United States v. Sum of Three Hundred Nine Million Five Hundred Thousand Dollars , 85 F. Supp. 3d 111 ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v. ) Civil Action No. 12-1736 (PLF)
)
SUM OF THREE HUNDRED NINE )
MILLION FIVE HUNDRED THOUSAND )
DOLLARS, )
)
Defendant. )
__________________________________________ )
OPINION AND ORDER
The United States, proceeding as the plaintiff in this civil forfeiture action, has
filed a motion to strike the verified claim and answer of claimants Richard L. Stethem
(individually and in his capacity as Administrator of the Estate of Robert Stethem), Patricia
Stethem, Sheryl Sierralta, Kenneth Stethem, and Patrick Stethem (collectively, the “Stethem
Claimants” or the “Stethems”) for lack of standing. Upon consideration of the parties’
arguments, the relevant legal authorities, and the entire record in this case, the Court concludes
that the Stethem Claimants lack standing to challenge the forfeiture and that their claims for
remission or mitigation are nonjusticiable. The motion to strike therefore will be granted. 1
1
The papers reviewed in connection with the pending motion include: the
United States’ Verified Complaint for Forfeiture In Rem (“Compl.”) [Dkt. No. 1]; Answer to
the Complaint by the Stethem Claimants (“Stethem Ans.”) [Dkt. No. 5]; Verified Claim of the
Stethem Claimants (“Stethem Cl.”) [Dkt. No. 7]; the United States’ Motion to Strike Verified
Claim and Answer [Dkt. No. 11] and the memorandum in support thereof (“U.S. Mot.”) [Dkt.
No. 11-1]; the Stethem Claimants’ Declaration and Memorandum in Opposition to the United
States’ Motion to Strike Verified Claim and Answer (“Stethem Opp.”) [Dkt. No. 13]; and the
United States’ Reply (“U.S. Reply”) [Dkt. No. 16].
I. BACKGROUND
A. Nature of the Forfeiture Action
The United States initiated this litigation to seek the forfeiture of more than $300
million from ING Bank, N.V. (“ING”). See Compl. ¶ 2. According to the United States, from
the early 1990s until 2007, ING unlawfully facilitated United States currency transactions for
Iranian and Cuban customers who were subject to U.S. sanctions. Id. ¶¶ 5-6. In June 2012, ING
wired the defendant funds to the Internal Revenue Service pursuant to a Deferred Prosecution
Agreement entered into between ING and the government. Id. The United States contends that
the defendant funds are substitute property for ING funds of at least $619 million used to
promote a conspiracy to violate the Trading With the Enemy Act, 50 U.S.C. app. §§ 1-4, the
International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-1706, and the regulations
promulgated under each Act, thus violating 18 U.S.C. § 1956(a)(2), which proscribes, inter alia,
“transferr[ing funds] . . . to a place in the United States from or through a place outside the
United States with the intent to promote” unlawful activity. Compl. ¶¶ 11, 14-15, 18-19.
B. Allegations of the Stethem Claimants’ Claim and Answer
The Stethems have filed a claim in this action asserting a purported interest in a
portion of the defendant funds. See Stethem Cl. at 1. The full narrative of the tragic events
underlying the Stethem Claimants’ asserted interest in this case can be found in Stethem v.
Islamic Republic of Iran, 201 F. Supp. 2d 78 (D.D.C. 2002). On Friday, June 14, 1985, armed
hijackers took control of TransWorld Airlines Flight No. 847, departing Athens, Greece. Id. at
80. Among the 143 passengers on board were U.S. citizens and servicemen Robert Stethem,
Kurt Carlson, Stuart Dahl, Jeffery Ingalls, Clinton Suggs, Tony Watson, and Kenneth Bowen, en
route back to the United States from various assignments abroad. Id. The hijackers retained
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control of the flight for sixteen hours, during which time several of these servicemen were
brutally beaten. Id. Robert Stethem, a 23-year-old Navy petty officer, was executed by gunshot
to the head and shoved from the plane onto the tarmac at the Beirut, Lebanon airport. Id. at
80-81. The surviving servicemen were held captive in Beirut until June 30, 1985. Id. at 80.
