United States v. All Monies, Funds, and Credits on Deposit at Loyal Bank Limited ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 UNITED STATES OF AMERICA, No. 2:19-CV-00283-MCE-KJN 12 Plaintiff, 13 v. FINDINGS & RECOMMENDATIONS 14 ALL MONIES, FUNDS, AND CREDITS ON DEPOSIT AT LOYAL BANK 15 LIMITED IN SAINT VINCENT AND THE GRENADINES, HELD IN THE 16 NAMES OF ACE GUIDE HOLDINGS LIMITED AND/OR ALEXANDRE 17 CAZES AKA ALEXANDERCAZES, INCLUDING BUT NOT LIMITED 18 TOACCOUNT 104013156705840, CUSTOMER ID:90528529, et al., 19 Defendants. 20 21 I. Introduction 22 This case was referred to the undersigned pursuant to Local Rule 302(c)(19) and 28 23 U.S.C. § 636(b)(1). The United States of America (“Government”) brings this in rem action 24 seeking forfeiture of certain property, pursuant to 18 U.S.C. §§ 981(a)(1)(A), (a)(1)(C) and 21 25 U.S.C. § 881(a)(6), based on violations of federal drug and money laundering laws. (ECF No. 1.) 26 Pending before the court is the Government’s motion for entry of default judgment (ECF No. 20), 27 which was submitted without hearing pursuant to Local Rule 230(g). No opposition has been 28 received. Upon review of the motion, supporting documents, and good cause appearing, the court 1 RECOMMENDS that the Government’s motion be GRANTED. 2 II. Background 3 This case is proceeding on the verified complaint for forfeiture in rem filed February 13, 4 2019. (ECF No. 1.) The complaint makes the following factual allegations: 5 Between December 2014 and July 2017, the AlphaBay hidden website served as a 6 marketplace for illegal goods, with estimated annual sales of hundreds of millions of dollars. (Id. 7 at ¶ 4.) AlphaBay was designed to facilitate illegal sales of malware, controlled substances, guns, 8 stolen financial information, and counterfeit documents around the globe. (Id.) AlphaBay 9 generated revenue by charging a 2–4% commission on every transaction on the website. (Id. at ¶ 10 7.) Over the course of its investigation the Government made undercover purchases of controlled 11 substances, fake identification documents, and an ATM skimmer from AlphaBay vendors. (Id. at 12 ¶ 11.) These purchases were made from, and shipped to, the Eastern District of California. (Id.) 13 Through this investigation it was discovered that Alexandre Cazes was the founder of 14 AlphaBay, and that he was actively managing the website under the username “Admin.” (Id. at 15 ¶¶ 12-17.) On July 5, 2017, the Royal Thai Police executed an arrest warrant for Alexandre 16 Cazes and a search warrant, with the assistance of the FBI and DEA, of his primary residence in 17 Bangkok, Thailand. (Id. at ¶ 18.) During the search, law enforcement seized Cazes’ laptop, 18 which contained information further confirming his connection to AlphaBay and that he 19 controlled the username “Admin.” (Id.) The seized laptop also contained Cazes’ financial 20 information, including Cazes’ specific holdings and investments. (Id. at ¶¶ 19-27.) 21 Defendant Siam Bank Account was included in these financial records, and law 22 enforcement has connected funds of the Siam Bank Account to transfers made by Cazes from 23 criminal funds obtained through AlphaBay. (Id. at ¶ 24.) 24 It was also uncovered that Cazes was seeking citizenship from multiple countries in 25 exchange for purchasing various real estate in those countries. (Id. at ¶¶ 28–32.) Cazes was 26 seeking citizenship in Grenada, which required a deposit—the defendant $12,250.00. (Id. at ¶ 27 30.) Similarly, Cazes deposited $65,000.00 for property in St. Kitts and Nevis, in order to obtain 28 citizenship in that country — the defendant $65,000.00. (Id. at ¶ 31.) Cazes also paid a retainer 1 to a travel and economic consultant to assist him with multiple economic citizenship applications 2 for he and his wife; of this retainer $51,910.00 remained unspent — the defendant $51,910.00. 