USA v. Approximately $24,546.25 in U.S. Currency, et al., No. 1:2009cv00284 - Document 27 (E.D. Cal. 2009)

Court Description: ORDER VACATING Hearing on Plaintiff's Motion for Default Judgment and DEEMING Matter SUBMITTED for Decision [Doc. 23]. Vacated hearing date: 10/30/2009 at 9:30 a.m.. FINDINGS and RECOMMENDATIONS re: Plaintiff's Motion for DEFAULT JUDGMENT [Doc. 23] - be Granted. Referred to Judge Wanger; Objections filed by 11/25/2009. ORDER to Plaintiff to SERVE Findings and Recommendations re: Plaintiff's Motion for Default Judgment on ALL Potential Claimants and to File Proof of Service, signed by Judge Sandra M. Snyder on 10/22/2009. (Herman, H)

Download PDF

USA v. Approximately &#036;24,546.25 in U.S. Currency, et al. Doc. 27 1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 EASTERN DISTRICT OF CALIFORNIA 8 9 UNITED STATES OF AMERICA, 10 11 12 13 14 15 16 17 18 19 ) ) Plaintiff, ) v. ) ) Approximately $24,546.25 in ) U.S. Currency Seized from ) Farmers and Merchants Bank of ) Central California Account ) #547155701, Held in the Name ) of Steven Walter Butts and ) Karen Jean Freyling, et al., ) ) Defendants. ) ) ) 1:09-cv-00284-OWW-SMS ORDER VACATING HEARING ON PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT AND DEEMING MATTER SUBMITTED FOR DECISION (DOC. 23) Vacated hearing date: October 30, 2009 Time: 9:30 a.m. FINDINGS AND RECOMMENDATION RE: PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT (DOC. 23) ORDER TO PLAINTIFF TO SERVE FINDINGS AND RECOMMENDATIONS RE: PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT ON ALL POTENTIAL CLAIMANTS AND TO FILE PROOF OF SERVICE 20 21 22 Plaintiffs are proceeding with a civil action in this Court. 23 The matter has been referred to the Magistrate Judge pursuant to 24 28 U.S.C. § 636(b) and Local Rules 72-302 and 72-303. Pending 25 before the Court is Plaintiff’s ex parte motion for default 26 judgment filed on August 7, 2009, with a supporting memorandum of 27 points and authorities and a supporting declaration of Elisa 28 Rodriguez, which the Court has reviewed. 1 Dockets.Justia.com 1 I. Vacating the Hearing on the Motion 2 Pursuant to Rule 78-230(h) of the Local Rules of Practice 3 for the United States District Court, Eastern District of 4 California, the Court finds that the Plaintiff’s ex parte motion 5 for default judgment is a matter that may appropriately be 6 submitted upon the record and briefs, including the Plaintiffs’ 7 motion, supporting memorandum of points and authorities, and 8 declaration of Elisa Rodriguez filed on August 7, 2009. 9 Accordingly, the hearing on the motion, presently set for 10 October 30, 2009, IS VACATED, and the motion IS DEEMED SUBMITTED 11 to the Court for decision. 12 II. Directions to Plaintiff to Serve Findings and Recommendations 13 The analysis, findings, and recommendations that follow 14 constitute the Court’s findings and recommendations with respect 15 to Plaintiff’s motion for default judgment (Doc. 23). 16 Plaintiff IS DIRECTED to serve the findings and 17 recommendations on all potential claimants to Defendant property, 18 including Steven Butts and Karen Jean Freyling, and to file proof 19 of such service no later than ten days after the date of service 20 of this order. 21 III. Motion for Default Judgment 22 A. Notice by Publication 23 With respect to default judgments in proceedings that are in 24 rem actions for forfeiture, both the general Federal Rules of 25 Civil Procedure and the Supplemental Rules for Certain Admiralty 26 and Maritime Claims (Supp. R.) apply, but the latter rules 27 prevail if there is an inconsistency. Supp. R. A(1). Supp. R. 28 2 1 G(1) provides that the rule governs a forfeiture action in rem 2 arising from a federal statute; to the extent that Rule G does 3 not address an issue, Supp. Rules C and E also apply. 