Kadonsky v. United States , 3 F. App'x 898 ( 2001 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
FEB 9 2001
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
STEVEN J. KADONSKY,
Plaintiff-Appellant,
v. No. 00-4062
(D.C. No. 98-CV-852)
UNITED STATES OF AMERICA, (D. Utah)
Defendant-Appellee.
ORDER AND JUDGMENT *
Before EBEL , KELLY , and LUCERO , Circuit Judges.
Plaintiff-appellant Steven J. Kadonsky, proceeding pro se, appeals from
the district court’s order denying his request for the return of forfeited currency in
the amount of $300,000. That money was the proceeds from a sale of real
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. The court generally disfavors the citation of orders and
judgments; nevertheless, an order and judgment may be cited under the terms and
conditions of 10th Cir. R. 36.3.
property in Park City, Utah. We exercise jurisdiction under 28 U.S.C. § 1291 and
remand for further proceedings consistent with this order and judgment.
I.
Kadonsky performed money-laundering services, among other things, for
a drug-trafficking organization run by Howard Weinthal. Pursuant to a plea
agreement which required him to provide the government with information on
Weinthal’s organization, Kadonsky pled guilty to drug-related crimes. Beginning
in October 1993, government agents interviewed Kadonsky concerning ownership
interests in property purchased with drug-trafficking proceeds. Kadonsky also
testified before the grand jury in the District of Arizona in February 1994.
Kadonsky detailed the purchase of real property in Park City, Utah.
According to a government agent, Kadonsky was informed that the government
intended to bring forfeiture proceedings against the property as proceeds traceable
to drug purchases. 1
Kadonsky denies being told the government’s intention.
Kadonsky testified to the grand jury that, at Weinthal’s request, he had
arranged for the purchase of property with $220,000 in laundered money in the
1
Property subject to forfeiture includes “[a]ll moneys, negotiable
instruments, securities, or other things of value furnished or intended to be
furnished by any person in exchange for a controlled substance” and also
“all proceeds traceable to such an exchange.” 21 U.S.C. § 881(a)(6).
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name of Park City Development Limited Partnership. 2
The money was all
Weinthal’s drug money. He told an agent, however, that he had a 15% interest in
the partnership and Weinthal had an 85% interest.
At the time of Kadonsky’s testimony, the county recorder’s office did not
show Park City Development Limited Partnership as the owner of the property.
A warranty deed, filed March 17, 1992, evidenced Weinthal’s conveyance of the
property from Park City Development Limited Partnership to Comanche Nation
Ltd. Partnership, an entity controlled by Weinthal and another individual. In an
effort to counteract the conveyance, Kadonsky filed a “Notice of Interest” on
August 3, 1992. The notice stated that Kadonsky “claims an interest” in the Park
City property “by virtue of being the sole owner and general partner of Park City
Development Limited Partnership, an unregistered limited partnership.”
(Appellee’s App. at 64.) The filing purported to “give[] notice that except for
[Kadonsky], no individuals have been authorized to convey title.” ( Id. )
Notwithstanding the 1992 filing of the notice, Kadonsky contends that he
learned of his ownership of the property only after his 1994 grand jury testimony.
He states that Weinthal told him that “all of the funds used to purchase the Park
2
According to Kadonsky, the partnership name was registered, but no other
paperwork filed. In Utah, a limited partnership is not formed until a certificate
of limited partnership is executed and filed with the Division of Corporations
and Commercial Code of the Utah Department of Commerce. Utah Code Ann.
§ 48-2a-201.
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City property were, in fact, Kadonsky’s earnings from various activities,” and
therefore Kadonsky was the 100% owner of Park City Development Limited
Partnership and the property. (Appellant’s Br. at 5.) According to Kadonsky, he
informed a government agent of his newly-acquired knowledge and the agent
responded that the government already knew that Kadonsky owned the property.
The government denies that any such conversation took place.
Less than a month after his grand jury testimony, Kadonsky, from his place
of incarceration, arranged for a Utah attorney to represent him in the sale of the
property. A buyer was found for the contract sales price of $395,000. To convey
clear title, Kadonsky obtained Weinthal’s cooperation by agreeing to give him
a share of the proceeds. Park City Ltd. Partnership, under Kadonsky’s signature,
quitclaimed its interests to Comanche Nation Ltd. Partnership which then
conveyed the property to the buyer by warranty deed.