3 (Id. at ¶ 32.) All these expenditures were made using criminal proceeds from AlphaBay. (Id. at 4 ¶¶ 30-32.) The Government seized these three checks in the amounts of $12,250.00, $65,000.00, 5 and $51,910.00 as well as the Siam Bank Account (collectively “defendant assets”); which are 6 currently in the possession of the U.S. Marshal. (ECF No. 1-2 at ¶ 3.)1 7 The Government subsequently filed the present action for forfeiture. Pursuant to an order 8 of this court issued February 20, 2019, notice of this action was published on the official internet 9 government forfeiture site (www.forfeiture.gov) and ran for at least thirty consecutive days, as 10 required by Rule G(4)(a)(iv)(C) of the Supplemental Rules of Admiralty or Maritime Claims and 11 Asset Forfeiture Actions. (ECF Nos. 3 (Order for Publication) and 5 (Declaration of 12 Publication).) 13 On April 9, 2019, copies of the complaint and related documents were sent by certified 14 mail to Martin Cazes and Danielle Heroux, Cazes’ father and mother, at their last known 15 addresses. (ECF No. 20-3 at ¶¶ 3, 4.) On May 3, 2019, Sunisa (Cazes) Thapsuwan, Cazes’ ex- 16 wife and executor of his estate, was personally served copies of the complaint and related 17 documents by the Royal Thai Police. (Id. at ¶¶ 6-7.) The Government sent copies of the 18 complaint and related documents via certified mail to Ace Guide Holding Limited, in Hong 19 Kong, but the package was returned. (Id. at ¶ 5.) 20 To date, the deadline for filing a claim has passed with no claim or answer being filed by, 21 or on behalf of, Martin Cazes, Danielle Heroux, Sunisa (Cazes) Thapsuwan, or Ace Guide 22 Holding, as required by Rule G(5) of the Supplemental Rules of Admiralty or Maritime Claims 23 and Asset Forfeiture Actions, to contest this action. (See ECF Nos. 11, 13, 14.) 24 On July 26, 2019 and July 29, 2019, at the Government’s request, the Clerk of Court 25 entered default as to Martin Cazes, Danielle Heroux, Sunisa (Cazes) Thapsuwan, and Ace Guide 26 27 1 “The United States is not seeking to forfeit the bank account at Loyal Bank Limited in Saint Vincent and the Grenadines. Loyal Bank Limited is currently in liquidation proceedings, as 28 ordered by the High Court of Saint Vincent and the Grenadines.” (ECF No. 20-1 at 2 n.1.) 1 Holdings, pursuant to Fed. R. Civ. P. 55(a). (ECF Nos. 12, 15, 16.) 2 III. Legal Standard 3 “The Due Process Clause of the Fifth Amendment guarantees that ‘[n]o person 4 shall . . . be deprived of life, liberty, or property, without due process of law.’ Our precedents 5 establish the general rule that individuals must receive notice and an opportunity to be heard 6 before the Government deprives them of property.” United States v. James Daniel Good Real 7 Prop., 510 U.S. 43, 48 (1993) (citations omitted). Due process is satisfied when the Government 8 complies with the notice requirements set forth by statute and in the federal and local rules of 9 procedure. 10 Civil forfeitures of real property are governed generally by 18 U.S.C. § 985. Forfeiture 11 actions in rem arising from a federal statute are governed by the Federal Rules of Civil Procedure 12 and the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions 13 (“Supplemental Rule” or “Supp. Rule”). United States v. Real Prop., 135 F.3d 1312, 1315 (9th 14 Cir. 1998); see also Supp. Rule A(1)(B); Supp. Rule G (setting forth specific procedural and 15 notice requirements). These rules are reflected in the Local Admiralty and In Rem Rules for the 16 U.S. District Court for the Eastern District of California (“Local Rule”), which govern all in rem 17 proceedings filed in this court. See Local Rule 500. Local Rule 540 sets forth the procedures for 18 obtaining default judgment in an action in rem. 19 IV. Analysis 20 Local Rule 540(d) provides for an ex parte hearing and entry of default judgment, without 21 further notice, at any time after the time for answer has expired, provided due notice of the action 22 has been given and no one has appeared to claim the property and give security thereof. The 23 Government has demonstrated compliance with these requirements. 24 A. Notice 25 Supplemental Rule G(4) requires the Government to provide both general notice to the 26 public and direct notice of the forfeiture action to any known person who reasonably appears to 27 be a potential claimant. Fed. R. Civ. P. Supp. G(4)(a), (b). 