The servicemen, their spouses, and the family of Robert Stethem later brought suit
against the Islamic Republic of Iran and its Ministry of Information and Security under the
terrorism exception to the Foreign Sovereign Immunities Act. See Stethem v. Islamic Republic
of Iran, 201 F. Supp. 2d at 80-81, 85-86. A judgment for compensatory damages and $300
million in punitive damages was entered in April 2002 against the Iranian Ministry of
Information and Security for its role in providing support and resources to Hizballah and Amal,
the terrorist organizations responsible for the hijacking and murder. Id. at 92-93. To date, no
portion of this judgment has been paid to the Stethem Claimants. Stethem Cl. ¶¶ 39-40.
Once the Stethem Claimants learned of the transfer of the defendant funds from
ING to the Internal Revenue Service — and before the commencement of the instant forfeiture
action — they sought to assert their interest in the defendant funds in two ways. First, the
Stethem Claimants filed a petition for remission or mitigation with both the IRS and the
Department of Justice. See Stethem Cl. ¶¶ 20-25; Petition for Remission or Mitigation [Dkt.
No. 7-5]. 2 The Stethem Claimants assert that although their petition complied with the
applicable regulations, it was never investigated, adjudicated, or resolved administratively.
Stethem Cl. ¶¶ 1-4; Stethem Ans. ¶¶ 21-23. Second, the Stethem Claimants obtained a writ of
execution from the United States District Court for the District of Maryland and served the writ
2
Remission and mitigation are administrative remedies governed by regulations
located at 28 C.F.R. §§ 9.1-9.9, and administered by the Department of Justice.
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upon the IRS at its office located in Landover, Maryland. Stethem Cl. ¶¶ 15-17. But the
Stethem Claimants later withdrew the writ, after two Assistant U.S. Attorneys advised them that
the writ violated the United States’ sovereign immunity. Id. ¶¶ 18-19.
After the United States had initiated this forfeiture proceeding, the Stethem
Claimants filed their answer and their verified claim. They allege that some portion of the
defendant funds “belong to the Islamic Republic of Iran, its national bank, and other public and
governmental concerns of the Islamic Republic of Iran,” Stethem Cl. ¶ 10, and that the Stethem
Claimants are “innocent owners” of the defendant property within the meaning of 18 U.S.C.
§ 983(d). Id. ¶ 30. The Stethem Claimants also assert a claim for “remission” based upon their
status as judgment creditors of the Iranian Ministry of Information and Security. Id. ¶ 7 (citing
28 C.F.R. §§ 9.1-9.9); see id. ¶¶ 5-30. In the alternative, the Stethem Claimants assert a claim of
“mitigation,” based upon the tragic death of Robert Stethem, id. ¶¶ 31-48; the Stethem Claimants
maintain that, absent collection in cases such as this one, there are no means by which they can
collect their award of unpaid punitive damages, rendering the judgment “wholly frustrated” and
“meaningless.” Id. ¶¶ 43-44.
