United States v. Gilbert ( 2001 )

UNITED STATES of America, Plaintiff-Appellant,
v.
Michael GILBERT, Defendant-Appellee,
Karen Gilbert, Michael Gilbert Family Irrevocable Trust, Third Party Claimants-Appellees.
No. 97-4578.
United States Court of Appeals,
Eleventh Circuit.
March 16, 2001.
Appeal from the United States District Court for the Southern District of Florida.(No. 89-00879-CR-NCR),
Norman C. Roettger, Jr., Judge.
Before TJOFLAT, EDMONDSON and KRAVITCH, Circuit Judges.
TJOFLAT, Circuit Judge:
This appeal represents the latest—and we hope final—chapter in a protracted RICO prosecution
which has already commanded the attention of four panels of this court.1 Following our 1996 mandate setting
aside the criminal forfeiture of Michael Gilbert's interest in a California limited partnership, the Government
moved the district court to force Michael Gilbert and his family2 to file third-party petitions to reclaim their
interests pursuant to 18 U.S.C. § 1963(l ), and to restrain the Gilberts from the use and enjoyment of the
previously forfeited property pending the outcome of the section 1963(l ) hearing. The Government contends
that although the judgment forfeiting Michael Gilbert's partnership interest has been set aside, the Gilberts
should be forced to file third-party petitions because Michael derived his partnership interest as a subsequent
transferee of Benjamin Kramer, one of his co-defendants whose silent interest in the limited partnership
remains forfeited to the United States.
We conclude that the district court did not abuse its discretion in denying the Government's request.
The statutory scheme outlined in section 1963(l ) does not permit the Government's attempt to force the
Gilberts to file third-party petitions. Moreover, we note that even if section 1963(l ) did allow such an action
1
See United States v. Kramer, 864 F.2d 99 (11th Cir.1988) (non-argument calendar); United States v.
Kramer, 912 F.2d 1257 (11th Cir.1990); United States v. Kramer, 73 F.3d 1067 (11th Cir.1996); and the
instant appeal.
2
We refer to Michael Gilbert, his wife Karen Gilbert, and the Michael Gilbert Family Irrevocable
Trust (the "Trust") collectively as the Gilberts. We refer to them by their first names or simply as the
Trust to designate them individually.
by the Government, the subsequent proceeding would be needless because the order of forfeiture upon which
the Government relies is invalid. Accordingly, we affirm the district court's denial of the Government's
motion to force the Gilberts to file third-party petitions pursuant to 18 U.S.C. § 1963(l ) and to restrain the
Gilberts from the use and enjoyment of their property.
I.
A.
The Bell Gardens Bicycle Club (the "Club") was created on December 5, 19833 as a joint venture
between two California partnerships: LCP, a general partnership,4 and Park Place Associates, a limited
partnership ("PPA").5 PPA had received an exclusive license from the City of Bell Gardens to operate a card
club in 1982, but was unable at that time to raise enough money to buy land and begin construction. PPA
thus entered into a joint venture agreement with LCP, which offered to find the funds necessary to finance
the Club's construction. For its part, PPA agreed to contribute its rights to property in the City of Bell
3
The history of the case recited herein is a summary of the records from both the criminal RICO
proceedings, see supra n. 1, and the ancillary proceedings that followed the criminal trial, in which the
court adjudicated third-party claims to the defendants' forfeited property. See infra, Part I.E.
4
LCP was a general partnership from its creation on December 5, 1983 until its reorganization as a
limited partnership, "LCP Associates, Ltd.," on November 15, 1984. For the sake of simplicity, we refer
to the limited partnership as "LCP, Ltd."
5
The Club has been described as:
the world's largest card club. It is located in a 100,000 square foot building on an 8.5
acre parcel in the City of Bell Gardens, California. The [Club] does not generate revenue
by participating in the card games it houses. Instead, the Club rents space to card players
for an hourly fee, providing the assistance of expert dealers. The Club is open 24 hours a
day, 365 days a year, and employs more than 1800 persons. In 1990, it was generating
after-tax profits of $23 million per year and was estimated to be worth $150 million.
Taxation of the Club is the primary source of revenue for the City of Bell Gardens.
Michael S. Pasano, The Saga of the Bell Gardens Bicycle Club—Lessons and Nightmares, 1998
ABA Center for Ctr. for Continuing Legal Educ. Nat'l Inst. Sec.Crim. Just. [hereinafter "The
Saga"]. We note that the author, Mr. Pasano, is co-counsel representing the Gilbert family
interests in this appeal.
In 1990, the Government took over the Club after a jury forfeited it to the Government as
proceeds of racketeering activity. The Government has faired little better than the previous
owners in purging the stain of corruption and scandal surrounding the Club. See Sharon Walsh,
Crime Alleged at Casino U.S. Partly Owns, Wash. Post, Mar. 20, 1996, at D3; see also James
Bornemeier, U.S.Owned Casino Overrun by Crime, Security Chief Alleges, L.A. Times, Mar. 20,
1996, at B3.
Gardens as well as the gaming license it had already obtained.6
Unbeknownst to PPA, one source of funding located by LCP was a large-scale money laundering
operation.7 From 1982 to 1987, Benjamin Kramer and three of his partners (Randy Lanier, George Brock,
and Gene Fisher) were involved in an intricate scheme to import large quantities of marijuana into the United
States. See United States v. Kramer, 73 F.3d 1067, 1070 (11th Cir.1996); United States v. Kramer, 807
F.Supp. 707, 710 (S.D.Fla.1991); see also United States v. Kramer, 955 F.2d 479 (7th Cir.1992). The details
of this bold undertaking and the elaborate money laundering operation that followed are described in great
detail in Kramer, 807 F.Supp. at 710-736. Of significance in the instant appeal is that approximately $12.6
million of the initial $22 million needed to build the Club came from proceeds of Kramer's marijuana
smuggling operation.8
The level of complicity in the money laundering plan varied among the LCP partners. The three
original LCP partners—Dale Lyon, Julie Coyne, and David Pierson—were brought together in 1983 by
Michael Gilbert's father, Sam Gilbert. Sam, a wealthy Los Angeles businessman, was the first Gilbert to
establish ties with the Kramer family when he befriended Benjamin Kramer's father, Jack Kramer, in 1978.
At that time, Jack Kramer and Sam Gilbert came up with the idea of building a legal card club for the
purposes of laundering Benjamin Kramer's dirty money. By 1983, Sam Gilbert was in contact with David
Pierson, who was himself thinking of building a card club and was looking for legitimate investors. Pierson
gave Sam Gilbert a prospectus, Sam liked what he saw, and Sam agreed to arrange the financing for the
project in return for a sixty percent share of Pierson's ownership interest in the Club.
Sam Gilbert went to work putting together a team to undertake the financing side of the project. To
that end, Sam Gilbert brought in Dale Lyon, a banker and businessman, and Julie Coyne, who had an
experienced background in personnel. For some time, Lyon, Pierson, Coyne, and Sam Gilbert discussed the
ownership percentages of what would become the LCP general partnership. Then, for little or no
6
The Joint Venture Agreement provided for the following profit distribution: 70% to LCP and 30%
to PPA until the Club's loan was paid off, and then the figures were to be 60% to LCP and 40% to PPA.
Additionally, there was a provision stating that when the Club's profits reached six million dollars, the
split was to be 65/35 in favor of LCP. This six million dollar threshold has been reached, but the record
does not indicate when this happened.
7
PPA was unaware of the money laundering scheme and has been cleared of any wrongdoing. See
United States v. Kramer, 807 F.Supp. 707, 736 (S.D.Fla.1991).
8
The rest of the Club's financing was obtained through legitimate lending institutions.
consideration, Sam Gilbert gave his entire sixty percent interest in LCP to the newcomers Lyon and Coyne
in equal shares.9 At the end of the day, Lyon and Coyne each owned a thirty percent interest in LCP and
Pierson controlled the other forty percent interest.
While Sam Gilbert, Lyon, Coyne, and Pierson were negotiating their respective interests in LCP,
Coyne, Sam Gilbert, and Lyon set up CGL Investment Company, Inc. ("CGL"). CGL was created to pose
as a legitimate mortgage broker that would fund and invest in real estate projects, specifically, the Club.
Shortly after Sam Gilbert had taken the necessary steps to organize both LCP and CGL, he met with Jack
Kramer to explain the money laundering scheme, referring at that time to the new LCP partners and PPA as
"your straw people. [The] lily-white people who will be approved by the Gambling Commission." Kramer,
807 F.Supp. at 712-13.
Approximately $12.6 million of Benjamin Kramer and his three associates' drug money was sent to
CGL from a sham lending firm named Troon Mortgage Investment company ("Troon"), located in Tortola,
which is part of the British Virgin Islands. Troon received the drug money from a trust called the BRT trust,
located in Liechtenstein.10 Sam Gilbert arranged for the money to be sent from Troon to CGL in the form
of a loan. CGL then forwarded the money to the Club, once again in the form of a loan. In appreciation for
the loan, Sam Gilbert promised Benjamin and Jack Kramer that they would retain their lender's rights of
repayment of principal at a fifteen percent rate of interest (payable over fifteen years). In addition, Troon was
to receive a fifteen percent income participation "kicker" payable over the life of the project.
With the necessary funds in hand, construction on the Club began in January 1984. By the fall of
the same year, however, it became obvious that an additional $10 million would be needed to finish the
project. To this aim, the LCP general partners asked Sam Gilbert to personally guarantee a $5 million loan
9
When Sam Gilbert was not laundering drug money for Benjamin Kramer, Sam owned and operated a
construction company. The best explanation for why Sam agreed so readily to give up his majority
interest in what was to become LCP was that Pierson, Lyon, and Coyne all agreed that Sam's construction
company would build the Club and that Sam would receive a 10% fixed-fee contract. According to
testimony at trial, Sam thought the casino card club business was too risky a venture and he was content
simply making his money by building the Club.
10
Following the criminal RICO trial, the district court held ancillary proceedings to determine issues
of ownership in the property forfeited to the Government. See infra Part I.E. According to the district
court's findings following the ancillary proceedings, the three letters that form the BRT name stand for
Ben, Randy, and Tom—the first names of the drug smuggling partners: Ben Kramer, Randy Lanier, and
George Brock (who was also known as Tom). See Kramer, 807 F.Supp. at 736. The district court also
found that the first flow of money from Liechtenstein to Troon was on January 29, 1984, which coincides
with the time construction on the club began. See id. at 713.
that LCP had negotiated from a legitimate lending institution. Sam Gilbert refused to provide this guarantee
but indicated that his son, Michael Gilbert, might be interested.11 Sam Gilbert told Michael of LCP's need
for additional financing and informed him that a twenty percent interest in LCP was available for $200,000.
Michael Gilbert, in turn, discussed this opportunity with his siblings, Robert and Margaret. In November
1984, after some negotiations with the LCP partners, Michael, Robert, and Margaret bought a twenty percent
interest in LCP in exchange for $200,000 and an agreement to guarantee a $5.5 million loan to help finish
construction of the Club. Coyne and Pierson each gave up ten percent of their interest in LCP to carve out
the twenty percent share.12
Gilbert and his siblings obtained a $200,000 loan from the Olympic National Bank to purchase the
twenty percent interest in LCP. By agreement of the parties, LCP, rather than Michael Gilbert or his siblings,
made the interest payments on the loan, and the loan principal was paid directly out of Michael Gilbert's and
his siblings' profit distributions. As a result of Michael, Robert, and Margaret buying this twenty percent
ownership interest, LCP, which had from its inception been organized as a general partnership, was
reorganized into a limited partnership ("LCP, Ltd.") on November 15, 1984.13
The newly acquired twenty percent interest in LCP, Ltd. was divided among the members of the
Gilbert family as follows: Michael and Robert each received one-third (or 6.67% each) and the remaining
one-third was divided equally among Margaret, Michael's three children, and Robert's four children. Both
11
Michael Gilbert was involved with the Club even before he was approached by the LCP partners.
As the president of his father's construction company, he supervised the Club's construction.
12
According to both Coyne's and Pierson's testimony during the ancillary hearing following the
criminal trial, they each gave up ten percent of their ownership interest in LCP because it made sense to
give up a little and see the Club open, rather than have a larger ownership interest in an unfinished
construction project.
13
The Limited Partnership Agreement, which was not introduced into evidence at trial, provides that
"[t]he General Partners shall cause to be executed and shall execute an amendment to the JOINT
VENTURE AGREEMENT reflecting the conversion of [LCP] into a Limited Partnership." In a letter
submitted to this court at our request, however, the Government informs us that it was "unable to locate or
identify any documentary or testimonial evidence presented in either the criminal trial or the ancillary
forfeiture proceeding ... showing that the December 5, 1983 Joint Venture Agreement between LCP
Associates and Park Place Associates was ever formally amended to substitute LCP Associates Ltd. (the
limited partnership) for LCP Associates (the general partnership)." Thus, we question whether there was
ever a novation in the Joint Venture Agreement whereby LCP, Ltd. assumed the rights and/or obligations
of the LCP general partnership as a member of the Bell Gardens Bicycle Club Joint Venture. See
Restatement (Second) of Contracts § 280 (1979) (explaining that a novation substitutes a new party and
discharges one of the original parties to a contract by agreement of all three parties; a new contract is
created with the same terms as the original one, but the parties are changed).
Michael and Robert placed their children's shares in trust by creating, respectively, the Michael Gilbert
Family Irrevocable Trust (the "Trust") and the Robert Gilbert Family Irrevocable Trust. In total, Michael
Gilbert and the Trust owned approximately a ten percent interest (9.1675%) in LCP, Ltd.
The Club opened for business on November 30, 1984. Although the Club was not immediately
successful, it started turning a substantial profit within six months. In 1989, the Club's after-tax profits were
approximately $23 million. Starting in December 1984, the Club made regular mortgage payments on the
CGL loan. LCP, Ltd. also paid CGL its fifteen percent profit participation on a monthly basis. In turn, CGL
forwarded the mortgage payments and the kicker to Troon.14
In 1986, the net quickly closed in on Benjamin Kramer's money laundering operation. Benjamin
Kramer's contact in Tortola who ran Troon was arrested by British police. Shortly after the arrest, the Drug
Enforcement Administration ("DEA") obtained Troon's records and launched a joint investigation with the
Internal Revenue Service into the Club's financing. In November 1986, DEA agents interviewed Sam Gilbert,
Michael Gilbert, and others as part of an investigation into the possible use of drug proceeds to build the
Club.
Compounding Benjamin Kramer's woes was the fact that the Club was now turning a substantial
profit and, as Jack Kramer testified during the ancillary hearing following the criminal trial, "the Devil raised
his head" and Sam Gilbert decided to make the Kramer interest in the Club disappear. Kramer, 807 F.Supp.
at 731. Sam Gilbert swiftly forced Benjamin Kramer out by reneging on the fifteen percent kicker and then
refinancing the balance due on the $12.6 million mortgage loan at a more favorable interest rate through a
legitimate lending institution. Forcing Benjamin Kramer out was easily accomplished, since his name had
been intentionally left off of all Club documents to hide his illegitimate ownership interest. At the same time
the $12.6 million loan was being refinanced, Michael Gilbert and Lyon, at a CGL Board of Director's
meeting,15 authorized the transfer of $9.5 million in the form of a cashier's check as repayment of CGL's
obligation to Troon.16 The Government later traced the $9.5 million transfer to a Bank account in
14
By mid-1985, CGL had apparently sent Troon $860,000 in repayment on the loan.
