessive fine against Grossi. 

This document also argues that “there really no longer exists

a promissory note and deed of trust related to Petitioner Weimer

for which any subsequent payments may have been made” because of

the sale of the property and that “[a]ny monies paid by Thomas

Grossi to his sister, Lauretta Weimer, were not made pursuant to

the promissory note.” Counsel cites no factual basis or legal

authority for this position. Moreover, this language appears to

contradict the filing of June 13, 2007, which stated that Grossi

continued sending funds to his sister, Lauretta Weimer, “until an

amount equal to his obligation to her under the promissory note had

been paid over.” See Notice of Payments on Lauretta Weimer Loan re:

Preliminary Order of Forfeiture, filed June 13, 2007, (emphasis

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United States District Court

For the Northern District of California

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added). 

Because of the uncertainty remaining after these pleadings,

the Court ordered counsel to provide more information regarding the

payments. In response to the Court’s Order, on July 30, 2007,

petitioner filed a Supplemental Memorandum. This Memorandum, along

with a Second Supplemental Memorandum filed on July 31, 2007,

demonstrate that for the 35 month period from February 1, 2004

through December 1, 2006, Grossi made monthly payments on the note

in the amount of $3,133.64 to Weimer. This total payment of

$109,677.40 pays off the note in full.

II. Legal Standard

 Third party rights under forfeiture proceedings are governed

by Federal Rule of Criminal Procedure 32.2. Rule 32.2(b) provides

in pertinent part: 

(c) Ancillary Proceeding; Entering a Final Order of Forfeiture.

(1) In General. If, as prescribed by statute, a third party files a

petition asserting an interest in the property to be forfeited, the

court must conduct an ancillary proceeding . . ..

(2) Entering a Final Order. When the ancillary

proceeding ends, the court must enter a final order of

forfeiture by amending the preliminary order as

necessary to account for any third-party rights.

III. ARGUMENT

The situation facing the Court appears to be rather unique. 

Neither party has cited to the Court, nor is the Court aware of,

any reported case which addresses the situation here where the

third party’s interest in the forfeited property is in the form of

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 The plea agreement in this case lists the relevant time

period as January 2004 until June 30, 2004.

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a loan, and while the loan was outstanding in part at the time the

unlawful activity occurred, now at the conclusion of the forfeiture

proceedings the loan has been fully repaid. Two issues face the

Court. The first issue is what payment, if any, is now due to

Weimer. The second issue is as to what distribution should be made

of the proceeds if there is no payment to Weimer.

In order to determine what payment is now due to Weimer,

petitioner encourages the Court to focus on the language of 21 USC

§853(n)(6). This section states in pertinent part that the court

should look at the “interest of the defendant at the time of the

commission of the acts which gave rise to the forfeiture of the

property under this section” and that the “the court shall amend

the order of forfeiture in accordance with its determination.” 

21 USC §853(n)(6). (emphasis added)

Weimer argues that her right to payment became fixed “at the

time of the commission of the acts”1

 and that no matter what

subsequent payments Grossi made on the loan, Weimer’s right to

payment accrued at that time. Weimer asserts that to assess the

situation any differently would mean a double recovery for the

Government.

In support of his argument, Weimer cites to United States v.

BCCI Holdings (Luxembourg) S.A., 46 F.3d 1185, 1190 (D.C. Cir.

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1995), cert. denied sub nom. Chawla v. United States, 515 U.S. 1160

(1995). In BCCI, a RICO case, third parties were given the 

opportunity to challenge a forfeiture order. In order to do so

they needed to demonstrate that they had a legal interest in

property which had been ordered forfeited. 18 U.S.C. § 1963(l)(2).

Two of the petitions at issue were filed by persons claiming to

represent a class of worldwide depositors in BCCI. The “class

petitioners” argued that they were the beneficiaries of a

constructive trust. The District Court rejected the constructive

trust without granting petitioners an evidentiary hearing, and

petitioners appealed. 

On review, the Circuit Court reiterated that “a third party's

claim is to be measured not as it might appear at the time of

litigation, but rather as it existed at the time the illegal acts

were committed.” While the Court’s rationale in the BCCI case for

focusing on this language was to protect the government, it does

not change the fact that the language of the statute is mandatory. 

Moreover, the government can point to no case where actions taken

subsequent to the forfeiture changed an innocent third party’s

right to recovery. Based on the language of the statute, the Court

finds that Weimer’s right to recovery was fixed at the time of the

illegal acts. In June of 2004, the latest date of the illegal

acts, Grossi had repaid $12,333.20 in principal on the promissory

note leaving an amount of unpaid principal of $87,666.80. From that

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point in time forward, the government was in possession of

forfeited property belonging in part to Weimer with a value of

Weimer’s portion of $87,666.80. Once the Court officially

determined at the June 8, 2007 hearing that Weimer had a valid

interest as a third party in the Market Street property, the

government’s payment obligation to Weimer was formally confirmed. 

The next issue facing the Court is what is the effect of

Grossi’s continued payments under the promissory note after the

date of the forfeiture and how does that affect the government’s

payment obligation. From the date of the forfeiture forward,

Grossi continued making payments to Weimer on an obligation which

was in fact an obligation of the government. In effect Grossi’s

payments created an equitable subrogation of the government’s

obligation, a theory which is recognized by California law and

which has been adopted in the Ninth Circuit. See e.g., Kenney v.

U.S., 458 F.3d 1025 (9th Cir. 2006). By undertaking to pay a

debtor's obligation to a creditor, the subrogee is equitably

subrogated to the position of the creditor and succeeds to the

creditor's rights against the debtor. See also Reliance Nat'l

Indem. Co. v. General Star Indem. Co., 72 Cal.App.4th 1063, 85

Cal.Rptr.2d 627, 635 (1999). Applying the theory of equitable

subrogation allows the Court to fashion a remedy which makes sense

in this case. If Grossi had never paid another cent to Weimer

after the time of the seizure, there is no question that the

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obligation to pay the outstanding amount would fall to the

government. While it is clear that the government was obligated to

pay Weimer the value of her loan minus pre-seizure payments on the

loan by Grossi, if the government were currently to repay Weimer

that amount, she would receive a double recovery as she has now

been paid the entirety of the outstanding loan. The Court does not

believe that such a windfall is required by applicable forfeiture

law and declines to order such a payment.

The question remaining is should the proceeds from the

forfeited property be partially paid to Grossi or retained by the

Government? If the proceeds are retained, the effect is that

Grossi has paid the loan twice and that the government is allowed

to keep the money it was obligated to pay the third party claimant

Weimer. This means that the government will receive a full

forfeiture of all of Grossi’s interest in the Market Street

property and will also receive additional funds of Grossi

independently paid by him to his sister to satisfy his debt to her.

Under these circumstances it appears to the Court that equity

requires that the government distribute to Grossi the funds which

he paid to Weimer which otherwise would have been paid by the

government to Weimer. The theory of equitable subrogation permits

this result. In re Johnson's Estate, 240 Cal.App.2d 742, 50

Cal.Rptr. 147, 149 (1966) (internal quotation omitted)(equitable

subrogation “is not a fixed and inflexible rule” and its

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development is “the natural consequence of a call for the

application of justice and equity to particular situations.”)

Based on the foregoing, the Court finds that the amount

forfeited by Grossi on the Market Street property should be reduced

by $87,666.80, which amount represent’s the government’s obligation

to Weimer as repaid by Grossi. This amount should be paid to him

from the forfeiture proceeds now held by the Court along with

interest at the statutory rate.

IT IS SO ORDERED

Dated: August __________, 2007 _______________________

D. Lowell Jensen

United States District Judge

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