DSI Assoc. LLC v. United States, No. 05-6887 (2d Cir. 2007)
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05-6887-cv DSI Assoc. LLC v. United States 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2006 4 (Argued: November 15, 2006 Decided: August 2, 2007) 5 Docket No. 05-6887-cv 6 ------------------------------------- 7 DSI ASSOCIATES LLC, 8 Movant-Appellant, 9 - v - 10 UNITED STATES OF AMERICA, 11 Plaintiff-Appellee, 12 13 ALLEGHENY ENERGY, INC., ALLEGHENY ENERGY SUPPLY COMPANY, LLC, MERRILL LYNCH & CO., and MERRILL LYNCH CAPITAL SERVICES, INC., 14 Interested-Party-Appellees. 15 DANIEL L. GORDON, 16 Defendant. 17 ------------------------------------- 18 19 Before: 20 McLAUGHLIN and SACK, Circuit Judges, and RAKOFF, District Judge*. Appeal from an order of the United States District 21 Court for the Southern District of New York (Gerard E. Lynch, 22 Judge) denying a motion to intervene brought by movant-appellant 23 DSI Associates under Federal Rule of Civil Procedure 24 to * The Honorable Jed S. Rakoff, of the United States District Court for the Southern District of New York, sitting by designation. 1 contest a portion of the forfeiture order that was included in 2 the defendant's sentence. 3 Affirmed. 4 5 6 DAVID J. MONZ, Updike, Kelly & Spellacy, P.C. (Barbara A. Frederick, of counsel) Hartford, CT, for Movant-Appellant. 7 8 9 10 11 12 13 BARBARA A. WARD, Assistant United States Attorney for the Southern District of New York (Michael J. Garcia, United States Attorney, and Katherine Polk Failla, Assistant United States Attorney, of counsel), New York, NY, for Plaintiff-Appellee. 14 15 16 17 18 19 JOHN GUELI, Shearman & Sterling LLP (Stuart J. Baskin and Ladan F. Stewart, of counsel), New York, NY, for Interested-Party-Appellees Merrill Lynch & Co. and Merrill Lynch Capital Services, Inc. 20 21 SACK, Circuit Judge: To resolve this appeal, we must determine whether a 22 general creditor may intervene in a criminal forfeiture 23 proceeding to assert its alleged rights to property subject to a 24 criminal order of forfeiture or challenge the underlying validity 25 of the forfeiture order, and if so, how. 26 BACKGROUND 27 On December 19, 2003, the defendant, Daniel L. Gordon, 28 pled guilty in the United States District Court for the Southern 29 District of New York (Gerard E. Lynch, Judge) to three counts of 30 an information (the "Information") charging him with undertaking 31 an elaborate scheme to defraud his employer, Merrill Lynch 32 Capital Services, Inc., and Merrill Lynch & Co. (collectively -2- 1 "Merrill Lynch") of many millions of dollars. 2 him with wire fraud in violation of 18 U.S.C. § 1343. 3 charged him with laundering the proceeds of the wire fraud in 4 violation of 18 U.S.C. § 1956(a)(1)(B)(I). 5 charged him with conspiring to falsify Merrill Lynch's books and 6 records in connection with the sale of its energy trading unit, 7 Global Energy Markets ("GEM"), in violation of 18 U.S.C. § 371.1 8 The Information also included "forfeiture allegations" relating 9 to the fraudulently obtained money. 10 Count One charged Count Two And Count Three According to the Information, in or before 2000, 11 Merrill Lynch entered into a $500 million long-term energy call 12 agreement with the Williams Energy Marketing and Trading Company. 13 Merrill Lynch sought insurance to hedge against that obligation. 14 In response, Gordon used an entity he had created and operated, 15 Falcon Energy Holdings, S.A. ("Falcon"), to negotiate a 16 fraudulent energy insurance contract with Merrill Lynch. 17 about August 25, 2000, Merrill Lynch entered into the purported 18 11-year energy insurance agreement with Falcon, transferring 19 approximately $43 million, its only payment pursuant to that 20 agreement, to Falcon's bank account, which Gordon had opened for 21 it in Switzerland.2 On or 1 Gordon had created GEM for Merrill Lynch in or about 1998, and thereafter had acted as its president. 2 According to the Information, on or about January 8, 2001, Allegheny Energy Services Corporation ("AES") acquired GEM from Merrill Lynch and formed a new entity called Allegheny Energy Supply Company, LLP ("Allegheny"). Gordon served as the president of Allegheny from the company's inception until about -3- 1 At about the same time, Gordon incorporated Ostrich 2 Capital Partners, Inc. ("Ostrich"), in the Marshall Islands. On 3 or about September 21, 2000, Gordon transferred approximately $33 4 million from the Falcon account in Switzerland to an Ostrich 5 account at the same bank. 6 additional transfers from the Falcon account to accounts in the 7 United States, including a total of $30 million to a bank account 8 in New York in the name of Kings Holdings, LLC ("Kings 9 Holdings"), a Delaware corporation, all the outstanding shares of Gordon subsequently made several 10 which Gordon owned. 11 laundering charge against Gordon. 12 These transfers underlie the money On or about November 14, 2000, Gordon used funds from 13 Kings Holdings' New York bank account to purchase from the 14 appellant DSI Associates LLC ("DSI") seventy percent of the 15 outstanding shares of Daticon, Inc. ("Daticon"), a private 16 document-management services company located in Connecticut. 