IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

__________________________________

UNITED STATES OF AMERICA, *

 *

v. * Criminal No. 3:04-CR-289-H

*

JAMES DEMIK *

MEMORANDUM OPINION AND ORDER 

Before the Court are the United States’ Motion and Brief for Issuance of a Final Order of

Forfeiture, filed August 26, 2005; Defendant’ James DeMik’s Response, filed September 9, 2005;

the Government’s Agreed Motion to Stay Consideration of Forfeiture, filed September 23, 2005; and

the Court’s Order granting stay until after sentencing, filed September 26, 2005. 

For the reasons that follow, the Government’s motion for issuance of final order of forfeiture

is granted in part and denied in part.

I. BACKGROUND

On August 25, 2004, an Indictment was returned in this case, charging Defendant James

DeMik with bank fraud and money laundering. The underlying transaction involved fraudulently

obtaining and laundering proceeds from loans guaranteed by the Small Business Association to

purchase convenience stores. Count Eleven of the Indictment sought forfeiture of a sum of money

equal to $9,975,000 and of any property, real or personal, involved in the bank fraud. Count Eleven

also sought forfeiture of any property, real or personal, involved in the money laundering offenses,

or any property traceable to such property, in specified additional amounts.

On March 4, 2005, a jury found DeMik guilty on all counts of bank fraud and money

laundering. The jury further found by special verdict that the forfeiture amount in Count Two (bank

fraud) was $9,975,000; in Count Three (money laundering) was $600,000; and in Count 4 (money

 

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laundering) was $1,184,957.84. On all other counts, the jury returned special verdicts finding

forfeiture amounts to be nil. Defendant was sentenced on October 13, 2005. In the motion before

the Court, filed prior to sentencing, the Government seeks a Final Order of Forfeiture in the form

of a personal money judgment for $11,219,957.84, the sum of all the special verdicts. Following

entry of the personal money judgment, the Government expressly reserves the right to pursue

substitute assets in the form of real or personal property to fulfill that judgment.

Defendant opposes the proposed order of final forfeiture on the following primary grounds:

(1) that the total amount represents “double counting” of the same money involved in the bank fraud

and in the money laundering; (2) that the amount should be offset by the victim bank’s recovery of

money through foreclosure sale of some of the property purchased with the fraudulently obtained

funds; (3) that because Defendant’s commission of $30,000 constitutes his sole profit from this

enterprise, the forfeiture amount is an excessive fine banned by the Eighth Amendment; and (4) that

the proposed forfeiture ignores the property rights of Defendant’s spouse and provides her with no

recourse to protect them. For the reasons that follow, the Court agrees with Defendant’s first point,

clarifies Defendant’s final point, and disagrees on the others.

II. ANALYSIS

Under federal law, all proceeds obtained from unlawful conduct, and property traceable to

those proceeds, are subject to criminal forfeiture. United States v. Betancourt, 422 F.3d 240, 250

(5th Cir. 2005). Entry of a final order of forfeiture in the form of a personal money judgment is

authorized by Federal Rule of Criminal Procedure 32.2. See United States v. Baker, 227 F.3d 955,

970 (7th Cir. 2000), cert. denied, 531 U.S. 1151 (2001); United States v. Candelaria-Silva, 166 F.3d

19, 42 (1st Cir. 1999), cert. denied, 529 U.S. 1055 (2000). Under Rule 32.2(b), the Court determines

the forfeiture dollar amount from the record or, if forfeiture is opposed, from information presented

 

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by the parties at a hearing after the verdict or finding of guilt. FED.R.CRIM. P. 32.2(b). In this case,

Defendant cannot dispute that the Government is entitled to a money judgment forfeiture. The only

issue is in what amount.

A. Double Counting

Defendant’s first argument against entry of the Government’s proposed final order of

forfeiture is that the amount requested represents impermissible double-counting. The Court agrees.

Under the theory of statutory criminal forfeiture, a defendant is required to disgorge his or

her gain from the criminal enterprise. See United States v. Swanson, 394 F.3d 520, 528 (7th Cir.

2005). In this case, the same “gain” derived from the bank fraud was subsequently laundered. To

order forfeiture of a monetary amount in the sum of the two offenses is to count the same gain

twice. See United States v. Genova, 333 F.3d 750, 762 (7th Cir. 2003) (disallowing double counting

of proceeds in a forfeiture action). To the extent the Government’s motion so requests, it is denied.