15
Michael Gilbert became involved with CGL when he accepted a position as Vice-President in June
or July 1985.
16
The $9.5 million was apparently transferred to Lyon's bank, The Bank of Beverly Hills, converted
to a cashier's check, deposited into a Swiss bank account and later transferred to Luxembourg.
Luxembourg.17
B.
On November 24, 1987, a Southern District of Florida grand jury returned an indictment charging
Benjamin Kramer, Jack Kramer, Michael Gilbert, and Melvin Kessler (an attorney who is of no conse- quence
to this appeal), with various vio- lations of the RICO statute,18 the Travel Act,19 and conspiracy to defraud
the Internal Revenue Service.20 Specifically, the RICO count alleged that the defendants had been engaged
in a scheme to launder money generated from trafficking marijuana.
The indictment also included a RICO forfeiture count in which the Government alleged that all four
of the defendants had "property constituting, and derived from, proceeds which they obtained, directly or
indirectly, from racketeering activity ... thereby making such property and the entire interest of the
17
Although the Government put on no evidence to explain what happened to this $9.5 million, Jack
Kramer testified during the ancillary hearing following the criminal proceeding that the money was
divided among Benjamin Kramer and his drug smuggling partners.
18
RICO is an acronym for the Racketeer Influenced and Corrupt Organizations Act. See 18 U.S.C. §§
1961-68 (1994). The "prohibited activities" section of RICO states:
(a) It shall be unlawful for any person who has received any income derived, directly or
indirectly, from a pattern of racketeering activity or through collection of an unlawful
debt in which such person has participated as a principal within the meaning of section 2,
title 18, United States Code, to use or invest, directly or indirectly, any part of such
income, or the proceeds of such income, in acquisition of any interest in, or the
establishment or operation of, any enterprise which is engaged in, or the activities which
affect, interstate or foreign commerce....
(b) It shall be unlawful for any person through a pattern of racketeering activity or though
collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in
or control of any enterprise which is engaged in, or the activities of which affect,
interstate or foreign commerce.
(c) It shall be unlawful for any person employed by or associated with any enterprise
engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or
participate, directly or indirectly, in the conduct of such enterprise's affairs through a
pattern of racketeering activity or collection of unlawful debt.
(d) It shall be unlawful for any person to conspire to violate any of the provisions of
subsection (a), (b), or (c) of this section.
18 U.S.C. § 1962.
19
The Travel Act prohibits the interstate travel or transportation in furtherance of a racketeering
enterprise. 18 U.S.C. § 1952 (1994).
20
On December 13, 1988, a superseding indictment was returned. Sam Gilbert was named in the
original indictment but died in November 1987, and the indictment against him was dismissed. Kramer,
807 F.Supp. at 709.
defendants, therein or an amount of cash equivalent thereto including but not limited to the amount of
$50,000,000.00, forfeitable to the United States pursuant to Title 18, United States Code, Section 1963(a)(3)."
Next, the forfeiture count explained that "the said $50,000,000.00 constituting, and derived from, such
proceeds includes but is not limited to the property described as" the Club. A legal description of the Club
as set forth in the title document followed.21
C.
On March 28, 1990, following a three month trial, the jury found Benjamin Kramer and Jack Kramer
guilty of, inter alia, conspiring to racketeer under 18 U.S.C. § 1962(d) and of committing substantive
racketeering acts under 18 U.S.C. § 1962(c). After having some difficulty arriving at a unanimous decision,
the jury, two days later, found Michael Gilbert guilty of three counts of violating the Travel Act, 18 U.S.C.
§ 1952, and one count of racketeering under 18 U.S.C. § 1962(c).22 Kramer, 73 F.3d at 1070.
D.
Following these convictions, on April 2, 1990, the same jury considered the forfeiture issue in a
separate proceeding. At the outset of the forfeiture phase, the Government called one witness, the Club's
chief financial officer, through whom it introduced charts illustrating the origins of the various monies that
went into building the Club as well as the Club's profit distributions. A slice taking up slightly more than half
of one pie chart reflected the infusion of mortgage money originating from Troon and passing through CGL.
The Government rested and closing arguments ensued.
Michael Gilbert was the only defendant who argued against forfeiture of the Club. Benjamin Kramer
and Jack Kramer, through their counsel, informed the jury in their respective closing arguments that they did
not have, and for that matter never had, an ownership interest in the Club. In fact, to stress this point,
Benjamin Kramer's attorney openly invited the Government to enter into a stipulation whereby it could have
21
Specifically, this portion of the indictment reads in relevant part: "THE BELL GARDENS
BICYCLE CLUB, 7301 Eastern Avenue, Bell Gardens, California, a card club casino, consisting of a
commercial building and three parcels of real property located within the city of Bell Gardens, California,
of the following legal description...." The legal description of the three parcels followed. Nowhere in the
indictment is mention made of the Club's contents, the Club's profit distributions or current valuation, the
Club's owners and their respective ownership interests, LCP, Ltd., PPA, or CGL, or whether the $50
million mentioned in the indictment was intended as a substitute for forfeiting the Club.
22
We take this opportunity to correct a misprint in our 1996 opinion which states that Michael Gilbert
was convicted of "one count of violating the RICO statute, 18 U.S.C. § 1962(d)." Kramer, 73 F.3d at
1070. Michael Gilbert, in fact, was acquitted of the conspiracy charge under section 1962(d) but found
guilty of the substantive RICO violation under section 1962(c).
whatever interest Benjamin Kramer had in the Club.23
In its closing argument on the forfeiture issue, the Government advanced its theory that "[t]he [Club]
was built from the first shovel of dirt being taken out of the ground with drug money that came from Ben
Kramer's marijuana smuggling. It was forfeitable from that very point forward." The Government further
argued that forfeiture of the entire Club was proper and that the jury "ought not be concerned with ... the
innocent people here ... [because] those individuals [could later] petition the court to get back any interest that
they have" in the Club. In addition to the Club, the Government sought forfeiture of $9.5 million representing
the amount wired from LCP, Ltd. to Troon in 1986.24
Following closing arguments on the forfeiture issue, the court instructed the jury that "the term
'forfeiture' means to be divested or deprived of the ownership of something as penalty for the commission of
a crime." The court then explained that "to be entitled to such forfeiture, the Government must have proved
beyond a reasonable doubt ... [t]hat the proceeds or property forfeited was obtained, directly or indirectly,
by the Defendant, as charged; and ... [t]hat such proceeds or property were obtained by the specified
Defendant ... from ... racketeering activity." Before it sent the jury out to deliberate, the court gave the jury
special verdict of forfeiture forms to complete for each defendant.
The special verdict of forfeiture forms asked the jury whether the Club "constituted or was derived
from any proceeds which [the named defendant] obtained directly or indirectly from racketeering activity."
If the jury answered "yes" to that question, it then had to "indicate whether the [Club] is subject to Forfeiture."
The jury answered "yes" to both questions on the verdict forms pertaining to Benjamin and Jack Kramer. In
addition, the jury forfeited the $9.5 million that LCP, Ltd. sent to Troon in 1986, and held Benjamin and Jack
23
Shortly before this trial in Florida, a jury in the Southern District of Illinois found Benjamin Kramer
guilty of conspiring to distribute marijuana and of participating in a continuing criminal enterprise. The
district court sentenced him to life in prison without the possibility of parole and a separate, concurrent
forty-year term of imprisonment. In addition, the Illinois jury returned a $60 million forfeiture verdict
against Benjamin Kramer. See generally United States v. Kramer, 955 F.2d 479, 481-82 (7th Cir.1992)
(affirming his convictions and sentences). Given Benjamin Kramer's future prospects in the federal
penitentiary and the rather large outstanding forfeiture judgment against him in Illinois, one can
appreciate why the federal prosecutor in Florida elected to go after a piece of real property in California
rather than settle for yet another large (but sure to be symbolic) money judgment. Randy Lanier and
Gene Fisher, two of Benjamin Kramer's drug smuggling associates, were defendants in the Illinois trial
and were also found guilty and sentenced to life imprisonment without the possibility of parole. George
Brock (a/k/a Tom) was also indicted in Illinois but did not stand trial because he became a fugitive from
justice. Kramer, 955 F.2d at 483 n. 2.
24
The Government also asked the jury to forfeit $280,000, which represented monies that passed
through Mel Kessler's trust account. The jury held the Kramers and Kessler jointly and severally liable
for $280,000.
Kramer jointly and severally liable for that amount.25 With respect to Michael Gilbert, the jury struggled to
come to a consensus on its forfeiture verdict pertaining to the Club.26 The following day, the jury ultimately
answered "yes" to both questions.27
Notably, the jury was never asked to delineate the extent of either Michael Gilbert's, Benjamin
Kramer's, or Jack Kramer's ownership interest in the Club. For that matter, the jury was never asked to decide
whether the Kramers even had an ownership interest in the Club. Over objection, the court disregarded
Michael Gilbert's proposed special verdict forms and instructions that addressed both of these concerns.
E.
On April 3, 1990, at an impromptu hearing convened by the district court a few hours after the jury
agreed to forfeit Michael Gilbert's interest in the Club, the prosecutor handed the court and those
non-defendant parties interested in the Club who were then present a "motion for order of forfeiture and for
order of seizure, entry of restraining orders and appointment of interim trustee." The interested
parties—persons asserting legitimate ownership interests in the now-forfeited Club—hurriedly entered
objections, but "the district court entered the government's proposed order for forfeiture, and also seized the
Club in its entirety, appointed an interim trustee, and prevented the Club or its owners from distributing
25
The special verdict of forfeiture form pertaining to the $9.5 million read: "Do you find beyond a
reasonable doubt that the Nine and one Half (9.5) million dollars, or any portion thereof, is subject to
forfeiture as to [the named defendant]? If the answer above is yes, how much was so proved?"
26
The jury did not mark a simple "yes" or "no" on Michael Gilbert's verdict form. The jury found that
the Club was proceeds of racketeering but that, with respect the Michael Gilbert, the Club was only
forfeitable "as to the portion attributable to the CGL loans and Michael Gilbert [sic] ownership in the
[Club] via CGL Investments." The court, sua sponte, expressed concern that the jury's answer was
unclear; the Government and Michael Gilbert's attorney disagreed as to the significance of the jury's
qualification. The court sent the jury back to deliberate further. After a short while, the jury sent the
court the following note: "Yes, subject to forfeiture as to any and all interest in the [Club] which Michael
Gilbert obtained from his ownership in CGL Investments, and [Club] profit participation in CGL
Investments." This response, too, was deemed unacceptable, so the court sent the jury home for the night
and summoned them to return in the morning. The next morning, the jury continued its deliberation and
shortly thereafter came back with a simple "yes" to the second question on the verdict form. Over a
defense objection, the court accepted the verdict and excused the jury.
27
In 1993, Michael Gilbert was tried and convicted in the Southern District of Florida for money
laundering as well as obstruction of justice and perjury based on his testimony in the 1990 RICO criminal
trial, Kramer, 73 F.3d at 1070, and he was sentenced on August 27, 1993 to twenty-three years in prison.
In January 1996, we reversed Gilbert's money laundering conviction. Id. at 1072-73. According to
Michael Gilbert's attorney, after having served approximately sixty-three months in jail, Michael Gilbert
was released in February 1996. See The Saga, supra note 5.
profits or transferring their interests." Kramer, 912 F.2d at 1259.28
On or about April 27, the interested parties petitioned the district court29 for an ancillary hearing
pursuant to 18 U.S.C. § 1963(l )(2), which states that "[a]ny 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 ...
petition the court for a hearing to adjudicate the validity of his alleged interest in the property."30 The parties
also asked the court for relief from or stay of the restraining orders previously placed on the Club. Kramer,
912 F.2d at 1259. Without addressing the merits of the third-parties' ownership claims, the district court
"maintained the restraining order, pending final resolution of the scope of the forfeiture of the Club in a
hearing required under 18 U.S.C. § 1963(l )." Id.Despite the requirement that "[t]he hearing on the petition shall, to the extent practicable and
consistent with the interests of justice, be held within thirty days of the filing of the petition," 18 U.S.C. §
1963(l )(4) (emphasis added), the district court's promise of an ancillary hearing went unfulfilled for the next
28
The power to arrive at this rather dramatic result is found in 18 U.S.C. § 1963(e). At the time of the
trial and ancillary proceedings, this provision read:
Upon conviction of a person under this section, the court shall enter a judgment of
forfeiture of the property to the United States and shall also authorize the Attorney
General to seize all property ordered forfeited upon such terms and conditions as the
court shall deem proper. Following an entry of an order declaring the property forfeited,
the court may, upon application of the United States, enter such appropriate restraining
orders or injunctions, require the execution of satisfactory performance bonds, appoint
receivers, conservators, appraisers, accountants, or trustees, or take any other action to
protect the interest of the United States in the property ordered forfeited.
29
Michael Gilbert was among the parties who filed verified petitions.
30
To defeat the government's entitlement to the forfeited property, a third-party must establish by a
preponderance of the evidence that:
(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
(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;
the court shall amend the order of forfeiture in accordance with its determination.
18 U.S.C. § 1963(l )(6). If the third-party successfully establishes one of these two grounds, the
forfeiture order must be amended to reflect the third-party's legitimate ownership interest in the
property. 18 U.S.C. § 1963(l )(6).
four months. Kramer, 912 F.2d at 1257, 1259. In light of the district court's failure to comply with the
statutory mandate, the LCP, Ltd. partners who claimed a legal interest in the Club31 appealed on an expedited
basis to this court for relief.32 See Kramer, 912 F.2d. at 1258. PPA did not join in the appeal, presumably
because "the government quickly relinquished any opposition to [PPA's] claim because of its
non-involvement in money laundering." Kramer, 807 F.Supp. at 710.33 On September 7, 1990, this court
31
In a footnote, this court set out those claiming an interest in the Club by virtue of their ownership in
LCP, Ltd. The court also set out their respective LCP, Ltd. ownership interests. Those claiming an
interest were:
a) M. Dale Lyon—28% owner and general partner of LCP.
b) The Lyon Children Trust—2% owner and limited partner of LCP.
c) David C. Pierson—30% owner and general partner of LCP.
d) Lois J. Pierson—former spouse of David Pierson and owns one-half of his interest in
LCP under California community property law.
e) Julieann Coyne Wasson—20% owner and limited partner of LCP.
f) Christopher Wasson—spouse of Julieann Coyne Wasson and owns one-half of her
interest in LCP under California community property law.
g) Michael Gilbert—only member of appellants that was a defendant at trial; 6.67%
owner and limited partner of LCP.
h) Karen Gilbert—spouse of Michael Gilbert and owns one-half of his interest in LCP
under California community property law.
i) Robert Gilbert—6.67% owner and limited partner of LCP.
j) Margaret Gilbert—.8325% owner and limited partner of LCP.
k) The Michael Gilbert Family Irrevocable Trust—2.4975% owner and limited partner of
LCP.
l) The Robert Gilbert Family Irrevocable Trust—3.33% owner and limited partner of
LCP.
