Opinion ID: 6500514
Heading Depth: 2
Heading Rank: 3

Heading: Delay in Forfeiture of Pelullo’s Property

Text: During its investigation, the government seized a yacht and a Bentley automobile that it believed Pelullo and Scarfo acquired with the proceeds of their criminal enterprise. It did not seek to formally acquire title to those assets until three years later, when it requested their forfeiture as part of the indictment. Pelullo objects to that delay as violating both the Civil Asset Forfeiture Reform Act of 2000 (“CAFRA”) and the Fifth Amendment’s Due Process Clause. But he gave up his rights under CAFRA, and the government’s delay in initiating a criminal forfeiture proceeding was not so unreasonable as to violate due process, so he is not entitled to relief.
In May 2008, FBI officials executed two warrants authorizing them to seize the yacht “Priceless,” which was docked in a marina in Miami, and Pelullo’s 2007 Bentley automobile, which was also in Miami at the time. The officials obtained those warrants based on affidavits alleging that the yacht and Bentley had been purchased with the proceeds of Scarfo’s and Pelullo’s unlawful activities at FirstPlus. The FBI then immediately turned the yacht – which it valued at $850,000, the price for which the vessel was purchased – over 144 to the United States Marshals Service. The Marshals Service, in turn, contracted with a private company to maintain the yacht. A few days later, attorney Mark Cedrone – who briefly represented Pelullo before the District Court – wrote to the government on behalf of PS Charters, a company that Scarfo and Pelullo had set up to conceal their ownership of the yacht. Cedrone “demand[ed] the immediate return of [the yacht] to PS Charters[,]” claiming that the vessel was acquired for legitimate business use and that the seizure “deprived PS Charters of the opportunity to further its … business as planned[.]” (D.I. 662-10 at 2.) As the government showed at trial, however, that was not true. PS Charters was owned by Seven Hills and LANA and was set up to allow Pelullo and Scarfo to buy the boat for their own personal use, while avoiding detection. Although PS Charters nominally owned the yacht, Pelullo had a financial interest in the ship through Seven Hills, which owned a fiftyfifty interest in PS Charters with LANA. Pelullo controlled Coconut Grove Trust – of which his children were nominally beneficiaries – which owned Seven Hills. In response to Cedrone’s letter, the government informed Cedrone that it was prepared to file a civil action to seek forfeiture of the yacht but that Pelullo would have to submit to civil discovery, including a deposition. Cedrone then changed course and said that, while his client was still “considering judicial action[,]” “it would seem to be in everyone’s interests that at least the [yacht] be sold and we can 145 then later fight about the proceeds.” 98 (D.I. 700-1 at 4). Pelullo’s trial counsel later admitted before the District Court that it was “possibly right” that Cedrone “didn’t [want] to submit” Pelullo to depositions and that he “kind of backed off” his request for the return of the yacht.99 (JAB at 3913-14.) That was the end of the dialogue between Cedrone and the government until the following year, when the government “called him and advised him that the boat was actually totaled.” (JAB at 3914.) “Totaled,” as Pelullo’s trial counsel put it, was not an exaggeration. While the precise chain of events is unclear, the yacht suffered irreparable damage to its engines when, in July 2009, it sank following maintenance undertaken during the third-party contractor’s possession. The government then negotiated a $450,000 insurance payout, which was substituted for the ship during the forfeiture proceedings. See supra note 93. When the government obtained the indictment in 2011, it included five criminal forfeiture allegations against Pelullo and some of the other Defendants, each associated with 98 Cedrone also acknowledged that he was representing PS Charters (this time, along with Seven Hills) “in connection with the Government’s seizure of … the Bentley automobile[,]” but he did not express any desire for the return of the car. (D.I. 700-1 at 4.) 99 Particularly in light of that concession, Pelullo’s claim that “the Government did absolutely NOTHING in response” to “Cedrone’s requests” is an obvious misstatement of the record. (SP Opening Br. at 212.) 