4 Supplemental Rule G, which took effect on December 1, 2006, 5 incorporates a common-sense approach to notice grounded in 6 defined and recognized principles of due process of law. Supp. 7 Rule G, Adv. Comm. Note on 2006 Adoption. The Advisory Committee 8 Note indicates that the rule was added to bring together the 9 central procedures governing civil forfeiture actions; it also 10 states that the rule generally applies to actions governed by the 11 Civil Asset Forfeiture Reform Act of 2000 (CAFRA) as well as 12 those excluded from it; thus, the intended scope of application 13 is very broad. The rule permits flexibility as to the time of 14 service of any warrant and supplemental process. Id. The 15 provisions for notice incorporate the traditional means of 16 publication and adopt the general principle that notice should be 17 effectuated by means reasonably calculated to reach potential 18 claimants at a cost reasonable in the circumstances, and actual 19 notice precludes a challenge to the government’s failure to 20 comply with the specific requirements of the rule set forth in 21 Rule G (4)(b). Id. 22 Supplemental Rule G(4)(a) provides that a judgment of 23 forfeiture may be entered only if the government has published 24 notice of the action within a reasonable time after filing the 25 complaint or at a time the court orders. The rule sets forth the 26 required contents of the notice, frequency of publication, and 27 means of publication. 28 Here, the amended declaration of publication of Elisa M. 3 1 Rodriguez filed on May 6, 2009 (Doc. 15), establishes that a 2 notice with the required contents was published on the official 3 government internet site for thirty consecutive calendar days. 4 Thus, the Plaintiff has demonstrated publication that is 5 sufficient pursuant to Supplemental Rule G(4)(a). 6 7 B. Notice to Known Potential Claimants Supplemental Rule G(4)(b) provides that the government must 8 send notice of the action and the complaint to any person who 9 reasonably appears to be a potential claimant; the rule specifies 10 the content, means, and time of the notice, and it expressly 11 provides that a potential claimant who had actual notice of a 12 forfeiture action may not oppose or seek relief from forfeiture 13 because of the government’s failure to send the required notice. 14 Here, it is alleged in the verified complaint that the 15 government proceeds pursuant to 18 U.S.C. § 981(a)(1)(A) and 16 (a)(1)(C), and that the specified properties, including Defendant 17 currency (amounting to over $25,000 in four accounts identified 18 in ¶ 1 of the Complaint), Defendant electronic equipment (thirty19 five (35) items of miscellaneous electronic equipment itemized in 20 Exhibit A to the complaint), and Defendant vehicles (four 21 vehicles described by VIN and license numbers in ¶ 1 of the 22 complaint), which were seized in October 2008, in Turlock, 23 California, constitute proceeds from and/or property used to 24 facilitate a conspiracy to commit, or are traceable to, a 25 violation of 18 U.S.C. § 1956; therefore, the Defendant property 26 is subject to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(A) and 27 (a)(1)(C). (Cmplt. ¶¶ 1-3.) 28 Investigation by the FBI and United States Postal Service 4 1 (USPS) in 2008 revealed that Steve Butts, Karen Lobue or Karen 2 Jean Freyling, and Kenny J. or Kenneth Shipman were using 3 specified websites and a specified post office box in Denair, 4 California, to distribute and sell to customers pirated, 5 counterfeit/copyright-protected digital video discs (DVD’s) in 6 violation of copyright laws; they and their activities were 7 further associated with the five specific vehicles. The business 8 generated about $80,000.00 in sales per month, involved the 9 provision to customers of products that lacked security seals or 10 booklet stories, and included the knowing deposit of counterfeit 11 motion pictures and video formats/materials in official USPS 12 collection receptacles/facilities with the intention that the 13 USPS would deliver them, the willful infringement of copyrighted 14 works, and the knowing trafficking of counterfeit labels affixed 15 or designed to be affixed to a copy of a visual work. (Id. at ¶¶ 16 6-9.) Controlled buys revealed that the products sold lacked 17 appropriate serial numbers and that the content was “pressed” on 18 to the disc as by a computer with DVD recordable media, as 19 opposed to having been “burned.” (Id. ¶ 10.) 20 Further, investigation of the bank records of Butts and 21 Freyling revealed hundreds of deposits from the illicit business 22 operations in the various accounts between 2006 and 2008 totaling 23 over $300,000; California EDD records revealed that the last 24 reported wages for Butts were for the second quarter of 2007, and 25 Freyling was receiving Social Security benefits on the basis of 26 claimed disability. (Id. ¶¶ 9-16, 23.) Butts, Freyling, and 27 others were indicted in October 2008 for various wire and mail 28 fraud violations, criminal copyright and trademark violations, 5 1 and theft of government money. (Cmplt. ¶ 24.) 