Kramer, 912 F.2d at 1258 n. 2.
32
Michael Gilbert joined the appeal "as a means of preserving his rights in the event the district court
grant[ed] his pending motion to set aside the forfeiture verdict against him."
33
On May 23, 1990, the district court, in accordance with the Government's stipulation with PPA,
permitted the PPA partners to receive their monthly profit distributions. On September 13, 1990, the
court accepted a stipulated release of PPA's 35% ownership interest in the Club on the ground that PPA
was an innocent owner under 18 U.S.C. § 1963(l ). On July 9, 1990, the Government entered a
stipulation with Sanwa Bank, one of the Club's legitimate mortgage lenders, whereby it agreed that
"Sanwa has a valid and legitimate interest in the real and personal property of the Club, is an innocent
person within the meaning of 18 U.S.C. § 1963, is a bona fide purchaser for value of its interest ... and
concluded that the district court had "erred by not holding a hearing required by § 1963(l ) within the
statutory thirty day period after the filing of the claimants' petitions or a reasonable time thereafter," Kramer,
912 F.2d at 1260, and directed the district court to commence ancillary hearings within thirty days.
The ancillary hearings began on September 10, 1990. Michael Gilbert, through his attorney, argued
that he should be allowed to participate in the proceedings and show that he was a bona fide purchaser of his
interest in the Club. The Government opposed the motion, pointing out that section 1963(l )(2) states that only
persons "other than the defendant ... may ... petition the court for a hearing to adjudicate the validity of his
alleged interest in the property." 18 U.S.C. § 1963(l )(2) (emphasis added). The court agreed, and summarily
barred Michael Gilbert from participating in the ancillary proceedings.
On September 28, 1990, the district court continued the ancillary proceeding to allow the Government
and the third-parties to engage in settlement discussions. Both Coyne and Pierson, among others, settled with
the Government.34 As a result, Lyon was the only founding LCP partner to participate in the ancillary
proceeding through its conclusion. Joining him were the Lyon Family Trust, Karen Gilbert, and the Trust.35
In a lengthy Amended Final Order of Forfeiture dated July 22, 1991, the district court found that the
"real owners" of the Club at its inception were Benjamin Kramer and his three drug smuggling associates
(Randy Lanier, George Brock, and Brock's half-partner, Gene Fisher)—Benjamin Kramer was not the sole
owner since he only contributed approximately $4 million (or 1/3) of the initial $12.6 million mortgage
proceeds used to build the Club. Kramer, 807 F.Supp. at 736. In making this finding, the district court leaned
heavily on the fact that "[f]rom the evidence the [Club] is adequately capitalized if Ben [Kramer] and partners
are the real owners, but not so if Ben's money was found to be only a loan." Id. at 725. In light of the Club's
negative asset structure (if the drug proceeds are ignored), the district court found that the LCP, Ltd. and PPA
was at the time of purchase reasonably without cause to believe that the Club[ ] ... was subject to
forfeiture under 18 U.S.C. § 1963."
34
Pierson, Pierson's wife, Lyon's wife, Coyne, Coyne's husband, Robert Gilbert, Margaret Gilbert, and
the Robert Gilbert Family Irrevocable Trust settled with the Government. The terms of the settlement
were not disclosed to the district court before the ancillary hearing for fear that they might influence the
court's decision.
35
Christine Kramer, the former wife of Benjamin Kramer, also tried to establish that she was the
legitimate owner of one-half of her ex-husband's interest in the Club. The court denied her petition in its
entirety. Kramer, 807 F.Supp. at 742-43.
partners36 were merely straw persons whose purpose was to obtain the requisite licenses for a card club and
make the Club look legitimate, id. at 736, and that the three original LCP general partners were nominees37
for the investments of Benjamin Kramer and his three drug-smuggling associates. Id. at 739.
Faced with trying to delineate the extent of third-party Lyon's ownership interest in the Club, the
court concluded that "[w]hatever interest Ben Kramer had at [the time he and his three drug-smuggling
associates loaned approximately $12 million to LCP] precludes Lyon, under the relation back doctrine, from
asserting either that title was vested in him rather than the Defendant Ben Kramer or that he was a title holder
superior to Ben Kramer's interest." Id.38 Because forfeiture under RICO reaches only the ownership interest
held by the defendant (and Benjamin Kramer's three drug-smuggling associates had not been indicted), the
district court denied "Lyon's petition in the amount of one-third (1/3) of his current holdings in LCP" since
Benjamin Kramer's share of the invested drug proceeds was approximately $4 million of the total $12.6
million investment, or one-third. Id. The district court also concluded that Lyon was not a bona fide
purchaser of that portion of his interest. Id. at 740.
Michael Gilbert's wife, Karen, also participated in the ancillary hearings. She claimed an interest in
the Club by virtue of the fact that, as Michael Gilbert's wife, California community property laws entitled her
36
The district court concluded that PPA as well as Robert and Margaret Gilbert were unaware of the
money laundering scheme "but the others (LCP and Michael Gilbert) were involved heavily, or knew or
should have known of the illicit nature of the operation. Julie Coyne and possibly David Pierson, too,
may well fall into the latter category; whether they fit into any of the categories or were duped by Sam, et
al., are questions this court does not have to decide." Kramer, 807 F.Supp. at 736.
37
The term nominee refers to someone "designated to act for another as his representative in a rather
limited sense." Schuh Trading Co. v. Comm'r, 95 F.2d 404, 411 (7th Cir.1938). "[N]ominee in its
commonly accepted meaning connotes the delegation of authority to the nominee in a representative or
nominal capacity only, and does not connote the transfer or assignment to the nominee of any property in
or ownership of the rights of the person nominating him." Ott v. Home Sav. & Loan Ass'n, 265 F.2d 643,
647 (9th Cir.1958) (quoting Cisco v. Van Lew, 60 Cal.App.2d 575, 141 P.2d 433, 438 (1943)).
38
The district court correctly determined that whatever interest the Government held in Benjamin
Kramer's forfeited property dated back to the time of the act that made the Club subject to forfeiture; that
is, when Benjamin Kramer first invested his drug proceeds in the Club. Kramer, 807 F.Supp. at 738. This
means that any subsequent transfer of part or all of a defendant's tainted property does not automatically
extinguish the government's superior entitlement to the property. See United States v. Bissell, 866 F.2d
1343 (11th Cir.1989). This is known as the relation back doctrine. It was codified in the RICO statute,
18 U.S.C. § 1963(c) (reprinted infra note 43), as part of the 1984 amendments to "close a potential
loophole in current law whereby the criminal forfeiture sanction could be avoided by transfers that were
not 'arms' length.' " See S.Rep. No. 98-225, 200-01 (1984), reprinted in 1984 U.S.C.C.A.N. at 3383-
3384. Congress reasoned that "[a]bsent application of this principle a defendant could attempt to avoid
criminal forfeiture by transferring his property to another person prior to conviction." Id. at 200,
reprinted in 1984 U.S.C.C.A.N. at 3383. A third-party whose property has been made part of a forfeiture
order must file a petition in the ancillary hearing in order to contest the forfeiture.
to half of her husband's interest in the Club at the time Michael Gilbert bought into LCP. The court denied
her petition in its entirety, reasoning that she was not a bona fide purchaser because she "knew, or at least
should have known of the tainted nature of her husband's interest." Id. The court also denied the claim of the
Trust. Id. at 742.
Following the ancillary hearings, Karen Gilbert and the Trust appealed the district court's decision
denying them any interest in the Club.39 These appeals were consolidated with the appeal of Benjamin
Kramer's and Michael Gilbert's convictions.40 Both Benjamin Kramer and Michael Gilbert appealed their
RICO and Travel Act convictions; Michael, alone, contested the forfeiture judgment. See Kramer, 73 F.3d
at 1070.41
F.
On appeal, we affirmed Benjamin Kramer's convictions. Kramer, 73 F.3d at 1070 n. 1. As for
Michael Gilbert, we affirmed his RICO and Travel Act convictions, reversed his money laundering
conviction, id. at 1072-73, and set aside the forfeiture order against him. Id. at 1075-76. With respect to the
order forfeiting Michael Gilbert's interest in the Club, we reasoned that:
Property forfeitable in a RICO proceeding is limited to that which the defendant obtains directly or
indirectly as a result of the racketeering activity. See 18 U.S.C. § 1963(a)(3). The only acts of
racketeering which were both charged by the government and found by the jury to have been
committed by Gilbert occurred after he had obtained his interest in the [Club]. Property acquired
before a defendant commits an act of racketeering cannot be said to have been derived from it. As
such, the forfeiture of Michael Gilbert's interest in the [Club] must be set aside.
Id. at 1076. Consequently, we concluded further in a footnote that:
Because we hold that Michael Gilbert's interest in the [Club] is not subject to forfeiture, neither are
the interests of Karen Gilbert and [the Trust]. And, orders restraining Michael Gilbert, Karen Gilbert
or the [Trust] from the use and enjoyment of their interest in the [Club], including profits, are to be,
39
Lyon and the Lyon Trust also filed timely notices of appeal from the judgment in the ancillary
hearing. Both subsequently dismissed their appeals in connection with Dale Lyon's guilty plea in the
United States District Court for the Southern District of Florida, in which he admitted obstructing justice
and committing perjury in the ancillary hearing. As a result, the Government acquired their remaining
two-thirds interest in LCP, Ltd. and Lyon was sentenced to three months' imprisonment and a $20,000
fine. United States v. Lyon, No. 91-06192 (S.D. Fla. June 30, 1993).
40
For simplicity, we refer to these consolidated appeals as "the 1996 appeal."
41
Benjamin Kramer was sentenced on August 29, 1990 to a forty-five year jail term and ordered to
pay a fine of $460,000. Jack Kramer was sentenced on August 29, 1990 to nineteen years in prison and
ordered to pay a $200,000 fine. Michael Gilbert was sentenced on August 28, 1990 to four years in
prison and was ordered to pay a $350,000 fine. None of the three defendants was ordered, as part of his
sentence, to forfeit any property to the Government. We discuss in Part IV.D., infra, the ramifications of
the district court's failure to order forfeiture as part of the final judgment.
for them, set aside also.
Because the government, as we understand it, still does have some interest in the [Club] due
to other forfeitures, we anticipate the district court, will, in the light of the differing ownership
interests, need to hold a hearing or hearings and to issue additional orders about the [Club]'s future
operations upon the district court's receiving of the mandate from this court.
Id. at 1076 n. 23.
After we handed down our decision on January 16, 1996, the Government sought rehearing and
modification on the issue of resentencing, arguing that the district court should be allowed to resentence
Michael Gilbert since a valuable property interest was returned to him.42 Rehearing was denied in July, and
our mandate issued on July 18, 1996. The mandate stated, "it is now hereby ordered and adjudged by this
Court that the judgments and convictions of the District Court in these causes be and the same hereby
AFFIRMED except as to Gilbert's conviction for money laundering and the forfeiture judgment which are
REVERSED."
Back in the district court, the Gilberts moved for an Order on the Mandate. Not to be outdone, the
Government moved the district court to enter a protective order "maintaining the status quo of the Gilberts'
alleged interests in the [Club]." The Government's motion requested that the district court "enter an order
directing that the defendant Michael S. Gilbert be required to file a petition pursuant to 18 U.S.C. § 1963(l
)." In other words, the Government wanted Michael Gilbert to claim a third-party interest in Kramer's
forfeited property, just as the other non-defendants had done in the ancillary proceedings. In support of its
motion, the Government argued that Michael Gilbert "should be viewed ... in the same way as other alleged
'owners' of an interest in the [Club]," for example, Pierson and Coyne, who settled with the Government prior
to the ancillary hearing, or Lyon, who participated in the ancillary hearing and was denied one-third of his
LCP, Ltd. interest. The Government further argued that "to permit defendant Michael S. Gilbert to forgo
having to do that which Lyon, Coyne and Pierson were required to do would be to permit Gilbert to forgo
having to establish his alleged legitimate ownership interest, despite being the only LCP partner to be a
convicted RICO defendant."
Under the Government's reading of our 1996 decision setting aside Michael Gilbert's forfeiture
verdict, we resolved only that Michael Gilbert's interest in the Club was improperly forfeited because it was
42
The Government took its cue from a footnote in the district court's Amended Final Order of
Forfeiture following the ancillary hearing in which the court stated that, in light of the evidence presented
at the hearing (which never surfaced during the criminal trial), it would welcome an opportunity to
increase Michael Gilbert's sentence. See Kramer, 807 F.Supp. at 741 n. 30.
not derived, directly or indirectly, from his racketeering activity. The Government notes in its brief that our
"opinion [did] not address the issue of whether the Gilberts are entitled to their interest in the [Club] pursuant
to 18 U.S.C. § 1963(l ) as either superior title holders ... or bona fide purchasers for value without reasonable
cause to believe the property was subject to forfeiture." Thus, the Government maintains that since Michael
Gilbert's interest in LCP, Ltd. was acquired after the violations that gave rise to Benjamin Kramer's forfeiture,
and since our 1996 decision left intact the verdict of forfeiture reaching Benjamin Kramer's interest in the
Club, the Gilberts were subsequent transferees under 18 U.S.C. § 1963(c).43 As such, the Government
contends that the Gilberts should be required to show that they acquired their interests without cause to
believe that it was subject to forfeiture.
Following a hearing, the district court denied the Government's request for a protective order and
contemporaneously entered an order on the mandate. The district court reasoned that the Government's
argument, "however sound and well-reasoned it might be ... could have been pursued much earlier in these
proceedings. The government could have raised this during the ancillary proceedings, the appeal and the
petition for rehearing or have sought certiorari in the Supreme Court, but did not. As such, the government
has waived this issue. United States v. Thompson, 710 F.2d 1500 (11th Cir.1983)." The Government filed
a motion for reconsideration, which the district court denied on March 10, 1997. The Government then took
this appeal.44
43
Section 1963(c) reads:
All right, title, and interest in property described in [the RICO statute] vests in the United
States upon the commission of the act giving rise to forfeiture under this section. Any
such property that is subsequently transferred to a person other than the defendant may be
the subject of a special verdict of forfeiture and thereafter shall be ordered forfeited to the
United States, unless the transferee establishes in a hearing pursuant to subsection (l ) that
he is a bona fide purchaser for value of such property who at the time of purchase was
reasonably without cause to believe that the property was subject to forfeiture under this
section.
18 U.S.C. § 1963(c); see also supra note 38.
44
During the pendency of this appeal, the district court authorized the United States to dispose of its
interest in the Club. Julie Coyne, who had settled with the Government rather than take part in the
ancillary proceedings, opposed the sale, claiming that she was entitled to acquire the Government's
interest in LCP (which at that time represented a 10% general partnership interest and a 36.45% limited
partnership interest) under a right of first refusal written into the LCP general partnership agreement. The
district court denied her claim, finding that since she had acted in concert with Benjamin Kramer, she was
statutorily barred from purchasing the Government's interest. See United States v. Kramer, 957 F.Supp.