II. LEGAL STANDARD
In a forfeiture action brought in rem pursuant to a federal statute, at any time
before trial the United States “may move to strike a claim or answer . . . because the claimant
lacks standing.” SUPPLEMENTAL RULES FOR ADMIRALTY OR MARITIME CLAIMS AND ASSET
FORFEITURE ACTIONS (hereinafter SUPP. R.) G(8)(c)(i)(B). Such a challenge to a party’s claim
and answer “may be presented as a motion for judgment on the pleadings.” Id. G(8)(c)(ii)(B). 3
3
The United States’ motion is labeled a motion to strike, but the government
invokes the legal standard governing motions for judgment on the pleadings pursuant to Rule
4
A motion for judgment on the pleadings may be brought following the close of
pleadings. FED. R. CIV. P. 12(c). Such a motion is functionally identical to a Rule 12(b)(6)
motion to dismiss for failure to state a claim. Rollins v. Wackenhut Servs., Inc., 703 F.3d 122,
130 (D.C. Cir. 2012); see also Lockhart v. Coastal Int’l Sec., Inc., 905 F. Supp. 2d 105, 114
(D.D.C. 2012) (noting that “courts employ the same standard [to evaluate Rule 12(c) motions]
that governs a Rule 12(b)(6) motion to dismiss”). A Rule 12(c) motion for judgment on the
pleadings therefore is also analyzed for compliance with the Supreme Court’s holdings in
Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544
(2007). See, e.g., Rollins v. Wackenhut Servs., Inc., 703 F.3d at 129-30; Lockhart v. Coastal
Int’l Sec., Inc., 905 F. Supp. 2d at 114. In performing that analysis, a court must “accept as true
all of the factual allegations contained in the [pleading],” Bell Atlantic Corp. v. Twombly,
550 U.S. at 555 (quoting Swiekiewicz v. Sorema N.A., 534 U.S. 506, 508 n.1 (2002)), as well as
all reasonable inferences stemming from those factual allegations. See Sissel v. U.S. Dep’t of
Health & Human Servs., 760 F.3d 1, 4 (D.C. Cir. 2014) (“The court assumes the truth of all well-
pleaded factual allegations in the complaint and construes reasonable inferences from those
allegations in the plaintiff’s favor . . . .”). To survive a motion for judgment on the pleadings, a
pleading need only provide “‘a short and plain statement of the claim showing that the pleader is
entitled to relief,’ in order to ‘give the defendant fair notice of what . . . the claim is and the
grounds upon which it rests.’” Bell Atlantic Corp. v. Twombly, 550 U.S. at 555 (quoting Conley
v. Gibson, 355 U.S. 41, 47 (1957)).
12(c) of the Federal Rules of Civil Procedure. See U.S. Mot. at 6-7. The Court agrees that this
is the appropriate standard to apply in the present posture of this case.
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III. DISCUSSION
A. Article III Standing
The United States contends that the Stethem Claimants lack Article III standing to
assert any claim to the defendant funds. More specifically, the government argues that even
accepting as true all of the factual allegations set forth in the Stethem Claimants’ verified claim
and answer, they have no “colorable interest” in the defendant funds and therefore lack standing.
U.S. Mot. at 7-22; U.S. Reply at 2-8.
In order to contest the forfeiture of property to the federal government in an in
rem forfeiture proceeding, a claimant must “assert[] an interest” in “specific property” that is
named as a defendant. SUPP. R. G(5)(a)(i)(A); see 18 U.S.C. § 983(a)(4)(A) (“[A]ny person
claiming an interest in the seized property may file a claim asserting such person’s interest in the
property . . . .”). “A claimant who lacks such an interest has no standing to challenge the
forfeiture.” United States v. All Assets Held at Bank Julius Baer & Co., 959 F. Supp. 2d 81, 95
(D.D.C. 2013) (citing SUPP. R. G(8)(c)(i)(B)). “Establishing standing requires only that the
claimant demonstrate ‘a colorable interest in the property, for example, by showing actual
possession, control, title, or financial stake.’” Id. (quoting United States v. Real Property
Located at 475 Martin Lane, 545 F.3d 1134, 1140 (9th Cir. 2008)). The nature of a claimant’s
asserted property interest is “defined by the law of the State in which the interest arose.” United
States v. One Lincoln Navigator, 328 F.3d 1011, 1013 (8th Cir. 2003). “But while state law
defines a claimant’s interest in specific property, ‘federal law determines the effect of [that]
ownership interest on [the claimant’s] right to bring a claim.’” United States v. All Assets Held
at Bank Julius Baer & Co., 959 F. Supp. 2d at 96 (quoting United States v. U.S. Currency,
$81,000.00, 189 F.3d 28, 33 (1st Cir. 1999)) (alterations in original).