Closing was scheduled for June 1, 1994, at which time the seller,
Comanche Nation, was to receive $35,765.52 and Kadonsky was to receive
$300,000. The title company issued a trust account check to the order of “Steve
Kadonsky” in the amount of $300,000. (Appellant’s App. at 20.) At closing, the
government seized the $300,000 check. Notice of seizure was sent to Weinthal,
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but not to Kadonsky at his place of incarceration. The currency was declared
forfeited on September 22, 1994. 3
On December 7 of that year, the government commenced a judicial
forfeiture action in the United States District Court for the District of Arizona
naming Kadonsky and Park City Development Limited Partnership as two of
the defendants. Default judgment was entered on June 27, 1995, declaring that
Kadonsky had forfeited all rights in Park City Development Limited Partnership.
Kadonsky unsuccessfully attempted to set aside the default and recover the
$300,000. In that action, the government responded to Kadonsky’s pleading by
stating that the complaint
include[d] real property in Colorado and Vermont only. Neither the
real property nor any interest in the net sales proceeds from the
liquidation of the real property in Utah was a defendant in this
action. No arrest warrant has been served upon the sales proceeds
described in Kadonsky’s pleading. This court has no jurisdiction
over the res forfeited by the administrative action in Utah.
(Id. at 137.) The district court refused to re-open the case and consider
Kadonsky’s claim for return of the currency. Later, Kadonsky filed pleadings
3
Administrative forfeiture of property valued at $500,000 or less, furnished
or obtained in exchange for a controlled substance, is authorized by statute. The
government is required to send written notice of forfeiture proceedings to each
party who may have an interest in the seized property and to publish notice of its
intent to seize the property once a week for three consecutive weeks. A potential
claimant then has twenty days in which to file a claim and to post a bond. See
19 U.S.C. §§ 1607(a), 1608.
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regarding the return of the currency in still another judicial forfeiture action, filed
in the Northern District of Texas, that began in August 1997.
Kadonsky initiated the instant action in December 1998 requesting return of
the currency on the grounds that his due process right to challenge the
administrative forfeiture was violated by the failure to provide him with notice
of seizure. The parties filed cross motions for summary judgment. In its order
granting the government’s motion, the district court determined that Kadonsky
could own the property only through his rights in Park City Development Limited
Partnership and that those rights were extinguished in the Arizona forfeiture
action. The district court therefore entered judgment in favor of the government.
This appeal followed.
II.
Before reaching the merits of this appeal we must first address the
government’s argument that Kadonsky lacks standing to challenge the forfeiture
of the $300,000 in currency. Whether a party has standing to claim property in
a forfeiture action is a question of law to be reviewed de novo. See United States
v. 5 S 351 Tuthill Rd. , 233 F.3d 1017, 1021 (7th Cir. 2000). A claimant must be
able to show a “facially colorable” interest in the proceedings sufficient to satisfy
Article III standing; otherwise, no constitutional case or controversy exists
capable of federal court adjudication. See, e.g. , United States v. 1998 BMW “I”
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Convertible , 235 F.3d 397, 399 (8th Cir. 2000); Kadonsky v. United States ,
216 F.3d 499, 508 (5th Cir. 2000); United States v. U.S. Currency, $81,000 ,
189 F.3d 28, 35 (1st Cir. 1999).
To contest a civil forfeiture, “the claimant need not prove the full merits
of [his] underlying claim.” U.S. Currency, $81,000 , 189 F.3d at 35 (quotation and
citation omitted). Usually, “an allegation of ownership and some evidence
of ownership are together sufficient to establish standing.” Id. “An ownership
interest is evidenced in a number of ways including showings of actual
possession, control, title and financial stake.” 1998 BMW “I” Convertible ,
235 F.3d at 397 (quotations and citations omitted).
The government argues that there are three reasons why Kadonsky lacks
standing in this action: (1) Kadonsky’s ownership in the Park City property,
if any, was through Park City Development Limited Partnership, and his interest
in the partnership was forfeited in the Arizona action; (2) Comanche Nation was
the record owner of the property; and (3) Kadonsky denied ownership in the Park
City property. These arguments share a common flaw. The forfeited property
here was a check made out to the plaintiff; it was not the real property or a
partnership interest. The payee of a seized check necessarily suffers an injury
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that can be redressed by reimbursement for the amount of the check. Kadonsky
has standing to contest the forfeiture. 4
III.