28 //// 1 1. Published Notice 2 Rule G(4)(a)(ii) provides that “a published notice must: (A) describe the property with 3 reasonable particularity; (B) state the times under Rule G(5) to file a claim and to answer; and 4 (C) name the government attorney to be served with a claim and answer.” Here, the Government 5 published the required notice of the Government’s Complaint on the official government internet 6 site (www.forfeiture.gov) for 30 consecutive days, beginning on May 2, 2019. (ECF No. 5 7 (Declaration of Publication).) The notice described the amount of currency ($12,250.00, 8 $65,000.00, and $51,910.00), the account name and number of the Siam Bank Account 9 defendant, identified the Assistant United States Attorney to receive any claim and answer, and 10 stated that claims and answers under Rule G(5) must be brought within 60 days from the first day 11 the notice was published. (Id.) Thus, the government has satisfied the requirements of public 12 notice under Rule G(4)(a)(ii). 13 2. Notice to Claimants 14 Rule G(4)(b) sets forth the requirements for notice to known potential claimants. It 15 provides that “[t]he government must send notice of the action and a copy of the complaint to any 16 person who reasonably appears to be a potential claimant on the facts known to the government 17 before the end of the time for filing a claim under Rule G(5)(a)(ii)(B).” Fed. R. Civ. P. Supp. 18 G(4)(b)(i). Rule G(4)(b) provides that the notice “must be sent by means reasonably calculated to 19 reach the potential claimant.” Rule G(4)(b)(iii)(A). The notice must state “(A) the date when the 20 notice is sent; (B) a deadline for filing a claim, at least 35 days after the notice is sent; (C) that an 21 answer or a motion under Rule 12 must be filed no later than 21 days after filing the claim; and 22 (D) the name of the government attorney to be served with the claim and answer.” Fed. R. Civ. 23 P. Supp. G(4)(b)(ii). 24 Here, the government complied with this rule by sending notice of the action and copies 25 of the complaint, application and order for publication, initial pretrial scheduling order, and court 26 notices to the potential claimants, Martin Cazes, Danielle Heroux, and Ace Guide Holding, by 27 first-class and certified mail on April 9, 2019. (ECF Nos. 11-1 at ¶¶ 5, 6; 14-1 at ¶ 5.) Potential 28 claimant Sunisa (Cazes) Thapsuwan was personally served with these papers by the Royal Thai 1 Police on May 3, 2019, while incarcerated in Thailand. (ECF No. 13-1 at ¶ 5.) As to the 2 sufficiency of the notices sent by the government, they indicate the date the notices were sent, 3 indicate the appropriate 35-day deadline for filing a claim and a 21-day deadline for submitting an 4 answer or a motion under Rule 12, and the notices list McGregor W. Scott as the attorney to be 5 served with the claim and answer. (ECF Nos. 11-1; 13-1; 14-1) 6 Finally, Rule G(4)(b)(iii)(A) provides that “[t]he notice must be sent by means reasonably 7 calculated to reach the potential claimant.” As addressed above, the Government sent the notices 8 to the potential claimants in a manner reasonably calculated to reach each potential claimant. 9 Accordingly, the Government has satisfied the notice requirements of the Supplemental Rules and 10 Local Rule 540(a). 11 In sum, the government has adhered to the procedural rules governing civil forfeiture 12 actions as required by federal statute, the Supplemental Rules of Admiralty or Maritime Claims 13 and Asset Forfeiture Actions, and the Local Rules. Additionally, no potential claimant has filed a 14 claim or answer, and the time to do so has expired. See Supp. Rule G(5). The court now turns to 15 whether default judgment is warranted. 16 B. Entry of Default Judgment is Proper 17 Pursuant to Federal Rule of Civil Procedure 55(a), the Clerk is required to enter default 18 when the fact of default is established by affidavit or otherwise. Fed. R. Civ. P. 55(a). The 19 Clerk’s entry of default against the named potential claimants effects their admission of the 20 factual allegations of the complaint, except those relating to the amount of damages. Fed. R. Civ. 21 P. 8(b)(6) (“An allegation—other than one relating to the amount of damages—is admitted if a 22 responsive pleading is required and the allegation is not denied”); Geddes v. United Fin. Group, 23 559 F.2d 557, 560 (9th Cir. 1977). 