146 specific counts. The allegations all requested the forfeiture of the proceeds of those offenses, which included the yacht and the Bentley, as well as an airplane, jewelry, and the contents of various bank accounts. After Cedrone’s initial dialogue with the government, Pelullo did not press his claim for return of the yacht or pursue any judicial action until more than five years later. In September 2013 – on the eve of trial – Pelullo filed a motion for the return of his property pursuant to Federal Rule of Criminal Procedure 41(g), seeking the Bentley, a 50% interest in the yacht, and certain cash, several computers, and FirstPlus stock. The District Court denied the motion, finding that Cedrone had waived “any rights that [Pelullo] had” to a prompt initiation of a civil forfeiture action by failing to “follow up” after his initial communications with the government.100 (JAB at 3930.) The Court completed the criminal forfeiture process after the Defendants were convicted. It held a separate forfeiture proceeding, at the conclusion of which the jury found, beyond a reasonable doubt, that the property referenced in the indictment – including the yacht and the Bentley – was subject to forfeiture. 100 The District Court also found that Pelullo failed to demonstrate an ownership interest in the yacht. The government does not rely on that finding in defending the Court’s decision, “[i]n light of the trial evidence regarding Pelullo’s control of Seven Hills and the Coconut Grove Trust[.]” (Answering Br. at 249 n.56.) 147
Pelullo asserts that he was entitled to the protections of CAFRA, 18 U.S.C. § 983 et seq. That statute governs nonjudicial forfeiture, a process that allows the government to obtain title to seized property without any involvement by the courts, as long as it gives affected parties timely notice and no one comes forward to claim an interest in the property. Langbord v. U.S. Dep’t of Treasury, 832 F.3d 170, 182 n.4 (3d Cir. 2016) (en banc); see also 18 U.S.C. § 983(a)(1)(A)(i), (a)(2)(B); 19 U.S.C. §§ 1607(a), 1609. If someone does contest the seizure, the government must then promptly initiate a civil or criminal judicial forfeiture proceeding and obtain a court order to allow title to pass to the United States. 18 U.S.C. § 983(a)(3). Pelullo argues that the government violated CAFRA’s deadlines for giving notice of a forfeiture and initiating a forfeiture action. But that claim comes too late. Pelullo waived any rights he may have had under CAFRA, just as the District Court said. See United States v. Desu, 23 F.4th 224, 231 (3d Cir. 2022) (“Waiver is an ‘intentional relinquishment or abandonment of a known right.’” (citation omitted)). The government represented, and Pelullo does not argue otherwise, that it was prepared to initiate judicial forfeiture proceedings when, through counsel, PS Charters demanded the yacht. As soon as the prospect of Pelullo facing discovery in a civil forfeiture 101 We review for clear error the District Court’s factual determination of waiver. See Resol. Tr. Corp. v. Forest Grove, Inc., 33 F.3d 284, 285 (3d Cir. 1994); Bermuda Exp., N.V. v. M/V Litsa (Ex. Laurie U), 872 F.2d 554, 562 n.7 (3d Cir. 1989). 148 action arose, however, PS Charters decided to “back[] off” and to consent to the government not filing any action. (JAB at 3913-14, 3921.) It was not until five years later that Pelullo himself demanded the return of the property. He offers no basis for disturbing the District Court’s finding that his actions constituted a waiver of his rights under CAFRA. 102 PS Charters was Pelullo’s tool.103 After employing it to, in effect, ask the government not to initiate civil forfeiture proceedings, Pelullo cannot now complain that the government’s failure to file an action violated his rights.104 102 Pelullo does not address the legal significance of Cedrone’s discussions with the government except to call them, without explanation, “a complete red herring[.]” (SP Reply Br. at 47-48.) 103 In so recognizing, we are not engaged in an ersatz corporate veil-piercing. Rather, Pelullo admits that PS Charters was his tool by asserting that Cedrone was really acting on his behalf in requesting the return of the yacht. How much PS Charters was also under Scarfo’s control is not a question before us. 104 Pelullo also points to Department of Justice policy statements that set internal deadlines for bringing a judicial forfeiture action. But the government’s internal policies, such as its Asset Forfeiture Policy Manual, do not “create enforceable rights for criminal defendants[,]” so Pelullo would not be entitled to relief even if the government failed to abide by its own rules. United States v. Wilson, 413 F.3d 382, 389 (3d Cir. 2005). 149