17 Kings Holdings acquired 7,923 of the 11,318 outstanding shares of 18 Daticon from DSI for nearly $23 million in cash and an unsecured 19 promissory note of $4 million. 20 Daticon's board of directors and received a salary and other 21 income from the company from sometime in 2000 to sometime in 22 2002. 23 outstanding shares. 24 Gordon became chairman of DSI continued to hold thirty percent of Daticon's The Criminal Investigation and the Promissory Note September 2002, shortly after Gordon terminated the Falcon contract. -4- 1 After learning of Gordon's scheme, representatives of 2 the United States Attorney's office in Manhattan negotiated with 3 representatives of DSI with a view toward finding a neutral third 4 party to purchase all the shares of Daticon -- those held by 5 Kings Holdings and those held by DSI. 6 seize Kings Holdings' portion of the proceeds in a forfeiture 7 proceeding as part of its planned criminal prosecution of Gordon. 8 On July 18, 2003, while negotiations with the 9 government were proceeding, DSI filed suit against Kings Holdings The government intended to 10 and Gordon in Connecticut state court. 11 had defaulted on the unsecured promissory note that was a part of 12 the consideration they paid to DSI for the Daticon stock. 13 same time, DSI sought and received an ex parte prejudgment 14 attachment on $5 million worth of Kings Holdings' assets. 15 DSI alleged that the two At the On August 6, 2003, DSI and Kings Holdings settled their 16 dispute and terminated the Connecticut proceedings. Under the 17 settlement, the prejudgment attachment was vacated and in its 18 place Kings Holdings executed a non-negotiable, unsecured demand 19 promissory note for $2.5 million (the "Settlement Note" or the 20 "Note"). 21 Note could be enforced by a claim against the proceeds of a sale 22 of Daticon, except in the event that the government placed any 23 such proceeds in an escrow account or initiated a forfeiture 24 proceeding against Kings Holdings. 25 notice from the government, however, that it intended to initiate The settlement agreement provided that the Settlement -5- The parties had received 1 forfeiture proceedings that would include any Daticon sale 2 proceeds. 3 on the Settlement Note from the proceeds of the sale of Daticon 4 after such a proceeding had been initiated, it would do so within 5 the "context of" the criminal forfeiture proceeding unless the 6 United States Attorney for the Southern District of New York 7 "consented to any other means of collection." 8 dated Aug. 6, 2003, at 1. 9 They therefore agreed that if DSI attempted to collect Letter Agreement In September 2003, pursuant to an arrangement with the 10 government, Kings Holdings and DSI sold their shares of Daticon 11 to a neutral third party3 with the active monitoring and approval 12 of the government. 13 proceeds were immediately placed in a government account pending 14 forfeiture proceedings. 15 proceeds were deposited in an escrow account (the "Escrow 16 Account"), to be held there until the end of the following year, 17 to provide for post-acquisition contingencies specified in the 18 purchase agreement, which primarily related to the anonymous 19 third-party purchaser. 20 into a separate escrow account (the "Separate Escrow Account") 21 until December 26, 2003, to be available in the event that post- 22 acquisition challenges arose relating to Gordon's ownership and 23 control of Kings Holdings. Approximately $22.9 million of the sale Approximately $6.5 million of the The remaining $6 million was transferred If no challenges were made by that 3 The third party is not, to our knowledge, identified in the material submitted to us on appeal. -6- 1 date, the money would be transferred from the Separate Escrow 2 Account to a government account awaiting forfeiture. 3 On October 15, 2003, after making a demand for payment 4 in full of the Settlement Note, DSI filed another complaint in 5 Connecticut state court based on the Note. 6 court for a second ex parte prejudgment attachment order against 7 the sale proceeds that had been put into escrow funds in the 8 amount of $2.5 million, plus interest. 9 court entered a prejudgment attachment for $2.5 million against DSI applied to the That day, the Connecticut 10 the Separate Escrow Account.4 11 claims other than those embodied in the court's attachment order 12 on the $6 million Separate Escrow Account funds had been made, 13 that amount less the $2.5 million that remained the subject of 14 the prejudgment attachment was paid into the government account. 15 The $2.5 million apparently remains in the Separate Escrow 16 Account. On December 26, 2003, when no 17 18 Gordon's Guilty Plea, Forfeiture, and Ancillary Proceedings 19 Meanwhile, on December 19, 2003, Gordon pled guilty to 20 all three charges contained in the Information. 21 written plea agreement, he agreed to forfeit the $43 million he 4 Pursuant to a Although the record reveals that the prejudgment attachment order was in the amount of $2.75 million, the district court and the government treated the attachment as one for $2.5 million. See Preliminary Order of Forfeiture, dated Feb. 9, 2004, at *4, Final Order of Forfeiture, dated Oct. 24, 2005, at *4. Because $2.5 million remains in the Separate Escrow Account and no party challenges the propriety of that amount, we, too, assume that $2.5 million is the proper amount subject to the state court attachment. -7- 1 initially received pursuant to the fraudulent scheme, as well as 2 any interest in property derived from proceeds traceable to the 3 wire fraud offense or involved in the money laundering offense. 