24 It remains within the sound discretion of the district court to grant a default judgment 25 pursuant to Federal Rule of Civil Procedure 55(b). Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th 26 Cir. 1980). In making this determination, the court must consider the following factors set forth 27 in Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986): 28 //// 1 (1) the possibility of prejudice to the plaintiff, (2) the merits of 2 plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action, (5) the possibility of a dispute 3 concerning the material facts, (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal 4 Rules of Civil Procedure favoring decisions on the merits. 5 6 The Government seeks a final judgment of forfeiture against the potential claimants of the 7 defendant assets, and against all other potential interests. This is consistent with the nature of 8 forfeiture in rem proceedings. See Hanson v. Denckla, 357 U.S. 235, 246 n.12 (1958) (explaining 9 that “[a] judgment in rem affects the interests of all persons in designated property”). Application 10 of the Eitel factors supports entry of default judgment. 11 First, the Government would be prejudiced by the denial of its motion, spending 12 additional time and effort litigating an action in which the claimants have abandoned their claims 13 to the defendant assets. Further, given that no party has attempted to oppose the complaint or 14 otherwise make a claim against the defendant assets, if the Government’s motion is not granted, it 15 will have no other opportunity to establish its rights to the assets. 16 The court considers the merits of the Government’s substantive claims and the sufficiency 17 of the complaint—the second and third Eitel factors—together because of the relatedness of the 18 two inquiries. 19 The court finds that the well pleaded allegations of the verified complaint state a claim for 20 which relief can be granted. Accepting as true the factual allegations of the verified complaint, 21 the Government has demonstrated that defendant assets were used to commit, or to facilitate the 22 commission of, a violation of 21. U.S.C. §§ 841, et seq., which permits forfeiture. See 21 U.S.C. 23 § 881(a)(6) (permitting forfeiture of “[a]ll moneys, negotiable instruments, securities, or other 24 things of value furnished or intended to be furnished by any person in exchange for a controlled 25 substance or listed chemical in violation of this subchapter, all proceeds traceable to such an 26 exchange, and all moneys, negotiable instruments, and securities used or intended to be used to 27 facilitate any violation of this subchapter”). Specifically, the complaint alleges that AlphaBay 28 was explicitly created to facilitate transactions of illegal controlled substances, and the defendant 1 assets are directly traceable to the proceeds of those transactions. (ECF No. 1 at ¶¶ 4, 7, 11, 24, 2 30, 31, 32.) 3 The complaint also states causes of action under 18 U.S.C. §§ 981(a)(1)(A) and (a)(1)(C). 4 Section 981(a)(1)(A) provides for the forfeiture of any property involved in a transaction or 5 attempted transaction in violation of the money laundering statute, 18 U.S.C. § 1956. Section 6 1956 prohibits concealing the nature, location, source, ownership, or control of proceeds of 7 unlawful activity, knowing the property involved represents the proceeds of “some form of 8 unlawful activity.” 18 U.S.C. § 1956(a)(1)(B)(i). Additionally, Section 1956 prohibits 9 conspiracy to commit any violation of its subsections. 