Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-00461/USCOURTS-caed-2_09-cv-00461-9/pdf.json

Nature of Suit Code: 690
Nature of Suit: Other Forfeiture and Penalty Suits
Cause of Action: 28:1345 Complaint for Forfeiture

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

UNITED STATES OF AMERICA,

2:09-cv-0461 FCD KJM

Plaintiff,

v. MEMORANDUM AND ORDER

APPROXIMATELY $133,803.53 IN

U.S. CURRENCY SEIZED FROM

WASHINGTON MUTUAL BANK, N.A.,

ACCOUNT #4420842802, HELD IN THE

NAME OF ADVANTAGE FINANCIAL

GROUP HOLDINGS MANAGEMENT LLC,

and

APPROXIMATELY $328,495.75 IN

U.S. CURRENCY SEIZED FROM

WASHINGTON MUTUAL BANK, N.A.,

ACCOUNT #4412174338, HELD IN THE

NAME OF LOOMIS WEALTH SOLUTIONS

LLC,

Defendants.

_______________________________/

----oo0oo----

This matter is before the court on claimant Flagstar Bank’s

(“claimant” or “Flagstar”) motion for judgment on the pleadings

pursuant to Federal Rule of Civil Procedure 12(c) as to

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1 Claimant clarified in its reply that it seeks only to

recover this amount, which reflects the money traceable from

Flagstar to the Loomis Wealth Solutions LLC account. (Claimant’s

Reply, filed Feb. 5, 2010, at 1.)

2 Because oral argument will not be of material

assistance, the court orders the matter submitted on the briefs.

E.D. Cal. L. R. 230(g).

2

$320,697.50 of defendant $328,495.75 in U.S. Currency.1

Plaintiff United States of America (“plaintiff” or the

“government”) opposes the motion and filed a motion to strike the

claim and answer of claimant pursuant to Supplemental Rule G(8)

of the Supplemental Rules fo Admiralty, Maritime Claims, and

Asset Forfeiture Actions (“Supplemental Rules”). For the reasons

set forth below,2 claimant’s motion for judgment on the pleadings

is DENIED, and plaintiff’s motion to strike Flagstar’s Claim and

Answer is GRANTED. 

BACKGROUND

The government filed this action for forfeiture in rem on

February 17, 2009. (Verified Compl. (“Compl.”, filed Feb. 17,

2009.) The funds at issue were seized on or about August 27,

2008, pursuant to valid search warrants. (Decl. of Kathleen

Nicolls in Supp. of Compl (“Nicolls Decl.”), Ex. A to Compl.,

filed Feb. 17, 2009, ¶ 4.) The government believes that they are

traceable to violations of federal law arising out of loan and

credit fraud, identification documents fraud, wire fraud, bank

fraud, money laundering, and illegal monetary transactions. (Id.

¶¶ 6-7.) Specifically, the funds are described as:

(1) approximately $133,803.53 in U.S. Currency seized from

Washington Mutual Bank, N.A., Account #4420842802, held

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in the name of Advantage Financial Group Holdings

Management LLC, and

(2) approximately $328,495.75 in U.S. Currency seized from

Washington Mutual Bank, N.A., Account #4412174338, held

in the name of Loomis Wealth Solutions LLC (the “LWS

Account”).

The government alleges that since at least 2006, directors

of Loomis Wealth Solutions (“LWS”), Nationwide Lending Group, the

NARAS Secured Fund #2 LLC, and/or related entities, ran a large,

multi-tiered Ponzi investment scheme, involving securities fraud

and real estate mortgage fraud. (Id. ¶ 13.) Straw buyers, also

known as nominee-investors, were used to purchase the properties. 

(Id. ¶ 14.) They were told that the purchases were investments

on which they would receive a handsome return while LWS made the

mortgage, tax and insurance payments. However, LWS stopped

making payments by spring of 2008. By August 2008, LWS informed

investors that they would have to pay their own life insurance

payments and cover all the mortgage, tax, and insurance payments

coming due on their respective properties, or that their loans

would go into default. Ultimately, many loans went into default. 

(Id.) The alleged fraudulent activities span six states and

involve approximately 500 properties; losses are estimated at

approximately $100 million. (Id. ¶ 13.) 