223, 228 (S.D.Fla.1997) ("Section (f) of 18 U.S.C. § 1963 does not require that Julie Coyne be indicted
and found guilty before she can be barred from purchasing the government's interest. The statute requires
that she have 'acted in concert with' defendants. That Julie Coyne did...."). Coyne appealed that decision
II.
A.
As a threshold matter, we must address the Gilberts' challenge that we lack jurisdiction to hear this
appeal. The Government maintains that 28 U.S.C. § 129145 is a proper basis for our jurisdiction because the
district court's denial of the Government's request for a protective order conclusively resolves conflicting
ownership interests in the Club. As such, the Government posits that its appeal is from a final judgment. The
Gilberts, on the other hand, contend that section 1291 is not a proper basis for the Government's appeal
because section 1291 does not authorize the United States to appeal final orders in criminal cases. See United
States v. Horak, 833 F.2d 1235, 1247 n. 10 (7th Cir.1987). The Government side-steps the fact that section
1291 is inapplicable to government appeals from criminal cases by asserting that the Government is
"appealing the district court's ruling in the ancillary forfeiture proceeding, and not the criminal proceeding
against Gilbert himself." The Government's brief also emphasizes that its appeal relates to the district court's
order denying the Government's request "to require [the Gilberts and the Trust] to file third-party petitions
in the ancillary proceeding relating to the criminal forfeiture of [Benjamin] Kramer's interest" in the Club.
In other words, the Government seeks to use the 1990-91 ancillary proceeding regarding Benjamin Kramer's
forfeited property as the basis for its requested protective order.
1.
The question which confronts us at this stage is whether a third-party proceeding ancillary to a
criminal forfeiture prosecution is a criminal or civil proceeding for the purposes of a government appeal. If
to this court (Case Nos. 97-4475, 97-5173, 97-5174) and we heard oral argument on October 8, 1998.
While a decision in Coyne's case was still pending, Coyne consented to the Government selling its LCP
interest to a different buyer. The Government and Coyne then agreed that the right of first refusal issue
was moot. In their Joint Motion to Dismiss Appeal, the Government conceded that "the United States no
longer owns any interest in LCP or the Bell Garden's Bicycle Club." We granted dismissal in that case,
thus raising the possibility that the present case was subsequently rendered moot by the Government's
total divestiture. Upon request by this court, the Government assuaged our concern—the Government
had curiously agreed "as part of the sale of its forfeited interest ... to sell the Michael Gilbert, Karen
Gilbert, and Trust, interests if and when those interests are finally forfeited to and owned by the United
States." (We say "curiously" in light of the fact that the Government informs us that the Gilbert family
limited partnership interests are currently valued at over ten million dollars. The legal card club business
in California must indeed be a profitable business for a buyer to agree to a sale that might prove $10
million short.)
45
28 U.S.C. § 1291 provides us with jurisdiction over "appeals from all final decisions of the district
courts of the United States." A final decision is one that " 'ends the litigation on the merits and leaves
nothing for the court to do but execute the judgment.' " Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365, 1368
(11th Cir.1983) (quoting Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 633, 89 L.Ed. 911(1945)).
a section 1963(l ) ancillary proceeding is civil in nature, as the Government contends, then our jurisdiction
over the appeal would be proper; but if the ancillary proceeding is criminal in nature, the Government would
lack statutory authorization to bring this appeal under section 1291. See Horak, 833 F.2d at 1247 n. 10
("Nothing in section 1291 grants the executive the power to appeal all (or for that matter any) final orders in
criminal cases."). Surprisingly, no other circuit has addressed this question directly.46
In United States v. Douglas, 55 F.3d 584 (11th Cir.1995), we held that an ancillary proceeding
pursuant to 21 U.S.C. § 853(n)47 was "a civil action" for the purpose of allowing a third party to recover
attorneys' fee awards against the United States under the Equal Access to Justice Act. Douglas involved a
third-party claimant who filed a petition opposing criminal forfeiture of certain property under a provision
of the statute identical to section 1963(l ). Id. at 586 & n. 9. After prevailing on a summary judgment motion
and thereby successfully establishing his claim to the forfeited property, the third-party moved for attorney's
fees pursuant to the EAJA. Id. at 586. Finding that "the government apparently made no investigation into
factual background prior to seeking forfeiture," the district court awarded the third-party approximately
$21,000 in attorney's fees. Id. (internal quotation omitted).
On appeal, the government argued that a third-party proceeding ancillary to a criminal forfeiture
prosecution was not a civil case and therefore the assessment of fees against the government was in error.
The Douglas court's section 853(n) analysis applies just as easily to section 1963(l ). See United States v.
Bissell, 866 F.2d 1343, 1348 n. 3 (11th Cir.1989) ("[O]ur discussion and holdings apply equally to the
46
But cf. United States v. Douglas, 55 F.3d 584, 588 (11th Cir.1995) (holding that a third-party claim
in a proceeding ancillary to criminal forfeiture is to be considered a civil action for purposes of permitting
an award of attorney's fees under the Equal Access to Justice Act); United States v. Alcaraz-Garcia, 79
F.3d 769, 772 n. 4 (9th Cir.1996) (stating that an appeal from the denial of a third-party petition under 21
U.S.C. § 853(n) is civil in nature for purposes of determining the timeliness of filing the appeal under
Fed. R.App. P. 4.); United States v. Lavin, 942 F.2d 177, 181-82 (3d Cir.1991) (same); but see United
States v. BCCI Holdings, 980 F.Supp. 529, 533-534 (D.D.C.1997) (holding that for the purposes of a
Kastigar hearing, "RICO third-party criminal forfeiture proceedings under § 1963(l ) are 'criminal cases'
within the meaning of 18 U.S.C. § 6002"). We note in passing that our independent research uncovered
only one case where the government appealed an adverse ruling in an ancillary hearing. The Fourth
Circuit Court, unfortunately, did not address the basis for its appellate jurisdiction. See United States v.
Reckmeyer, 836 F.2d 200 (4th Cir.1987).
47
21 U.S.C. § 853 deals with criminal forfeiture in narcotics cases brought under the Continuing
Criminal Enterprise statute, 21 U.S.C. § 848 et seq. (1994). Section 853(n) is "substantially identical" to
section 1963(l ). United States v. Ripinsky, 20 F.3d 359, 362 n. 3 (9th Cir.1994). Cases applying one of
these analogous statutes have used section 853(n) and section 1963(l ) cases interchangeably. See e.g.,
United States v. Bissell, 866 F.2d 1343, 1348 n. 3 (11th Cir.1989). The legislative history of RICO has
been used to interpret congressional intent in section 853(n) cases because Congress adopted section
1963(l )'s language when it crafted section 853(n). See Douglas, 55 F.3d at 586 n. 9; United States v.
Lavin, 942 F.2d 177, 185 n. 9 (3d Cir.1991).
forfeiture provisions in 21 U.S.C. § 853 as to those found in 18 U.S.C. § 1963."). The Douglas court first
looked at nature of a section 853(n) proceeding and noted that "[o]nce a criminal forfeiture prosecution has
been filed, third parties are expressly barred by 21 U.S.C. § 853(k)(2) from 'commenc[ing] an action at law
or equity against the United States concerning the validity of [their] interest in the property' except 'as
provided in [section 853(n) ].' " Douglas, 55 F.3d at 586 (alterations and emphasis in original); see also 18
U.S.C. § 1963(i)(2) (containing language analogous to § 853(k)(2)). From this provision, the Douglas court
gleaned that a section 853(n) suit was meant to operate as a "substitute for separate civil litigation against the
government." Id. (emphasis in original). In a footnote, the court further buttressed its conclusion that
"Congress considered this ancillary proceeding to be essentially civil" by turning to the legislative history
of section 1963(l ). Id. at n. 9. There the court found that Congress intended that third-party petitions
ancillary to a criminal forfeiture take the place of civil cases, and that such a procedure would enable innocent
parties to adjudicate their property interests swiftly instead of having to file separate civil suits.48 Id. We find
that the Douglas court's analysis applies beyond the mere confines of determining whether ancillary
proceedings are "civil actions" within the meaning of the EAJA. For the same reasons expressed in Douglas,
we conclude that a third-party petition filed under section 1963(l ) is civil in nature even though it is ancillary
to a criminal forfeiture trial. Accordingly, we believe that the Government can properly appeal the district
court's denial of its motion for a protective order relating to the Government's interest in Benjamin Kramer's
forfeited property.
2.
While we agree with the Government that section 1963(l ) ancillary proceedings should be
considered civil proceedings for the purposes of appellate review, we disagree that section 1291 is a proper
basis for our jurisdiction in the instant appeal. The Government's motion for a "protective order" requested
that the district court: (1) "enter an order directing that the defendant Michael S. Gilbert be required to file
a petition pursuant to 18 U.S.C. § 1963(l) within thirty (30) days" and (2) "enter a Protective Order
maintaining the status quo of the Gilberts' alleged interests in the [Club] until" the district court resolved the
48
the indictment or information is filed, a third party is not to commence a civil suit against the United
States; instead the third party should avail himself of the ancillary hearing procedure.... This provision
assures a more orderly disposition of both the criminal case and third party claims. Indeed, it is
anticipated that the new hearing procedure should provide for more expedited consideration of third party
claims than would the filing of separate civil suits.
H.R.Rep. No. 98-1030, at 206-07 (1984), reprinted in 1984 U.S.C.C.A.N. 3182, 3389-90.
issue in (1) above. While the Government's motion is couched as request for a protective order, this
designation is nothing more than smoke and mirrors. In effect, the Government has taken a request for an
injunction—ordering Michael Gilbert to file a third-party petition pursuant to section 1963(l )—and cleverly
dressed it up to look like a request for a protective order.49
It is clear from the language of the Government's motion that the "status quo" of the Gilberts'
property stands or falls upon the district court's decision to grant (or deny) the injunction. We conclude,
therefore, that the Government's motion should be properly treated as a request for an injunction. Cf.
Chatman v. Spillers, 44 F.3d 923, 924 (11th Cir.1995) (finding jurisdiction under 28 U.S.C. § 1292(a)(1)
because plaintiffs' request for an order directing the defendants to call special elections could be characterized
appropriately as an injunction). Because we believe that the district court's refusal to grant the Government's
request is more appropriately labeled a denial of an injunction, we find that 28 U.S.C. § 1292(a)(1)50 is the
appropriate jurisdictional basis for our review in this case. The Government's misidentification of the proper
jurisdictional basis, however, is not fatal to its appeal. Spartacus Inc. v. Borough of McKees Rocks, 694 F.2d
947, 949 n. 4 (3d Cir.1982) (reviewing the merits of the action even though both the appellant and appellee
incorrectly relied on section 1291 for appellate jurisdiction when in fact section 1292(a)(1) was proper).
Having assured ourselves that this appeal is properly before us, we now proceed to the merits of the
Government's argument.
B.
A mixed standard of review applies when a district court grants or denies an injunction. We review
the district court's decision to grant or deny an injunction for clear abuse of discretion, United States v. Bd.
of Educ. of Greene County, Mississippi, 332 F.2d 40, 45-46 (5th Cir.1964), but underlying questions of law
are reviewed de novo. United States v. Pruitt, 174 F.3d 1215, 1219 (11th Cir.1999) (" 'A district court by
definition abuses its discretion when it makes an error of law.' ") (quoting Koon v. United States, 518 U.S.
49An injunction ordering a party to "take action," such as file a third-party claim, is properly labeled a
mandatory injunction. See Meghrig v. KFC Western, Inc., 516 U.S. 479, 484 116 S.Ct. 1251, 1254, 134
L.Ed.2d 121 (1996); see also Tom Doherty Assoc. v. Saban Entm't, Inc., 60 F.3d 27, 34 (2d Cir.1995)
("A mandatory injunction, in contrast [to a prohibitory injunction], is said to alter the status quo by
commanding some positive act."). The most common type of injunctions "restrain" a party from doing
something and such injunctions are properly labeled prohibitory injunction. Id.50
Section 1292(a)(1) authorizes appellate jurisdiction of "[i]nterlocutory orders of the district courts
of the United States ... granting, continuing, modifying, refusing or dissolving injunctions." 28 U.S.C. §
1292(a)(1) (1994).
81, 100, 116 S.Ct. 2035, 135 L.Ed.2d 392 (1996)). The Government's position assumes that the district court
has the power to enter an injunction requiring the Gilberts and the Trust to file third-party petitions in the
ancillary proceeding relating to Kramer's forfeited property. Since this assumption is a purely legal one, we
review it de novo.
III.
A.
The Government must demonstrate a substantive or procedural right before it may obtain an
injunctive remedy. Thus, we must look to RICO's statutory forfeiture scheme to determine whether it grants
the Government a right to force third-parties to file petitions in a section 1963(l ) ancillary proceeding.51
1.
The RICO statute, introduced into law by the Organized Crime Control Act of 1970, "was intended
to provide new weapons of unprecedented scope for an assault upon organized crime and its economic roots"
by providing "enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in
organized crime." Russello v. United States, 464 U.S. 16, 26-27, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983) (citing
Pub.L. No. 91-452, 84 Stat. 922, 923 (1970)) (quotations omitted). One such weapon in the RICO arsenal
was the forfeiture scheme, which sought to strike at the heart of an illegal enterprise by confiscating tainted
property and proceeds in hopes of putting the criminal enterprise out of business. See United States v.
Angiulo, 897 F.2d 1169, 1213 (1st Cir.1990). This weapon, however, has often left third-party property
holders feeling particularly vulnerable when, for instance, "their property appears to be the defendant's and
the defendant is ordered to forfeit that property to the Government." See United States v. Schwimmer, 968
F.2d 1570, 1573 (2d Cir.1992).
51
The Government's request is apparently an unprecedented move; our independent research has
uncovered no case in which the Government has attempted to obtain such an injunction. The Gilberts and
the Trust completely fail to question the propriety of the Government's motion, arguing instead that the
Government's request is barred by the law of the case doctrine or, alternatively, that we lack jurisdiction
to hear the Government's appeal (see supra Part II.A.).
The law of the case doctrine dictates that "both the district court and the court of appeals
generally are bound by findings of fact and conclusions of law made by the court of appeals in a
prior appeal of the same case." United States v. Robinson, 690 F.2d 869, 872 (11th Cir.1982).
The law of the case doctrine does not apply in this case because the issue in the 1996 appeal was
whether Michael Gilbert's interest in the Club was properly forfeited under the Government's
theory at trial, i.e., that his interest was derived from his own racketeering activity. The issue in
this appeal, however, is whether the Government can force a third-party subsequent transferee, as
defined in 18 U.S.C. § 1963(c), to file a section 1963(l ) petition.
Surprisingly, from RICO's enactment in 1970 until 1984, RICO's forfeiture provisions contained no
procedure by which a third-party property holder could adjudicate his claim to forfeited property. Instead,
an innocent third-party who claimed an interest in forfeited property could only petition the Attorney General,
who had been exclusively charged with making "due provision for the rights of innocent persons." 18 U.S.C.
