Source: http://kirschenbaumesq.com/article/-in-the-matter-of-anthony-j-vitta-debtor-kenneth-kirschenbaum-chapter-7-trustee-for-the-estate-of-anthony-jvitta-plaintiff-against-nassau-county-district-attorney-and-county-of-nassau-defendants-chapter-7-case-no-808-73781-reg
Timestamp: 2019-10-14 01:50:28
Document Index: 709970774

Matched Legal Cases: ['§ 362', '§ 362', '§ 544', '§ 362', '§ 362', '§ 362', '§ 1310', '§ 1311', '§ 1311', '§ 11', '§ 881', '§\n549', '§ 363', '§ 363', '§ 1311', '§ 1310', '§\n1310', '§ 881', '§ 541', '§ 541', '§ 364', '§ 362', '§ 362', '§ 362', '§ 544', '§ 362', '§ 544', '§ 362', '§ 362', '§ 544', '§ 362', '§ 362', '§ 362', '§ 1310', '§ 1311', '§ 1311', '§ 11', '§ 881', '§549', '§ 363', '§ 363', '§ 1311', '§ 1310', '§1310', '§ 881', '§ 541', '§ 541', '§ 364', '§ 362', '§ 362', '§ 362', '§ 544', '§ 362', '§ 544']

409 B.R. 6; 2009 Bankr. LEXIS 2233
July 23, 2009, Decided
PRIOR HISTORY: Kirschenbaum v. Nassau County Dist. Atty. (In re Vitta), 402 B.R.
553, 2009 Bankr. LEXIS 601 (Bankr. E.D.N.Y., 2009)
COUNSEL: For Kenneth Kirschenbaum, Plaintiff (8-08-08192-reg): Steven B
Sheinwald, LEAD ATTORNEY, Kirschenbaum & Kirschenbaum, Garden City, NY.
For Nassau County District Attorney, County Of Nassau, Defendants
(8-08-08192-reg): Marc Wieman, Rosanne M Harvey, Nassau County Attorney's
Office, Mineola, NY.
For Anthony J Vitta, Debtor (8-08-73781-reg): Scott R Schneider, Hicksville, NY.
Trustee (8-08-73781-reg): Kenneth Kirschenbaum, Kirschenbaum & Kirschenbaum,
P.C., Garden City, NY.
U.S. Trustee (8-08-73781-reg): Diana G. Adams, Office of the United States
Trustee, Central Islip, NY.
Before the Court is a motion by the Nassau County District Attorney ("DA")
and the County of Nassau (the "County") (collectively, the "Defendants") seeking
reconsideration of the Court's Memorandum Decision ("Decision") and Order dated
March 2, 2009 denying the Defendants' motion for summary judgment in this
adversary proceeding. The Defendants move for relief pursuant to Fed. R. Civ. P.
60(b)(1) ("Rule 60(b)(1)") due to alleged mistakes of fact and law contained in
the Decision ("Motion"). For the reasons set forth below, the Motion is denied,
except to correct that the forfeiture action commenced by the D.A. against
Anthony J. Vitta (the "Debtor"), who committed suicide after filing a petition
for relief under Chapter 7 of the Bankruptcy Code, was an action relating to
post-conviction forfeiture crimes under section 1311[1](a) of the New York Civil
Practice Law and Rules ("CPLR"), and not an action relating to pre-conviction
forfeiture crimes under section 1311[1](b) of the CPLR. This correction is
critical because it fundamentally alters how the Court reached its conclusion
that the property at issue in this adversary proceeding is property of the
Debtor's estate. Because the Defendants commenced a post-conviction civil
forfeiture proceeding and not a pre-conviction forfeiture proceeding, the timely
entry and existence of a conviction is a condition precedent to the success of
the forfeiture proceeding. As a result of the Debtor's death, the entire
criminal proceeding, including the plea agreement entered into by the Debtor,
was abated and vacated after the Decision was rendered but before the hearing on
the Motion. Since as a matter of law there is no conviction of the Debtor, the
post-conviction forfeiture action as set forth in the relevant statute must be
dismissed and is of no force an effect as to the Property. Therefore, the
Property remains property of the Debtor's estate, and is not currently subject
to any claim by the Defendants. To the extent the Defendants seek a correction
that the Debtor's plea was the equivalent of a conviction, and to correct that
the Debtor's property consisting of jewelry, watches and cash (the "Property")
was seized by the Nassau County Police Department pre-petition pursuant to
search warrants, and not pursuant to the pre-petition order of attachment
obtained by the Defendants, the Court finds that these corrections will not
result in a change in the Court's analysis or the outcome of the Decision.
Furthermore, the Court did not make a mistake of fact by failing to consider
whether the Debtor ever had legal title to the Property, which was not raised by
the Defendants at the time the underlying motion was heard. The portion of the
Decision which discusses whether the exception to the automatic stay under
Bankruptcy Code Ã‚Â§ 362(b)(4) applies to any act by the Defendants to take
possession or title to the Property is vacated as the Defendants no longer have
the right to exercise control over the Property. To the extent that the
Defendants seek to commence a forfeiture action against the Property pursuant to
the same forfeiture statute in state court, which was alluded to in their papers
and at the hearing on the Motion, such action will not be stayed by virtue of
Bankruptcy Code Ã‚Â§ 362(b)(4), and the Trustee shall have the right to assert any
defenses it has under the Bankruptcy Code including those granted under
Bankruptcy Code Ã‚Â§ 544(a).
Familiarity with the Decision is assumed. The Decision and Order, both of
which were entered on March 3, 2009, memorialized the Court's decision in
connection with the Defendants' motion to dismiss the adversary proceeding
commenced by the Kenneth Kirschenbaum, Esq., the Chapter 7 trustee (the
"Trustee"). In the adversary proceeding, the Trustee sought a determination as
to whether the Property, which was seized by the Nassau County Police Department
from the Debtor prepetition, and against which the DA had obtained an order of
attachment prepetition, was property of the Debtor's estate as of July 15, 2008,
the date the petition was filed ("Petition Date"). The Court, with the consent
of the Trustee and the Defendant, had converted the Defendants' motion to
dismiss the adversary proceeding into a motion for summary judgment. The
Defendants raised the following arguments in support of their motion:
1) Under the theory of relation-back, the Property no longer constituted
property of the Debtor's estate as of the date of the Debtor's illegal acts,
which allegedly occurred on May 18, 2007.
2) The post-petition "so-ordering" of the Stipulation and Order of Settlement
and Discontinuance of Action dated September 2, 2008 (the "Stipulation") was a
ministerial act, despite the fact that as of the Petition Date, the Stipulation
had not been signed by the Debtor or the Defendants, "so-ordered" by the state
court, or entered on the docket as of the Petition Date. The Debtor's entry of a
guilty plea prior to the Petition Date resulted in forfeiture of the Property.
3) Pursuant to 11 U.S.C. Ã‚Â§ 362(b)(4), the automatic stay did not apply to any
aspect of the forfeiture action which took place post-petition.
In support of the underlying motion, the Defendants filed with the Court a
copy of the summons and complaint in the civil forfeiture action under Article
13-A of the CPLR, which action was commenced on December 7, 2007, a copy of the
transcript from the Debtor's plea hearing before Justice Tammy Robbins, in which
she refers to the charges against the Debtor set forth in an information filed
with the criminal court, and a copy of the Stipulation. In the Decision, this
Court found that relation-back did not apply to civil forfeiture proceedings
commenced under Article 13-A of the CPLR pursuant to the statutory language and
the relevant case law interpreting this statute, that the execution and
"so-ordering" of the Stipulation was not exempt from the automatic stay as a
ministerial act, and that the continuation of the forfeiture action
post-petition up to judgment against the Debtor was excepted from the automatic
stay under Bankruptcy Code Ã‚Â§ 362(b)(4), but any action by the DA to take
possession of the Property would be stayed.
On March 13, 2009, the Defendants filed the Motion. On April 15, 2009, the
Trustee filed opposition to the Motion, and alerted the Court that the Debtor's
criminal conviction had been vacated on April 6, 2009. According to the Trustee,
the Debtor's criminal case continued to appear on the criminal court calendar
for sentencing after the Debtor had committed suicide, and the DA requested
adjournments of the sentencing seven times from October 14, 2008 to April 6,
2009. At the adjourned hearing on April 6, 2009, the District Attorney was
handed a copy of the Debtor's death certificate by an individual from the
Trustee's office. Upon receipt of the Defendants' death certificate, the State
Court dismissed the criminal proceeding of record and the criminal court docket
reflects that the criminal charges against the Debtor were abated on April 7,
2009. See Exhibit to Affirmation of the Trustee in opposition to the Motion.
Thus, it appears that the criminal action pending against the Debtor only
continued after his death because the DA failed to provide the criminal court
with a copy of the Debtor's death certificate, and asked for adjournments at
each hearing after the Debtor's death. On April 29, 2009, the Defendants filed a
reply to the Trustee's opposition, and a hearing was held on May 6, 2009.
Thereafter, the matter was marked submitted. 1
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -1 By letter
dated June 8, 2009, the Defendants requested that the Court accept a letter
briefing two recent decisions issued by a bankruptcy court outside of the Second
Circuit regarding applicability of Bankruptcy Code section 362(b)(4) and other
issues not previously raised in their moving papers. The Court advised the
Defendants that no further briefing was required, but the Court has reviewed the
cases in question, In re Winpar Hospitality Chattanoga, LLC, 401 B.R. 289
(Bankr. E.D. Tenn. 2009) and In re Winpar Hospitality Chattanooga, LLC, 404 B.R.
