United States v. Andrew Lucas ( 2021 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 19-3427
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UNITED STATES OF AMERICA
v.
ANDREW LUCAS;
Diamond Developers at
Burke Farm, LLC*,
Appellant
*(Pursuant to Fed. R. App.
P. 12(a))
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On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 3-14-cr-00052-001)
District Judge: Honorable Freda L. Wolfson
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Argued on September 10, 2020
Before: CHAGARES, HARDIMAN, and MATEY, Circuit
Judges.
(Filed: January 20, 2021)
William R. Cowden [Argued]
1750 K Street, N.W.
Suite 900
Washington, DC 20006
Counsel for Appellant
Mark E. Coyne
Sarah A. Devlin [Argued]
John E. Wilson, Jr.
Office of United States Attorney
970 Broad Street
Room 700
Newark, NJ 07102
Norman Gross
Office of United States Attorney
Camden Federal Building & Courthouse
401 Market Street
Camden, NJ 08101
Counsel for Appellee
___________
OPINION
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2
HARDIMAN, Circuit Judge.
This is an appeal from a criminal forfeiture order.
Defendant Andrew Lucas—who was convicted by a jury of
several federal crimes—devised a scheme to take control of
real estate known as Burke Farm in Manalapan, New Jersey.
Lucas was sentenced to 60 months’ imprisonment and
consented to the forfeiture of Burke Farm because it was
purchased with proceeds of his fraud.
Appellant Diamond Developers at Burke Farm, LLC
filed a petition in the District Court asserting an interest in
Burke Farm. Diamond Developers claimed an interest superior
to that of the United States under 21 U.S.C. § 853(n)(6)(A)
because it acquired Burke Farm in 2004, several years before
Lucas’s crimes caused a property interest to vest in the United
States. The District Court dismissed Diamond Developers’s
petition and entered summary judgment for the Government.
Diamond Developers filed this appeal. We will reverse.
I
A financial advisor with his own firm, Lucas devised an
illegal scheme to take over Burke Farm. His goal was to use
the farm to obtain funding from a New Jersey program that
paid property owners for easements to preserve farmland.
In December 2009, Lucas submitted a fraudulent
application to assume Burke Farm’s mortgage. Two months
later, he obtained a $250,000 loan from a client named Robert
Janowski. Lucas said he would invest Janowski’s money in a
company called VLM Investments, LLC; instead Lucas used it
as a down payment on the farm’s mortgage. Compounding that
3
lie, Lucas forged the signature of his cousin, Thomas
Littlefield, on the promissory note for the $250,000 loan.
The next month (March 2010), Lucas, his wife, and his
father acquired the limited liability company that owned Burke
Farm (Diamond Developers) by agreeing to handle the farm’s
mortgage payments, thereby relieving Diamond Developers’s
original members of their debt obligations.
The Government eventually discovered the crimes that
facilitated Lucas’s acquisition of Diamond Developers and
indicted him on eleven counts. In September 2014, a jury
convicted Lucas on all counts: one count of wire fraud,
18 U.S.C. § 1343; one count of engaging in an illegal monetary
transaction, 18 U.S.C. § 1957; one count of loan application
fraud, 18 U.S.C. § 1014; three counts of making false
statements to the Internal Revenue Service, 18 U.S.C. § 1001;
three counts of aggravated identity theft, 18 U.S.C.
§ 1028A(a)(1); one count of obstructing a grand jury
investigation, 18 U.S.C. § 1503; and one count of falsifying
records in a federal investigation, 18 U.S.C. § 1519.
II
The Government sought criminal forfeiture of Burke
Farm because Lucas’s crimes enabled his acquisition of the
farm. Lucas consented to the forfeiture in conjunction with his
60-month sentence. But after the District Court entered a
preliminary order of forfeiture, Diamond Developers filed a
petition under 21 U.S.C. § 853(n)(6)(A), which protects a third
party from criminal forfeiture when it owned the property at
the time of the relevant crimes. There was no dispute that
Diamond Developers owned Burke Farm starting in 2004, over
five years before Lucas’s offenses.
4
The District Court nevertheless granted the
Government’s motion for summary judgment. It did so based
on the following undisputed timeline:
• 2004: Diamond Developers, then owned by Tucker
Development, LLC and Anthony Garofalo, acquired
Burke Farm.
• December 2009: Lucas submitted the fraudulent
mortgage application to facilitate his and his family’s
acquisition of Diamond Developers.
• February 2010: Lucas fraudulently obtained the
$250,000 for the mortgage down payment.
• March 2010: Lucas, his wife, and his father acquired
Diamond Developers, with Lucas and his wife each
taking 40 percent and his father taking 20 percent. Lucas
was named managing member of the LLC with
complete control of its activities.