4 On February 20, 2004, as part of Gordon's sentence, the district 5 court entered a Preliminary Order of Forfeiture requiring the 6 defendant to forfeit $43 million and any right, title, and 7 interest in specific property described in the Preliminary Order. 8 9 Title 21 U.S.C. §§ 853(n)(1) and (2) set forth the procedure for asserting, in an ancillary proceeding, a third- 10 party claim with respect to property subject to a criminal order 11 of forfeiture: 12 13 14 15 16 17 18 19 20 21 22 23 (1) Following the entry of an order of forfeiture under this section, the United States shall publish notice of the order and of its intent to dispose of the property in such manner as the Attorney General may direct. The Government may also, to the extent practicable, provide direct written notice to any person known to have alleged an interest in the property that is the subject of the order of forfeiture as a substitute for published notice as to those persons so notified. 24 25 26 27 28 29 30 31 32 33 (2) Any person, other than the defendant, asserting a legal interest in property which has been ordered forfeited to the United States pursuant to this section may, within thirty days of the final publication of notice or his receipt of notice under paragraph (1), whichever is earlier, petition the court for a hearing to adjudicate the validity of his alleged interest in the property. . . . 34 21 U.S.C. § 853(n)(1), (2). -8- 1 Pursuant to section 853(n)(1), the government sent 2 notice to counsel for Merrill Lynch, Allegheny, and DSI, as 3 "person[s] known to have alleged an interest in the property that 4 is the order of forfeiture." 5 statute, the recipients of the notice had thirty days in which to 6 "petition the court for a hearing to adjudicate the validity of 7 his alleged interest in the property." 8 9 10 11 12 21 U.S.C. § 853(n)(1). Under the Id. § 853(n)(2). The substantive portion of section 853(n) provides: (6) If, after the hearing, the court determines that the petitioner has established by a preponderance of the evidence that-- 13 14 15 16 17 18 19 20 21 22 23 24 (A) the petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section; or 25 26 27 28 29 30 31 (B) the petitioner is a bona fide purchaser for value of the right, title, or interest in the property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture under this section; 32 33 the court shall amend the order of forfeiture in accordance with its determination. 34 35 36 37 38 39 40 41 (7) Following the court's disposition of all petitions filed under this subsection, or if no such petitions are filed following the expiration of the period provided in paragraph (2) for the filing of such petitions, the United States shall have clear title to property that is the subject of the order of forfeiture and may warrant good -9- 1 2 3 title to any subsequent purchaser or transferee. Id. § 853(n)(6),(7). 4 Merrill Lynch and Allegheny filed timely petitions in 5 response to the section 853(n) notice, asserting a prior superior 6 interest in some of the forfeited property. 7 § 853(n)(6)(A). 8 Stipulation and Order of Settlement that provided for Merrill 9 Lynch and Allegheny to split the final amount forfeited -- except See id. On June 10, 2005, the district court endorsed a 10 for $10 million to be kept by the government5 -- in return for 11 the withdrawal of their petitions. 12 that Merrill Lynch and Allegheny would divide equally the $2.5 13 million that remained in escrow pending resolution of the 14 Connecticut state court proceeding if and when those funds were 15 transferred from the Separate Escrow Account into the government 16 account. 17 The stipulation also provided On October 24, 2005, the district court sentenced 18 Gordon to 42 months' incarceration and entered a Final Order of 19 Forfeiture. 20 DSI's Motion to Intervene 5 The government kept $5 million in cash and held an additional $5 million, which it had permitted Gordon's wife to pay to it in exchange for title to a condominium that had been subject to forfeiture. -10- 1 On September 29, 2004, more than five months after the 2 thirty days in which to petition for relief under section 853(n) 3 had elapsed, DSI moved to intervene in Gordon's criminal 4 forfeiture proceeding pursuant to Rule 24 of the Federal Rules of 5 Civil Procedure. 6 support of its motion: (1) the original $4 million promissory 7 note used by Kings Holdings as consideration for the Daticon 8 shares (subsequently reduced to the Settlement Note) was not 9 tainted by the fraudulent scheme and therefore could not be DSI proffered two principal arguments in 10 forfeited because the district court did not have jurisdiction 11 over the proceeds derived from, or traceable to, the equivalent 12 proportion of Daticon stock;6 and (2) the district court did not 13 have authority to enter an order forfeiting to the United States 14 property that was the subject of the Connecticut court 15 attachment. 