Opinion ID: 1057121
Heading Depth: 2
Heading Rank: 2

Heading: Obtained Indirectly

Text: Section 982(a)(2) directs that a person must forfeit to the United States any proceeds the person obtained directly or indirectly, as the result of such violation. As he did before the district court, the defendant argues on appeal that it was the Companies, not he, that obtained the proceeds of the Chase loan. The government responds that the defendant should not be permitted to shield himself from liability behind the Companies' corporate form. 21 It asserts that the district court properly pierced the corporate veil to find that the defendant obtained the loan proceeds through his corporate alter ego. The proceeds subject to forfeiture are those obtained both directly and indirectly as a result of the criminal violation. 18 U.S.C. § 982(a)(2). It seems to us beyond doubt that any loan proceeds transferred from the Companies to the defendant personally are obtained by him directly and are properly subject to forfeiture. This, however, accounts for only a relatively small fraction of the forfeiture award -- just over $2.3 million. The second, more difficult issue -- and one as to which the parties have not identified any prior decision binding on us -- is under what circumstances an individual can be said to have obtained . . . indirectly the proceeds of his criminal conduct through a corporate entity. The district court analyzed the question with reference to New York's complete domination theory of corporate alter ego liability and found that the defendant obtained the loan proceeds because the Companies were his alter egos for purposes of piercing the corporate veil. Peters, 257 F.R.D. at 385. Applying this theory of liability, the district court concluded that the defendant obtained the loan proceeds indirectly through the Companies as his corporate alter egos. 22 The court based its conclusion on the fact that: (1) the defendant and his wife together owned 98 percent of the Companies and the defendant's sisterin-law owned 1 percent, leaving only 1 percent of the Companies outside of family control; and (2) the defendant controlled [the Companies] on a day-today basis. Id. Among other things, the court found that Peters hired new employees; directed product managers at [the Companies] on all aspects of business; moved money in and out of [the Companies], and had the ability to direct wire transfers from the corporate accounts; owned or had interests in the companies that owned the buildings where [the Companies] were housed, as well as other corporate entities that had business relationships with [the Companies]; directed the corporate accounting and billing methods; knew about, approved, and directed the practices of 'holding months open,' 'prebilling,' 'rebilling,' and the use of false invoices, which essentially constituted the fraud against Chase; and was instrumental in securing and renewing the line of credit with Chase in June 1998. Id. at 385-86. The court concluded that the evidence demonstrated that the defendant completely dominated [the Companies] such that they were his alter egos. Id. at 386. Although the district court relied on the doctrine of piercing the corporate veil, we find it unnecessary to do so and thereby avoid entering into 23 the somewhat complicated jurisprudence involved. See Morris v. N.Y. State Dep't of Taxation & Fin., 82 N.Y.2d 135, 140-41, 623 N.E.2d 1157, 1160, 603 N.Y.S.2d 807, 810 (1993) (The doctrine of piercing the corporate veil is typically employed by a third party seeking to go behind the corporate existence in order to circumvent the limited liability of the owners and to hold them liable for some underlying corporate obligation . . . . Thus, an attempt of a third party to pierce the corporate veil does not constitute a cause of action independent of that against the corporation . . . .). We conclude instead that, under the terms of the statute, the defendant indirectly obtained the loan proceeds, rendering him liable for forfeiture in connection with them.3 Because the question of whether an individual obtains proceeds indirectly through a corporation involves the interpretation of a federal statute, we examine it under federal law. See Miss. Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 43 (1989) ([I]n the absence of a plain indication to the contrary, . . . Congress when it enacts a statute is not making the application of the federal act 3 See Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 405 (2d Cir. 2006) ([W]e are free to affirm a decision on any grounds supported in the record, even if it is not one on which the trial court relied.). 24 dependent on state law. (internal quotation marks omitted; ellipsis in original )).4 We therefore do not suggest that the government must satisfy state law requirements for piercing the corporate veil in order to establish that proceeds of criminal activity were indirectly obtained under the forfeiture statute. But although we reject the government's assertion that New York law controls this issue, see Gov't Br. at 70 n.8, we agree with the district court's analysis insofar as it borrowed from principles of alter ego liability that may be relevant to the question of whether an individual indirectly obtained the proceeds of his or her criminal conduct through a corporation. Also drawing in part on principles of alter ego liability, we conclude that, in the context of a criminal forfeiture proceeding under section 982, an individual obtains proceeds indirectly through a corporation when the individual so extensively control[s], First Nat. City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 629 (1983), or dominate[s], 4 Even in the absence of this presumption, because this case arises under federal question jurisdiction and involves a federal statute that demands national uniformity, federal common law, not New York State law, presumably controls the question of whether the corporate veil should be pierced. See Brotherhood of Locomotive Engineers v. Springfield Terminal Ry. Co., 210 F.3d 18, 25-26 (1st Cir. 2000); see generally Note, Piercing the Corporate Veil: The Alter Ego Doctrine under Federal Common Law, 95 Harv. L. Rev. 853 (1982) (describing circumstances under which federal law should govern the corporate veil-piercing inquiry). 25 Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 17 (2d Cir. 1996), the corporation and its assets that money paid to the corporation was effectively under the control of the individual. Factors that we think are likely to be relevant to this question include the individual's ownership interest; the level of control he exercised over the company; his authority to direct the disposition of corporate assets and the degree to which he exercised that authority; and the use of corporate assets for his personal expenses. The district court made several sound factual findings to support its conclusion that the corporate veil should be pierced to hold the defendant liable for forfeiture of the loan proceeds. While we find it unnecessary to employ that doctrine here, most of the court's findings are equally relevant to the question of whether the defendant obtained the loan proceeds indirectly. Of particular significance are the court's findings that the defendant and his family together owned 99 percent of the company; that the Companies operated under [the defendant's] direction and control, and all significant tasks were completed according to his instructions; that the defendant moved money in and out of [the Companies], and had the ability to direct wire transfers from the corporate accounts; that he directed the corporate accounting and billing methods and directed the practices of 'holding months open,' 'prebilling,' 26 'rebilling,' and the use of false invoices; and that he was instrumental in securing and renewing the line of credit from Chase, which he could access at will. Peters, 257 F.R.D. at 385-86. The district court also noted that the defendant paid himself an escalating salary from $100,000 to $120,000 in 1990 to between $285,000 and $287,000 in 2000, and that WAPI paid for two vehicles for the defendant, neither of which were used for corporate business. Id. at 385. We see no error, let alone clear error, in the district court’s factual determinations. Based on them, we conclude that Peters did indeed obtain indirectly the proceeds of his criminal conduct, i.e., the relevant loan proceeds. He effectively owned 99 percent of the Companies and exercised almost total control over their management and finances. He also had complete access to and control over the Companies' assets. We therefore agree with the district court that the defendant should be held accountable for forfeiture of the loan proceeds, although we reach this conclusion on the ground that the defendant himself obtained these proceeds indirectly.