Before reaching the merits, the District Court ruled that
Diamond Developers had Article III standing to challenge the
forfeiture because it “established that it ha[d] a ‘colorable
ownership’ interest over the [farm]” dating back to 2004 and
was not simply Lucas’s nominee. Dist. Ct. Dkt. 83, at 5–8. The
Court found that before and after Lucas’s conviction, Lucas’s
wife and father—who were not charged with crimes—took
actions on the LLC’s behalf that were “consistent with the
ownership of the [farm].” Id. at 7. For example, Lucas’s wife
and father “agreed to assume personal liability for the
repayment of the [farm’s] mortgage” and “contributed their
personal funds to make mortgage payments and purchase
5
farming equipment, while waiting for the receipt of the
Farmland Preservation Program funds.” Id.Despite these findings, the District Court held that
Diamond Developers’s ownership of the farm did not support
its argument under § 853(n)(6)(A). The District Court
observed that the Lucases “did not acquire their interest[s] in
the company” until after Andrew Lucas’s crimes, and thus after
the Government’s interest vested at the time of those crimes.
Id. at 9. The Court also emphasized that the family members
obtained their interests in the LLC in a manner “intertwined
with [Lucas’s] criminal acts.” Id. (citing the fraudulent
mortgage application and the fraudulently obtained $250,000
down payment). For those reasons, the District Court upheld
the forfeiture and entered summary judgment for the
Government.
This appeal requires us to determine whether the
District Court applied § 853(n)(6)(A) correctly. We hold that it
did not.
III1
Typically, our standard of review in forfeiture cases is
“bifurcated” because they “involve mixed questions of law and
fact.” United States v. Lacerda, 958 F.3d 196, 216 (3d Cir.
2020). “We review the District Court’s legal conclusions de
novo and its findings of facts for clear error.” Id. Because the
material facts are undisputed in this case, we review only the
District Court’s legal analysis.
1
The District Court had jurisdiction under 18 U.S.C. § 3231.
We have jurisdiction under 28 U.S.C. § 1291.
6
Under § 853(n)(6)(A), Diamond Developers can avoid
criminal forfeiture by showing that it
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[.]
In other words, “if a third party’s interest in the forfeited
property, at the time of the criminal acts, was superior to the
criminal defendant’s interest”—or if the third party had an
interest and the defendant did not—then the third party’s right
outweighs “the interest that the government acquires when it
steps into the defendant’s shoes” at the time of the offenses.
United States v. Lavin, 942 F.2d 177, 185 (3d Cir. 1991). After
resolving third-party petitions challenging a forfeiture in an
ancillary proceeding, “the [district] court must enter a final
order of forfeiture by amending the preliminary order as
necessary to account for any third-party rights.” FED. R. CRIM.
P. 32.2(c)(2).
Here, the Government does not dispute that Diamond
Developers acquired Burke Farm over five years before
Lucas’s crimes. See Gov’t Br. 8–9. Nor is there any question
that Diamond Developers is a legitimate, separate legal entity
from Lucas. These undisputed facts suffice to vindicate
Diamond Developers’s claim of right under § 853(n)(6)(A)
and invalidate the District Court’s forfeiture order.
7
The Government argues that Lucas, his wife, and his
father’s acquisition of Diamond Developers with the illicit
proceeds of Lucas’s crimes “reconstituted” the LLC so it was
“no longer” a third party with an interest in the farm predating
the Government’s interest. Id. at 8–9, 13, 24–25. Put another
way, the Government asserts that “[t]he concepts of relation
back and superior and subordinate interests do not turn on
whether a criminal acquires and retains forfeitable assets in his
own name.” Id. at 9. The Government suggests that to hold
otherwise would allow criminals to keep ill-gotten gains by
“creat[ing] an unprincipled forfeiture loophole whenever a
defendant gains and retains control of another entity [owning a
property] through the proceeds of his crimes.” Id. at 9, 15. To
eliminate this risk, the Government asks us to hold that “[a]
third party that attains control of a forfeitable asset solely using
proceeds of a specified crime cannot rely on 21 U.S.C.
§ 853(n)(6)(A).” Id. at 16. Finally, the Government
emphasizes the lack of caselaw supporting a literal application
of the statutory text and points to § 853(o), which instructs
courts to construe the statute “liberally” to promote “its
remedial purposes.” Id. at 2, 16 (citing 21 U.S.C. § 853(o)).
We understand and appreciate the Government’s
concerns about the equities of this case. After all, Lucas and
his family owned Diamond Developers at the time the LLC
challenged the forfeiture. But the District Court found as a
matter of fact that Diamond Developers was a distinct entity,
not Lucas’s nominee. Since the Government has not appealed
that ruling, we enforce § 853(n)(6)(A) as written and hold that
the Court erred when it dismissed Diamond Developers’s
petition.