In or around August 2008, Excel Funding (“Excel”), an

independent mortgage company, authorized the funding of certain

loans and released those loan funds for real property purchase

transactions. (Id. ¶¶ 52-54.) The loan funds were obtained by

Excel through a line of credit with Flagstar. (Id.) The funds

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were wired from Flagstar to Contemporary Solutions-USA, Inc.

(“Contemporary”), an entity used as a title company. (Id. ¶¶

53-54.) Contemporary, in turn, wired the funds it received to

Lender Services Direct (“LSD”). Subsequently, LSD wired the

funds it received from Contemporary into the LWS Account in the

total amount of $320,697.50. (Id. ¶¶ 52-54, 65-66.) Loomis and

others falsified documents and committed other breaches in order

to create the appearance that the real estate transactions had

properly closed escrow. (Id. ¶ 54.) Because the documents

appeared to reflect a proper closing, Excel authorized and

released loan funds for the real property transactions. (Id.) 

Flagstar claims that is the beneficiary of a constructive

trust in the defendant currency as a victim of the alleged fraud.

(Verified Claim (“Claim”), filed Apr. 22, 2009, at 2.) 

Specifically, Flagstar contends that it maintains an ownership

interest in the currency “which the perpetrator of the fraud

wrongfully obtained and the United States Government acquired.” 

(Id.) 

STANDARD

A. Supplemental Rule G

Supplemental Rule G provides that “[a]t any time before

trial, the government may move to strike a claim or answer . . .

because the claimant lacks standing.” Supplemental Rule

G(c)(i)(B). A claimant in a forfeiture proceeding bears the

burden of showing, as a threshold matter, that he owns or has an

interest in the property sought to be forfeited. United States

v. $20,193.39 in U.S. Currency, 16 F.3d 344, 346 (9th Cir. 1994). 

While state law determines whether a claimant has a property

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interest, federal law determines whether or not that interest can

be forfeited. Hooper, 229 F.3d at 820. See United States v.

Hooper, 229 F.3d 818, 820 (9th Cir. 2000) (citing United States

v. Lester, 85 F.3d 1409, 1412 (9th Cir. 1996)); see also United

States v. Alcaraz-Garcia, 79 F.3d 769, 774 (9th Cir. 1996).

B. Rule 12(c)

Federal Rule of Civil Procedure 12(c) provides that a party

may move for judgment on the pleadings after the pleadings are

closed. The standard governing a Rule 12(c) motion for judgment

on the pleadings is basically the same as that which governs Rule

12(b) motions. See Hal Roach Studios v. Richard Feiner & Co.,

Inc., 896 F.2d 1542, 1550 (9th Cir. 1989). 

Under Federal Rule of Civil Procedure 8(a), a pleading must

contain “a short and plain statement of the claim showing that

the pleader is entitled to relief.” See Ashcroft v. Iqbal, 129

S. Ct. 1937, 1949 (2009). On a motion to dismiss, the factual

allegations of the complaint must be accepted as true. Cruz v.

Beto, 405 U.S. 319, 322 (1972). The court is bound to give

plaintiff the benefit of every reasonable inference to be drawn

from the “well-pleaded” allegations of the complaint. Retail

Clerks Int’l Ass’n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). 

A plaintiff need not allege “‘specific facts’ beyond those

necessary to state his claim and the grounds showing entitlement

to relief.” Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007). 

“A claim has facial plausibility when the plaintiff pleads

factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct

alleged.” Iqbal, 129 S. Ct. at 1949. 

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Nevertheless, the court “need not assume the truth of legal

conclusions cast in the form of factual allegations.” United

States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th

Cir. 1986). While Rule 8(a) does not require detailed factual

allegations, “it demands more than an unadorned, the defendantunlawfully-harmed-me accusation.” Iqbal, 129 S. Ct. at 1949. A

pleading is insufficient if it offers mere “labels and

conclusions” or “a formulaic recitation of the elements of a

cause of action.” Twombly, 550 U.S. at 555; Iqbal, 129 S. Ct. at

1950 (“Threadbare recitals of the elements of a cause of action,

supported by mere conclusory statements, do not suffice.”). 