The government is required to give notice to all persons who have or claim
an interest in property that is subject to administrative forfeiture. United States v.
Clark , 84 F.3d 378, 380 (10th Cir. 1996); see also 19 U.S.C. § 1607 (providing
that “[w]ritten notice of seizure together with information on the applicable
procedures shall be sent to each party who appears to have an interest in the
seized article”). Notwithstanding the confusion in record title and the conflict
in Kadonsky’s statements, it is clear that Kadonsky, at a minimum, “appear[ed]
to have an interest” in the check made out in his name. Therefore, under § 1607,
he was entitled to receive notice of seizure. It is uncontested that the government
did not provide Kadonsky with notice.
The question before us, however, is not whether the government failed to
follow the statute. In order to make out a valid claim for return of property a
claimant must show the deprivation of an actual property interest, not just the
appearance of a property interest. “[F]ederal question jurisdiction pursuant to 28
4
We have dealt with the government’s attack on the validity of Kadonsky’s
ownership rights in the currency strictly in the context in which they were
raised–standing. This court “will not craft” an argument for a party. Perry v.
Woodward , 199 F.3d 1126, 1141 n.13 (10th Cir. 1999), cert. denied , 120 S. Ct.
1964 (2000).
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U.S.C. § 1331 is available for the limited purpose of considering collateral due
process attacks; that is, deciding whether the forfeiture offended due process
rights.” United States v. Deninno , 103 F.3d 82, 85 (10th Cir. 1996).
“Proceedings surrounding the motion for return of property seized in
a criminal case are civil in nature,” United States v. Maez , 915 F.2d 1466, 1468
(10th Cir. 1990), and based on equitable principles, see United States v. Madden ,
95 F.3d 38, 40 (10th Cir. 1996). Generally, we review a district court’s denial of
a motion for return of forfeited property for an abuse of discretion. See Deninno ,
103 F.3d at 84. However, a de novo standard of review applies to the ultimate
conclusion on whether a claimant’s due process rights have been violated. See
United States v. One Parcel of Real Prop. Described as Lot 41, Berryhill Farm
Estates , 128 F.3d 1386, 1391 (10th Cir. 1997).
The district court determined that Kadonsky had no property rights because
the Texas forfeiture action had stripped him of his interests in the real property
and the partnership. The Texas matter, however, was filed after the sale of the
property, after the seizure of the check, and after the forfeiture. Moreover, it is
apparent from the government’s filings and the court’s rulings in the Texas case
that the later action had no effect on the property at issue in this case. The
district court erred in determining that the judgment entered in the Texas action
remedied defects in the administrative forfeiture of the $300,000 check.
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The government essentially concedes the district court’s error and argues
that the ruling should be upheld on other grounds: Kadonsky was equitably
estopped from asserting ownership or, alternatively, that the doctrine of laches
bars Kadonsky’s suit. These affirmative defenses are potentially valid theories,
but their applicability cannot be determined at this procedural juncture.
Summary judgment is appropriate only “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). “‘When
reviewing cross-motions for summary judgment, ‘our review of the record
requires that we construe all inferences in favor of the party against whom the
motion under consideration is made.’” Pirkheim v. First Unum Life Ins. ,
229 F.3d 1008, 1010 (10th Cir. 2000) (quoting Andersen v. Chrysler Corp. ,
99 F.3d 846, 856 (7th Cir. 1996)).
The theory of equitable estoppel has been applied in a forfeiture action,
see United States v. 8136 S. Dobson St. , 125 F.3d 1076, 1082 (7th Cir. 1997),
and is particularly appropriate in an action for return of property, which sounds in
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equity, see Madden , 95 F.3d at 40. 5
For equitable estoppel to apply, the party
asserting the defense must show that
(1) the party to be estopped must know the facts; (2) the party to be
estopped must intend that his conduct will be acted upon or must so
act that the party asserting the estoppel has the right to believe that it
was so intended; (3) the party asserting the estoppel must be ignorant
of the true facts; and (4) the party asserting the estoppel must rely on
the other party’s conduct to his injury.