Contrary to the Government’s admonition, our holding
creates no “forfeiture loophole” for clever fraudsters. The
8
Government in this case could have sought criminal forfeiture2
of Lucas’s interest in Diamond Developers and civil forfeiture3
of his wife and father’s interests.4 We express no opinion on
2
See 18 U.S.C. § 982(a)(1) (authorizing criminal forfeiture of
property “traceable to” property “involved in” violations of
18 U.S.C. § 1957); 18 U.S.C. § 982(a)(2) (authorizing
criminal forfeiture of “any property constituting, or derived
from, proceeds . . . obtained directly or indirectly, as the result
of” a violation of 18 U.S.C. § 1014); 28 U.S.C. § 2461(c)
(property subject to civil forfeiture—see infra note 3—is also
subject to criminal forfeiture).
3
See 18 U.S.C. § 981(a)(1)(C) (authorizing civil forfeiture of
“[a]ny property, real or personal, which constitutes or is
derived from proceeds traceable to . . . any offense constituting
‘specified unlawful activity’” under 18 U.S.C. § 1956(c)(7));
18 U.S.C. § 1956(c)(7)(A) (defining as a “specified unlawful
activity” any crime “listed in” 18 U.S.C. § 1961(1)); 18 U.S.C.
§ 1961(1) (listing money laundering (i.e., “engaging in [illegal]
monetary transactions”) under 18 U.S.C. § 1957 and wire
fraud under 18 U.S.C. § 1343).
4
There is an important distinction between criminal and civil
forfeitures:
Criminal forfeitures are in personam, rather than
in rem proceedings. In rem [civil] forfeiture
proceedings determine the government’s title to
the defendant property against the whole world.
An in personam [criminal] forfeiture proceeding
determines the government’s right to the
property only against the criminal defendant. It
does not resolve whatever claims third parties
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whether the Government would have succeeded—or might yet
succeed—in an appropriate criminal or civil forfeiture
proceeding, but these potential options show that applying
§ 853(n)(6)(A)’s text does not produce a parade of horribles. It
merely requires the Government follow the rules.
Citing United States v. Zai, 932 F. Supp. 2d 824, 828
(N.D. Ohio 2013), the Government argues that seeking
forfeiture of Burke Farm rather than interests in Diamond
Developers was a legitimate exercise of prosecutorial
discretion. Gov’t Br. 23–24. The Zai court rejected the
arguments that: (1) an LLC’s interest in forfeitable payments
trumped the defendant’s interest because the defendant had
funneled the money to the LLC, and (2) that the Government
should have sought forfeiture of the defendant’s interests in
another company used to funnel the money. Zai, 932 F. Supp.
2d at 828. Zai is distinguishable. In that case, the LLC’s interest
in the illicit funds arose after the defendant acquired those
funds through crime. See id. Here, Diamond Developers
bought Burke Farm years before Lucas’s offenses and Lucas
never owned the farm himself.
may have to the property. Only property owned
by the criminal defendant at the time the crime
was committed is subject to [criminal] forfeiture.
1 DAVID B. SMITH, PROSECUTION AND DEFENSE OF
FORFEITURE CASES ¶ 2.03 (Matthew Bender 2020) (footnotes
omitted); see also United States v. Ursery, 518 U.S. 267, 296
(1996) (Kennedy, J., concurring) (“In contrast to criminal
forfeiture, see 21 U.S.C. § 853(a), civil in rem forfeiture
actions do not require a showing that the owner who stands to
lose his property interest has committed a criminal offense.”).
10
Nor does United States v. Petters, 857 F. Supp. 2d 841,
844, 845 n.2 (D. Minn. 2012), help the Government. There the
court held that a third party could not challenge the relationship
between the property and the crime in a § 853(n) proceeding.
Id. at 844–45. Here, both parties agree that Burke Farm’s
connection to Lucas’s offenses is not at issue; the question is
who owned the property at the time of the crimes.
Finally, the Government cites United States v. Totaro,
345 F.3d 989, 999 (8th Cir. 2003), also to no avail. The Totaro
court ruled that a defendant’s interest in a property held in his
wife’s name was forfeitable because the defendant “acquired
or maintained” his interest with criminal funds. Id. at 998–99
(quoting 18 U.S.C. § 1963(a)). In this case, although illicit
proceeds were involved in the Lucas family’s acquisition of
Diamond Developers, the LLC acquired the farm legitimately
years before.
* * *
The Government must turn square corners when it
exercises its power to confiscate private property. Under the
plain text of 21 U.S.C. § 853(n)(6)(A), Diamond Developers
held valid title to Burke Farm years before the Government
obtained an interest because of Andrew Lucas’s crimes. For
that reason, we will reverse the District Court’s summary
judgment against Diamond Developers.
11