16 barred from intervening in the criminal proceeding under the 17 terms of 21 U.S.C. § 853(k), which provides that, except as set 18 forth in section 853(n), no party claiming an interest in 19 property subject to forfeiture under section 853 may intervene in 20 a trial or appeal of a criminal case involving such forfeiture, 21 or bring an action against the government concerning the validity DSI conceded, however, that it was statutorily 6 As the district court phrased it, "DSI[] claims that because the promissory note was separate from the proceeds of Gordon's criminal activities, only the proceeds of the sale of 85% of Kings's Daticon shares . . . are forfeitable, and the proceeds of the sale of Kings's remaining 'untainted' shares remain available to satisfy DSI's claim against Kings." United States v. Gordon, 2005 WL 2759845, at *1, 2005 U.S. Dist. LEXIS 24897, at *3-*4 (S.D.N.Y. Oct. 13, 2005). -11- 1 of the party's alleged interest in the property, after an 2 indictment or information alleging that the property is subject 3 to such forfeiture has been filed.7 4 as a general unsecured creditor, it did not have standing to 5 petition the court through the ancillary proceeding provided for 6 in section 853(n). 7 DSI further conceded that, The district court addressed the merits of the motion 8 and denied it. First, it observed that despite the fact that 9 Kings Holdings paid for the Daticon shares with approximately $23 10 million in cash that was traceable to the defendant's criminal 11 conduct and a $4 million promissory note, DSI received all of the 12 Daticon shares due to it and therefore retained "no legally[] 13 cognizable interest in any portion of the [Daticon] shares," or 14 the proceeds thereof, because it was, as it readily admitted, a 15 general creditor with no specific claim on any of the forfeited 7 Section 853(k) states in full: Except as provided in subsection (n) ["Third Party Interests"], no party claiming an interest in property subject to forfeiture under this section may-(1) intervene in a trial or appeal of a criminal case involving the forfeiture of such property under this section; or (2) commence an action at law or equity against the United States concerning the validity of his alleged interest in the property subsequent to the filing of an indictment or information alleging that the property is subject to forfeiture under this section. 21 U.S.C. § 853(k). -12- 1 property. 2 2005 U.S. Dist. LEXIS 24897, at *7 (S.D.N.Y. Oct. 13, 2005). 3 a general creditor, and as DSI and the government agreed, DSI did 4 not have standing to initiate a section 853(n) proceeding to 5 protect their interests. 6 United States v. Gordon, 2005 WL 2759845, at *2-*3, As Second, the district court pointed out that although 7 the Fifth Amendment's Due Process Clause requires that any person 8 who claims a legal interest in property subject to forfeiture 9 receive notice and an opportunity to be heard, due process does 10 not require "that persons claiming merely that they would be 11 advantaged in some way if the defendant were allowed to keep more 12 of his assets should be allowed to intervene to object to the 13 forfeitability of assets admittedly belonging to the defendant." 14 Id. at *3, 2005 U.S. Dist. LEXIS 24897, at *8. 15 deciding that Federal Rule of Civil Procedure 24 was applicable 16 to Gordon's criminal proceeding, the district court therefore 17 concluded that DSI "ha[d] no right to intervene under Rule 24(a) 18 [of the Federal Rules of Civil Procedure], section 853(n), or any 19 other provision of law." 20 *8-*9. 21 Assuming without Id., 2005 U.S. Dist. LEXIS 24897, at Third, the district court also denied DSI permissive 22 intervention under Rule 24(b), concluding that such intervention 23 would constitute an unwarranted interference in the 24 "expeditious . . . adjustment of rights as between the defendant 25 and the Government," which lies at the core of the criminal -13- 1 forfeiture provisions. 2 *9. 3 Id., 2005 U.S. Dist. LEXIS 24897, at *8- Finally, the district court observed that DSI's motion 4 to intervene was not its only recourse in pursuing satisfaction 5 of the Settlement Note. 6 on the Attorney General to take any action "to protect the rights 7 of innocent persons which is in the interest of justice." 8 2005 U.S. Dist. LEXIS 24897, at *10 (quoting 21 U.S.C. 9 § 853(i)(1)) (emphasis and internal quotation marks deleted). Section 853(i) confers broad discretion Id., 10 The district court further noted that the government had 11 specifically invited DSI to pursue such discretionary relief. 12 Id., 2005 U.S. Dist. LEXIS 24897, at *10. 13 DSI appeals. DISCUSSION 14 15 On appeal DSI argues that it has standing to intervene 16 under Rule 24 of the Federal Rules of Civil Procedure. 17 contends that the district court exceeded its statutory 18 forfeiture authority by including the untainted portion of the 19 proceeds of the Daticon stock sale in the forfeited property. 