2 With respect to potential claimant Steve Butts, the 3 declaration of Rodriguez (¶ 3, Ex. A) establishes that on 4 February 17, 2009, copies of the pertinent documents were served 5 on attorney Eric Fogderude by mail, and were received on behalf 6 of Fogderude on February 18, 2009. This notice was sufficient 7 pursuant to Supp. R. G(4)(b)(iii)(B), which permits notice to be 8 sent to the attorney representing the potential claimant with 9 respect to the related criminal case. The Court takes judicial 10 notice of the docket in United States v. Karen Jean Freyling, et 11 al., 1:08-cr-00384-OWW, which reflects that Eric K. Fogderude is 12 attorney for Defendant Steven Walter Butts in the related 13 criminal case. Further, the Court notes that Butts 1) was served 14 by certified mail sent on April 15, 2009, and the letter was 15 received on April 16, 2009, by David J. Lober (Decl. Of Rodriguez 16 in suppt. of request for entry of default, Doc. 20-2, ¶ 6, Ex. 17 B); and 2) was served by the Marshal on March 18, 2009, via the 18 Marshal’s leaving the pertinent documents with Karen Jean 19 Freyling, girlfriend of Butts, and a person of suitable age and 20 discretion then residing in Butts’ usual place of abode. 21 Accordingly, the Court concludes that the notice given to 22 potential claimant Steve Butts complied with Supp. Rule G(4)(b). 23 Local Rule A-540(a)(3) requires that if the property, as in 24 this case, is in the hands of a law enforcement officer, then 25 notice of the action must be given by personal service to the 26 person having custody prior to its possession by the law 27 enforcement agency or officer. If this is interpreted to include 28 potential claimant Steve Butts, then the action of the Marshal in 6 1 serving Butts via leaving documents with co-resident Karen Jean 2 Freyling, reflected in the marshal’s certificate dated March 18, 3 2009, should be sufficient. This service constitutes legally 4 sufficient service of process within the meaning of Fed. R. Civ. 5 P. 4(e)(2)(B). Fed. R. Civ. P. 4(n) expressly provides that the 6 Court may assert jurisdiction over property if authorized by a 7 federal statute, and that notice to claimants of the property 8 must be given as provided in the statute or by serving a summons 9 under Rule 4. The notice given to Butts complies with Fed. R Civ. 10 P. 4(n) and thus should be legally sufficient. 11 With respect to potential claimant Karen Jean Freyling, the 12 certificate of the Marshal establishes that Freyling was 13 personally served with the pertinent documents on March 18, 2009. 14 (Doc. 8.) 15 The Court concludes that Plaintiff has demonstrated that it 16 has given notice by publication and the notice required to be 17 given to potential claimants by Rule G(4). 18 C. Notice of Judgment Sought and of Motion for Default Judgment 19 1. Judgment Sought 20 The Court concludes that the notice given of the judgment 21 sought satisfied Fed. R. Civ. P. 55(d) and 54(c), which require 22 that a judgment by default shall not be different in kind from 23 the relief sought, or exceed in amount that prayed for, in the 24 demand for judgment. Plaintiff expressly sought in the complaint 25 the types of relief sought by the instant application for default 26 judgment, including a judgment of forfeiture of the Defendant 27 properties to the Plaintiff United States. (Cmplt. p. 8, ll. 928 7 1 14.) 2 3 2. Motion for Default Judgment The application for default judgment before the Court was 4 filed on an ex parte basis and thus was not served on the 5 Defendant property or on any persons who might reasonably appear 6 to be potential claimants. 7 Fed. R. Civ. P. 55(b)(2) requires written notice of an 8 application for default judgment be served at least three days 9 prior to the hearing on a defaulting party, or a representative 10 thereof, who has appeared in the action. An appearance for the 11 purpose of Rule 55 need not be a formal one and may consist even 12 of informal contacts made by the defaulting party where the 13 defaulting party demonstrates a clear purpose to defend the suit. 14 In re Roxford Foods v. Ford, 12 F.3d 875, 879-81 15 (9th Cir. 1993). Here, there are no indicia of a formal appearance or of 16 informal contacts. Accordingly, no notice is necessary. 