§ 1963(c) (1984), amended by Pub.L. 98-473 (1984). Compounding the problem, third-parties who were
dissatisfied with the Attorney General's final decision regarding their ownership claim were unable to obtain
judicial review of the Attorney General's decision. See S.Rep. No. 98-225, at 209 (1990), reprinted in 1984
U.S.C.C.A.N. 3182, 3392. Fourteen years after RICO's enactment, Congress recognized the inequity inherent
in such a procedure and amended the statute by enacting the Comprehensive Crime Control Act, Pub.L. No.
98-473, 98 Stat. 1837. See id. at 3390-91. The amendment set up an orderly procedure whereby third-parties
whose property interests had been criminally forfeited could challenge the validity of the forfeiture order and
establish their legitimate ownership interests in the district court.
Under current RICO forfeiture provisions, third-parties must wait for a final order of forfeiture in
the criminal trial before they can "hale the government into [court]" to adjudicate their interests in forfeited
property. United States v. Kramer, 912 F.2d 1257, 1261 (11th Cir.1990); see also 18 U.S.C. § 1963(i). The
order of forfeiture is a required element of sentencing for criminal RICO violations and is entered as part of
the final judgment. 18 U.S.C. § 3554; 18 U.S.C. § 1963(e); Fed.R.Crim.P. 32(d)(2); United States v.
L'Hoste, 609 F.2d 796, 809-13 (5th Cir.1980)52 (holding that forfeiture is a mandatory element of sentencing
for a violation of 18 U.S.C. § 1962); United States v. Derman, 211 F.3d 175, 182 n. 9 (1st Cir.2000) ("[T]he
forfeiture order entered at sentencing is called 'final order of forfeiture' and ... is appealable."). Once an order
of forfeiture has been handed down (as part of the final judgment), the court, pursuant to Fed.R.Crim.P.
32(d)(2), may authorize the Attorney General to "seize the property subject to forfeiture" and begin carrying
out "statutory requirements pertaining to ancillary hearings and the rights of third parties." Fed.R.Crim.P.
32(d)(2) (1996).53 One such statutory requirement is that the government "publish notice of the order and ....
52
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc), this court adopted as
binding precedent all decisions of the former Fifth Circuit handed down prior to October 1, 1981.
53
Before its amendment in 1996, the relevant provision of Rule 32 read:
(2) Criminal Forfeiture. When a verdict contains a finding of property subject to a
criminal forfeiture, the judgment of criminal forfeiture shall authorize the Attorney
General to seize the interest or property subject to forfeiture, fixing such terms and
conditions as the court shall deem proper.
to the extent practicable, provide direct written notice to any person known to have alleged an interest in the
property." 18 U.S.C. § 1963(l )(1). The government's obligation to give constructive notice to all potential
third-parties, and preferably direct notice to known third parties with an interest in the forfeited property, is
a vital requirement of RICO's forfeiture provisions since the property rights of third-parties who do not file
petitions in the ancillary proceeding are automatically extinguished. See 18 U.S.C. § 1963(l )(7).
Next, the statute defines the class of people who are entitled to challenge the order of forfeiture and
sets forth the time limits applicable to such challenges:
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. The hearing shall be held
before the court alone, without a jury.
18 U.S.C. § 1963(l)(2). The filing of third-party claims, therefore, is reserved to persons other than the
defendant54 who claim to have a "legal interest" in the forfeited property. Additionally, third-parties must file
their petitions within thirty days from receipt or final publication of notice, or lose the right to establish their
interest in the forfeited property. By specifically barring third-parties from intervening in the criminal trial,
18 U.S.C. § 1963(k), it is clear that Congress intended section 1963(l ) proceedings to provide the exclusive
means for third-parties to assert their claims to forfeited property. Cf. United States v. Phillips, 185 F.3d 183,
186 (4th Cir.1999) (applying analogous provisions of 21 U.S.C. § 853(n)).
Section 1963(l ) also limits the grounds upon which a third-party petitioner may rely to establish his
interest in the property. To establish his legitimate entitlement to the forfeited property, the petitioner must
show that (1) title to the property was vested in him rather than the defendant at the time of the act which
made the property subject to forfeiture; (2) his title to the property was superior to the title held by the
defendant at the time of the act which made the property subject to forfeiture; or (3) that he purchased his
interest without reasonable cause to know that the property was subject to forfeiture. See 18 U.S.C. § 1963(l
Fed.R.Crim.P. 32(b)(2) (1990) (current version at Fed.R.Crim.P. 32(d)(2)).
54
Michael Gilbert contends that he cannot be made to file a third-party petition since the statute
applies to "[a]ny person other than the defendant." 18 U.S.C. § 1963(l )(2). He argues that since he was a
defendant in the underlying RICO prosecution, he is statutorily barred from filing a third-party petition.
By including this provision in § 1963(l )(2), Congress undoubtedly sought to prevent the defendant whose
property had been forfeited from circumventing the forfeiture order and litigating anew his entitlement to
the property. With respect to Benjamin Kramer's forfeited property, Michael Gilbert is properly viewed
as a third-party subsequent transferee under § 1963(c), rather than a defendant as the term is used in the
statute.
)(6)(A)—(B) (reprinted in full supra, n. 30). By successfully establishing one of these three grounds, the
petitioner defeats the government's entitlement under the forfeiture order. See 18 U.S.C. § 1963(l )(6) ("[T]he
court shall amend the order of forfeiture in accordance with its determination.") (emphasis added). Not to
be overlooked, however, is that the third-party petitioner, and not the government, bears the burden of proving
one of these limited grounds by a preponderance of the evidence. Congress chose to place the burden of
proof on the third-party during the ancillary proceeding, since the government would necessarily have carried
its burden of proving that the defendant's interest in the property was subject to forfeiture during the criminal
trial. See S.Rep. No. 98-225, at 209 (1990), reprinted in 1984 U.S.C.C.A.N. 3182, 3392. Finally, section
1963(l ) declares that "[f]ollowing 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 title to any subsequent purchaser or transferee." 18 U.S.C. § 1963(l )(7).
As the foregoing reveals, a section 1963(l ) ancillary proceeding is essentially a quiet title proceeding.
First, the jury's special verdict of forfeiture establishes the extent of the defendant's interest in a certain
forfeitable asset. Next, the forfeiture order, in effect, puts the government in the defendant's shoes and the
government succeeds to whatever interest, if any, that defendant had in the property. The section 1963(l )
ancillary proceeding then enables certain third-parties to file claims in order to establish their interest in the
defendant's (now the government's) property. If one or more of the third-party claims is successful, the court
releases those interests and amends its order of forfeiture accordingly. See 18 U.S.C. § 1963(l )(6).
The language of the statute makes clear that if a third-party does not file a petition in the ancillary
proceeding within thirty days of receipt or publication of notice, his rights in the defendant's forfeited
property are automatically extinguished and the government obtains "clear title to property that is the subject
of the order of forfeiture and may warrant good title to any subsequent purchaser or transferee." 18 U.S.C.
§ 1963(l )(7). By virtue of its forfeiture judgment and the fact that the time for filing ancillary petitions has
run or such proceedings have been concluded, the government succeeds as against the world to the
defendant's property. In other words, the government has effectively quieted its title to the defendant's
property and owns it outright.
2.
Applying the section 1963(l ) model to the instant case, we note initially that the condition precedent
to an ancillary proceeding—the entry of a final order of forfeiture—has apparently not been met. In
sentencing Benjamin Kramer on August 29, 1990, the district court failed to enter a judgment of forfeiture
as required by 18 U.S.C. § 3554,55 18 U.S.C. § 1963(e),56 and Rule 32(b)57 of the Federal Rules of Criminal
Procedure. The order of forfeiture upon which the parties rely—entered immediately following the jury
verdicts on April 3, 1990—was not part of Kramer's sentence, and therefore could have done nothing more
than temporarily restrain the property pending sentencing. That order was superseded by the court's final
judgment on August 29, which made no mention of forfeiture.
As noted supra in Part III.A.1., third-parties cannot petition the court to adjudicate their interests in
forfeited property until a final order of forfeiture has been entered in the criminal case. If such an order was
ever entered against Benjamin Kramer, we are unable to locate it in the record. Rather, the final judgment
in the criminal case only sentenced Kramer to prison confinement and a fine. This fact alone is sufficient to
affirm the denial of the Government's request, because third-parties such as the Gilberts are not permitted to
file section 1963(l ) petitions in the absence of a final order of forfeiture. Given the convoluted nature of this
case, however, and the fact that the parties have long relied on the existence of a final order of forfeiture, we
55
18 U.S.C. § 3554 provides that:
The court, in imposing a sentence on a defendant who has been found guilty of an offense
described in section 1962 of this title ... shall order, in addition to the sentence that is
imposed pursuant to the provisions of section 3551, that the defendant forfeit property to
the United States in accordance with the provisions of section 1963 of this title....
56
18 U.S.C. § 1963(e) states, in pertinent part: "Upon conviction of a person under this section, the
court shall enter a judgment of forfeiture of the property to the United States and shall also authorize the
Attorney General to seize all property ordered forfeited upon such terms and conditions as the court shall
deem proper...."
57
At the time of trial, Fed.R.Crim.P. 32(b) read:
(b) Judgment.
(1) In General. A judgment of conviction shall set forth the plea, the verdict or
findings, and the adjudication and sentence....
(2) Criminal Forfeiture. When a verdict contains a finding of property subject to
a criminal forfeiture, the judgment of criminal forfeiture shall authorize the Attorney
General to seize the interest or property subject to forfeiture, fixing such terms and
conditions as the court shall deem proper.
Fed.R.Crim.P. 32(b) (1990) (current version at Fed.R.Crim.P. 32(d)).
shall defer our consideration of the issue.58 For the moment, we will assume that a final order of forfeiture
was entered, and turn to 18 U.S.C. § 1963(l ) to determine whether the Government can force the Gilberts
to file petitions claiming an interest in Kramer's forfeited property.
3.
"In determining whether to infer a private cause of action from a federal statute, our focal point is
Congress' intent in enacting the statute." Thompson v. Thompson, 484 U.S. 174, 179, 108 S.Ct. 513, 516, 98
L.Ed.2d 512 (1988). In Cort v. Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 2088, 45 L.Ed.2d 26 (1975), the
Supreme Court set out four factors as guides to discerning that intent: (1) whether the plaintiff is one of the
class for whose benefit the statute was enacted; (2) whether there is any indication of legislative intent,
explicit or implicit, either to create or to deny a private remedy; (3) whether implying a private right of action
is consistent with the underlying purposes of the legislative scheme; and (4) whether the cause of action is
one traditionally relegated to state law, such that it would be inappropriate for the court to infer a cause of
action based solely on federal law.59 "The intent of Congress remains the ultimate issue.... '[U]nless this
congressional intent can be inferred from the language of the statute, the statutory structure, or some other
source, the essential predicate for implication of a private remedy simply does not exist.' " Thompson, 484
U.S. at 179, 108 S.Ct. at 516 (quoting Northwest Airlines, Inc. v. Transport Workers, 451 U.S. 77, 94, 101
S.Ct. 1571, 1582, 67 L.Ed.2d 750 (1981)).
We need not consider all four factors of the Cort analysis, as our consideration of the first two factors
is dispositive. See Florida v. Seminole Tribe of Florida, 181 F.3d 1237, 1247 (11th Cir.1999) ("[W]hen an
examination of one or more of the Cort factors 'unequivocally reveals congressional intent[,] there is no need
for us to trudge through all four of the factors.' ") (quoting Liberty Nat'l Ins. Holding Co. v. Charter Co., 734
F.2d 545, 558 (11th Cir.1984) (alteration in original)). Under Cort 's first factor, the language and legislative
history of section 1963(l ) demonstrate that the statute was designed to protect only the property rights of
innocent third-parties, not those of the government. Accordingly, it appears under the second factor of the
58
Because the omission of a final order of forfeiture has severe ramifications in any criminal
forfeiture proceeding, we discuss the omission in further detail in Part IV.D., infra.
59
Since its decision in Cort, the Supreme Court has become more restrained in its willingness to find
an implied private right of action. See Touche Ross & Co. v. Redington, 442 U.S. 560, 578, 99 S.Ct.
2479, 2490, 61 L.Ed.2d 82 (1979) (adopting a "stricter standard" of "congressional intent"). Today, the
Court requires some affirmative evidence of congressional intent, in "the language and focus of the
statute, its legislative history, and its purpose." Touche Ross, 442 U.S. at 575-76, 99 S.Ct. at 2489.
Cort analysis that Congress did not intend to create the injunctive remedy sought by the Government in this
case. Indeed, there is no need for a proceeding in which the government may assert its claim to forfeited
property, as the statutory scheme outlined in section 1963(l ) is self-executing. That is, aside from providing
the required notice, the government need not take any affirmative action if third-parties neglect to file claims
to forfeited property. Even if a petition is filed, section 1963(l ) places the burdens of production and
persuasion on the petitioner. 18 U.S.C. § 1963(l )(6). After the ancillary proceedings have ended, or the time
for filing petitions has run, the government automatically succeeds to the remaining forfeited property by
operation of law.60 The government need not force third-party owners to appear in court so that their interests
may be extinguished; those who have notice but do not appear lose their interests by default. At the end of
the ancillary proceedings, the court must amend its order of forfeiture to reflect any successful third-party
claims. 18 U.S.C. § 1963(l )(6). If none of the third-party claims was successful, or if no petitions were filed
during the statutory time period, the court need not amend its order. The government may, however, request
an order from the court declaring that the government has met all of the statutory notice requirements, that
no meritorious third-party claims were filed, and that the government has clear title to the forfeited property.
The structure of RICO's criminal forfeiture scheme clearly indicates that Congress did not expect
the government to play an active role under section 1963(l ). It is well settled that, absent compelling
countervailing considerations or an absurd result, we may not disregard the clear, mandatory statutory scheme
erected by Congress. Rubin v. United States, 449 U.S. 424, 430, 101 S.Ct. 698, 701, 66 L.Ed.2d 633 (1981).
Section 1963(l ) was enacted to allow innocent third-party owners to assert claims to forfeited property, not
to assist the Government in forcing those third-parties to do so. Implying such a private cause of action in
favor of the Government would directly contravene RICO's statutory forfeiture scheme, and the Government
has presented us with no compelling countervailing consideration that would justify such a decision. Thus,
we hold that the Government's requested injunction is not statutorily authorized by section 1963(l ).
B.
1.
As a general matter, our conclusion that section 1963(l ) proceedings are self-executing greatly
benefits the Government. For instance, if a house, a car, or shares of stock were forfeited to the Government
60
The "remaining forfeited property" will be that interest or property which was forfeited in the
court's initial order of forfeiture and not successfully claimed by a third-party owner.
because the defendant purchased them with drug proceeds, the Government would automatically obtain clear
title to any of those assets if no third-party petitions were filed before the statutory deadline. If there were
any question about the propriety of the Government's title, the Government could simply move the court for
an order declaring the status of its interest based on the final order of forfeiture and the disposition of
third-party petitions. The question then arises: why would the Government ask a court to force third-parties
to file section 1963(l ) petitions when, as a result of the third-parties' failure to file, the Government would
obtain clear title to the property automatically?
2.
As a result of our 1996 opinion setting aside the order of forfeiture against Michael Gilbert,61 the
Government is left with only that interest in property which belonged to Benjamin Kramer at the time it
became subject to forfeiture. The problem, however, is that the exact nature of that interest is undetermined.