20 further argues that to the extent that section 853(n) ancillary 21 proceedings provide the exclusive means of pursuing its interest 22 in the proceeds of the Daticon stock sale, the statute violates 23 the Due Process Clause of the Fifth Amendment of the 24 Constitution.8 8 It It The district court found, and DSI does not dispute, that DSI's original petition to the district court was untimely in light of the thirty-day limit provided by 21 U.S.C. § 853(n). -14- 1 I. Standard of Review 2 We review the denial of a motion to intervene under 3 Rule 24 of the Federal Rules of Civil Procedure, whether as of 4 right under Rule 24(a) or by permission under Rule 24(b), for 5 abuse of discretion. 6 225 F.3d 191, 197 (2d Cir. 2000). 7 constitute such abuse." 8 79, 81 (2d Cir. 2000). 9 standing to petition the district court for a hearing under 21 See In re Holocaust Victim Assets Litig., "Errors of law or fact may SG Cowen Sec. Corp. v. Messih, 224 F.3d We review de novo whether a party has 10 U.S.C. § 853(n), and, of course, all questions of statutory 11 interpretation.9 12 (2d Cir. 1997) (per curiam). 13 United States v. Ribadeneira, 105 F.3d 833, 834 II. DSI's Motion to Intervene under Rule 24 Gordon, 2005 WL 2759845, at *2, 2005 U.S. Dist. LEXIS 24897, at *5-*6. The district court noted that other courts "have stated that such failure constitutes waiver of a party's right to assert an interest in forfeited property," id. at *2, 2005 U.S. Dist. LEXIS 24897, at *5, but did not rely on the untimeliness in denying the motion, see Fed. R. Crim. P. 32.2 Advisory Committee Notes, subdivision (c) ("[I]f a third party has notice of the forfeiture but fails to file a timely claim, his or her interests are extinguished, and may not be recognized when the court enters the final order of forfeiture."). The government does not argue on appeal that DSI's untimely petition acts as a waiver of its right to intervene. "Issues not sufficiently argued in the briefs are considered waived and normally will not be addressed on appeal." City of Syracuse v. Onondaga County, 464 F.3d 297, 308 (2d Cir. 2006) (quoting Norton v. Sam's Club, 145 F.3d 114, 117 (2d Cir. 1998)) (internal quotation marks omitted). 9 Our case law, and that of other circuits, generally characterizes our inquiry as one that determines whether a third party has "standing" to initiate an ancillary proceeding under section 853(n), and we use the term here accordingly. That inquiry, however, appears to be identical to one "on the merits" to determine whether a third party meets the statute's requirements. -15- 1 A. Title 21 U.S.C. § 853 2 3 4 1. Section 853 is the Exclusive Means for Third Parties to Intervene in Forfeiture Proceedings. 5 It is well established that third parties may not 6 intervene during criminal forfeiture proceedings to assert their 7 interests in the property being forfeited. 8 § 853(k);10 United States v. McHan, 345 F.3d 262, 269 (4th Cir. 9 2003) (observing that section 853 "provides that, until this See 21 U.S.C. 10 sentence of forfeiture is entered, no party claiming an interest 11 in the forfeited property may intervene in the criminal case"); 12 see also United States v. Gilbert, 244 F.3d 888, 910 (11th Cir. 13 2001) ("By specifically barring third-parties from intervening in 14 the criminal trial [through the analogous Racketeer Influenced 15 and Corrupt Organizations Law ("RICO") provision], 18 U.S.C. 16 § 1963(k), it is clear that Congress intended section 1963(l) 17 proceedings to provide the exclusive means for third-parties to 18 assert their claims to forfeited property.").11 19 Federal Rules of Criminal Procedure, which pertains to procedures 20 related to criminal forfeiture, also prohibits a third party from 21 "object[ing] to [a] final [forfeiture] order on the ground that 10 11 Rule 32.2 of the See supra note 7. In Ribadeneira, we concluded that the two criminal forfeiture provisions, 18 U.S.C. § 1963 (forfeiture under RICO, 18 U.S.C. § 1962), and 21 U.S.C. § 853 (other criminal forfeitures) "are so similar in legislative history and in plain language as to warrant similar interpretation." Ribadeneira, 105 F.3d at 835 n.2. -16- 1 the third party had an interest in the property." 2 P. 32.2(c)(2). 3 Fed. R. Crim. It is similarly well settled that section 853(n) 4 provides the exclusive means by which a third party may lay claim 5 to forfeited assets -- after the preliminary forfeiture order has 6 been entered. 7 8 9 10 11 12 13 14 15 16 We have recognized that [a]n ancillary proceeding [under § 853(n)] is evidently the only avenue for a post-indictment third-party claim to forfeited property, because the statutory scheme bars commencement of "an action at law or equity against the United States concerning the validity of [a third party's] alleged interest in the property . . . subsequent to the filing of an indictment or information alleging that the property is subject to forfeiture under this section." 