17 18 D. Default and Entry of Default The declarations and the Court’s docket demonstrate that no 19 person or entity made a claim or answered the complaint within 20 the requisite thirty-day period for filing a claim of 18 U.S.C. § 21 983(a)(4)(A) and Supp. R. G(5), and/or within the twenty-day 22 period set forth in Supp. R. G(5) for filing an answer 23 thereafter. Therefore, the Clerk appropriately entered the 24 default of potential claimant Karen Jean Freyling on May 19, 25 2009, and of potential claimant Steven W. Butts on May 22, 2009. 26 27 28 E. Legal Sufficiency of the Complaint 1) Legal Standards A default judgment generally bars the defaulting party from 8 1 disputing the facts alleged in the complaint, but the defaulting 2 party may argue that the facts as alleged do not state a claim. 3 Alan Neuman Productions, Inc. v. Albright, 862 F.2d 1388, 1392. 4 Thus, well pleaded factual allegations, except as to damages, are 5 taken as true; however, necessary facts not contained in the 6 pleadings, and claims which are legally insufficient, are not 7 established by default. Cripps v. Life Ins. Co. of North America, 8 980 F.2d 1261, 1267 (9th Cir. 1992); TeleVideo Systems, Inc. v. 9 Heidenthal, 826 F.2d 915, 917 (9th Cir. 1987). 10 Under the Civil Asset Forfeiture Reform Act (CAFRA), which 11 applies to this case, the government must prove by a 12 preponderance of evidence that the property is subject to 13 forfeiture. 18 U.S.C. § 983(c)(1). Further, if the government’s 14 theory of forfeiture is that the property was used to commit or 15 facilitate the commission of a criminal offense, or was involved 16 in the commission of a criminal offense, the government shall 17 establish that there was a substantial connection between the 18 property and the offense. § 983(c)(3). 19 Supp. Rule G(2) requires that the complaint in a forfeiture 20 action in rem arising from a federal statute be verified; state 21 the grounds for subject-matter jurisdiction, in rem jurisdiction 22 over the Defendant property, and venue; describe the property 23 with reasonable particularity; identify the statute under which 24 the forfeiture action is brought; and state sufficiently detailed 25 facts to support a reasonable belief that the government will be 26 able to meet its burden of proof at trial. 27 28 2. The Complaint The complaint filed in this action was verified. 9 1 The bases for jurisdiction are identified as 28 U.S.C. §§ 2 1345 and 1355 (jurisdiction of civil proceedings commenced by the 3 United States or an agency or officer thereof, and of actions to 4 recover or enforce penalties or forfeitures under acts of 5 Congress, respectively) and 18 U.S.C. § 981(a)(1)(A) and 6 (a)(1)(C) (subjecting to forfeiture all property involved in a 7 transaction or attempted transaction in violation of 18 U.S.C. § 8 1956, and any property which constitutes or is derived from 9 proceeds traceable to a violation of various statutes or 10 specified unlawful activity as defined in § 1956(c)(7), or a 11 conspiracy to commit such an offense). (Cmplt. ¶¶ 1-4.) 12 The basis of venue is identified as 28 U.S.C. § 1395 13 (placing venue for a civil forfeiture proceeding where the 14 property is found). (Cmplt. ¶ 5.) 15 The property is described with reasonable particularity. 16 The review of the allegations of the complaint set forth 17 hereinabove in connection with notice to potential claimants 18 reflects that the Defendant properties were subject to 19 forfeiture. In the complaint there are alleged sufficiently 20 detailed facts to support a reasonable belief and inference that 21 the government would be able to meet its burden of proof at trial 22 that the properties were either involved in a transaction or 23 attempted transaction in violation of 18 U.S.C. § 1956, used to 24 facilitate a conspiracy to commit such a violation, were proceeds 25 of such a conspiracy and/or violations, or were derived from 26 proceeds traceable to such a conspiracy and/or violations. The 27 use of the vehicles and the electronic equipment in the unlawful 28 enterprise, and the identification and tracing of the unlawful 10 1 enterprise as the source of the funds of the deposits made into 2 the bank accounts, demonstrate a substantial connection between 3 the property and the offenses. 