Pelullo also claims that the government’s “indefinite” – actually, forty-two-month – “retention of property” between the seizure and the filing of the criminal indictment “trampled upon” his right to due process. (SP Opening Br. at 219.) When the government seizes property, it cannot hold it forever. Rather, due process requires that it afford a property owner a judicial hearing without “undue delay.” United States v. Eight Thousand Eight Hundred & Fifty Dollars ($8,850) in U.S. Currency, 461 U.S. 555, 564 (1983). Borrowing from jurisprudence under the Speedy Trial Clause of the Constitution, we take a “flexible approach” in assessing the reasonableness of a delay in filing a forfeiture action, looking to (1) the length of the delay, (2) the reason for it, (3) the timing of the claimant’s assertion of his rights, and (4) any prejudice to the claimant caused by the delay. Id. at 562, 564 (citing Barker v. Wingo, 407 U.S. 514, 530 (1972)). No one factor is dispositive, as they are all merely “guides” in helping us balance the competing interests of the claimant and the government to determine whether “the basic due process requirement of fairness” has been met. Id. at 565. The substantial length of the delay here – almost fortytwo months between the seizure of the yacht and Bentley on May 8, 2008, and the grand jury’s issuance of the indictment 105 We review the District Court’s factual findings for clear error and its analysis of whether Pelullo’s due process rights were violated de novo. Burkett v. Fulcomer, 951 F.2d 1431, 1437-38 (3d Cir. 1991). 150 on October 26, 2011 – decisively favors Pelullo, a conclusion the government does not dispute. See id. at 565 (deeming delay of eighteen months “quite significant”). On the second factor, Pelullo contends that the government’s reason for that delay was “simple [g]overnment failure to take any required action[.]” (SP Opening Br. at 217.) The government responds that the timing of the indictment was not the product of bad faith or frivolous concerns, but rather the complexity of the criminal case and the “substantial tasks facing the prosecutors after the warrants were executed.” (Answering Br. at 263.) The government has the better of that argument. Although the pendency of criminal proceedings “does not automatically toll the time for instituting a forfeiture proceeding[,]” $8,850, 461 U.S. at 567, the government may often have good cause to wait to seek forfeiture as part of a criminal prosecution rather than pursuing a separate civil forfeiture proceeding in advance of an indictment. A civil action could “substantially hamper” the prosecution by “serv[ing] to estop later criminal proceedings” or “provid[ing] improper opportunities for the claimant to discover the details of a contemplated or pending criminal prosecution.” Id. Saving the forfeiture claim for the criminal proceeding may help a claimant too: “[i]n some circumstances, a civil forfeiture proceeding would prejudice the claimant’s ability to raise an inconsistent defense in a contemporaneous criminal proceeding.” Id. Those are serious concerns, and we are hardpressed to say that the government’s reason for choosing the criminal-forfeiture route was an improper one. 151 That is especially true given the complexities of the criminal proceedings here. We have no doubt that it took considerable time for the government to process all the data it seized from various searches, select the appropriate criminal charges for the co-conspirators, and draft the resulting 25count, 107-page indictment. There is also no indication in the record that the government failed to pursue its investigation with diligence or intentionally delayed in securing an indictment. See $8,850, 461 U.S. at 568; cf. United States v. Velazquez, 749 F.3d 161, 186 (3d Cir. 2014) (finding that second factor cuts “strongly” in defendant’s favor due to government being “strikingly inattentive” in bringing defendant to trial). We thus cannot say that the reasons for the delay are inadequate and favor Pelullo. Pelullo fares even worse on the third factor – the timing of the claimant’s assertion of a right to judicial review of the seizure – since he initially invoked his rights and then