17 De Almeida v. United States, 459 F.3d 377, 381 (2d Cir. 2006) 18 (quoting 21 U.S.C. § 853(k)) (alterations and emphasis in 19 original); see also Libretti v. United States, 516 U.S. 29, 44 20 (1995) ("Once the government has secured a stipulation as to 21 forfeitability, third-party claimants can establish their 22 entitlement to a return of the assets only by means of the 23 hearing afforded under 21 U.S.C. § 853(n).").12 12 Our conclusion is shared by those of our sister Circuits that have addressed this question. See United States v. Lazarenko, 476 F.3d 642, 648 (9th Cir. 2007) ("The law appears settled that an ancillary proceeding constitutes the only avenue for a third party claiming an interest in seized property."); United States v. Soreide, 461 F.3d 1351, 1354 (11th Cir. 2006) ("[U]nder 21 U.S.C. § 853(n)(6), third party petitioners can establish their interest in forfeited property in only two ways.") (internal quotation marks and citation omitted); United States v. Puig, 419 F.3d 700, 703 (8th Cir. 2005) ("A § 853(n) ancillary proceeding is the only avenue by which a third-party claimant may seek to assert an interest in property that has been included in an indictment alleging that the property is subject to forfeiture."); McHan, 345 F.3d at 269("The petition authorized -17- 1 2 2. DSI Lacks Standing Under 21 U.S.C. § 853(n). 3 As the district court pointed out, "[w]hile DSI's claim 4 derives from the purchase of the shares [of Daticon], as a matter 5 of law, having failed to retain a security interest in the 6 shares, DSI is simply a general creditor of Kings [Holdings], and 7 its claim to any specific property Kings [Holdings] may possess 8 is no greater than that of any other such creditor." 9 2005 WL 2759845, at *3, 2005 U.S. Dist. LEXIS 24897, at *7. Gordon, DSI 10 does not assert otherwise. As a general creditor of Kings 11 Holdings and Gordon, DSI does not possess a "legal right, title, 12 or interest in the property" that was forfeited as required for 13 standing under section 853(n)(6)(A), nor can it show that it was 14 a bona fide purchaser for value of any such right, title or 15 interest, as required for standing under section 853(b)(6)(B). 16 See Ribadeneira, 105 F.3d at 836. 17 interest "in" a "particular, specific asset" that is, or is part Without possessing such an by § 853(n) is the exclusive avenue through which a third party may protect his interest in property that has been subject to a forfeiture order."); United States v. Wade, 255 F.3d 833, 837 (D.C. Cir. 2001) ("A third party's only avenue for protecting his interest is the procedure set forth in 21 U.S.C. § 853(n) . . . ."); United States v. Lavin, 942 F.2d 177, 187 (3rd Cir. 1991) (Becker, J.) ("Congress instead defined two rather limited categories of third parties who are entitled to petition the courts for a hearing to adjudicate the validity of their interests in the forfeited property."); United States v. De Ortiz, 910 F.2d 376, 383 (7th Cir. 1990) ("[O]nce the district judge had ordered the money forfeited . . ., the money remained subject to forfeiture unless and until that order was vacated and a § 853(n) hearing was held."); see also United States v. Harris, 246 F.3d 566, 574-75 (6th Cir. 2001) (quoting with approval the Third Circuit's approach in Lavin). -18- 1 of, the forfeited property, DSI does not meet the statutory 2 requirements for initiating an ancillary proceeding under section 3 853(n). 4 F.2d 1570, 1580-81 (2d Cir. 1992) (holding that general creditors 5 lack standing under 18 U.S.C. § 1963(l)(6), the analogous 6 forfeiture statute under RICO, 18 U.S.C. § 1962). Id. at 835-37; see also United States v. Schwimmer, 968 7 8 3. Rule 24 Does Not Provide an Alternative Means to Intervene. 9 DSI asserts, however, that it is not attempting to 10 employ a section 853(n) petition here. 11 "recover an alleged interest in forfeited property," Ribadeneira, 12 105 F.3d at 834, i.e., in its alleged interest in the funds 13 traceable to untainted shares of Daticon, for which section 14 853(n) would provide the proper mechanism. 15 contends, its motion to intervene seeks to challenge the validity 16 of the forfeiture order as it was applied to those funds. 17 It is not looking to Instead, DSI DSI cannot prevail, however, by reframing its argument 18 as one challenging the underlying validity of the forfeiture 19 order rather than the district court's denial of its efforts to 20 assert its property interest in the funds traceable to untainted 21 shares of Daticon. 22 remaining funds owing under the Settlement Note belong to it, not 23 Gordon. 24 the authority to order those funds forfeited because they belong 25 to DSI is effectively the same argument as an assertion that DSI 26 has a superior interest in those funds. 27 section 853(k) unless they fall within the exception carved out -19- In either case, DSI is contending that the And the argument that the district court does not have Both are forbidden by 1 by section 853(n).13 2 Committee Note ("Th[e ancillary] proceeding does not involve 3 relitigation of the forfeitability of the property; its only 4 purpose is to determine whether any third party has a legal 5 interest in the forfeited property.") 6 participate in the forfeiture proceeding is thus foreclosed by 7 its acknowledged inability to meet the requirements of section 8 853(n). 