18 U.S.C. § 1956(h). Here, the 10 Government alleges that Cazes created AlphaBay for the purpose of facilitating illegal 11 transactions and developed procedures to conceal the nature, ownership, and control of the 12 proceeds of those transactions. (See ECF No. 1 at ¶¶ 4, 5, 8–10.) Additionally, the complaint 13 alleges the defendant assets are property involved in the violation of the money laundering 14 statute. (Id. at ¶¶ 24, 30, 31, 32.) Accordingly, the Government has shown it is entitled to 15 forfeiture of the defendant assets pursuant to 18 U.S.C. § 981(a)(1)(A). 16 Pursuant to 18 U.S.C. § 981(a)(1)(C) property that is derived from proceeds traceable to a 17 violation of 18 U.S.C. §§ 1028 and 1029 is subject to forfeiture. Section 1028 prohibits 18 knowingly transferring “an identification document, authentication feature, or a false 19 identification document knowing that such document or feature was stolen or produced without 20 lawful authority.” 18 U.S.C. 1028(a)(2). Section 1029 criminalizes knowingly trafficking, with 21 the intent to defraud, “device-making equipment.” 18 U.S.C. § 1029(a)(4). The complaint 22 sufficiently alleges that AlphaBay trafficked such equipment and that Cazes and AlphaBay 23 conspired to transfer false identification documents, that the Government purchased such 24 documents from AlphaBay in an undercover buy, and that the defendant assets were derived from 25 the proceeds of similar transactions. (ECF No. 1 at ¶¶ 4, 7, 11, 24, 30, 31, 32.) Thus, the 26 Government has shown it is entitled to forfeiture of the defendant assets pursuant to 18 U.S.C. 27 § 981(a)(1)(C). 28 In sum, the Government has satisfied its burden for the second and third Eitel factors as to 1 each cause of action listed in its verified complaint. 2 Fourth, while the defendant assets that were seized and subject to forfeiture have a 3 substantial value, the Government has established its right to them as products of an illegal 4 enterprise. Fifth, the potential claimants were properly served with notice of this action and 5 instructions on how and when to enter a claim; no claim or answer has been filed. On the record 6 before this court, there is no evidence of a genuine dispute concerning the material facts. Sixth, 7 there is no evidence that any claimant’s abandonment was due to excusable neglect. Seventh and 8 finally, although merits-based decisions are always preferred, Eitel, 782 F.2d at 1472, it is not 9 practical here where the potential claimants have abandoned their claims. 10 Therefore, there is no impediment to default judgment sought by the Government and the 11 court recommends that the motion be granted. 12 V. Conclusion 13 Accordingly, IT IS HEREBY RECOMMENDED that: 14 1. The Government’s motion for default judgment (ECF No. 20) be GRANTED against 15 Martin Cazes, Danielle Heroux, Ace Guide Holdings Limited, Sunisa (Cazes) Thapsuwan, and 16 the Estate of Alexandre Cazes in the following defendant assets: 17 a. All Monies, Funds, and Credits on Deposit at Siam Commercial Bank in 18 Thailand, held in the name of Alexandre Cazes, including but not limited to 19 Account 407-9-15834-7; 20 b. Check in the amount of $12,250.00; 21 c. Check in the amount of $65,000.00; and 22 d. Check in the amount of $51,910.00. 23 2. Final judgment be entered, forfeiting all right, title, and interest in the above-listed 24 defendant assets to the United States, to be disposed of according to law and the authorities and 25 laws of Thailand. 26 //// 27 //// 28 //// 2 LD UVM EOIN LING IN RAVIOLI Ve PAY AU VI AV 1 These findings and recommendations are submitted to the United States District Judge 2 | assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(1). Within fourteen days 3 | after being served with these findings and recommendations, the parties may file written 4 | objections with the court and serve a copy on all parties. Such a document should be captioned 5 | “Objections to Magistrate Judge’s Findings and Recommendations.” The parties are advised that 6 | failure to file objections within the specified time may waive the right to appeal the District 7 | Court’s order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991). 8 IT IS SO RECOMMENDED. 9 | Dated: June 30, 2020 1 Foci) Aharon 11 KENDALL J. NE UNITED STATES MAGISTRATE JUDGE 12 13 14 15 /USA.283.default F&R 16 17 18 19 20 21 22 23 24 25 26 27 28 10