changed his mind and backed off the request. As discussed above, Pelullo waived his rights by agreeing through counsel that the government need not immediately initiate judicial forfeiture proceedings. He then did nothing for five years and only filed a motion to get the property back roughly two years after he was indicted. His contention that he “asserted [his right] from the very outset of the seizure” cannot be squared with the record. (SP Opening Br. at 217.) That inaction weighs heavily against him when considering whether a due process violation occurred. Specifically, a defendant’s failure to file a Rule 41(g) motion or, “[l]ess formally,” request the return of his seized property “can be taken as some indication that [the defendant] did not desire an early judicial hearing.” $8,850, 461 U.S. at 569; cf. 152 United States v. Ninety Three Firearms, 330 F.3d 414, 424-26 (6th Cir. 2003) (finding no due process violation where the claimant’s “sole attempt to regain his property consisted of a letter he filed shortly after the seizure”). Finally, as to the fourth factor, Pelullo claims prejudice by arguing that, “because of the [g]overnment’s dilatory conduct[,]” he “lost” a number of “key witnesses” – mainly various FirstPlus-affiliated officers and attorneys – who could have aided in his defense but passed away prior to his indictment. (SP Opening Br. at 221.) Pelullo provides a list of those individuals, along with their titles and connections to him or FirstPlus, but he fails to identify what admissible evidence he could have elicited from any of those persons to help his case. His conclusory claims that certain witnesses would have been “key” or “provide[d] information favorable to the defense” on certain issues are insufficient to establish prejudice.106 (SP Opening Br. at 102-03.) See United States v. Childs, 415 F.2d 535, 539 (3d Cir. 1969) (finding no “prejudicial delay whatsoever” from deceased and unavailable witnesses because 106 Pelullo also suggests that the seizure of his assets left him unable to hire his counsel of choice. The Supreme Court, however, has held that neither the Fifth Amendment nor the Sixth Amendment prevents the government from seizing, prior to trial, assets that a defendant “might have wished to use to pay his attorney.” United States v. Monsanto, 491 U. S. 600, 616 (1989). Moreover, even if we were to agree with Pelullo on his point, the overall balance of the factors – particularly the reason-for-delay and timely-assertion-of-rights factors – would still tilt the balance decisively against him. 153 defendant did not show how their testimony would have been material to his defense). In sum, the balancing of factors precludes a determination that Pelullo’s due process rights were violated. But our conclusion that Pelullo has not made out a due process violation should not be read as approval of the government’s conduct in this case. While the yacht sat in the custody of a third party to whom the Marshals Service had entrusted it, it sank and suffered irreparable damage. At that point, the United States had not formally secured title to the vessel – nor had any forfeiture proceeding even begun. Though the cause of the boat’s loss is not clear from the record, the government is left in a very poor light. It ought to go without saying that seized property must be properly cared for. The government may ultimately prevail in forfeiture proceedings and then may dispose of the property in whatever lawful way it deems fit. But there is no guarantee that it will prevail. To ensure that property owners’ interests are not wiped out before a hearing, it is critical that the government exercise appropriate diligence to prevent any destruction of not-yet-forfeited property. Cf. Logan v. Zimmerman Brush Co., 455 U.S. 422, 434 (1982) (“[T]he State may not finally destroy a property interest without first giving the putative owner an opportunity to present his claim of entitlement.”). It utterly failed in that responsibility in the case of the yacht “Priceless,” so the more accurate name of the vessel turned out to be “Half-Priced.” That is a consequential breach of duty and should not pass unnoticed. Despite that, under the relevant framework and the arguments presented to us, we cannot say that the delay in initiating forfeiture proceedings deprived Pelullo of “the basic 154 due process requirement of fairness[.]” $8,850, 461 U.S. at 565. As a result, his challenge fails.107