9 Federal Rules of Civil Procedure, or, indeed, any other See also Fed. R. Crim. P. 32.2 Advisory DSI's attempt to It may not bypass this procedure by employing the 10 mechanism.14 11 B. Due Process 13 DSI relies on United States v. Reckmeyer, 836 F.2d 200, 206, 208 (4th Cir. 1987) (commenting that "[s]erious due process questions would be raised . . . if third parties asserting an interest in forfeited assets were barred from challenging the validity of the forfeiture" and therefore construing the ancillary proceeding "to provide a means by which third persons who raise challenges to the validity of the forfeiture order could have their claims adjudicated"). There, the Fourth Circuit determined that general creditors have a legal interest in the debtor's property, but that such creditors have standing under section 853(n) only if they can show a legal interest in the particular property subject to forfeiture. Id. at 205-06. But DSI does not assert that it has standing under section 853(n). See also Ribadeneira, 105 F.3d at 836 n.4 ("We do not intend here to embrace the holding of Reckmeyer, which granted standing to unsecured creditors claiming under § 853 where all (as opposed to a part) of the assets of the debtor's estate have been forfeited."). 14 We therefore need not address whether a motion to intervene under the Federal Rules of Civil Procedure can ever be appropriate in a criminal proceeding. See United States v. White, 980 F.2d 836, 845 (2d Cir. 1992) (Kearse, J., dissenting) ("Although the Federal Rules of Civil Procedure do not apply to a criminal proceeding of their own force, there is no jurisprudential reason why a promulgating body cannot adopt some of those rules for application to criminal proceedings." (referring to Fed. R. Crim. P. 49(d) as doing so)). -20- 1 DSI contends that if, as we have here and elsewhere 2 concluded, section 853(n) provides the exclusive means by which a 3 third party can challenge a forfeiture order in court, yet DSI 4 does not have standing to intervene under that section, DSI has 5 been deprived of a property interest without a meaningful 6 opportunity to be heard in violation of the Fifth Amendment's Due 7 Process Clause; in other words, that the failure of section 853 8 to provide general creditors with such an opportunity to be heard 9 renders the statutory scheme unconstitutional.15 This argument 10 depends on three premises: first, that DSI has a property 11 interest at stake that is subject to the requirements of due 12 process; second, that the forfeiture order deprives it of that 13 property interest; and third, that the deprivation has been 14 imposed without due process of law. 15 without deciding that DSI, through its attachment under 16 Connecticut law of the Settlement Note or otherwise, has a 17 property interest sufficient for it to invoke the Due Process 15 As for the first, we assume After oral argument, the government submitted a letter pursuant to Rule 28(j) of the Federal Rules of Appellate Procedure to bring to our attention the Ninth Circuit's opinion in United States v. Lazarenko, 469 F.3d 815, as amended, 476 F.3d 642 (9th Cir. 2007). There, a third party attempted to set an immediate hearing on the propriety of the forfeiture order and challenge the preliminary order of forfeiture prior to the commencement of an ancillary proceeding under section 853(n). The court determined, however, that the third party did not have standing to do so because it could not allege sufficient injuryin-fact, id. at 650, and because it asserted a premature generalized grievance, id. at 652. Here, however, the district court had conducted ancillary proceedings under section 853(n) at the time DSI filed its motion to intervene. And DSI appeals a judgment of the district court denying its motion. DSI therefore has satisfied the standing concerns deemed dispositive in Lazarenko. -21- 1 Clause.16 2 does, DSI has not been deprived of any such property interest -- 3 at least not yet. 4 whether, should the deprivation occur, it will violate the due 5 process guaranty.17 As for the second, we conclude that, whether or not it We therefore do not reach the third question, 6 Section 853(n) may be DSI's exclusive path to challenge 7 the forfeiture order before the judicial entity which entered the 8 order, but it is not DSI's only course of action available under 9 the statute within which it may assert its interest in the 10 forfeited property. Under section 853(i), the Attorney General 11 maintains discretion to "take any . . . action to protect the 12 rights of innocent persons which is in the interest of justice 13 and which is not inconsistent with the provisions of this 14 section." 15 confers upon the Attorney General the authority to rectify 21 U.S.C. § 853(i)(1). This non-judicial remedy 16 Property interests "are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law -- rules or understandings that secure certain benefits and that support claims of entitlement to those benefits." Bd. of Regents v. Roth, 408 U.S. 564, 577 (1972). While state law creates the underlying substantive interest the plaintiff seeks to vindicate, "federal constitutional law determines whether that interest rises to the level of a 'legitimate claim of entitlement' protected by the Due Process Clause." Memphis Light, Gas & Water Div. v. Craft, 436 U.S. 1, 9 (1978) (citations omitted). 17 We therefore need not determine whether DSI actually received the required opportunity to be heard in the district court in this instance. We note, however, that, notwithstanding its untimely motion, Judge Lynch permitted DSI to submit a brief in support of its argument and carefully considered the merits of DSI's contention. That its challenge ultimately failed in this case is not a result of a deprivation of an opportunity to be heard by the district court. -22- 1 precisely the situation presented here: A third party that 2 possesses an interest in forfeited property yet does not meet the 3 standing requirements of section 853(n) may petition the Attorney 4 General for redress in the "interest of justice." 