Moreover, it is inappropriate to assume that the plaintiff “can

prove facts which it has not alleged or that the defendants have

violated the . . . laws in ways that have not been alleged.” 

Associated Gen. Contractors of Cal., Inc. v. Cal. State Council

of Carpenters, 459 U.S. 519, 526 (1983). 

In ruling upon a 12(c) motion, the court may consider only

the pleadings, any exhibits thereto, and matters which may be

judicially noticed pursuant to Federal Rule of Evidence 201. See

Hal Roach Studios, Inc., 896 F.2d at 1550; Mir v. Little Co. Of

Mary Hospital, 844 F.2d 646, 649 (9th Cir. 1988); Isuzu Motors

Ltd. v. Consumers Union of United States, Inc., 12 F. Supp. 2d

1035, 1042 (C.D. Cal. 1998). 

ANALYSIS

Through its motion, claimant Flagstar seeks an order

granting Flagstar’s claim to approximately $328,495.75 and

dismissing the forfeiture against this defendant. The government

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3 Because the court concludes that the issue of

prudential standing is dispositive, it does not reach the merits

of the parties’ arguments relating to Article III or statutory

standing. Tenet v. Doe, 544 U.S. 1, 6 n.4 (noting that

prudential standing represents the sort of “threshold question”

that may be resolved before addressing jurisdiction); see Steel

Co. v. Citizens for a Better Env’t, 523 U.S. 83, 100 n.3 (1998). 

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asserts that Flagstar lacks standing, and as such, claimant’s

motion should be denied and its claim and answer stricken.3

“In every federal case, the party bringing the suit must

establish standing to prosecute the action.” Elk Grove Unified

Sch. Dist. v. Newdow, 542 U.S. 1, 11 (2004). The standing

doctrine establishes “whether the litigant is entitled to have

the court decide the merits of the dispute or of particular

issues.” United States v. Lazarenko, 476 F.3d 642, 649 (9th Cir.

2007) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). 

Standing jurisprudence is comprised of two strands: “Article III

standing, which enforces the Constitution’s case-or-controversy

requirement; and prudential standing, which embodies judicially

self-imposed limits on the exercise of jurisdiction.” Newdow,

542 U.S. at 11 (internal quotations and citations omitted). 

Prudential standing encompasses, inter alia, “the

requirement that a plaintiff’s complaint fall within the zone of

interests protected by the law invoked.” Lazarenko, 476 F.3d at

650. “[T]he breadth of the zone of interests varies according to

the provisions of law at issue.” Bennett v. Spear, 520 U.S. 154,

163 (1997). “Congress legislates against the background of [the]

prudential standing doctrine, which applies unless it is

expressly negated.” Id.

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18 U.S.C. § 981(a) provides that any property, real or

personal, involved in money laundering or derived from loan,

document, mail, wire, or bank fraud is subject to civil

forfeiture to the United States. In April 2000, Congress amended

18 U.S.C. § 981 to provide that forfeited assets could be

restored to crime victims of the offense giving rise to

forfeiture. See 18 U.S.C. § 981(e)(6) (“[T]he Attorney General .

. . is authorized to retain property forfeited pursuant to this

section, or to transfer such property on such terms and

conditions as he may determine as restoration to any victim of

the offense giving rise to forfeiture.”). In adopting this

forfeiture/victim remission model, Congress granted the Attorney

General sole discretion to address claims by victims through a

remissions process that occurs after the successful prosecution

of the forfeiture case. See 18 U.S.C. § 981(d) (“The Attorney

General shall have sole responsibility for disposing of petitions

for remissions or mitigation with respect to property involved in

a judicial forfeiture proceeding.”). Federal regulations provide

guidance on who may file a petition with the Attorney General and

the procedure for filing. 28 C.F.R. 9.4. These regulations also

set forth the criteria considered in the exercise of the Attorney

General’s discretion, 28 C.F.R. § 9.5, and specific rules for a

variety of specific petitioners, including crime victims “who do

not have a present ownership interest in the forfeited property.” 