4 5 F. Propriety of Default Judgment A court has the discretion to enter a default judgment 6 against one who is not an infant, incompetent, or member of the 7 armed services where the claim is for an amount that is not 8 certain on the face of the claim and where (1) the defendant has 9 been served with the claim; (2) the defendant’s default has been 10 entered for failure to appear; (3) if the defendant has appeared 11 in the action, the defendant has been served with written notice 12 of the application for judgment at least three days before the 13 hearing on the application; and, (4) the court has undertaken any 14 necessary and proper investigation or hearing in order to enter 15 judgment or carry it into effect. Fed. R. Civ. P. 55(b); Alan 16 Neuman Productions, Inc. v. Albright, 862 F.2d 1388, 1392 (9th 17 Cir. 1988). Factors that may be considered by courts in 18 exercising discretion as to the entry of a default judgment and 19 as to setting aside a default include the nature and extent of 20 the delay, Draper v. Coombs, 792 F.2d 915, 924-925 (9th Cir. 21 1986); the possibility of prejudice to the plaintiff, Eitel v. 22 McCool, 782 F.2d 1470, 1471-72 (9th Cir.1986); the merits of 23 plaintiff's substantive claim, id.; the sufficiency of the 24 allegations in the complaint to support judgment, Alan Neuman 25 Productions, Inc., 862 F.2d at 1392; the amount in controversy, 26 Eitel v. McCool, 782 F.2d at 1471-1472; the possibility of a 27 dispute concerning material facts, id.; whether the default was 28 due to excusable neglect, id.; and, the strong policy underlying 11 1 the Federal Rules of Civil Procedure that favors decisions on the 2 merits, id. 3 Here, no one has claimed an interest in the Defendant 4 properties or otherwise responded to the complaint despite 5 adequate notice. It does not appear that there is any risk of 6 mistake or excusable neglect on the part of anyone with a 7 potential interest in the property or of a dispute as to a 8 material fact essential to the government’s case. No just cause 9 for delay appears. It is apparent from the declarations submitted 10 to the Court that none of the potential claimants is an infant, 11 incompetent, or member of the armed services. There does not 12 appear to be any reason why the general policy in favor of a 13 decision on the merits would warrant refusing to enter the 14 requested default judgment. 15 Accordingly, the Court finds that Plaintiff has shown its 16 entitlement to a default judgment of forfeiture. 17 18 G. Form of the Judgment A successful plaintiff in a forfeiture action is entitled to 19 a judgment against the property, Waterloo Distilling Corp. v. 20 U.S., 282 U.S. 577, 581 (1931), affecting the interests of all 21 persons in the property, Hanson v. Denkla, 357 U.S. 235, 246 n.12 22 (1958). 23 IV. Recommendation 24 Accordingly, it is hereby RECOMMENDED that: 25 1. Plaintiff’s motion for default judgment be GRANTED; 26 2. Plaintiff is entitled to, and the Clerk be directed to 27 enter, a judgment that: 28 (a) The interest/s of Karen Jean Freyling and Steven W. 12 1 Butts in the Defendant properties are CONDEMNED and FORFEITED to 2 the United States of America; and 3 (b) The right, title, and interest of all potential 4 claimants in the Defendant property, including but not limited to 5 Karen Jean Freyling and Steven W. Butts, are FORFEITED to the 6 United States of America pursuant to , and are VESTED in the 7 United States; and, 8 (c) All persons claiming any right, title, or interest 9 in or to the Defendant property have DEFAULTED and no longer have 10 any right, title, or interest in the Defendant property 11 whatsoever; and, 12 3. The Clerk of Court ENTER final judgment of forfeiture for 13 Plaintiff United States of America. 14 These findings and recommendation are submitted to the 15 United States District Judge assigned to the case, pursuant to 16 the provisions of 28 U.S.C. § 636 (b)(1)(B) and Rule 72-304 of 17 the Local Rules of Practice for the United States District Court, 18 Eastern District of California. Within thirty (30) days after 19 being served with a copy, any party may file written objections 20 with the court and serve a copy on all parties. Such a document 21 should be captioned “Objections to Magistrate Judge’s Findings 22 and Recommendation.” Replies to the objections shall be served 23 and filed within ten (10) court days (plus three days if served 24 by mail) after service of the objections. The Court will then 25 review the Magistrate Judge’s ruling pursuant to 28 U.S.C. § 636 26 (b)(1)(C). The parties are advised that failure to file 27 objections within the specified time may waive the right to 28 ///// 13 1 appeal the District Court’s order. Martinez v. Ylst, 951 F.2d 2 1153 (9th Cir. 1991). 3 4 IT IS SO ORDERED. 5 Dated: icido3 6 October 22, 2009 /s/ Sandra M. Snyder UNITED STATES MAGISTRATE JUDGE 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.