In an attempt to correct fundamental errors made during the criminal trial, the district court modified the
forfeiture verdict (returned on April 2) and initial order of forfeiture (entered on April 3) after it heard
evidence in the ancillary proceedings.62 The resulting Amended Final Order purported to forfeit Kramer's
interest in LCP, Ltd., rather than the entire Bell Gardens Bicycle Club. The court made this change despite
the fact that LCP, Ltd. was not named in the indictment, verdict, or initial order of forfeiture. The
Government, believing that the court's post-trial amendment was valid, now claims title to Kramer's interest
in LCP, Ltd., rather than the Club.
The dilemma presented by this purported change is that the Government does not know the extent
of Kramer's interest—and, therefore, the extent of its own interest—in LCP, Ltd. Because the jury was never
instructed to determine Kramer's interest in the partnership, his interest could conceivably range anywhere
from .01 to 100 percent. Thus, what the Government has, at best, is an unspecified interest in LCP, Ltd. The
question now becomes: what can the Government do with that unspecified interest?
What the Government presumably wants to do is sell its interest in LCP, Ltd. This would not
61
We set aside the forfeiture verdict against Michael Gilbert because, under a logical reading of
section 1963(a)(3), Michael Gilbert could not have obtained his LCP, Ltd. interest as a result of his
racketeering activity since the jury found him guilty of racketeering acts occurring only after he acquired
his interest. Kramer, 73 F.3d at 1076.
62
For instance, the trial court presumably realized during the ancillary proceedings that a Joint
Venture, rather than any defendant in the case, owned the Bell Gardens Bicycle Club. See infra, Part
IV.B.
normally be a problem, as the time for filing third-party petitions has long passed and title to the interest has
vested in the Government by operation of law. See 18 U.S.C. § 1963(l )(7).63 In any other case, the
Government would simply present the final order of forfeiture to the general partners of LCP, Ltd. and have
the LCP, Ltd. Partnership Agreement amended to reflect the Government's ownership interest.64 Of course,
if the partnership agreement were not amended, a percentage of LCP, Ltd. would remain in the Gilberts'
names. A prospective purchaser, aware of the 1996 decision in which we held that those ownership interests
did not derive from Michael Gilbert's racketeering activity, would be unsure about the source of the interests
and would quickly conclude that he was buying a lawsuit. Thus, the Government's interest in LCP, Ltd. is
of little, if any, value until the Government obtains clear title to it.
The Government's problem in this case is that the LCP, Ltd. Partnership Agreement cannot be
amended to reflect the Government's ownership interest because the Government has no evidence to establish
what percentage of the partnership it owns. It is hardly sufficient for the Government to allege that it owns
"some" of LCP, Ltd. The initial order of forfeiture contains no useful information, as it does not even mention
LCP, Ltd. Moreover, the name "Kramer" is nowhere to be found on the LCP, Ltd. partnership documents,
for the Kramers were either silent partners in LCP, Ltd., or simply two of the Club's illegitimate creditors.
The jury was never asked to make sense of the crucial partner/creditor distinction, or to delineate the
extent of Kramer's ownership interest in LCP, Ltd. Instead, the court waited until the ancillary proceedings
following the trial to address the difficult factual questions of ownership and apportionment. At the
conclusion of those proceedings, the district court found that "the real owners of the Bicycle Club were Ben
Kramer, Randy Lanier, Tom, known as George Brock, and ... Gene Fisher.... The LCP partners and Gilberts,
63
Section 1963(l )(7) states:
Following the court's disposition of all petitions filed under [section 1963(l ) ], or if no
such petitions are filed following the expiration of the period provided in [section 1963(l
)(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 title to any subsequent
purchaser or transferee.
18 U.S.C. § 1963(l )(7) (1994).
64
The certificate of limited partnership would be properly amended by a general partner filing a
certificate of amendment in the office of, and on a form prescribed by, the California Secretary of State.
Cal. Corp. § 15622(a) (2000). If a general partner required to execute the certificate of amendment fails
to do so within a reasonable time, or refuses to do so, or if there is any dispute concerning the filing of the
certificate of amendment, any partner may petition the superior court to direct the execution of the
certificate. If the court determines that the certificate should be filed, it shall order a party to file a
certificate on the appropriate form prescribed by the Secretary of State. Cal.Code § 15625(b) (2000).
as well as [PPA] were just 'straw persons' for purposes of the licenses." Kramer, 807 F.Supp. at 736. It
further found that "Ben Kramer held a one-third (1/3) ownership interest in LCP at the time of the
commission of the acts giving rise to the forfeitability of the property."65 Id. at 739.
The district court's post-trial findings, however, cannot retroactively amend the jury's verdict.
Federal Rule of Criminal Procedure 31(e) gives a defendant a statutory right66 to have the amount of property
subject to forfeiture determined by a jury.67 Fed.R.Crim.P. 31(e); see also Libretti v. United States, 516 U.S.
29, 48-49, 116 S.Ct. 356, 367-68, 133 L.Ed.2d 271 (1995); United States v. Candelaria-Silva, 166 F.3d 19,
43 (1st Cir.1999). Had the Government targeted LCP, Ltd. from the outset, Rule 31(e) would have required
that the jury be instructed to identify (1) the interest, if any, each defendant held in LCP, Ltd., and (2) how
much of each defendant's interest was subject to forfeiture.68 Instead, the court created its own "simplified
special verdict forms," which, like the indictment and jury instructions, focused on the Bell Gardens Bicycle
Club. The verdict forms merely asked whether the Club "constituted or was derived from any proceeds which
[the defendant] obtained directly or indirectly from racketeering activity," and if so, "whether The Bell
65
With respect to Jack Kramer's interest in the Club, the district court concluded that "[c]learly Jack
was not a partner in ownership." Kramer, 807 F.Supp. at 729. This determination only serves to
underscore the inadequacy of the special verdict forms, as it impugns the jury's finding that Jack Kramer
did, in fact, own a forfeitable interest in the Club.
66
" 'The Federal Rules of Criminal Procedure have the force and effect of law. Just as a statute, the
requirements promulgated in these Rules must be obeyed.' " United States v. Cowan, 524 F.2d 504, 505
(5th Cir.1975) (quoting Dupoint v. United States, 388 F.2d 39, 44 (5th Cir.1967)).
67
Rule 31(e) of the Federal Rules of Criminal Procedure provides that "[i]f the indictment or the
information alleges that an interest or property is subject to criminal forfeiture, a special verdict shall be
returned as to the extent of the interest or property subject to forfeiture, if any." Fed.R.Crim.P. 31(e); see
also Fed.R.Crim.P. 7(c)(2) ("No judgment of forfeiture may be entered in a criminal proceeding unless
the indictment or the information shall allege the extent of the interest or property subject to forfeiture.").
The Government in this case surely knew about this requirement; the RICO manual for federal
prosecutors instructs that "[s]pecial verdict forms must be prepared so that the jury can make specific
findings as to the extent of the forfeiture. The special verdict form must clearly and precisely describe the
interests whose forfeitability the jury is considering." Department of Justice, Criminal Division,
Racketeer Influenced and Corrupt Organizations (RICO): A Manual for Federal Prosecutors 113-14 (3d
rev.ed., Sep. 1990) (footnote omitted).
68
We note that this specificity requirement protects not only defendants, but also third-parties with
interests in the defendant's forfeited property. If the verdict and subsequent order of forfeiture are vague,
they greatly expand the universe of third-parties whose interests are in jeopardy and who therefore require
notice. The specificity requirement also fosters judicial economy, as those who are unsure whether their
interests are implicated may file petitions out of an abundance of caution and burden the courts with
unnecessary litigation.
Gardens Bicycle Club [was] subject to forfeiture."69 Since the verdict forms did not even suggest that LCP,
Ltd. was an item of forfeitable property, the jury never had occasion to consider the extent of any defendant's
interest in the partnership.
Because the court's "simplified" forms did not ask the jury to identify any defendant's interest in
LCP, Ltd. or to determine whether that interest was subject to forfeiture, those questions must remain
unanswered. Absent a waiver by defendants of their Rule 31(e) right to a jury determination of forfeiture,
the court has no authority to amend the jury's verdict. See United States v. Bornfield, 145 F.3d 1123, 1138-39
(10th Cir.1998) (holding that where a jury verdict was invalid because it erroneously forfeited defendant's
business, rather than personal, bank account, the trial court's forfeiture order could not stand absent a waiver
of a jury trial on the issue of forfeiture). In short, then, the Government cannot know what percentage of
LCP, Ltd. it holds, because the jury never made that determination.
3.
Let us assume, arguendo, that the district court could retroactively correct the forfeiture judgment
against Benjamin Kramer, thereby giving the Government title to a fixed percentage of LCP, Ltd. In such a
case, the Government might simply seek an order from the court declaring the status of its title, rather than
a section 1963(l ) proceeding. To fashion such an order, the court would most likely look to the findings it
made during the ancillary proceedings to determine whether the Gilberts' interests were derived from
Benjamin Kramer. If it found that they were, the court would then decide, based on the same evidence,
whether Michael Gilbert et al. were nominee holders of Kramer's interest, or whether their ownership interests
were otherwise tainted under section 1963(l )(6) because they were knowingly derived from Kramer's
racketeering proceeds.70
One problem with this approach, however, is that the district court's prior findings on the issue of
ownership are in direct conflict. While the court found that "of the defendants, only Ben Kramer and Michael
Gilbert actually owned a forfeitable interest in the Club," 807 F.Supp. at 738 n. 22 (emphasis added), it also
69
The forms also asked whether the $280,000 deposited into defendant Melvyn Kessler's Operating
and Trust Accounts, or any portion thereof, was subject to forfeiture.
70
Neither the Gilberts nor the Trust asserted an interest in Kramer's forfeited property during the
ancillary proceedings. This was presumably because no one had yet alleged that they were subsequent
transferees of his interest. Additionally, because Michael Gilbert was still a defendant in the case during
those proceedings, he was precluded from claiming an interest in his own forfeited property. See 18
U.S.C. § 1963(l )(2).
found that "the real owners of the Bicycle Club were Ben Kramer, Randy Lanier, ... George Brock, and ...
Gene Fisher," and that "[t]he LCP partners and Gilberts ... were just 'straw persons' for purposes of the
licenses," id. at 736 (emphasis added). As the trial court accurately noted, however, a person cannot "have
a vested interest in property if he is found to be acting as a nominee for persons whose property is subject to
forfeiture."71 Id. at 738. Which is it, then? Did Michael Gilbert own a forfeitable interest in the Club, or was
he a nominee, or "straw man," holding Kramer's LCP, Ltd. interest? Because these questions have never been
answered, it is unclear whether even the district court knows the origin of the Gilbert interests.
The Government, therefore, seeks to use the section 1963(l ) ancillary proceeding as a quiet title suit,
in which the Gilberts and the Trust would bear the burden of proving the origin and legitimate ownership of
their interests in LCP, Ltd. 18 U.S.C. § 1963(l )(6) (stating that the petitioner must establish legitimate
ownership by a preponderance of the evidence). The district court foreshadowed the result of such a
proceeding in its Amended Final Order, in which it stated that Michael Gilbert was "involved heavily, or
knew or should have known of the illicit nature of the operation," Kramer, 807 F.Supp. at 736, and that Mrs.
Gilbert "knew, or at least should have known[,] of the tainted nature of her husband's interest," id. at 741.
Moreover, it found that "even if the trust was a bona fide purchaser for value, ... [the] co-trustee ... obviously
had strong cause to believe the Club was funded, at least in part, by laundered drug money and [was] thus
forfeitable." Id. at 742. Since most of the heavy lifting has already been done, the hardest part of the
Government's case is haling the Gilberts and the Trust into court. But, as we have established, this it cannot
do.
4.
In sum, the circumstances make clear why the Government would like the Gilberts to file section
1963(l ) petitions in this case. Waiting out the clock could only finalize the Government's title to an
unspecified interest in LCP, Ltd., an interest which has practically no market value. The Government now
seeks to institute proceedings that it believes will guarantee a judgment for a specified amount of LCP,
Ltd.—a judgment it can "take to the bank." Additionally, a section 1963(l ) proceeding would determine the
origin of the Gilbert interests and finally allow the Government to clear the chain of title and sell its interest.
71
Nominee "connotes the delegation of authority to the nominee in a representative or nominal
capacity only, and does not connote the transfer or assignment to the nominee of any property in, or
ownership of, the rights of the person nominating him." Braxton v. United States, 858 F.2d 650, 653 n. 6
(11th Cir.1988).
While the Government's approach is an innovative one, it cannot succeed. For the reasons stated
supra, Part III.A., section 1963(l ) does not provide the Government an implied cause of action to force the
Gilberts to file section 1963(l ) petitions. Thus, the Government's only recourse in its attempt to recapture
those interests that the Gilberts and the Trust may have derived from Benjamin Kramer is to institute a
separate quiet title action in California.72
IV.
Even if section 1963(l ) could be interpreted to provide an implied cause of action in favor of the
Government, the court could not grant the requested injunction in this case because the Government holds
nothing for the Gilberts to claim. The Government's argument on appeal is based entirely on the assumption
that it holds a valid order of forfeiture against Benjamin Kramer. This assumption, however, is wrong for
several reasons. First, the jury's verdict and the district court's subsequent order of forfeiture constituted an
improper attempt to effect an in rem, rather than an in personam, forfeiture. The former type of forfeiture
is a remedial action against property, whereas the latter is a punitive action against a defendant. Second, the
evidence at trial conclusively established that Benjamin Kramer did not own what the jury attempted to forfeit
by its verdict—the Bell Gardens Bicycle Club. Kramer actually stood once removed from the real
estate—owning only an interest in a limited partnership (LCP, Ltd.) that owned part of the Club through its
joint venture agreement with PPA. Third, even if the jury's verdict were construed to have forfeited Kramer's
interest in LCP, Ltd. rather than the Club itself, the verdict was deficient insofar as it failed to specify the
percentage of Kramer's ownership interest in LCP, Ltd. Without a judgment for a specified interest, the
Government cannot establish how much of the defendant's property was forfeited. Fourth, even if the
72
A quiet title action is usually defined as a "proceeding to establish the plaintiff's title to land by
bringing into court an adverse claimant and there compelling him either to establish his claim or be
forever estopped from asserting it." Black's Law Dictionary 1249 (6th ed.1990) (emphasis added). Under
current California law, however, "title to both real and personal property may be litigated in a quiet title
action." Lopes v. Lopes, 152 Cal.App.3d 302, 199 Cal.Rptr. 425, 429 (1984); see also
Cal.Civ.Proc.Code § 760.020 (stating that "[a]n action may be brought under [the quiet title] chapter to
establish title against adverse claims to real or personal property or any interest therein"). California law
holds that "a partner's interest in partnership property of whatever character (realty or personalty) is an
interest in personalty for all purposes." Tinseltown Video, Inc. v. Transportation Ins. Co., 61 Cal.App.4th
184, 71 Cal.Rptr.2d 371, 373 (1998).