5 Circuit explained: As the Third 6 7 8 9 10 11 12 13 14 15 16 Congress did not intend section 853(n) to serve as a vehicle by which all innocent third parties who are aggrieved by an order of criminal forfeiture can petition for judicial relief. Rather, it seems to us that Congress, in enacting section 853(n)(6)(A) and (B), intended to accord standing to only two narrow classes of third parties, and intended to require all other third parties to petition the Attorney General for relief. United States v. Lavin, 942 F.2d 177, 185 (3rd Cir. 1991) (citing 17 21 U.S.C. § 853(i)) (emphasis in original); see also United 18 States v. BCCI Holdings (Luxembourg), S.A., 46 F.3d 1185, 1192 19 (D.C. Cir.), cert. denied sub nom. Chawla v. United States, 515 20 U.S. 1160 (1995) (concluding that the statutory scheme for RICO 21 forfeiture proceedings "directs parties without an interest in 22 specific property to seek relief from the Attorney General, not 23 the court adjudging the forfeiture"). 24 Columbia Circuit has similarly noted that while section 853 was 25 intended to provide certain third parties with additional due 26 process protections, "general creditors seem precisely the type 27 of innocent persons Congress had in mind" when it included the 28 non-judicial mechanism set forth by section 853(i) "to protect 29 the rights of innocent persons." 30 § 1963(g)(1)) (internal quotation marks omitted). Indeed, the District of Id. at 1192 (quoting 18 U.S.C. -23- 1 As the district court rightly noted, DSI has not 2 demonstrated that any such a request would be futile. Indeed, 3 the government, which received $10 million from the forfeiture, 4 specifically invited DSI to pursue this avenue of relief. 5 Perhaps at some future time DSI will be able to 6 establish that it has exhausted all possible avenues for relief. 7 If so, it might be able to argue persuasively that the 8 availability of a remedy through the executive branch under 9 section 853(i), and whatever other avenues it might pursue,18 is 18 We note that DSI has failed to demonstrate that Gordon is without assets not subject to forfeiture that could satisfy the Note. Cf. Reckmeyer, 836 F.3d at 206 (noting that in that case, unlike this one, the parties had agreed that the forfeiture order seized all of the defendant's known assets). It is not clear to us that DSI, as a general creditor, is unable to pursue Gordon personally for the payment of the money associated with the Note. And while the issue was not briefed to us, we further note that DSI has not demonstrated that there was a procedural bar preventing it from converting its inchoate interest in the form of a state court prejudgment attachment into a "legal interest" under section 853(n) by "obtain[ing] some judgment and secur[ing] . . . those funds." United States v. Schwimmer, 968 F.2d 1570, 1581 (2d Cir. 1992). Under Connecticut law, it appears that DSI might perfect the prejudgment attachment by obtaining a judgment lien on the property in which it claims to have an interest. See Hartford Provision Co. v. United States, 579 F.2d 7, 10 n.3 (2d Cir. 1978) (noting that Connecticut follows "ancient and well-accepted principles" relating to attachments on personal property, such that levying an attachment creates a lien of an inchoate nature which "awaits the judgment of the court for its consummation.") (quoting Pratt v. Law, 13 U.S. [456, 497] (1815)). If it did so, DSI would "no longer [be] merely a general creditor." Schwimmer, 968 F.2d at 1581. It might then have a security interest that would confer upon it standing to make a claim under section 853(n). See also Reckmeyer, 836 F.2d at 205 ("Unsecured creditors may reduce their claims to judgment and thereby acquire a lien on all of the debtor's assets. This enforcement mechanism provides for the judicial enforcement of a legally cognizable right."). Upon successful completion of perfecting a judgment in state court, -24- 1 insufficient to satisfy the Due Process clause. 2 it has yet to demonstrate that it has finally been deprived of 3 property, we need not determine whether any such deprivation 4 would be constitutionally permissible. 5 CONCLUSION 6 But inasmuch as We conclude that the district court acted within its 7 discretion in denying DSI's motion to intervene, and that the 8 denial did not violate the Fifth Amendment's Due Process Clause. 9 The order of the district court is therefore affirmed. DSI might then file a Rule 60(b) motion to reopen the ancillary forfeiture proceeding in the district court and litigate its claim as to its property interest within the statutory scheme created by Congress. See United States v. Puig, 419 F.3d 700, 702 (8th Cir. 2005) (citing Fed. R. Crim. P. 32.2(c) Advisory Committee Notes) (noting that a third-party claimant may file a Rule 60(b) motion to reopen the ancillary proceeding allowed by 21 U.S.C. § 853(n)). -25-
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