291 (Bankr. E.D. Tenn. 2009).
According to the Defendants, the Decision contained the following factual
errors warranting relief from the Court's decision: 1) the Court incorrectly
concluded that the forfeiture action was a pre-conviction forfeiture action and
not a post-conviction forfeiture action, 2) the Decision incorrectly states that
the Debtor was not convicted prior to the Petition Date, 3) the Decision
incorrectly states that the criminal proceedings were adjourned after the Debtor
entered his plea prepetition, 4) the Decision incorrectly states that the
Property did not constitute proceeds or substitute proceeds of the criminal
enterprise relating to the criminal charges against the Debtor, and 5) the Court
failed to address the Defendants' alternate legal argument that the Debtor never
acquired a legally cognizable interest in the Property because it derived from
the Debtor's criminal activities. According to the Defendants, these findings
were incorrect and as a result, they significantly affected the Court's analysis
of the Defendants' arguments, and the Court is required to correct these errors
under Rule 60(b)(1). Lastly, the Defendants assert that the Court committed an
error of mixed fact and law when the Court found that the post-petition actions
by the DA, including any attempt to take control of the Property, did not
constitute an exception to the automatic stay under Bankruptcy Code Ã‚Â§ 362(b)(4).
The applicable statue governing the Motion is Rule 60(b)(1), made applicable
to this matter pursuant to Fed. R. Bankr. P. 9024. Rule 60(b)(1) states as
(b) Grounds for Relief From a Final Judgment, Order or Proceeding.
legal representative from a final judgment, order, or proceeding for
As stated by the Court of Appeals for the Second Circuit:
Rule 60(b) sets forth the grounds on which a court, in its
discretion, can rescind or amend a final judgment or order....
Properly applied, Rule 60(b) strikes a balance between serving the
ends of justice and preserving the finality of judgments.... In other
words it should be broadly construed to do 'substantial justice,' ...,
yet final judgments should not 'be lightly reopened.'
Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir.1986) (citations omitted).
Rule 60(b) cannot be used as a remedy for which an appeal would be a more
appropriate. Ivor B. Clark Co. v. Hogan, 296 F. Supp. 407, 410 (S.D.N.Y. 1969)
(citing Hines v. Seaboard Airline R. Co., 341 F.2d 229, 231 (2d Cir. 1965); and
Wagner v. United States, 316 F.2d 871, 872 (2d Cir. 1963)). Furthermore, a Rule
60(b) motion is "properly granted only upon a showing of exceptional
circumstances." Marrero Pichardo v. Ashcroft, 374 F.3d 46, 55 (2d Cir. 2004) (
quoting United States v. International Broth. of Teamsters, 247 F.3d 370, 391
(2d Cir. 2001)). Under Second Circuit authority, a Rule 60(b) motion may be made
to correct a court's own mistake of law or fact so long as such motion is made
before the time for appeal expires. In re 310 Assocs., 346 F.3d 31, 34 (2d Cir.
2003), citing Schildhaus v. Moe, 335 F.2d 529, 531 (2d Cir. 1964) (other
citations omitted); and International Controls Corp. v. Vesco, 556 F.2d 665, 670
(2d Cir. 1977), cert denied, 434 U.S. 1014, 98 S. Ct. 730, 54 L. Ed. 2d 758
(1978). Relief under Rule 60(b) (1) is also appropriate where a court has
overlooked an argument or facts which were put before the court in the
underlying motion. Rumsey v. New York State Dep't of Corr. Servs., 580 F. Supp.
1052, 1055-56 (N.D.N.Y. 1984). The mistake at issue must be material which
changed the outcome of the court's judgment. Matura v. U.S., 189 F.R.D. 86, 90
(1999) (citing Fetik v. New York Law School, 97 Civ. 7746, 1999 U.S. Dist. LEXIS
9755, 1999 WL 459805, at *4 (S.D.N.Y. June 29, 1999)).
The Court will consider each of the issues raised by the Defendants in the
order of their significance to the Decision.
1) Whether the Court's conclusion that the DA commenced a pre-conviction
civil forfeiture action and not a post-conviction forfeiture action constitutes
a factual error subject to correction under Rule 60(b)(1)
The Decision includes a discussion of pre-conviction civil forfeitures and
post-conviction civil forfeitures, and a conclusion by the Court that the DA had
commenced a pre-conviction civil forfeiture action against the Debtor. The
record was barren as to any mention of either type of forfeiture action. During
oral argument, the only reference made by counsel to the Defendants was to a
pre-conviction civil forfeiture. At the hearing on the Motion on January 12,
2009, the following reference to a pre-conviction forfeiture action was made by
counsel to the Defendants in response to a question by the Court regarding the
effect the Debtor's death would have on the forfeiture action:
Your Honor, if I may, we had the similar case, Dillon v. Vorbeck, several
years ago where the defendant committed suicide before he was even convicted.
However, the state forfeiture law permits us to bring a forfeiture action in a
drug case, which this particular - this present case is even without a
conviction, even without an arrest, which is known as a preconviction forfeiture
in New York State forfeiture parlance. We continued the forfeiture and we
obtained an $ 800,000 dollar settlement of the forfeiture. Death of the
defendant, while it abates the criminal action and the appeal, for example,
would be voided. The criminal case is not necessary; the commission is not
necessary for the continuation. In the present case, we went even further. We
had a conviction. He had pled. Now, there was not a judgment of conviction since
there was no sentence but all that forfeiture law would require, even if it was
not a drug case, would be have been a conviction and that was had - - Transcript
of January 12, 2009 hearing at p. 9.
Based on these representations, the Court concluded that the Defendants had
commenced a pre-conviction civil forfeiture action, which does not require a
conviction prior to forfeiture. The Defendants now clarify that they actually
commenced a post-conviction forfeiture action under Article 13-A of the CPLR. As
this Court noted in the Decision, a fundamental difference between these two
forfeiture actions is the quantum of proof necessary to obtain an order of
forfeiture. In the ease of a pre-conviction civil forfeiture action, there is no
statutory requirement of a conviction. In a post-conviction civil forfeiture
action, there can be no order of forfeiture without a conviction.
The Court's conclusion was in error, and it is necessary to correct the
record given the subsequent abatement of the criminal action in this case.
Although the Defendants did not raise this in their Rule 60(b) pleadings at the
outset, the Trustee raised the issue of the abatement of the criminal
proceedings in their opposition to the Motion. The Defendants responded to this
issue in their reply papers by stating that the abatement of the criminal
proceedings has no effect whatsoever on the civil forfeiture action, including
the validity of the Stipulation. The effect of the Debtor's death on the civil
forfeiture action was also raised by the Court at the hearing on the underlying
motion for summary judgment. The Court had questioned whether the death of the
Debtor would void the criminal proceedings altogether and whether the forfeiture
action would abate as well. Counsel to the Defendants replied that the criminal
case would ultimately be abated upon receipt of the Debtor's death certificate.
Counsel failed to answer the direct question asked by the Court regarding the
effect of the Debtor's death on the forfeiture action. Whether counsel's failure
to answer this question was purposeful is not clear, but it raises questions to
the Court regarding counsel's intent, especially in light of the DA's continued
adjournment of the criminal action months after the Debtor died. To the extent
the issue does not fall within the parameters of Rule 60(b)(1), the Court finds
that it is appropriate to consider the effect of the abatement of the criminal
proceeding under Rule 60(b)(5), which permits the Court to reconsider its
judgment if it is based on a prior judgment which has been vacated.
The Court must now apply the applicable law to the facts as corrected, which
changes the Court's analysis in the Decision. A post-conviction forfeiture
action may be commenced against a "criminal defendant" who is defined as a
person that has been convicted of any felony found in the Penal Law or any other
chapter of the consolidated laws of the State. CPLR Ã‚Â§ 1310[5]. In order for the
claiming authority to obtain forfeiture in a post-conviction forfeiture action,
the criminal defendant must be convicted. CPLR Ã‚Â§ 1311[1](a); Holtzman v. Samuel,
130 Misc.2d 976, 979, 495 N.Y.S.2d 583 (N.Y. Sup. 1985). As a result, a
post-conviction civil forfeiture action is dependent upon and related to the
criminal proceedings brought against the criminal defendant. In re Wolfson, 261
B.R. 369, 377 (Bankr. E.D.N.Y. 2001). If there is no criminal conviction, there
can be no in personam judgment or forfeiture of personal assets under this
statute. Morgenthau v. Citisource, Inc., 68 N.Y.2d 211, 213-14, 500 N.E.2d 850,
508 N.Y.S.2d 152 (1986). In addition, a post-conviction forfeiture action "must
be dismissed at any time after sixty days of the commencement of the [civil
forfeiture] action unless the conviction upon which the action is grounded has
occurred, or an indictment or information upon which the asserted conviction is
to be based is pending in a superior court." CPLR Ã‚Â§ 1311[1](a). In this case,
the Defendants assert that the criminal conviction was encompassed in the
Debtor's guilty plea before Justice Tammy Robbins. People v. Hardin, 67 A.D.2d
12, 16, 414 N.Y.S.2d 320, 322 (1st Dep't 1979). The plea, along with the entire
criminal case against the Debtor, including the information, have been abated.