N. Tex. Prod. Credit Ass’n v. McCurtain County Nat’l Bank , 222 F.3d 800,
811 (10th Cir. 2000) (quoting Penny v. Giuffrida , 897 F.2d 1543, 1545-46
(10th Cir. 1990)).
In the instant case, the materials submitted by the parties provide sharply
conflicting versions of the facts relevant to each of the four elements. These
issues of material fact preclude summary judgment in favor of the government on
an estoppel theory. It is therefore necessary to remand the matter to the district
court for further proceedings and findings on this issue.
If the district court determines that the government has failed to make an
adequate showing on the defense of equitable estoppel, it must then reach the
government’s assertion of a laches defense. The limitations provision for
5
The related theory of “[j]udicial estoppel bars a party from adopting
inconsistent positions in the same or related litigation. However, this circuit
has expressly rejected the principle of judicial estoppel.” United States v.
162 MegaMania Gambling Devices , 231 F.3d 713, 726 (10th Cir. 2000)
(quotations and citations omitted).
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forfeiture proceedings requires the commencement of proceedings “within five
years after the time the alleged offense was discovered.” 19 U.S.C. § 1621.
“Where obvious statute of limitations problems exist,” a forfeiture void for lack
of notice “should be vacated and the statute of limitations allowed to operate,
subject, of course, to any available government arguments against it.” Clymore v.
United States , 164 F.3d 569, 574 (10th Cir. 1999). 6
At the latest, Kadonsky’s
crimes were discovered in October 1993. “[A]bsent the application of laches or
equitable tolling principles,” the limitations period has expired to prevent the
filing of a new forfeiture proceeding. United States v. Marolf , 173 F.3d 1213,
1218 (9th Cir. 1999).
“‘Laches consists of two elements: (1) inexcusable delay in instituting
a suit; and (2) resulting prejudice to defendant from such delay.’” Trustees of the
Centennial State Carpenters’ Pension Trust Fund v. Centric Corp. (In re Centric
Corp.) , 901 F.2d 1514, 1519 (10th Cir. 1990) (quoting Brunswick Corp. v. Spinit
Reel Co. , 832 F.2d 513, 523 (10th Cir. 1987)). Because the laches defense raises
6
The Clymore holding is applicable to the instant case. Congress,
however, has significantly amended the civil forfeiture statutes for proceedings
commenced after August 23, 2000. See Civil Asset Forfeiture Reform Act of
2000, Pub. L. No. 106-185, § 2, 114 Stat. 202, 208 (2000). Forfeitures judicially
set aside for lack of notice may now be refiled. Id.-12-
considerations similar to those of the equitable estoppel, we leave any
determination on the issue to the district court on remand. 7
IV.
For the reasons stated above, the judgment of the district court
is REVERSED and REMANDED for further proceedings consistent with
this opinion.
Entered for the Court
Carlos F. Lucero
Circuit Judge
7
Kadonsky contends that in the event the $300,000 in currency is returned to
him, he is entitled to pre-judgment interest. We have recently rejected this
argument. In United States v. 30,006.25 in U.S. Currency , No. 00-5046, 2000 WL
1879124, at *3 (10th Cir. Dec. 28, 2000), we held that, in forfeiture cases
commenced prior to August 23, 2000, “sovereign immunity prohibits the award of
interest on currency” returned to a forfeiture claimant. For cases filed on or after
that date, however, the Civil Asset Forfeiture Reform Act of 2000, “has now
waived sovereign immunity with respect to interest on returned currency,
negotiable instruments and proceeds.” Id. (citing Pub. L. No. 106-185, § 4(a),
114 Stat. 202, 211-13 (2000) (codified at 28 U.S.C. § 2465(b)(1)(C))).
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