28 C.F.R. §§ 9.6-9.8. 

Congress’s creation of a remission process for crime victims

and explicit delegation of responsibility to the Attorney General

over petitions filed pursuant to that process, combined with the

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absence of statutory language negating the application of the

prudential standing doctrine to potential claims of victims,

compels the conclusion that the claimant in this case lacks

prudential standing. United States v. Real Property Located at

730 Glen-Mady Way (“Glen-Mady”), 590 F. Supp. 2d 1295, 1303 (E.D.

Cal. 2008) (holding that victims/investors in a fraudulent scheme

lacked prudential standing to file a claim in a civil forfeiture

action under § 981); see United States v. Wilson, 640 F. Supp. 2d

1257, 1262 (E.D. Cal. 2009) (holding that victims/investors in a

fraudulent scheme lacked prudential standing to file a claim in

criminal forfeiture action). Claimant Flagstar’s interest is not

within the zone of interest Congress intended to protect within

this civil forfeiture proceeding. To decide otherwise would

convert this forfeiture case into a trust administration

proceeding and “shun the procedures Congress deliberately enacted

to vindicate third-party claims.” Lazarenko, 476 F.3d at 652;

Glen-Mady, 590 F. Supp. 2d at 1303; Wilson, 640 F. Supp. 2d at

1262; see United States v. Bright, 353 F.3d 1114, 1124 (9th Cir.

2004) (holding that requiring district courts to attempt to apply

forfeited funds would conflict with the grant of discretion §

981(e) expressly and specifically gives to executive actors);

United States v. Schwimmer, 968 F.2d 1570, 1584 (2d Cir. 1992)

(referring to similar RICO criminal forfeiture provisions as “a

statute that states that the Attorney General, and not the

judiciary, shall make decisions about how to divide up the funds

in order to compensate victims. . . . Because Congress has chosen

to allocate to the Attorney General the power to remit funds for

victim compensation, it is inappropriate in the context of this

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4 Moreover, if the defendant is convicted of an offense

giving rise to restitution in the parallel criminal case, such a

trust administration proceeding would overlap with the court’s

determinations under the Mandatory Victim Restitution Act. See

18 U.S.C. §§ 3663A, 3664.

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case to relax conceptions of property rights in order to permit

courts to compensate victims”); United States v. BCCI Holdings,

46 F.3d 1185, 1191-92 (D.C. Cir. 1995) (declining to recognize

claim of general creditor, because “[w]ere it otherwise, the

court litigating the forfeiture issue would be converted into a

bankruptcy court,” which “appears patently at odds with the

statutory scheme, which directs parties without an interest in

specific property to seek relief from the Attorney General, not

the court adjudging the forfeiture”).

Further, the conversion of this action into trust

administration proceeding is neither necessary to protect the

individual rights of victim/investors nor judicially efficient. 

Doran v. 7-Eleven, Inc., 524 F.3d 1034, 1046 (9th Cir. 2008)

(recognizing that concerns of judicial economy properly affect

the resolution of prudential standing issues); Glen-Mady, 590 F.

Supp. 2d at 1304. The individual rights of victims to

restitution already are protected through the remission process

set forth by Congress in the civil forfeiture statute. See 18

U.S.C. § 981(e); 28 C.F.R. § 9.8. A trust administration

proceeding would effectively duplicate this process. See 28

C.F.R. § 9; Glen-Mady, 590 F. Supp. 2d at 1304.4

Claimant disagrees, arguing that the Ninth Circuit’s

decision in United States v. $4,224,958.57 (“Boylan”), 392 F.3d

1002, 1004 (9th Cir. 2004), provides that the court, not the

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executive, should adjudicate the claims of fraud victims. 

Claimant interprets the holding in Boylan too broadly. In

Boylan, an individual named Sexton persuaded seventy-eight

individuals to send him money to invest, which he subsequently

used in his wire fraud and money laundering schemes that resulted

in various bank accounts in Liechenstein. Id. at 1003. After

the government of Liechtenstein repatriated approximately $4.25

million of these funds to the United States, the government filed

a civil forfeiture action against these funds and obtained a

default judgment without noticing the victims of Sexton’s scheme. 