See U.S. v. Wright, 160 F.3d 905, 908 (2d Cir. 1998) (when a convicted defendant
dies during direct appeal, his death abates the appeal and the criminal
proceedings from their inception). "Abatement" has been defined under common law
the entire overthrow or destruction of the action, which results
when the defendant pleads a matter that defeats the action, either
for the time being or permanently. An action which has been abated is
dead, and any further enforcement of the cause of action, requires the
bringing of a new, action, provided that a cause of action remains.
2A Carmody-Wait 2d, N.Y. Prac. Ã‚Â§ 11.1. The practical effect of the abatement
of the criminal action is to render the Stipulation, which is based on the plea
entered in the criminal action, a nullity. First, there is no information or
indictment pending against the Debtor and there is no conviction, so the
forfeiture action must be dismissed pursuant to CPLR 1311[1](a). Second, the
Stipulation provides that it shall remain in full force and effect "regardless
of the ultimate disposition of any potential criminal charges" giving rise to
the forfeiture action, but does not state that it shall remain in full force and
effect if the criminal action is abated. (Ex. 3 to Rebecca Winer Affidavit).
Since abatement of the criminal action forecloses any disposition of the
criminal charges, this provision cannot serve to preserve the forfeiture granted
under the Stipulation. The language of the forfeiture statute also requires a
finding that the forfeiture action be treated as a nullity, because it requires
dismissal of a post-conviction forfeiture action if there is no conviction
within sixty days of commencement of the action, or if there is no information
or indictment in the pending criminal action. Because of the abatement of the
criminal action, neither the indictment nor the information remain of record and
as a result, there can be no post-conviction forfeiture action. In sum, it is
axiomatic that a post-conviction forfeiture action requires a conviction, which
conviction can never occur as a result of the Debtor's untimely death. Based on
these findings, the Property remains part of the Debtor's estate. The Defendants
have no right to retain the Property because they do not have title to the
Property, and they no longer have a valid order of attachment against the
While the Defendants assert that the fact that they commenced a
post-conviction forfeiture action is significant, they argue that the abatement
of the Debtor's conviction has no impact on the forfeiture action because it is
a civil, remedial proceeding and survives the death of the Debtor. Aside from
ignoring the statutory requirements that a conviction is a necessary component
of a post-conviction forfeiture action and the post-conviction civil forfeiture
action must be dismissed under the facts of this case, the Defendants' argument
is not supported by applicable case law. To bolster their argument that the
civil forfeiture action survives the death of the Debtor, the Defendants cite to
various sections of the New York Estates, Powers and Trusts Law which permits a
representative of a decedent's estate to be substituted in a civil action. The
fact that a representative of the Debtor's estate could be substituted for the
Debtor in a civil action has no bearing on whether the Stipulation retains
validity after abatement of the criminal proceeding. The Defendants also cite to
People v. Mintz, 20 N.Y.2d 753, 229 N.E.2d 712, 283 N.Y.S.2d 120 (1967), and
U.S. v. Land, Winston County, 221 F.3d 1194 (11th Cir. 2000). However, the Mintz
case merely stands for the proposition that upon the death of a criminal
defendant during an appeal, the entire criminal prosecution is abated. As a
result, the holding of the Mintz case does nothing to support the Defendants'
position. U.S. v. Land, Winston County is distinguishable because it concerns
whether the death of a property owner during a civil forfeiture action abates an
in rem forfeiture action. The Eleventh Circuit was not called on to determine
whether abatement of a criminal conviction had any effect on an in personam
civil forfeiture action similar to the forfeiture action commenced by the DA
The Court of Appeals for the Second Circuit has not ruled on whether the
abatement of a criminal action should apply to a related order of forfeiture or
restitution. U.S. v. Wright, 160 F.3d at 908. However, the Second Circuit has
noted that the relevant issue for determining whether abatement applies to an
order of forfeiture or restitution is whether the order of forfeiture or
restitution is punitive and intended to punish the criminal defendant or whether
the purpose of the action is to compensate the victims of a crime. Id. Although
by its own terms, an Article 13-A forfeiture action is "civil, remedial and in
forfeiture for any purpose," it is remedial only in the sense that one of the
purposes of this forfeiture statute is to deter others from committing such
crimes. In re Wolfson, 261 B.R. at 377. There are no victims to be compensated
in this forfeiture action, and to view the forfeiture action as either purely
compensatory or purely penal is incorrect. It is a civil action dependent upon a
criminal conviction. In re Wolfson, 261 B.R. at 377. Its twin purposes are to
deter others from committing crimes and to take the profit out of crime.
Morgenthau v. Citisource, Inc., 508 N.Y.S.2d at 154-55. It is apparent that,
regardless of the stated purpose of this forfeiture statute, the resulting
forfeiture does exact a penalty on the defendant and does not compensate any
specific victim.
This understanding of the true nature of the forfeiture action comports with
the Supreme Court's analysis of civil forfeitures under 21 U.S.C. Ã‚Â§ 881(a)(4)
and (7) pertaining to drug offenses. In Austin v. United States, 509 U.S. 602,
113 S. Ct. 2801, 125 L.Ed.2d 488 (1993), the Supreme Court held that while
forfeiture statutes may have remedial goals, they historically served to punish
as well. According to the Supreme Court, this is particularly true where the
forfeiture statute seeks to punish the party guilty of the wrongdoing, and not
an innocent owner of the property to be forfeited. Austin v. U.S., 509 U.S. at
619, 113 S. Ct. at 2810, 2811. While post-conviction forfeitures under Article
13-A of the CPLR are not identical to the forfeiture statute analyzed by the
Supreme Court, both statutes require that the criminal defendant be culpable of
a criminal offense prior to forfeiture. The Court finds the Supreme Court's
reasoning in Austin v. U.S. is equally applicable and supports this Court's
conclusion that forfeiture under Article 13-A of the CPLR has an unmistakable
punitive element.
Even if the Court were to adopt the Defendants' argument that the Stipulation
remains valid regardless of the abatement of the criminal proceedings against
the Debtor, the Defendants cannot point to any authority which permits a Chapter
7 debtor to enter into a post-petition agreement to transfer property of the
estate to a third party without the consent of the trustee. This is because a
debtor has no power to transfer property of the estate once a petition is filed.
In re Atravasada Land and Cattle Inc., 388 B.R. 255, 269 (Bankr. S.D. Tex. 2008)
. If the Stipulation is stripped of any reference to the abated criminal action
and is viewed merely as an agreement by the Debtor to transfer the Property to
the Defendants, it would be unenforceable. Any such transfer of property of the
estate would also be subject to recovery by the Trustee under Bankruptcy Code Ã‚Â§
549(a). Standing alone, the Stipulation cannot be honored because once the
petition was filed, only the Trustee had the authority to use, sell or lease
property of the estate pursuant to Bankruptcy Code Ã‚Â§ 363. Furthermore,
Bankruptcy Code Ã‚Â§ 363 requires prior notice and a hearing before any use or sale
of property of the estate outside the ordinary course of business can be
approved. An agreement by a debtor to transfer property of the estate without
prior notice and a hearing is void and of no force and effect. In re Koneta, 357
B.R. 540, 543 (Bankr. D Ariz. 2006).
2. Whether the Court's conclusion that the Property did not represents the
proceeds of the crimes committed by the Debtor constitutes a factual error
subject to correction under Rule 60(b)(1)
The Property consists of U.S. currency in the amount of $ 37,694.90, and
assorted watches and jewelry of an undetermined value. Except for a small amount
of the cash, the Nassau County Police Property Bureau has continuously held the
Property. According to the Defendants, the affidavits and exhibits submitted by
the Defendants in support of their summary judgment motion do not establish "or
even suggest" that the Property does not represent the proceeds of crimes. The
Defendants further argue that this mistake of fact affected the Court's analysis
of its legal arguments in the underlying motion. In support of their motion for
summary judgment, the Defendants submitted a copy of the summons and complaint
in this adversary proceeding, the summons and verified complaint in the civil
forfeiture action, a copy of the transcript of the plea hearing before Justice
Tammy Robbins, and a copy of the Stipulation. The Defendants also submitted a
one-page affidavit by Marc E. Weiman, Esq., Deputy County Attorney for the
County of Nassau, in which he states that his office did not participate in the
Section 341 meeting held August 21, 2008 because his office did not receive
notice of the Debtor's bankruptcy, and that the Debtor committed suicide on
October 2, 2008. In addition, the Defendants submitted an Affidavit of Rebecca
Winer, an Assistant District Attorney for Nassau County. The Stipulation
contains a reference to the Property as proceeds, substitute proceeds and/or
instrumentalities of the Debtor's criminal conduct, as does the Affidavit of
Rebecca Winer. These references track the language of Article 13-A of the CPLR,
and do nothing more than support a finding that the Defendants were relying on
this forfeiture statute as the basis for seeking forfeiture of the Property. The
statute itself uses the same language, stating that a civil action may be
commenced against a criminal defendant "to recover the property which
constitutes the proceeds of a crime, the substituted proceeds of a crime, an
instrumentality of a crime or the real property instrumentality of a crime or to
recover a money judgment in an amount equivalent in value to the property which
instrumentality of crime, or the real property instrumentality of a crime." CPLR
Ã‚Â§ 1311[1]. 2 Case law is clear that this particular forfeiture statute does not
require that the assets subject to the provisional order of attachment be
traceable to the alleged crimes. They can include any assets of the criminal
defendant which could be used to satisfy a potential judgment in the forfeiture
action. Morgenthau v. Citisource, Inc., 68 N.Y.2d at 220. The Defendants
recognized this in the civil forfeiture complaint, pursuant to which the
Defendants sought either forfeiture of the proceeds or substitute proceeds of
the criminal acts or a monetary judgment equivalent to the value of such items.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -2 "Proceeds
of a crime" means "any property obtained through the commission of a felony ...
and includes any appreciation in value of such property." CPLR Ã‚Â§ 1310[2].