B. Offset

Defendant next argues that the forfeiture amount should be offset by the victim bank’s

recovery of money through foreclosure sale of some of the properties involved. Unlike

restitutionary statutes, however, forfeiture statutes make no provision for set-off by reason of the

victim's recovery. United States v. Pelullo, 961 F. Supp. 736, 961 (D.N.J. 1997), aff’d, 185 F.3d 863

(3rd Cir. 1999), cert. denied, 528 U.S. 1096 (2000); see also Swanson, 394 F.3d at 528 (contrasting

forfeiture with restitution); St. Paul Fire & Marine Ins. Co. v. Genova, 172 F. Supp. 2d 1001, 1006

(N.D. Ill. 2001) (comparing restitution and forfeiture statutes under RICO). Accordingly, the Court

overrules Defendant’s request for an equitable reduction of the forfeiture amount.

C. Eighth Amendment

 

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Similarly unavailing is Defendant’s argument that the forfeiture amount is an impermissible

fine. The Eighth Amendment to the United States Constitution prohibits the government from

collecting excessive fines. United States v. Bajakajian, 524 U.S. 321, 327 (1998). As the Fifth

Circuit has recently reiterated, forfeiture of the proceeds of criminal activity is a separate and distinct

concept from punishment by fine. See United States v. Betancourt, 422 F.3d 240, 250 (5th Cir.

2005). The Eighth Amendment’s proscription therefore does not serve to limit the amount the

Government can recover here.

Defendant’s reliance on the decision in United States v. Bajakajian to support his argument

is misplaced. See 524 U.S. 321 (1998). In that case, forfeiture of approximately $350,000 in cash

was held to be unconstitutionally excessive in light of the relative gravity of the currency-reporting

crime involved. Id. at 324. The Bajakajian defendant failed to report, in violation of federal law,

that he was taking more than $10,000 in currency outside the country. The Court reasoned that,

unlike the unreported export of currency involved in money laundering or drug trafficking, the

money in Bajakajian was legally obtained, and the sole offense was the failure to report it.

Accordingly, forfeiture of the unreported money was held to be punitive in nature and thus a “fine”

subject to the limitations of the Eighth Amendment. Id. at 344.

Unlike the “innocent” money in Bajakajian, however, the funds in this case were gained in

the commission of the precise felony the underlying statute was designed to prohibit. See

Betancourt, 422 F.3d at 250 n. 5 (distinguishing Bajakajian on grounds that it did not involve

proceeds of drug trafficking); cf. Bajakajian, 524 U.S. at 339 (“Whatever his other vices, respondent

does not fit into the class of persons for whom the statute was principally designed.”). Under

Betancourt and this Circuit’s controlling law, the forfeiture here is not a fine. See Betancourt, 422

F.3d at 249-50. Defendant’s objection on Eighth Amendment grounds is therefore overruled.

 

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D. Ancillary Proceedings

Finally, Defendant argues that the proposed forfeiture by personal money judgment ignores

the property rights of Defendant’s spouse and provides her with no recourse to protect them. The

Court disagrees.

Protection of a third party’s property rights is no less effective in an action for criminal

forfeiture by personal money judgment than in an action for forfeiture of specific property. In the

latter, the Court enters a preliminary order naming the property. Following notice provided by the

Government, a party asserting an interest in that property files a petition for an ancillary proceeding,

in which the court determines the party’s and the Government’s rights. FED. R. CRIM. P. 32.2(c).

Forfeiture in the form of a personal money judgment, as in this case, proceeds differently but

no less circumscribed by procedural safeguards. Under express provision of the rules, an ancillary

proceeding is not required. See Fed. R. Crim. P. 32.2(c)(1). However, should the Government in

the future seek “substitute assets” to fulfill the judgment, as the Government has expressed its

intention to do here, third-party property rights will be protected. See 21 U.S.C. § 853(p); 18 U.S.C.

§ 982; Fed. R. Crim. P. 32.2(e)(1)(B); FED. R. CRIM. P. 32.2(e)(2); see also Candelaria-Silva, 166

F.3d at 42 (allowing seizure of substitute assets pursuant to a money judgment forfeiture). To

pursue specific assets in satisfaction of the money judgment in this case, the Government must move

to amend the final order to include the substitute assets. See FED.R.CRIM. P. 32.2(e)(1)(B). At that

time, to satisfy due process, the Government is DIRECTED to provide notice to DeMik's spouse

and any other third party known to the Government to have a potential ownership interest in the

substitute assets. See Fed. R. Crim. P. 32.2(e)(2). Should a third party then petition, the Court will

conduct an ancillary proceeding to determine his or her rights with regard to the property. See id.

 

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Accordingly, Defendant’s concerns about protecting Mrs. DeMik’s property interests are at this time

premature.

III. CONCLUSION

The Government is entitled to a final order of forfeiture, but not in the amount specified. The

motion is therefore GRANTED IN PART and DENIED IN PART. The Government is

DIRECTED to submit a proposed Final Order of Forfeiture that comports with this Order by noon

December 5, 2005. If Defendant objects to the order as not conforming to the holding herein, he

may file his objection by noon, December 12, 2005.

SO ORDERED.

DATED: November 21, 2005.

 

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