Opinion ID: 2798222
Heading Depth: 2
Heading Rank: 3

Heading: Ancillary Hearing

Text: On May 8, 2012, pursuant to the procedures governing third‐party claims to assets subject to forfeiture under 18 U.S.C. § 982, the government sent written notice of the district court’s preliminary orders of forfeiture to potential claimants, including Watts and D&B. On June 7, 2012, Watts and D&B filed a joint Verified Petition (the “Petition”) claiming an interest in the contested funds on the basis of the August 11, 2011 Assignment. The Petition alleged that Watts’s employers had previously promised to pay any legal fees associated with his criminal charges, and that USW’s conveyance of its interests in the contested funds to D&B partially satisfied this preexisting “obligation . . . to advance funds for Mr. Watts’ defense.” App’x at 136. Petitioners claimed that D&B was 11 therefore entitled to the contested funds on two grounds: first, as heir to USW’s superior interest in the JP Morgan Chase accounts as true owners of the funds under 21 U.S.C. § 853(n)(6)(A), and second, as a bona fide purchaser for value reasonably without cause to believe the funds were subject to forfeiture under 21 U.S.C. § 853(n)(6)(B).1 On August 10, 2012, the government moved to dismiss the Petition. First, it argued that D&B lacked any cognizable claim to the forfeited assets because the August 11, 2011 Assignment was a fraudulent conveyance, made by an insolvent transferor without fair consideration in violation of New York law. Second, it argued that D&B could not state a claim for relief under either prong of 21 U.S.C. § 853(n)(6), because D&B received the Assignment of the contested funds long after the commission of Dupree’s offense, see id. § 853(n)(6)(A), and because D&B had notice that the government sought forfeiture of the funds and failed to purchase those funds for value, see id. § 853(n)(6)(B). Petitioners responded by contesting the government’s standing to dispute the validity of the Assignment under state law and filing a cross‐motion for judgment on the pleadings. 1 Watts joined the Petition as a third‐party beneficiary of the Assignment to D&B. The parties do not challenge his status as a third‐party beneficiary on appeal. 12 On January 28, 2013, the district court granted the government’s motion to dismiss and denied petitioners’ cross‐motion for judgment on the pleadings. See United States v. Dupree, 919 F. Supp. 2d 254, 259 (E.D.N.Y. 2013). As a preliminary matter, the district court dismissed petitioners’ attacks on the government’s standing as contrary to the language of the forfeiture statute, which expressly empowered the government to rebut a petitioner’s claims in an ancillary forfeiture proceeding. See id. at 264‐65. Nevertheless, it determined that the facts alleged in the Petition, assumed to be true, plausibly asserted that the Assignment was a valid transfer, giving petitioners standing to stake their claim to the contested funds. See id. at 267. On the merits, however, the district court agreed with the government that petitioners had failed to state any plausible claim for relief. First, it held that petitioners could not claim priority of ownership over the contested funds under § 853(n)(6)(A) because, contrary to that provision, the Assignment granting D&B an interest in the funds occurred years after the start of Dupree’s criminal conspiracy. See id. at 268‐69. Second, it held that petitioners could not qualify for relief under § 853(n)(6)(B) because, even assuming that D&B had purchased USW’s funds for value, it was undoubtedly aware, as Watts’s counsel of record, 13 that the government sought forfeiture of those funds. See id. at 270. Taken together, the government’s initial seizure of the funds in July 2010, the forfeiture count included in Watts’s indictment as early as August 13, 2010, and the government’s Bill of Particulars identifying USW’s four accounts for potential forfeiture ensured that D&B “had notice that the funds were forfeitable since well before the execution of the Assignment on August 11, 2011.” Id. The district court rejected petitioners’ argument that its July 27, 2011 determination that the government had failed to establish probable cause to restrain $633,499.24 left D&B reasonably without cause to suspect that those particular funds were still subject to forfeiture. Because, as this Court noted in dismissing Watts’s appeal, the government’s failure to establish probable cause at the Monsanto hearing “‘did not bar the government from seeking the forfeiture of the funds following a trial’” and consequently “did not foreclose the ultimate forfeitability of the [property],” id. at 271‐72, quoting Watts, 477 F. App’x at 817, the district court insisted that its July 27, 2011 order could not have stripped D&B of reasonable cause to believe that the funds could still be forfeited following trial. 14 Similarly, the district court rejected petitioners’ claims that D&B had no grounds to suspect that the funds were subject to forfeiture because USW, rather than Dupree, owned the bank accounts in question. Noting that 21 U.S.C. § 853(a)(1), which is incorporated into 18 U.S.C. § 982, explicitly authorizes the forfeiture of “any property” “derived” from proceeds of a defendant’s offense, and that the jury in Dupree’s trial had found that the funds in all four bank accounts traced back to Dupree’s conspiracy, the court concluded that USW’s ownership of the accounts neither precluded the forfeiture nor affected D&B’s entitlement to relief as a bona fide purchaser under § 853(n)(6)(B). Id. at 273‐74.