"Substituted proceeds" "means any property obtained by the sale or exchange of
proceeds of a crime, and any gain realized by such sale or exchange." CPLR Ã‚Â§
1310[3].
The Defendants also filed additional exhibits in support of their Motion,
which were not part of the record during the underlying proceedings, including a
declaration by Rebecca Winer explaining that the Property was initially seized
from the Debtor's residence and business address pursuant to search warrants
issued pursuant to two orders signed by Justice Frank A. Gulotta on November 9,
2007, after a lengthy investigation of the Debtor's drug sale activities. The
Defendants also submitted a copy of the Debtor's confession, and an affidavit by
Thomas Kelly, a member of the Nassau County Police Department, which was
submitted in support of the motion for the order of attachment issued in
connection with the civil forfeiture proceedings. These additional exhibits are
part of the criminal action, which has been abated. There is no allegation that
they are newly discovered evidence, and there is no allegation that they were
not in the Defendants' possession at the time of the hearing on the motion for
summary judgment. In fact, at the close of the hearing during the underlying
proceedings, the Court gave the Defendants an opportunity to supplement their
motion with any additional documents they wished to submit, and the Defendants
declined to do so. The Defendants' decision to refrain from submitting these
other documents which they now rely on does not warrant granting of relief under
subsection (1) of Rule 60(b). Where the mistake complained of is substantially
due to the party's own neglect or choice of conduct, the party is not entitled
to relief from the judgment. See Paddington Partners v. Bouchard, 34 F.3d 1132,
1147 (2d Cir. 1994) (failure to marshal all known facts in connection with a
motion for summary judgment does not constitute grounds for relief under Rule
60(b)); Moolenaar v. Government of Virgin Islands, 822 F.2d 1342, 1347 (3d
Cir.1987) (district court abused its discretion by granting plaintiff's relief
under Rule 60(b) where plaintiff was partly responsible for not presenting the
new evidence prior to the original judgment); Kahle v. Amtorg Trading Corp., 13
F.R.D. 107, 108-09 (D.N.J.1952) (court denied plaintiffs' Rule 60(b) motion when
they sought to introduce documents that they recently discovered in their
Even if the Court were to permit these additional documents into the record
in support of the Defendants' argument, a finding that the Property did
constitute proceeds of the Debtor's criminal enterprise would not change the
Court's analysis of whether the Property was property of the Debtor's estate as
of the Petition Date. First, the Debtor's conviction and the entire criminal
proceeding have been abated, which calls into question whether the Property can
ever be the proceeds or substitute proceeds of a crime which no longer exists.
Second, the argument actually advanced by the Defendants was that under the
theory of relation-back, title to the Property vested with the Defendants as of
the date that the criminal acts were committed, not after the Stipulation was
so-ordered. However, the statute under which the DA sought forfeiture has no
applicable relation-back provision. Kuriansky v. Bed-Stuy Health Care Corp..,
135 A.D.2d 160, 175, 525 N.Y.S.2d 225 (N.Y. App. Div. 1988). Therefore, defining
the nature of the Property is not the critical issue under this particular
statute. Article 13-A of the CPLR permits attachment of property whether or not
it constitutes proceeds of a criminal enterprise.
The cases cited by the Defendants in support of their argument did not
concern general theories regarding the nature of property and whether certain
property could ever be property of a debtor's estate. Rather, the cases involved
forfeiture statutes with relation-back provisions. In In re Chapman, 264 B.R.
565 (B.A.P. 9th Cir. 2001), the federal government had commenced a forfeiture
action pursuant to 21 U.S.C. Ã‚Â§ 881, which specifically provides in subsection
(h) that "[a]ll right, title, and interest in property [forfeited] shall vest in
the United States upon commission of the act giving rise to forfeiture under
this section." In U.S. v. Kramer, 2006 U.S. Dist. LEXIS 89034, 2006 WL 3545026
(E.D.N.Y. December 8, 2006), the forfeiture action in question involved a
federal criminal forfeiture statute which also specifically included a
relation-back provision. There is no similar provision in Article 13-A of the
CPLR. It is clear that title does not vest in the claiming authority until after
a valid order of forfeiture has been entered, and there is no relation-back
provision in this statute.
According to the Defendants, they raised two arguments which the Court
overlooked in the underlying motion for summary judgment which concern the
nature of the Property; 1) the Property never became property of the Debtor
under Bankruptcy Code Ã‚Â§ 541 because a debtor cannot have a legally cognizable
interest in property that constitutes criminal proceeds, and 2) to the extent
the Debtor had any legally cognizable interest in the Property as of the
Petition Date, he did not have an equitable right to possess, use or direct the
use of the Property because the Property had been seized prepetition. As a
result of the limitations imposed by the order of attachment, the Property did
not constitute property of the Debtor's estate under Bankruptcy Code Ã‚Â§ 541. The
Defendants are correct that pursuant to a Rule 60(b)(1) motion, the Court can
consider whether it overlooked an argument previously raised by a party.
However, there is no evidence from the record before the Court that these
arguments were briefed, argued, or even raised. The Defendants' sole argument in
support of their assertion that the Property was not part of the Debtor's
bankruptcy estate was based on the theory of relation-back. The Defendants never
raised or cited to any case law regarding whether the Property was excluded from
the Debtor's estate based on any other legal theory. The Defendants cannot
utilize Rule 60(b)(1) to advance new legal arguments they wish they had made at
time the original motion was filed. Paddington Partners v. Bouchard, 34 F.3d at
1147 (citing Nemaizer v. Baker, 793 F.2d at 62). It is not a mistake of fact or
law if the Court does not consider a legal argument which was never raised for
the Court to consider. Therefore, the request to reconsider whether the Property
constituted proceeds of a crime is denied.
3) Whether the Court's conclusion that the now abated conviction occurred
post-petition upon entry of the Stipulation, not prepetition upon entry of the
Debtor's plea constitutes an error of fact which must be corrected under Rule
Based on the intervening abatement of the criminal proceeding including
abatement of the plea, this issue is relevant only in that the plea was abated
along with the entire criminal proceeding. To the extent the plea constitutes
the conviction in this case, the Court shall correct the record. However,
altering the Decision to reflect that the conviction occurred as of the entry of
the plea does not change the Court's analysis regarding whether the Debtor was
divested of the Property prepetition. The essential issue was whether the acts
which took place prepetition, or even post-petition, sufficed to divest the
Debtor of an interest in the Property as of the Petition Date. The Court found
that divestment did not occur prepetition as the Stipulation had not yet been
so-ordered. In fact, the Defendants concede in their Reply Memorandum that as of
the Petition Date, the Debtor had not yet signed the Stipulation, and state that
"at the time the Debtor filed his petition, he still had the right to withdraw
his plea and challenge the civil forfeiture." Defendants' Reply Memorandum dated
April 29, 2009, note 7. Recognizing that the Debtor's plea constituted his
conviction does not affect the Court's finding that the Debtor retained an
interest in the Property as of the Petition Date. In any event, the plea has
been abated along with the criminal conviction and no longer stands.
4) Whether the Court made an error of law in its analysis of whether the
post-petition actions of the Defendants in the forfeiture proceeding constituted
an exception to the automatic stay pursuant to Bankruptcy Code Ã‚Â§ 364(b)(4)
In the Decision, the Court found that the issue of whether the actions taken
by the Defendants post-petition were exempt under Bankruptcy Code Ã‚Â§ 362(b)(4)
was not germane to the issues raised in the adversary proceeding. However, the
Court found that nothing regarding applicability of the automatic stay would
change the Court's finding that as of the Petition Date, the Property belonged
to the Debtor. Contrary to the Defendants' assertions, this Court did not find
that commencement or continuation of actions by the government in furtherance of
its police or regulatory powers are not exempt from the stay. Rather, this Court
found that any action to seize the Property would not fall within the exception
to the automatic stay set forth in Bankruptcy Code Ã‚Â§ 362(b)(4). Given that the
Stipulation, is now a nullity, there is no reason for the Court to decide
whether any acts by the Defendants to take possession of the Property would be
stayed. This issue is not properly before the Court because, for the reasons set
forth above, the Defendants do not currently have any right to take possession
or ownership of the Property. Therefore, the portion of the Decision regarding
the applicability of the automatic stay to any action to take possession of the
Property is vacated. Based on the Court's rulings in the Decision which are
unaffected, the Defendants are not stayed from commencing a forfeiture action so
long as the action falls within the exception to the automatic stay set forth in
Bankruptcy Code Ã‚Â§ 362(b)(4). Because the Court has no information regarding what
exactly the Defendants may do, the Court will not comment any further, except to
state that the Trustee will be permitted to participate in any such action,
armed with the powers conferred upon the Trustee under Bankruptcy Code Ã‚Â§ 544(a)
and any other applicable statute.