Notably, the Government will bear the burden in the quiet title proceeding of proving that
it has a superior claim to the property at issue. See Cal.Code § 637 ("The things which a person
possesses are presumed to be owned by him."); Davis v. Crump 162 Cal. 513, 123 P. 294, 296-97
(1912) ("Proof of possession makes a prima facie case of ownership as against one not shown to
have had any title or possession.").
forfeiture verdict had been in flawless form—targeting Kramer's interest in LCP, Ltd. and specifying his
percentage of ownership—the district court neither entered the verdict nor ordered forfeiture as part of
Kramer's sentence. In other words, the district court allowed the forfeiture verdict to vanish, without any
force or effect. As a result, the event triggering ancillary proceedings and seizure of the property never
occurred. Thus, the district court properly denied the Government's request for a mandatory injunction. The
Gilberts cannot be forced to claim an interest in property the Government does not have, or be forced to file
petitions in a proceeding not authorized by law.
A.
1.
The distinction between in rem forfeiture (civil) and in personam forfeiture (criminal) is of great
import in this case, and has an illustrative history:
The law of forfeiture dates back to the Old Testament. According to Exodus 21:28 (King
James), "If an ox gore a man or a woman, and they die: then the ox shall be surely stoned, and his
flesh shall not be eaten." A suggested basis for the text is that if the ox offended the heirarchical [sic]
order, appeasement of God, the sovereign, required reparation which could only be attained by the
ox forfeiting its life. See Finkelstein, The Goring Ox: Some Historical Perspectives on Deodands,
Forfeitures, Wrongful Death and the Western Notion of Sovereignty, 46 TEMP. L.Q. 169, 180
(1973). The forfeiture doctrine continued into the common law of England where the Crown became
the sovereign to be appeased. Thus, if an object such as a cart, tree, or well took the life of a King's
subject, the object became the Crown's in order to redress the loss of human life and provide revenue.
See Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 681, 94 S.Ct. 2080, 2090, 40
L.Ed.2d 452 (1974) (citing O. Holmes, The Common Law, c 1 (1881)).
Forfeiture survived the journey into American law, although not without criticism. Cf.
Calero-Toledo, 416 U.S. at 689, n. 27, 94 S.Ct. at 2095, n. 27; United States v. U.S. Coin and
Currency, 401 U.S. 715, 719-20, 91 S.Ct. 1041, 1043-44, 28 L.Ed.2d 434 (1971); United States v.
One 1976 Mercedes Benz 280S, 618 F.2d 453, 461 (7th Cir.1980) (forfeiture in present law
constitutes vestiges of "old, forgotten, far-off things and battles long ago")....
The classical distinction between civil and criminal forfeiture was founded upon whether the
penalty assessed was against the person or against the thing. Forfeiture against the person operated
in personam and required a conviction before the property could be wrested from the defendant. See
Calero-Toledo, 416 U.S. at 682, 94 S.Ct. at 2091; One 1958 Plymouth Sedan v. Pennsylvania, 380
U.S. 693, 700, 85 S.Ct. 1246, 1250, 14 L.Ed.2d 170 (1965). Such forfeitures were regarded as
criminal in nature because they were penal; they primarily sought to punish. Forfeiture against the
thing was in rem and the forfeiture was based upon the unlawful use of the res, irrespective of its
owner's culpability. These forfeitures were regarded as civil; their purpose was remedial. Calero-
Toledo, 416 U.S. at 680-81, 94 S.Ct. at 2090; U.S. Coin & Currency, 401 U.S. at 719, 91 S.Ct. at
1043.
United States v. Seifuddin, 820 F.2d 1074, 1076-77 (9th Cir.1987).
Criminal forfeiture under RICO is in personam. United States v. Bissell, 866 F.2d 1343, 1348 n. 3
(11th Cir.1989). In other words, it is a form of punishment imposed by the jury to divest the criminal
defendant of the profits of the illegal activity for which he has been convicted. Id.; United States v. Conner,
752 F.2d 566, 576 (11th Cir.1985); see also 18 U.S.C. § 1963(e); Fed.R.Crim.P. 32(d)(2). RICO's forfeiture
penalty works to strip a convicted racketeer of all the fruits and tools of his racketeering in an effort to strike
at the heart of the illegal enterprise. By providing a method by which to confiscate tainted property and
proceeds, Congress aimed to put criminal enterprises out of business. Russello v. United States, 464 U.S. 16,
26-27, 104 S.Ct. 296, 302, 78 L.Ed.2d 17 (1983). Forfeiture is imposed as punishment in addition to any term
of imprisonment and/or fine the convicted racketeer may receive. See 18 U.S.C. §§ 3554, 1963(a); Libretti
v. United States, 516 U.S. 29, 38-39, 116 S.Ct. 356, 363, 133 L.Ed.2d 271 (1995) ("Forfeiture is an element
of the sentence imposed following conviction or ... a plea of guilty....").
Because it seeks to penalize the defendant for his illegal activities, in personam forfeiture reaches
only that property, or portion thereof, owned by the defendant. United States v. Peters, 777 F.2d 1294, 1296
(7th Cir.1985) ("An examination of the forfeiture provision reveals that Congress clearly intended that the
government acquire only that interest which the criminal defendant held in the property."); S.Rep. No. 98-
225, at 207-08, reprinted in 1984 U.S.C.C.A.N. 3182, 3391 ("Criminal forfeiture is an in personam
proceeding. Thus, an order of forfeiture may reach only property of the defendant, save in those instances
where a transfer to a third party is voidable."). Stated another way, the property itself is not forfeited; rather,
the defendant's interest in the property is forfeited. If criminal forfeiture reached beyond that portion of the
property that was owned by a defendant, such a form of forfeiture would be in rem, against the property,
rather than in personam, against the defendant. See United States v. Kennedy, 201 F.3d 1324, 1329 (11th
Cir.2000).
That criminal forfeiture can only reach a defendant's interest in the subject property makes sense.
In the case of criminal forfeiture, the district court has "jurisdiction to enter orders ... without regard to the
location of any property which may be subject to forfeiture ... or which has been ordered forfeited." 18
U.S.C. § 1963(j). The district court's power to enter orders relating to property outside the court's jurisdiction
derives from its personal jurisdiction over the defendant. Because the defendant is before the court, the court
has the power to adjudicate his ownership interest in property, by virtue of the criminal charges against him.
Forfeiture of the convicted defendant's interest in illicitly obtained property appropriately punishes the
defendant by separating him from his racketeering gains while leaving undisturbed the interests of innocent
third parties who are beyond the court's jurisdiction. For this jurisdictional reason, an order of forfeiture
imposed upon a defendant as a penalty for his wrongdoing "determine[s] the government's title in property
only as against the named defendants, while civil forfeiture actions [which are brought in the jurisdiction
where the res is located] are in rem and determine the government's title in property as against the whole
world." United States v. Tit's Cocktail Lounge, 873 F.2d 141, 143 (7th Cir.1989).
2.
The Government in this case sought forfeiture of the Club under 18 U.S.C. § 1963(a)(3) as "property
constituting, or derived from ... proceeds which the [convicted racketeers] obtained, directly or indirectly,
from racketeering activity." Specifically, the Government argued to the jury in its closing argument that "as
soon as they started to build the Bell Gardens Bicycle Club, under Federal law, that property became
forfeitable to the United States.... The reason for this ... is because what was used to build the [Club], that
twelve and a half million dollars, came from proceeds of marijuana trafficking, and from that point forward,
that property was subject to forfeiture."
Section 1963(a)(3) and the principle of in personam forfeiture, however, dictate that the jury could
forfeit only that portion of the Club owned by the convicted racketeers. The district court acknowledged as
much in its Amended Final Order following the ancillary proceedings, in which it stated that "[i]f [the
forfeiture] were in rem, then the verdict would reach the entire property. However, the only property
forfeitable at this time is that which belonged to the criminal defendants in this case whose interest in the Bell
Gardens Bicycle Club ... the jury forfeited under [section] 1963(a)(3)." Kramer, 807 F.Supp. at 737.
Forfeiture of the entire Club, then, would have been appropriate only if the jury found that one or more
defendants were the exclusive owners of the Club. Cf. United States v. Busher, 817 F.2d 1409, 1413 n. 7 (9th
Cir.1987) ("The problem of forfeiture of an entire enterprise is essentially limited to the situation where the
convicted defendant owns substantially all of the stock of a corporation, or where the enterprise is a sole
proprietorship. This is so because under section 1963 only the defendant's interest in the enterprise is
forfeitable, not the enterprise itself.... Thus, only where the culpable person owns the entire enterprise will
it be subject to complete forfeiture for violation of RICO.").
The jury knew that the three defendants were not the exclusive owners of the Club; they had seen
ample evidence showing that PPA—an innocent party—held an interest in the Club. They were reminded of
that fact by the Government during its closing argument, when it attempted to assuage the jury's fears about
forfeiting property belonging, in part, to innocent owners:
Now, during your deliberations, you ought not to be concerned with, well, what about the innocent
people here? What about Park Place Associates? What about Sanwa Bank[,] where there is a
legitimate loan. [T]hose individuals can petition the court to get back any interest that they have, or
to preserve and protect any interest that they have in the [Club], or any loans that are outstanding.
Thus, the jury clearly understood that it was being asked to forfeit property beyond that owned by the
defendants.
Despite the evidence showing that the defendants were not the exclusive owners of the Club, the jury
was never asked whether only part of the Club was subject to forfeiture. Rather, the jury was limited to an
all-or-nothing decision.73 In accordance with the Government's request, the forfeiture verdicts returned
against Benjamin Kramer, Jack Kramer, and Michael Gilbert purported to forfeit the entire Club—"the
ongoing business, premises and building, together with fixtures."
The jury, however, could not legally order the forfeiture of the entire Club. While the defendants'
tainted interests in the business were subject to forfeiture, the poorly drafted verdict forms did not give the
jury the opportunity to limit the forfeiture to those interests. The end result was a verdict of forfeiture that
purported to forfeit the Club in its entirety, even though the evidence clearly established that the three
defendants did not own the entire Club.
As a result of the jury's overbroad pronouncement, the Bell Gardens Bicycle Club—a business with
an approximate value of $150 million in 1990—became the centerpiece of an order of forfeiture entered by
the district court on April 3, 1990, immediately after the jury returned the last forfeiture verdict. In
accordance with the verdict, the court ordered that "the ongoing business, premises and building, together
with fixtures, ... known as the Bell Gardens Bicycle Club be and hereby are forfeited to the United States of
America for its full use and benefit, pursuant to 18 U.S.C. § 1963(a)(3)," and further ordered that the United
States "immediately seize the physical premises of the Club."
Despite the in personam limitations of criminal forfeiture proceedings, the district court's order
erroneously conflated the concepts of in personam and in rem forfeiture by professing to give the Government
a piece of real estate and an ongoing business in California, as opposed to the defendants' limited ownership
interest in the business. At least one commentator was puzzled by this result, and admitted being unable to
"explain how the jury could find that the entire Club was subject to forfeiture as racketeering proceeds under
section 1963(a)(3) when only a part of the financing of the Club came from drug money." 2 David B. Smith,
73
The special verdict forms asked whether the Club "constituted or was derived from any proceeds
which [the defendant] obtained directly or indirectly from racketeering activity." If the jury answered in
the affirmative, the only remaining question regarding the Club was whether "the Bell Gardens Bicycle
Club [was] subject to forfeiture."
Prosecution and Defense of Forfeiture Cases ¶ 14.08 n. 37 (2000).74
The trial court sought to correct its mistake in its Amended Final Order following the ancillary
proceedings, in which it described the jury verdict as "forfeiting the interests of Ben Kramer, Jack Kramer
and Michael Gilbert in the Bicycle Club," and stating that "[o]nly the interests of [the] three convicted
defendants in the Bicycle Club were forfeited." Kramer, 807 F.Supp. at 709-10 (emphasis added). This
complete re-characterization of the court's initial in rem order of forfeiture, however, came too late. Since
the jury's verdict reached beyond those assets that were legally forfeitable under the applicable statute, the
verdict was invalid. Without a valid verdict of forfeiture, the district court cannot properly enter an order of
forfeiture unless the defendant waives his right to a jury trial on that issue. See United States v. Bornfield,
145 F.3d 1123, 1138-39 (10th Cir.1998). No such waiver was made in this case. Thus, the Government
actually holds nothing by virtue of the forfeiture order against Benjamin Kramer.
B.
In addition to its vagueness and overbreadth, the verdict of forfeiture against Benjamin Kramer was
improper on a more fundamental level. Benjamin Kramer never owned any part of the Club. The Club itself
was a joint venture between two partnerships: PPA and LCP. Thus, the Joint Venture was the club's true
owner. See Barr Lumber Co., Inc. v. Old Ivy Homebuilders, Inc., 34 Cal.App.4th Supp. 1, 40 Cal.Rptr.2d
717, 720 (1995) (holding that an individual partner is not deemed the owner of specific partnership assets by
virtue of his status as partner; property of the partnership belongs to the partnership, not the partner).
The fact that the Joint Venture, and not Benjamin Kramer, owned the Club was conclusively
established at trial. The jury saw the Joint Venture Agreement between PPA and the LCP general partnership,
which stated clearly that PPA and LCP had associated to form the Joint Venture known as the Bell Gardens
Bicycle Club. Further, the purpose of the Joint Venture set forth in the agreement was "to organize, own, and
74
During the ancillary proceedings, counsel for Julie Coyne, Richard Kirschner, advanced an
illustrative hypothetical:
If you take the Government's reasoning to its logical conclusion ... you can have a
convicted felon who bought a hundred shares of General Motors, and he used drug
proceeds, and you have a hundred thousand other shareholders in General Motors, all of
the shareholders['], including the drug dealer's money, are used to develop General
Motors[.] [I]f you follow the Government's reasoning and theory, all of General Motors
is forfeited to the Government, all of the dividends are suspended, and it's up to the other
99,000 shareholders to prove their interest in an ancillary hearing, because the money got
commingled, and it was used to develop General Motors. Just not the law. Just doesn't
happen.
operate the Bell Gardens Bicycle Club ... and to ... own the real property on which said card club is to be
operated" (emphasis added). The jury also saw the loan agreement between CGL and the Club, in which the
Bell Gardens Bicycle Club was described as "a Joint Venture consisting of [PPA], a California Limited
Partnership ... and [LCP], a California General Partnership" and was referred to as "Owner" throughout.
Finally, the jury saw the Deed of Trust executed by the Bell Gardens Bicycle Club in favor of CGL, wherein
the Club was named as the owner of the parcels of land on which the card club was built.
At most, then, what Benjamin Kramer owned was a silent partnership interest in LCP general
partnership, which later became LCP, Ltd. Thus, it was Benjamin Kramer's silent interest in LCP, Ltd. that
should have been targeted for forfeiture in the indictment, jury instructions, and special verdict forms, not the
Bell Gardens Bicycle Club.75 Unfortunately for the Government, this was only made clear during the ancillary
proceedings. Because the jury—and the district court, by its initial order of forfeiture—forfeited property
that Kramer did not own, the Government holds nothing by virtue of the order of forfeiture against Benjamin
Kramer.76
C.