Id. Subsequently, twenty-five of the seventy-eight victims came

forward and filed claims. Id. at 1004. The district court

rejected the claims, holding that the victims were

unsecured creditors and therefore lacked Article III standing to

contest the civil forfeiture. Id. The Ninth Circuit reversed,

holding that if victims can prove they were defrauded, they are

the beneficiaries of a constructive trust under California law

and have Article III standing to enter the forfeiture case

itself. Id. at 1005. On remand the court of appeals instructed

the district court to convert the forfeiture action into

something akin to a bankruptcy proceeding, “giving notice to all

potential claimants and taking steps to assure that no claimant

obtains more than his or her fair share.” Id. 

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5 Claimant erroneously asserts that arguments relating to

the overlap between the court’s administration of the

constructive trust and the Attorney General’s remission process

“had been raised and rejected in Boylan.” (Claimant’s Mot.,

filed Nov. 23, 2009, at 9) (emphasis in original). There is no

mention of the Attorney General’s remission process or 18 U.S.C.

§ 981(d)-(e) in Boylan. 

6 The court also notes that the Boylan court failed to

discuss whether the petitioners’ interests were entitled to

preference over the government under 21 U.S.C. § 853(n). The

court need not resolve this issue in light of its conclusion

regarding prudential standing.

12

However, contrary to defendant’s assertion,5 the Boylan

court neither acknowledged nor addressed the prudential strand of

the standing doctrine.6 Thus, even if the Boylan decision

establishes that claimant Flagstar has Article III standing, it

does not preclude this court from reaching a different conclusion

under the doctrine of prudential standing. Glen-Mady, 590 F.

Supp. 2d at 1302; see Gonzales v. Department of Homeland

Security, 508 F.3d 1227, 1235 (9th Cir. 2007) (“issues that are

not raised or discussed are unstated assumptions on non-litigated

issues [and] are not precedential holdings binding further

decisions”); see also Fulfillment Serv. Inc. v. United Parcel

Serv., 528 F.3d 614 (9th Cir. 2008) (prudential standing

addresses concerns apart from Article III standing). 

Alternatively, claimant asserts that because it is the

beneficiary of a constructive trust, it is an innocent owner,

which Congress expressly excluded from the remissions process

under 18 U.S.C. § 983(d). Section 983(d) provides that “[a]n

innocent owner’s interest in property shall not be forfeited

under any civil forfeiture status.” 18 U.S.C. § 983(d)(1). 

“[T]he term owner means a person with an ownership interest in

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the specific property sought to be forfeited, including a

leasehold, lien, mortgage, recorded security interest, or valid

assignment of an ownership interest.” 18 U.S.C. § 983(d)(6)(A). 

However, the statute expressly excludes “a person with only a

general unsecured interest in, or claim against, the property or

estate of another” and “a nominee who exercises no dominion or

control over the property.” 18 U.S.C. § 983(d)(6)(A). 

However, crime victims are notably not referenced in the

definition of an innocent owner. Similarly, the term “owner”

does not include reference to beneficiaries of a constructive

trust. See BCCI Holdings, 46 F.3d at 1190-91 (holding that the

owners of a constructive trust did not have a right superior to

the government’s RICO forfeiture claim because consideration of a

constructive trust would be inconsistent with the statutory

remedial scheme); U.S. v. BCCI Holdings (Luxembourg), S.A., 69 F.

Supp. 2d 36, 58-59 (D.D.C. 1999) (holding that under relevant

state law, one who voluntarily transfers property is no longer

the owner, and the ability to trace it to transferee’s assets is

irrelevant); see also Hooper, 229 F.3d at 821 (holding that the

owner of a community property interest did not have a right

superior to the government’s criminal forfeiture claim because a

finding of superiority would be inconsistent with the statutory

remedial scheme even though such interpretation “leads inevitably

to the conclusion that [the section] is likely never to apply to

proceeds of the crime”). As such, under the allegations set

forth by the parties in this case, § 983(d) does not expressly

preclude application of the prudential standing doctrine because

claimant is the beneficiary of a constructive trust.

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Accordingly, the court concludes that claimant Flagstar

fails to satisfy the prudential components of standing. 

CONCLUSION

Therefore, for the foregoing reasons, claimant’s motion for

judgment on the pleadings is DENIED, and plaintiff’s motion to

strike claimant’s claim and answer is GRANTED. 

IT IS SO ORDERED.

DATED: February 9, 2010 

 

 

FRANK C. DAMRELL, JR.

UNITED STATES DISTRICT JUDGE

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