For the reasons set forth above, the Motion is denied, except to correct that
the forfeiture action against the Debtor was an action based on post-conviction
forfeiture crimes, not pre-conviction forfeiture crimes. Because the conviction
of the Debtor, along with the entire criminal proceeding, was abated after the
Court rendered the Decision, the post-conviction forfeiture action as set forth
in Article 13-A of the CPLR is of no force and effect. The Stipulation is of no
force and effect as well, and the Defendants have no valid lien against or title
to the Property. As a result, the Court vacates the portion of the Decision
which finds that any attempt to seize the Property pursuant to the
post-conviction forfeiture action violates the automatic stay, because there is
no valid post-conviction forfeiture proceeding pending. To the extent that the
Defendants seek to commence a forfeiture action against the Property, such
action will not be stayed so long as the action falls within the exception to
the stay set forth in Bankruptcy Code Ã‚Â§ 362(b)(4). The Trustee shall have the
right to assert any defenses it has under the Bankruptcy Code including those
granted under Bankruptcy Code Ã‚Â§ 544(a). An order consistent with this Memorandum
Decision shall be entered forthwith.
PRIOR HISTORY: Kirschenbaum v. Nassau County Dist. Atty. (In re Vitta), 402 B.R.553, 2009 Bankr. LEXIS 601 (Bankr. E.D.N.Y., 2009)
COUNSEL: For Kenneth Kirschenbaum, Plaintiff (8-08-08192-reg): Steven BSheinwald, LEAD ATTORNEY, Kirschenbaum & Kirschenbaum, Garden City, NY.
For Nassau County District Attorney, County Of Nassau, Defendants(8-08-08192-reg): Marc Wieman, Rosanne M Harvey, Nassau County Attorney'sOffice, Mineola, NY.
Trustee (8-08-73781-reg): Kenneth Kirschenbaum, Kirschenbaum & Kirschenbaum,P.C., Garden City, NY.
U.S. Trustee (8-08-73781-reg): Diana G. Adams, Office of the United StatesTrustee, Central Islip, NY.
Before the Court is a motion by the Nassau County District Attorney ("DA")and the County of Nassau (the "County") (collectively, the "Defendants") seekingreconsideration of the Court's Memorandum Decision ("Decision") and Order datedMarch 2, 2009 denying the Defendants' motion for summary judgment in thisadversary proceeding. The Defendants move for relief pursuant to Fed. R. Civ. P.60(b)(1) ("Rule 60(b)(1)") due to alleged mistakes of fact and law contained inthe Decision ("Motion"). For the reasons set forth below, the Motion is denied,except to correct that the forfeiture action commenced by the D.A. againstAnthony J. Vitta (the "Debtor"), who committed suicide after filing a petitionfor relief under Chapter 7 of the Bankruptcy Code, was an action relating topost-conviction forfeiture crimes under section 1311[1](a) of the New York CivilPractice Law and Rules ("CPLR"), and not an action relating to pre-convictionforfeiture crimes under section 1311[1](b) of the CPLR. This correction iscritical because it fundamentally alters how the Court reached its conclusionthat the property at issue in this adversary proceeding is property of theDebtor's estate. Because the Defendants commenced a post-conviction civilforfeiture proceeding and not a pre-conviction forfeiture proceeding, the timelyentry and existence of a conviction is a condition precedent to the success ofthe forfeiture proceeding. As a result of the Debtor's death, the entirecriminal proceeding, including the plea agreement entered into by the Debtor,was abated and vacated after the Decision was rendered but before the hearing onthe Motion. Since as a matter of law there is no conviction of the Debtor, thepost-conviction forfeiture action as set forth in the relevant statute must bedismissed and is of no force an effect as to the Property. Therefore, theProperty remains property of the Debtor's estate, and is not currently subjectto any claim by the Defendants. To the extent the Defendants seek a correctionthat the Debtor's plea was the equivalent of a conviction, and to correct thatthe Debtor's property consisting of jewelry, watches and cash (the "Property")was seized by the Nassau County Police Department pre-petition pursuant tosearch warrants, and not pursuant to the pre-petition order of attachmentobtained by the Defendants, the Court finds that these corrections will notresult in a change in the Court's analysis or the outcome of the Decision.Furthermore, the Court did not make a mistake of fact by failing to considerwhether the Debtor ever had legal title to the Property, which was not raised bythe Defendants at the time the underlying motion was heard. The portion of theDecision which discusses whether the exception to the automatic stay underBankruptcy Code Ã‚Â§ 362(b)(4) applies to any act by the Defendants to takepossession or title to the Property is vacated as the Defendants no longer havethe right to exercise control over the Property. To the extent that theDefendants seek to commence a forfeiture action against the Property pursuant tothe same forfeiture statute in state court, which was alluded to in their papersand at the hearing on the Motion, such action will not be stayed by virtue ofBankruptcy Code Ã‚Â§ 362(b)(4), and the Trustee shall have the right to assert anydefenses it has under the Bankruptcy Code including those granted underBankruptcy Code Ã‚Â§ 544(a).
Familiarity with the Decision is assumed. The Decision and Order, both ofwhich were entered on March 3, 2009, memorialized the Court's decision inconnection with the Defendants' motion to dismiss the adversary proceedingcommenced by the Kenneth Kirschenbaum, Esq., the Chapter 7 trustee (the"Trustee"). In the adversary proceeding, the Trustee sought a determination asto whether the Property, which was seized by the Nassau County Police Departmentfrom the Debtor prepetition, and against which the DA had obtained an order ofattachment prepetition, was property of the Debtor's estate as of July 15, 2008,the date the petition was filed ("Petition Date"). The Court, with the consentof the Trustee and the Defendant, had converted the Defendants' motion todismiss the adversary proceeding into a motion for summary judgment. TheDefendants raised the following arguments in support of their motion:
1) Under the theory of relation-back, the Property no longer constitutedproperty of the Debtor's estate as of the date of the Debtor's illegal acts,which allegedly occurred on May 18, 2007.
2) The post-petition "so-ordering" of the Stipulation and Order of Settlementand Discontinuance of Action dated September 2, 2008 (the "Stipulation") was aministerial act, despite the fact that as of the Petition Date, the Stipulationhad not been signed by the Debtor or the Defendants, "so-ordered" by the statecourt, or entered on the docket as of the Petition Date. The Debtor's entry of aguilty plea prior to the Petition Date resulted in forfeiture of the Property.
3) Pursuant to 11 U.S.C. Ã‚Â§ 362(b)(4), the automatic stay did not apply to anyaspect of the forfeiture action which took place post-petition.
In support of the underlying motion, the Defendants filed with the Court acopy of the summons and complaint in the civil forfeiture action under Article13-A of the CPLR, which action was commenced on December 7, 2007, a copy of thetranscript from the Debtor's plea hearing before Justice Tammy Robbins, in whichshe refers to the charges against the Debtor set forth in an information filedwith the criminal court, and a copy of the Stipulation. In the Decision, thisCourt found that relation-back did not apply to civil forfeiture proceedingscommenced under Article 13-A of the CPLR pursuant to the statutory language andthe relevant case law interpreting this statute, that the execution and"so-ordering" of the Stipulation was not exempt from the automatic stay as aministerial act, and that the continuation of the forfeiture actionpost-petition up to judgment against the Debtor was excepted from the automaticstay under Bankruptcy Code Ã‚Â§ 362(b)(4), but any action by the DA to takepossession of the Property would be stayed.
On March 13, 2009, the Defendants filed the Motion. On April 15, 2009, theTrustee filed opposition to the Motion, and alerted the Court that the Debtor'scriminal conviction had been vacated on April 6, 2009. According to the Trustee,the Debtor's criminal case continued to appear on the criminal court calendarfor sentencing after the Debtor had committed suicide, and the DA requestedadjournments of the sentencing seven times from October 14, 2008 to April 6,2009. At the adjourned hearing on April 6, 2009, the District Attorney washanded a copy of the Debtor's death certificate by an individual from theTrustee's office. Upon receipt of the Defendants' death certificate, the StateCourt dismissed the criminal proceeding of record and the criminal court docketreflects that the criminal charges against the Debtor were abated on April 7,2009. See Exhibit to Affirmation of the Trustee in opposition to the Motion.Thus, it appears that the criminal action pending against the Debtor onlycontinued after his death because the DA failed to provide the criminal courtwith a copy of the Debtor's death certificate, and asked for adjournments ateach hearing after the Debtor's death. On April 29, 2009, the Defendants filed areply to the Trustee's opposition, and a hearing was held on May 6, 2009.Thereafter, the matter was marked submitted. 1
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -1 By letterdated June 8, 2009, the Defendants requested that the Court accept a letterbriefing two recent decisions issued by a bankruptcy court outside of the SecondCircuit regarding applicability of Bankruptcy Code section 362(b)(4) and otherissues not previously raised in their moving papers. The Court advised theDefendants that no further briefing was required, but the Court has reviewed thecases in question, In re Winpar Hospitality Chattanoga, LLC, 401 B.R. 289(Bankr. E.D. Tenn. 2009) and In re Winpar Hospitality Chattanooga, LLC, 404 B.R.291 (Bankr. E.D. Tenn. 2009).- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
According to the Defendants, the Decision contained the following factualerrors warranting relief from the Court's decision: 1) the Court incorrectlyconcluded that the forfeiture action was a pre-conviction forfeiture action andnot a post-conviction forfeiture action, 2) the Decision incorrectly states thatthe Debtor was not convicted prior to the Petition Date, 3) the Decisionincorrectly states that the criminal proceedings were adjourned after the Debtorentered his plea prepetition, 4) the Decision incorrectly states that theProperty did not constitute proceeds or substitute proceeds of the criminalenterprise relating to the criminal charges against the Debtor, and 5) the Courtfailed to address the Defendants' alternate legal argument that the Debtor neveracquired a legally cognizable interest in the Property because it derived fromthe Debtor's criminal activities. According to the Defendants, these findingswere incorrect and as a result, they significantly affected the Court's analysisof the Defendants' arguments, and the Court is required to correct these errorsunder Rule 60(b)(1). Lastly, the Defendants assert that the Court committed anerror of mixed fact and law when the Court found that the post-petition actionsby the DA, including any attempt to take control of the Property, did notconstitute an exception to the automatic stay under Bankruptcy Code Ã‚Â§ 362(b)(4).