Even if the forfeiture proceedings had properly targeted Kramer's interest in LCP, Ltd., rather than
the Club, the jury's verdict would remain fatally deficient. "Rule 31(e) of the Federal Rules of Criminal
Procedure provides for the procedural implementation of the RICO criminal forfeiture provision ... and
requires a special verdict." United States v. Amend, 791 F.2d 1120, 1128 (4th Cir.1986). By its terms, Rule
31(e) calls for the special verdict to set forth "the extent of the interest or property subject to forfeiture, if
75
As an alternative to forfeiting Benjamin Kramer's silent partnership interest in LCP, Ltd., the
Government could have sought forfeiture of, as proceeds of racketeering, Benjamin Kramer's share of the
tainted money used to build the Club, his share of the fifteen percent interest rate paid by the Joint
Venture in the CGL mortgage, and his share of the fifteen percent income participation kicker. Of course,
under any of these bases of forfeiture, the Government's recovery would have been limited to Benjamin
Kramer's share of the drug proceeds since the Government elected not to indict Benjamin Kramer's
drug-trafficking partners. In any event, it is beyond doubt that Kramer had no ownership interest in the
Club for the jury to forfeit.
76
In the district court's Amended Final Order following the ancillary proceedings, the court attempted
to shift the focus of forfeiture from the Club to LCP, Ltd. The court could not have ordered forfeiture of
LCP, Ltd. at any time during the proceedings, however, because Federal Rule of Criminal Procedure
7(c)(2) provides that "[n]o judgment of forfeiture may be entered in a criminal proceeding unless the
indictment or the information shall allege the extent of the interest or property subject to forfeiture." The
grand jury's indictment alleged that the Club, rather than LCP, Ltd., was subject to forfeiture in the instant
case. Despite the flaws inherent in such an allegation, the court was prohibited by Rule 7(c)(2) from
correcting the grand jury's mistakes on its own initiative. Rather, the court could only order forfeiture of
that interest or property named in the indictment, to wit: the Bell Gardens Bicycle Club.
any." Fed.R.Crim.P. 31(e).
Quite simply, there was nothing special about the special verdict of forfeiture forms submitted to the
jury. The forms, essentially identical as to each defendant, merely asked whether the Club "constituted or
was derived from any proceeds which Benjamin Kramer obtained directly or indirectly from racketeering
activity." If the jury answered in the affirmative, the only remaining question regarding the Club was whether
"the Bell Gardens Bicycle Club [was] subject to forfeiture."
During the ancillary proceedings, petitioner Julie Coyne's counsel, Richard Kirschner, pointed out
that "only a convicted defendant's interest in a club is forfeited or an asset is forfeited, not every other interest
in the world. And that's the problem. This jury didn't come back and say what interest the Kramers held in
the club." The court replied that "[t]hey didn't have any evidence on that. They weren't asked to do that."
Indeed, the verdict forms asked neither what percentage of ownership each defendant held in the subject
property nor how much of that interest was subject to forfeiture. As discussed supra, Part III.B., the effect
of this deficiency, when read in the light most favorable to the Government, was to assign the Government
an unspecified, and therefore worthless, interest in LCP, Ltd.77
D.
Finally, even if the special verdict of forfeiture had been in proper form, title to Kramer's property
never vested in the Government. On August 29, 1990, the district court sentenced Benjamin Kramer to a
"TOTAL sentence" of "FORTY FIVE years confinement.... Commited [sic] fines of $460,000.00 ... [and a]
$1,000.00 assessment." The court made no mention of forfeiture, apparently relying on its April 3 order78
as the final disposition of that issue. The court could not have ordered forfeiture of Kramer's property on
April 3, however, because criminal forfeiture "may not take place until a judgment of conviction is entered
and sentence imposed." United States v. Alexander, 772 F.Supp. 440, 440 (D.Minn.1990). Because the court
failed to properly enter an order of forfeiture, the Government never obtained the right to seize Kramer's
77
Coyne's counsel stated at the outset of the ancillary proceedings that "[The Government] said,
Fellas, we own the Bicycle Club. Our response to them has been, Fellas, you may own the Kramer
interest in the Bicycle Club, and you may own Michael Gilbert's interest in the Bicycle Club, [but] you
sure as heck don't own the whole Bicycle Club, because the jury did not come back with an indication of
what percentage the Kramers or Michael Gilbert owned. You say you own a hundred percent of it, we
say you own zero."
78
On April 3, 1990, immediately after the final forfeiture verdict was returned, the court "entered the
government's proposed order for forfeiture, and also seized the Club in its entirety, appointed an interim
trustee, and prevented the Club or its owners from distributing profits or transferring their interests."
Kramer, 912 F.2d at 1259.
property. Additionally, the condition precedent to the start of ancillary proceedings under 1963(l )—an "order
of forfeiture"—never occurred. Thus, the district court properly denied the Government's request for a
mandatory injunction.
1.
It is beyond doubt that criminal forfeiture is part of a defendant's sentence. 18 U.S.C. §§ 1963(a),
3554; United States v. Bissell, 866 F.2d 1343, 1349 n. 3 (11th Cir.1989) ("[C]riminal forfeiture operates in
personam against the defendant, serving as a penalty upon conviction."); United States v. Derman, 211 F.3d
175, 182 (1st Cir.2000) ("[T]he forfeiture order ... is a part of the sentence, and becomes final for purposes
of appeal when the court issues its judgment.") (citation omitted). In fact, forfeiture is a mandatory element
of sentencing for a violation of 18 U.S.C. § 1962. United States v. L'Hoste, 609 F.2d 796, 809-13 (5th
Cir.1980). As such, it must be ordered at a hearing that affords the defendant his right of allocution.79 In the
instant case, however, the court entered the order of forfeiture at an "impromptu hearing" immediately
following the verdicts. Kramer, 912 F.2d at 1259. Indeed, neither Benjamin Kramer nor his attorney were
even present in the courtroom when the order was entered. As such, the court could not, as required by
Federal Rule of Criminal Procedure 32(a)(1),
(A) determine that the defendant and defendant's counsel have had the opportunity to read and
discuss the presentence investigation report[;]
(B) afford counsel for the defendant an opportunity to speak on behalf of the defendant; and
(C) address the defendant personally and determine if the defendant wishes to make a statement and
to present any information in mitigation of the sentence.
Fed.R.Crim.P. 32(a)(1)(A)-(C) (1990) (current version at Fed.R.Crim.P. 32(c)(3)(A)-(E)). As Kramer was
not afforded an opportunity to allocute on April 3, the purported order of forfeiture entered on that date could
not have been part of his sentence.
79
Black's Law Dictionary defines "allocution" as:
1. A trial judge's formal address to a convicted defendant, asking him or her to speak in
mitigation of the sentence to be imposed. This address is required under Fed.R.Crim.P.
32(c)(3)(C).
2. An unsworn statement from a convicted defendant to the sentencing judge or jury in
which the defendant can ask for mercy, explain his or her conduct, apologize for the
crime, or say anything else in an effort to lessen the impending sentence. This statement
is not subject to cross-examination.
Black's Law Dictionary 75 (7th ed.1999).
Moreover, it is clear that the trial court did not intend the impromptu gathering to function as a
sentencing hearing. Counsel for David Pierson—a third party claimant—called the court's attention to the
fact that "the Government seeks a final judgment of forfeiture, notwithstanding the fact that Rule 32(b)
provides that forfeiture orders don't occur until sentencing. We are not at sentencing today. We are not
anywhere close; yet they're seeking a final order of forfeiture." Indeed, the most the court could have done
on April 3 was issue temporary restraints to maintain the status quo of the property. See 18 U.S.C. §
1963(d).80 The prosecution erroneously replied, however, that the court need not wait until sentencing to
enter the order of forfeiture, for 18 U.S.C. § 1963(e) mandates that an order of forfeiture be entered "upon
conviction," and all of the defendants in the case had been "convicted" within the meaning of the statute.
While referring the district court to our opinion in L'Hoste for the proposition that forfeiture is mandatory,
the prosecution failed to point out that L'Hoste also held that forfeiture should be ordered as part of a
defendant's sentence. L'Hoste, 609 F.2d at 812-13. Unfortunately, the court adopted the prosecution's
argument and entered the forfeiture order on April 3. In so doing, the court implicitly agreed that the order
of forfeiture need not be—and was not—part of Kramer's sentence.81
2.
Because the April 3 order was not part of Kramer's sentence, it did not forfeit his property to the
80
18 U.S.C. § 1963(d)(1) (1994) provides:
Upon application of the United States, the court may enter a restraining order or
injunction, require the execution of a satisfactory performance bond, or take any other
action to preserve the availability of property described in subsection (a) for forfeiture
under this section—
(A) upon the filing of an indictment or information charging a violation of
section 1962 of this chapter and alleging that the property with respect to which
the order is sought would, in the event of a conviction, be subject to forfeiture
under this section.
The court's judgment on August 29—containing no order of forfeiture—superseded the April 3
order, terminated any temporary restraints on the property, and ended the case. See United States
v. Gelb, 826 F.2d 1175, 1176 (2d Cir.1987) ("Congress appears to have provided no durational
limitation to [post-indictment restraining orders] ... short of the termination of the related criminal
prosecution.").
81
Because forfeiture is a mandatory element of any sentence under 18 U.S.C. § 1963(a), L'Hoste, 609
F.2d at 809-13, Kramer's sentence "was imposed in violation of law." 18 U.S.C. § 3742(b)(1). The
Government's remedy was an appeal to this court within 30 days from the entry of judgment or notice of
appeal by any defendant. Fed. R.App. P. 4(b) (1990) (current version at Fed. R.App. P. 4(b)(1)(B)). The
Government took no such appeal. Thus, although the court clearly erred, the Government has waived the
error and the sentence is final.
Government. The premature order was merely an invalid attempt to bypass the procedurally required method
of criminal forfeiture set forth in Federal Rule of Criminal Procedure 32(b).82 Until its amendment in 1996,
Rule 32(b) read as follows:
(b) Judgment.
(1) In General. A judgment of conviction shall set forth the plea, the verdict or findings, and
the adjudication and sentence....
(2) Criminal Forfeiture. When a verdict contains a finding of property subject to a criminal
forfeiture, the judgment of criminal forfeiture shall authorize the Attorney General to seize the
interest or property subject to forfeiture....
Fed.R.Crim.P. 32(b) (1990) (emphasis added) (current version at Fed.R.Crim.P. 32(d) (1994)).83 While
subsection (b)(2) includes the terms "verdict" and "judgment," it states that only a "judgment " of criminal
forfeiture shall authorize the Attorney General to seize the defendant's property. Subsection (b)(1) requires
that a "judgment ... set forth the ... sentence." Because it must set forth the terms of the defendant's sentence,
the "judgment" in subsection (b)(2) authorizing the Attorney General to seize the defendant's property could
not be entered at any time prior to sentencing. See United States v. Ripinsky, 20 F.3d 359, 362 (9th Cir.1994)
(holding that until a judgment of conviction was entered at sentencing, the sole legal basis for continuing to
restrain forfeitable assets was a pretrial restraining order); Alexander, 772 F.Supp. at 441 (stating that Rule
32(b) "contemplate[s] an order of forfeiture at the time of sentencing").84 Thus, the trial court's order of
forfeiture entered on April 3—nearly five months before Kramer's sentencing—was not a "judgment"
82
Rule 32(b) was promulgated "to provide procedural implementation of the ... criminal forfeiture
provisions of ... § 1963." Fed.R.Crim.P. 32(b) advisory committee notes on 1972 amendments.
Specifically, Rule 32(b) was intended to be read in conjunction with 18 U.S.C. § 1963(c) (amended
before the time of trial to section 1963(e)), which provided for seizure and disposition of criminally
forfeited property. Id. At the time of trial, section 1963(e) stated that "[u]pon conviction of a person
under this section, the court shall authorize the Attorney General to seize all property or other interest
declared forfeited under this section upon such terms and conditions as the court shall deem proper." 18
U.S.C. § 1963(e) (1990).
83
Rule 32(b) was amended in 1996 to allow the court to issue a "preliminary order of forfeiture"
before sentencing. The purpose of the order is merely to protect the forfeitable property between verdict
and sentencing, much like a pre-1996 restraining order. The preliminary order, however, is not final as to
the defendant and thus not appealable. "[B]oth before and after the 1996 amendments the key moment for
determining finality for the purpose of appeal is sentencing." United States v. Derman, 211 F.3d 175, 182
n. 9 (1st Cir.2000).
84
The court also noted in Alexander that "review of RICO convictions reveals the general practice is,
in fact, imposition of forfeiture at the time of sentencing." Id. at 442 (collecting cases).
authorizing the Government to seize Kramer's property.85
Similarly, the court's April 3 order was not the "order of forfeiture" required to begin ancillary
proceedings under 18 U.S.C. § 1963(l )(1). Although one may argue that the "order" required by 1963(l )
may precede the "judgment" entered at sentencing under Rule 32(b)(2), such an argument would be wholly
unpersuasive. First, the terms "judgment" and "order" appear to be used interchangeably throughout section
1963. Subsection (a), for instance, provides that "[t]he court, in imposing sentence ... shall order " forfeiture,
while subsection (e) states that "upon conviction ... the court shall enter a judgment of forfeiture." Both
subsections anticipate that forfeiture will occur at sentencing.
Moreover, section 1963(l ) ancillary proceedings are held so that innocent third-party owners can
get their interests back from the government. This presupposes that the government has something for
third-parties to claim. In other words, ancillary proceedings—which are activated under 1963(l ) by an order
of forfeiture—could not take place without the government's seizure of the property, which is authorized
under 1963(e) and Rule 32(b)(2) by a judgment of forfeiture. See United States v. Ginsburg, 773 F.2d 798,
801 (7th Cir.1985) ("[T]he government's interest in property subject to criminal forfeiture does not attach until
the defendant is convicted of the crime for which the forfeiture is imposed."). Thus, even if the terms have
different meanings, it is clear from the forfeiture scheme that the judgment, rather than the order, must come
first. As noted above, the judgment may not be entered until sentencing. Since it cannot logically precede
the judgment, the "order of forfeiture" required by section 1963(l ) also may not be entered until sentencing.
Therefore, the order of forfeiture entered by the court on April 3—nearly five months before sentencing—was
not sufficient to trigger the start of ancillary proceedings pursuant to 1963(l ). Because the district court could
not order the Gilberts to file petitions in a nonexistent proceeding, it properly denied the Government's
request for a mandatory injunction.
V.
For the reasons herein stated, the judgment of the district court is
85
The law of the case doctrine, see supra note 51, is no impediment to our statement that there was no
valid judgment of forfeiture against Benjamin Kramer. The 1990 expedited appeal generated a
memorandum opinion, in which the court stated that "[b]ecause no hearing has been conducted, the facts
recited by the court are taken from the briefs and do not represent opinions of the court." Kramer, 912
F.2d at 1258. Thus, the panel's characterization of the April 3 order as an order of forfeiture is merely a
misrepresentation by the parties in their briefs. As for the 1996 opinion, the panel did not consider the
forfeiture issue as to Kramer because Kramer did not challenge the forfeiture verdict the jury returned
against him. Kramer, 73 F.3d at 1070.
AFFIRMED.
EDMONDSON, Circuit Judge, concurs in judgment only.