The applicable statue governing the Motion is Rule 60(b)(1), made applicableto this matter pursuant to Fed. R. Bankr. P. 9024. Rule 60(b)(1) states asfollows:
Rule 60(b) sets forth the grounds on which a court, in its discretion, can rescind or amend a final judgment or order.... Properly applied, Rule 60(b) strikes a balance between serving the ends of justice and preserving the finality of judgments.... In other words it should be broadly construed to do 'substantial justice,' ..., yet final judgments should not 'be lightly reopened.'
Rule 60(b) cannot be used as a remedy for which an appeal would be a moreappropriate. Ivor B. Clark Co. v. Hogan, 296 F. Supp. 407, 410 (S.D.N.Y. 1969)(citing Hines v. Seaboard Airline R. Co., 341 F.2d 229, 231 (2d Cir. 1965); andWagner v. United States, 316 F.2d 871, 872 (2d Cir. 1963)). Furthermore, a Rule60(b) motion is "properly granted only upon a showing of exceptionalcircumstances." Marrero Pichardo v. Ashcroft, 374 F.3d 46, 55 (2d Cir. 2004) (quoting United States v. International Broth. of Teamsters, 247 F.3d 370, 391(2d Cir. 2001)). Under Second Circuit authority, a Rule 60(b) motion may be madeto correct a court's own mistake of law or fact so long as such motion is madebefore the time for appeal expires. In re 310 Assocs., 346 F.3d 31, 34 (2d Cir.2003), citing Schildhaus v. Moe, 335 F.2d 529, 531 (2d Cir. 1964) (othercitations omitted); and International Controls Corp. v. Vesco, 556 F.2d 665, 670(2d Cir. 1977), cert denied, 434 U.S. 1014, 98 S. Ct. 730, 54 L. Ed. 2d 758(1978). Relief under Rule 60(b) (1) is also appropriate where a court hasoverlooked an argument or facts which were put before the court in theunderlying motion. Rumsey v. New York State Dep't of Corr. Servs., 580 F. Supp.1052, 1055-56 (N.D.N.Y. 1984). The mistake at issue must be material whichchanged the outcome of the court's judgment. Matura v. U.S., 189 F.R.D. 86, 90(1999) (citing Fetik v. New York Law School, 97 Civ. 7746, 1999 U.S. Dist. LEXIS9755, 1999 WL 459805, at *4 (S.D.N.Y. June 29, 1999)).
The Court will consider each of the issues raised by the Defendants in theorder of their significance to the Decision.
1) Whether the Court's conclusion that the DA commenced a pre-convictioncivil forfeiture action and not a post-conviction forfeiture action constitutesa factual error subject to correction under Rule 60(b)(1)
The Decision includes a discussion of pre-conviction civil forfeitures andpost-conviction civil forfeitures, and a conclusion by the Court that the DA hadcommenced a pre-conviction civil forfeiture action against the Debtor. Therecord was barren as to any mention of either type of forfeiture action. Duringoral argument, the only reference made by counsel to the Defendants was to apre-conviction civil forfeiture. At the hearing on the Motion on January 12,2009, the following reference to a pre-conviction forfeiture action was made bycounsel to the Defendants in response to a question by the Court regarding theeffect the Debtor's death would have on the forfeiture action:
Your Honor, if I may, we had the similar case, Dillon v. Vorbeck, severalyears ago where the defendant committed suicide before he was even convicted.However, the state forfeiture law permits us to bring a forfeiture action in adrug case, which this particular - this present case is even without aconviction, even without an arrest, which is known as a preconviction forfeiturein New York State forfeiture parlance. We continued the forfeiture and weobtained an $ 800,000 dollar settlement of the forfeiture. Death of thedefendant, while it abates the criminal action and the appeal, for example,would be voided. The criminal case is not necessary; the commission is notnecessary for the continuation. In the present case, we went even further. Wehad a conviction. He had pled. Now, there was not a judgment of conviction sincethere was no sentence but all that forfeiture law would require, even if it wasnot a drug case, would be have been a conviction and that was had - - Transcriptof January 12, 2009 hearing at p. 9.
Based on these representations, the Court concluded that the Defendants hadcommenced a pre-conviction civil forfeiture action, which does not require aconviction prior to forfeiture. The Defendants now clarify that they actuallycommenced a post-conviction forfeiture action under Article 13-A of the CPLR. Asthis Court noted in the Decision, a fundamental difference between these twoforfeiture actions is the quantum of proof necessary to obtain an order offorfeiture. In the ease of a pre-conviction civil forfeiture action, there is nostatutory requirement of a conviction. In a post-conviction civil forfeitureaction, there can be no order of forfeiture without a conviction.
The Court's conclusion was in error, and it is necessary to correct therecord given the subsequent abatement of the criminal action in this case.Although the Defendants did not raise this in their Rule 60(b) pleadings at theoutset, the Trustee raised the issue of the abatement of the criminalproceedings in their opposition to the Motion. The Defendants responded to thisissue in their reply papers by stating that the abatement of the criminalproceedings has no effect whatsoever on the civil forfeiture action, includingthe validity of the Stipulation. The effect of the Debtor's death on the civilforfeiture action was also raised by the Court at the hearing on the underlyingmotion for summary judgment. The Court had questioned whether the death of theDebtor would void the criminal proceedings altogether and whether the forfeitureaction would abate as well. Counsel to the Defendants replied that the criminalcase would ultimately be abated upon receipt of the Debtor's death certificate.Counsel failed to answer the direct question asked by the Court regarding theeffect of the Debtor's death on the forfeiture action. Whether counsel's failureto answer this question was purposeful is not clear, but it raises questions tothe Court regarding counsel's intent, especially in light of the DA's continuedadjournment of the criminal action months after the Debtor died. To the extentthe issue does not fall within the parameters of Rule 60(b)(1), the Court findsthat it is appropriate to consider the effect of the abatement of the criminalproceeding under Rule 60(b)(5), which permits the Court to reconsider itsjudgment if it is based on a prior judgment which has been vacated.
The Court must now apply the applicable law to the facts as corrected, whichchanges the Court's analysis in the Decision. A post-conviction forfeitureaction may be commenced against a "criminal defendant" who is defined as aperson that has been convicted of any felony found in the Penal Law or any otherchapter of the consolidated laws of the State. CPLR Ã‚Â§ 1310[5]. In order for theclaiming authority to obtain forfeiture in a post-conviction forfeiture action,the criminal defendant must be convicted. CPLR Ã‚Â§ 1311[1](a); Holtzman v. Samuel,130 Misc.2d 976, 979, 495 N.Y.S.2d 583 (N.Y. Sup. 1985). As a result, apost-conviction civil forfeiture action is dependent upon and related to thecriminal proceedings brought against the criminal defendant. In re Wolfson, 261B.R. 369, 377 (Bankr. E.D.N.Y. 2001). If there is no criminal conviction, therecan be no in personam judgment or forfeiture of personal assets under thisstatute. Morgenthau v. Citisource, Inc., 68 N.Y.2d 211, 213-14, 500 N.E.2d 850,508 N.Y.S.2d 152 (1986). In addition, a post-conviction forfeiture action "mustbe dismissed at any time after sixty days of the commencement of the [civilforfeiture] action unless the conviction upon which the action is grounded hasoccurred, or an indictment or information upon which the asserted conviction isto be based is pending in a superior court." CPLR Ã‚Â§ 1311[1](a). In this case,the Defendants assert that the criminal conviction was encompassed in theDebtor's guilty plea before Justice Tammy Robbins. People v. Hardin, 67 A.D.2d12, 16, 414 N.Y.S.2d 320, 322 (1st Dep't 1979). The plea, along with the entirecriminal case against the Debtor, including the information, have been abated.See U.S. v. Wright, 160 F.3d 905, 908 (2d Cir. 1998) (when a convicted defendantdies during direct appeal, his death abates the appeal and the criminalproceedings from their inception). "Abatement" has been defined under common lawto mean:
the entire overthrow or destruction of the action, which results when the defendant pleads a matter that defeats the action, either for the time being or permanently. An action which has been abated is dead, and any further enforcement of the cause of action, requires the bringing of a new, action, provided that a cause of action remains.
2A Carmody-Wait 2d, N.Y. Prac. Ã‚Â§ 11.1. The practical effect of the abatementof the criminal action is to render the Stipulation, which is based on the pleaentered in the criminal action, a nullity. First, there is no information orindictment pending against the Debtor and there is no conviction, so theforfeiture action must be dismissed pursuant to CPLR 1311[1](a). Second, theStipulation provides that it shall remain in full force and effect "regardlessof the ultimate disposition of any potential criminal charges" giving rise tothe forfeiture action, but does not state that it shall remain in full force andeffect if the criminal action is abated. (Ex. 3 to Rebecca Winer Affidavit).Since abatement of the criminal action forecloses any disposition of thecriminal charges, this provision cannot serve to preserve the forfeiture grantedunder the Stipulation. The language of the forfeiture statute also requires afinding that the forfeiture action be treated as a nullity, because it requiresdismissal of a post-conviction forfeiture action if there is no convictionwithin sixty days of commencement of the action, or if there is no informationor indictment in the pending criminal action. Because of the abatement of thecriminal action, neither the indictment nor the information remain of record andas a result, there can be no post-conviction forfeiture action. In sum, it isaxiomatic that a post-conviction forfeiture action requires a conviction, whichconviction can never occur as a result of the Debtor's untimely death. Based onthese findings, the Property remains part of the Debtor's estate. The Defendantshave no right to retain the Property because they do not have title to theProperty, and they no longer have a valid order of attachment against theProperty.
While the Defendants assert that the fact that they commenced apost-conviction forfeiture action is significant, they argue that the abatementof the Debtor's conviction has no impact on the forfeiture action because it isa civil, remedial proceeding and survives the death of the Debtor. Aside fromignoring the statutory requirements that a conviction is a necessary componentof a post-conviction forfeiture action and the post-conviction civil forfeitureaction must be dismissed under the facts of this case, the Defendants' argumentis not supported by applicable case law. To bolster their argument that thecivil forfeiture action survives the death of the Debtor, the Defendants cite tovarious sections of the New York Estates, Powers and Trusts Law which permits arepresentative of a decedent's estate to be substituted in a civil action. Thefact that a representative of the Debtor's estate could be substituted for theDebtor in a civil action has no bearing on whether the Stipulation retainsvalidity after abatement of the criminal proceeding. The Defendants also cite toPeople v. Mintz, 20 N.Y.2d 753, 229 N.E.2d 712, 283 N.Y.S.2d 120 (1967), andU.S. v. Land, Winston County, 221 F.3d 1194 (11th Cir. 2000). However, the Mintzcase merely stands for the proposition that upon the death of a criminaldefendant during an appeal, the entire criminal prosecution is abated. As aresult, the holding of the Mintz case does nothing to support the Defendants'position. U.S. v. Land, Winston County is distinguishable because it concernswhether the death of a property owner during a civil forfeiture action abates anin rem forfeiture action. The Eleventh Circuit was not called on to determinewhether abatement of a criminal conviction had any effect on an in personamcivil forfeiture action similar to the forfeiture action commenced by the DAagainst the Debtor.
The Court of Appeals for the Second Circuit has not ruled on whether theabatement of a criminal action should apply to a related order of forfeiture orrestitution. U.S. v. Wright, 160 F.3d at 908. However, the Second Circuit hasnoted that the relevant issue for determining whether abatement applies to anorder of forfeiture or restitution is whether the order of forfeiture orrestitution is punitive and intended to punish the criminal defendant or whetherthe purpose of the action is to compensate the victims of a crime. Id. Althoughby its own terms, an Article 13-A forfeiture action is "civil, remedial and inpersonam in nature and shall not be deemed to be a penalty or criminalforfeiture for any purpose," it is remedial only in the sense that one of thepurposes of this forfeiture statute is to deter others from committing suchcrimes. In re Wolfson, 261 B.R. at 377. There are no victims to be compensatedin this forfeiture action, and to view the forfeiture action as either purelycompensatory or purely penal is incorrect. It is a civil action dependent upon acriminal conviction. In re Wolfson, 261 B.R. at 377. Its twin purposes are todeter others from committing crimes and to take the profit out of crime.Morgenthau v. Citisource, Inc., 508 N.Y.S.2d at 154-55. It is apparent that,regardless of the stated purpose of this forfeiture statute, the resultingforfeiture does exact a penalty on the defendant and does not compensate anyspecific victim.
This understanding of the true nature of the forfeiture action comports withthe Supreme Court's analysis of civil forfeitures under 21 U.S.C. Ã‚Â§ 881(a)(4)and (7) pertaining to drug offenses. In Austin v. United States, 509 U.S. 602,113 S. Ct. 2801, 125 L.Ed.2d 488 (1993), the Supreme Court held that whileforfeiture statutes may have remedial goals, they historically served to punishas well. According to the Supreme Court, this is particularly true where theforfeiture statute seeks to punish the party guilty of the wrongdoing, and notan innocent owner of the property to be forfeited. Austin v. U.S., 509 U.S. at619, 113 S. Ct. at 2810, 2811. While post-conviction forfeitures under Article13-A of the CPLR are not identical to the forfeiture statute analyzed by theSupreme Court, both statutes require that the criminal defendant be culpable ofa criminal offense prior to forfeiture. The Court finds the Supreme Court'sreasoning in Austin v. U.S. is equally applicable and supports this Court'sconclusion that forfeiture under Article 13-A of the CPLR has an unmistakablepunitive element.
Even if the Court were to adopt the Defendants' argument that the Stipulationremains valid regardless of the abatement of the criminal proceedings againstthe Debtor, the Defendants cannot point to any authority which permits a Chapter7 debtor to enter into a post-petition agreement to transfer property of theestate to a third party without the consent of the trustee. This is because adebtor has no power to transfer property of the estate once a petition is filed.In re Atravasada Land and Cattle Inc., 388 B.R. 255, 269 (Bankr. S.D. Tex. 2008). If the Stipulation is stripped of any reference to the abated criminal actionand is viewed merely as an agreement by the Debtor to transfer the Property tothe Defendants, it would be unenforceable. Any such transfer of property of theestate would also be subject to recovery by the Trustee under Bankruptcy Code Ã‚Â§549(a). Standing alone, the Stipulation cannot be honored because once thepetition was filed, only the Trustee had the authority to use, sell or leaseproperty of the estate pursuant to Bankruptcy Code Ã‚Â§ 363. Furthermore,Bankruptcy Code Ã‚Â§ 363 requires prior notice and a hearing before any use or saleof property of the estate outside the ordinary course of business can beapproved. An agreement by a debtor to transfer property of the estate withoutprior notice and a hearing is void and of no force and effect. In re Koneta, 357B.R. 540, 543 (Bankr. D Ariz. 2006).
2. Whether the Court's conclusion that the Property did not represents theproceeds of the crimes committed by the Debtor constitutes a factual errorsubject to correction under Rule 60(b)(1)
The Property consists of U.S. currency in the amount of $ 37,694.90, andassorted watches and jewelry of an undetermined value. Except for a small amountof the cash, the Nassau County Police Property Bureau has continuously held theProperty. According to the Defendants, the affidavits and exhibits submitted bythe Defendants in support of their summary judgment motion do not establish "oreven suggest" that the Property does not represent the proceeds of crimes. TheDefendants further argue that this mistake of fact affected the Court's analysisof its legal arguments in the underlying motion. In support of their motion forsummary judgment, the Defendants submitted a copy of the summons and complaintin this adversary proceeding, the summons and verified complaint in the civilforfeiture action, a copy of the transcript of the plea hearing before JusticeTammy Robbins, and a copy of the Stipulation. The Defendants also submitted aone-page affidavit by Marc E. Weiman, Esq., Deputy County Attorney for theCounty of Nassau, in which he states that his office did not participate in theSection 341 meeting held August 21, 2008 because his office did not receivenotice of the Debtor's bankruptcy, and that the Debtor committed suicide onOctober 2, 2008. In addition, the Defendants submitted an Affidavit of RebeccaWiner, an Assistant District Attorney for Nassau County. The Stipulationcontains a reference to the Property as proceeds, substitute proceeds and/orinstrumentalities of the Debtor's criminal conduct, as does the Affidavit ofRebecca Winer. These references track the language of Article 13-A of the CPLR,and do nothing more than support a finding that the Defendants were relying onthis forfeiture statute as the basis for seeking forfeiture of the Property. Thestatute itself uses the same language, stating that a civil action may becommenced against a criminal defendant "to recover the property whichconstitutes the proceeds of a crime, the substituted proceeds of a crime, aninstrumentality of a crime or the real property instrumentality of a crime or torecover a money judgment in an amount equivalent in value to the property whichconstitutes the proceeds of a crime, the substituted proceeds of a crime, aninstrumentality of crime, or the real property instrumentality of a crime." CPLRÃ‚Â§ 1311[1]. 2 Case law is clear that this particular forfeiture statute does notrequire that the assets subject to the provisional order of attachment betraceable to the alleged crimes. They can include any assets of the criminaldefendant which could be used to satisfy a potential judgment in the forfeitureaction. Morgenthau v. Citisource, Inc., 68 N.Y.2d at 220. The Defendantsrecognized this in the civil forfeiture complaint, pursuant to which theDefendants sought either forfeiture of the proceeds or substitute proceeds ofthe criminal acts or a monetary judgment equivalent to the value of such items.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -2 "Proceedsof a crime" means "any property obtained through the commission of a felony ...and includes any appreciation in value of such property." CPLR Ã‚Â§ 1310[2]."Substituted proceeds" "means any property obtained by the sale or exchange ofproceeds of a crime, and any gain realized by such sale or exchange." CPLR Ã‚Â§1310[3].- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
The Defendants also filed additional exhibits in support of their Motion,which were not part of the record during the underlying proceedings, including adeclaration by Rebecca Winer explaining that the Property was initially seizedfrom the Debtor's residence and business address pursuant to search warrantsissued pursuant to two orders signed by Justice Frank A. Gulotta on November 9,2007, after a lengthy investigation of the Debtor's drug sale activities. TheDefendants also submitted a copy of the Debtor's confession, and an affidavit byThomas Kelly, a member of the Nassau County Police Department, which wassubmitted in support of the motion for the order of attachment issued inconnection with the civil forfeiture proceedings. These additional exhibits arepart of the criminal action, which has been abated. There is no allegation thatthey are newly discovered evidence, and there is no allegation that they werenot in the Defendants' possession at the time of the hearing on the motion forsummary judgment. In fact, at the close of the hearing during the underlyingproceedings, the Court gave the Defendants an opportunity to supplement theirmotion with any additional documents they wished to submit, and the Defendantsdeclined to do so. The Defendants' decision to refrain from submitting theseother documents which they now rely on does not warrant granting of relief undersubsection (1) of Rule 60(b). Where the mistake complained of is substantiallydue to the party's own neglect or choice of conduct, the party is not entitledto relief from the judgment. See Paddington Partners v. Bouchard, 34 F.3d 1132,1147 (2d Cir. 1994) (failure to marshal all known facts in connection with amotion for summary judgment does not constitute grounds for relief under Rule60(b)); Moolenaar v. Government of Virgin Islands, 822 F.2d 1342, 1347 (3dCir.1987) (district court abused its discretion by granting plaintiff's reliefunder Rule 60(b) where plaintiff was partly responsible for not presenting thenew evidence prior to the original judgment); Kahle v. Amtorg Trading Corp., 13F.R.D. 107, 108-09 (D.N.J.1952) (court denied plaintiffs' Rule 60(b) motion whenthey sought to introduce documents that they recently discovered in theirfiles).
Even if the Court were to permit these additional documents into the recordin support of the Defendants' argument, a finding that the Property didconstitute proceeds of the Debtor's criminal enterprise would not change theCourt's analysis of whether the Property was property of the Debtor's estate asof the Petition Date. First, the Debtor's conviction and the entire criminalproceeding have been abated, which calls into question whether the Property canever be the proceeds or substitute proceeds of a crime which no longer exists.Second, the argument actually advanced by the Defendants was that under thetheory of relation-back, title to the Property vested with the Defendants as ofthe date that the criminal acts were committed, not after the Stipulation wasso-ordered. However, the statute under which the DA sought forfeiture has noapplicable relation-back provision. Kuriansky v. Bed-Stuy Health Care Corp..,135 A.D.2d 160, 175, 525 N.Y.S.2d 225 (N.Y. App. Div. 1988). Therefore, definingthe nature of the Property is not the critical issue under this particularstatute. Article 13-A of the CPLR permits attachment of property whether or notit constitutes proceeds of a criminal enterprise.
The cases cited by the Defendants in support of their argument did notconcern general theories regarding the nature of property and whether certainproperty could ever be property of a debtor's estate. Rather, the cases involvedforfeiture statutes with relation-back provisions. In In re Chapman, 264 B.R.565 (B.A.P. 9th Cir. 2001), the federal government had commenced a forfeitureaction pursuant to 21 U.S.C. Ã‚Â§ 881, which specifically provides in subsection(h) that "[a]ll right, title, and interest in property [forfeited] shall vest inthe United States upon commission of the act giving rise to forfeiture underthis section." In U.S. v. Kramer, 2006 U.S. Dist. LEXIS 89034, 2006 WL 3545026(E.D.N.Y. December 8, 2006), the forfeiture action in question involved afederal criminal forfeiture statute which also specifically included arelation-back provision. There is no similar provision in Article 13-A of theCPLR. It is clear that title does not vest in the claiming authority until aftera valid order of forfeiture has been entered, and there is no relation-backprovision in this statute.
According to the Defendants, they raised two arguments which the Courtoverlooked in the underlying motion for summary judgment which concern thenature of the Property; 1) the Property never became property of the Debtorunder Bankruptcy Code Ã‚Â§ 541 because a debtor cannot have a legally cognizableinterest in property that constitutes criminal proceeds, and 2) to the extentthe Debtor had any legally cognizable interest in the Property as of thePetition Date, he did not have an equitable right to possess, use or direct theuse of the Property because the Property had been seized prepetition. As aresult of the limitations imposed by the order of attachment, the Property didnot constitute property of the Debtor's estate under Bankruptcy Code Ã‚Â§ 541. TheDefendants are correct that pursuant to a Rule 60(b)(1) motion, the Court canconsider whether it overlooked an argument previously raised by a party.However, there is no evidence from the record before the Court that thesearguments were briefed, argued, or even raised. The Defendants' sole argument insupport of their assertion that the Property was not part of the Debtor'sbankruptcy estate was based on the theory of relation-back. The Defendants neverraised or cited to any case law regarding whether the Property was excluded fromthe Debtor's estate based on any other legal theory. The Defendants cannotutilize Rule 60(b)(1) to advance new legal arguments they wish they had made attime the original motion was filed. Paddington Partners v. Bouchard, 34 F.3d at1147 (citing Nemaizer v. Baker, 793 F.2d at 62). It is not a mistake of fact orlaw if the Court does not consider a legal argument which was never raised forthe Court to consider. Therefore, the request to reconsider whether the Propertyconstituted proceeds of a crime is denied.
3) Whether the Court's conclusion that the now abated conviction occurredpost-petition upon entry of the Stipulation, not prepetition upon entry of theDebtor's plea constitutes an error of fact which must be corrected under Rule60(b)
Based on the intervening abatement of the criminal proceeding includingabatement of the plea, this issue is relevant only in that the plea was abatedalong with the entire criminal proceeding. To the extent the plea constitutesthe conviction in this case, the Court shall correct the record. However,altering the Decision to reflect that the conviction occurred as of the entry ofthe plea does not change the Court's analysis regarding whether the Debtor wasdivested of the Property prepetition. The essential issue was whether the actswhich took place prepetition, or even post-petition, sufficed to divest theDebtor of an interest in the Property as of the Petition Date. The Court foundthat divestment did not occur prepetition as the Stipulation had not yet beenso-ordered. In fact, the Defendants concede in their Reply Memorandum that as ofthe Petition Date, the Debtor had not yet signed the Stipulation, and state that"at the time the Debtor filed his petition, he still had the right to withdrawhis plea and challenge the civil forfeiture." Defendants' Reply Memorandum datedApril 29, 2009, note 7. Recognizing that the Debtor's plea constituted hisconviction does not affect the Court's finding that the Debtor retained aninterest in the Property as of the Petition Date. In any event, the plea hasbeen abated along with the criminal conviction and no longer stands.
4) Whether the Court made an error of law in its analysis of whether thepost-petition actions of the Defendants in the forfeiture proceeding constitutedan exception to the automatic stay pursuant to Bankruptcy Code Ã‚Â§ 364(b)(4)
In the Decision, the Court found that the issue of whether the actions takenby the Defendants post-petition were exempt under Bankruptcy Code Ã‚Â§ 362(b)(4)was not germane to the issues raised in the adversary proceeding. However, theCourt found that nothing regarding applicability of the automatic stay wouldchange the Court's finding that as of the Petition Date, the Property belongedto the Debtor. Contrary to the Defendants' assertions, this Court did not findthat commencement or continuation of actions by the government in furtherance ofits police or regulatory powers are not exempt from the stay. Rather, this Courtfound that any action to seize the Property would not fall within the exceptionto the automatic stay set forth in Bankruptcy Code Ã‚Â§ 362(b)(4). Given that theStipulation, is now a nullity, there is no reason for the Court to decidewhether any acts by the Defendants to take possession of the Property would bestayed. This issue is not properly before the Court because, for the reasons setforth above, the Defendants do not currently have any right to take possessionor ownership of the Property. Therefore, the portion of the Decision regardingthe applicability of the automatic stay to any action to take possession of theProperty is vacated. Based on the Court's rulings in the Decision which areunaffected, the Defendants are not stayed from commencing a forfeiture action solong as the action falls within the exception to the automatic stay set forth inBankruptcy Code Ã‚Â§ 362(b)(4). Because the Court has no information regarding whatexactly the Defendants may do, the Court will not comment any further, except tostate that the Trustee will be permitted to participate in any such action,armed with the powers conferred upon the Trustee under Bankruptcy Code Ã‚Â§ 544(a)and any other applicable statute.
For the reasons set forth above, the Motion is denied, except to correct thatthe forfeiture action against the Debtor was an action based on post-convictionforfeiture crimes, not pre-conviction forfeiture crimes. Because the convictionof the Debtor, along with the entire criminal proceeding, was abated after theCourt rendered the Decision, the post-conviction forfeiture action as set forthin Article 13-A of the CPLR is of no force and effect. The Stipulation is of noforce and effect as well, and the Defendants have no valid lien against or titleto the Property. As a result, the Court vacates the portion of the Decisionwhich finds that any attempt to seize the Property pursuant to thepost-conviction forfeiture action violates the automatic stay, because there isno valid post-conviction forfeiture proceeding pending. To the extent that theDefendants seek to commence a forfeiture action against the Property, suchaction will not be stayed so long as the action falls within the exception tothe stay set forth in Bankruptcy Code Ã‚Â§ 362(b)(4). The Trustee shall have theright to assert any defenses it has under the Bankruptcy Code including thosegranted under Bankruptcy Code Ã‚Â§ 544(a). An order consistent with this MemorandumDecision shall be entered forthwith.