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The Stethem Claimants assert an interest in the defendant funds based on their
2002 judgment against Iran’s Ministry of Information and Security, awarded in this Court. But
as the United States emphasizes in its motion to strike the Stethems’ claim, federal courts “have
consistently held that unsecured creditors do not have standing to challenge the civil forfeiture of
their debtors’ property.” United States v. All Assets Held at Bank Julius Baer & Co., 772
F. Supp. 2d 191, 198 (D.D.C. 2011) (quoting United States v. One–Sixth Share, 326 F.3d 36, 41
(1st Cir. 2003)). Rather, in order for a judgment creditor to stake a colorable interest in
defendant property, the creditor must have a perfected lien against that specific property. See
United States v. BCCI Holdings (Luxembourg), S.A., 46 F.3d 1185, 1191-92 (D.C. Cir. 1995).
Whether the Stethem Claimants hold such a perfected security interest in the
defendant funds is determined by state law. See United States v. All Assets Held at Bank Julius
Baer & Co., 772 F. Supp. 2d at 199. The United States asserts — and the Stethem Claimants do
not contest — that District of Columbia law applies here. Under the law of the District of
Columbia, “[i]n order to reach personal property of a debtor held by a third party, a judgment
creditor must — following entry of judgment — request the court to issue a writ of attachment.”
Consumers United Ins. Co. v. Smith, 644 A.2d 1328, 1351 (D.C. 1994) (citing D.C. CODE
§ 16-542)). “Once the third-party holding the targeted property — the garnishee — is served
with the writ, the judgment creditor has ‘a valid lien . . . on the debtor’s property held by the
garnishee.’” United States v. All Assets Held at Bank Julius Baer & Co., 772 F. Supp. 2d at 203
(quoting Consumers United Ins. Co. v. Smith, 644 A.2d at 1352) (omission in original). “That
lien is not final, however. In order to obtain the attached property, the judgment creditor must,
after serving the writ of attachment, move for the entry of judgment against the garnishee.” Id.
(citing D.C. CODE § 16-556).
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It is undisputed that the Stethem Claimants did not complete the set of procedures
required to perfect a lien against the defendant funds. To be sure, the Stethems did apply for a
writ of execution from the United States District Court for the District of Maryland, and the writ
was issued by the Clerk of the Court and served upon the Internal Revenue Service at its office in
Landover, Maryland. See Writ of Execution [Dkt. No. 7-2]; Stethem Opp. at 20. This writ
subsequently was withdrawn by the Stethem Claimants, however, and no motion for the entry of
judgment ever was filed.
The Stethems argue that they withdrew the writ of execution only because two
Assistant United States Attorneys contacted claimants’ counsel and informed him that the writ
was “illegal” and that the United States intended to file a motion to vacate the writ. Stethem
Opp. at 21. In addition, counsel for the Stethems contends that the government lawyers
threatened to seek sanctions against him, and urged him to withdraw the writ in order to “bypass
paperwork.” Id. According to the Stethems’ counsel, the government attorneys promised that if
the writ were withdrawn, the Stethems “would be entitled to adjudicate their Claim to the subject
funds, on the merits, in a forfeiture proceeding.” Id. The Stethem Claimants argue that it would
be inequitable to accept the government’s present argument — that the Stethems failed to perfect
a lien against the defendant property, and therefore have no colorable interest in that property —
given that it was only in reliance on the representations of government counsel that the Stethems
withdrew the writ they had served upon the IRS. See id. at 21-25. And they further argue that
the government should be deemed to be holding the defendant property in constructive trust for
the Stethem Claimants, providing them with standing to assert their claim. See id. at 24-25. 4
4
Although the Court concludes that the Stethem Claimants’ estoppel-type
argument must be rejected for the reasons stated below, it also bears observing that, as this Court
previously has explained with respect to the doctrine of constructive trust, the D.C. Circuit “does
8
The United States disputes many of the assertions made by the Stethem Claimants
regarding the communications among counsel. The United States does not, however, dispute
counsel’s statement that he was urged to withdraw the writ of execution because, according to
the Assistant U.S. Attorneys, the service of such a writ violated the sovereign immunity of the
United States. See Stethem Cl. ¶ 18; Stethem Opp. at 21. The United States, in its motion to
strike the Stethems’ claim, cites legal authority to support the accuracy of that representation.
See U.S. Mot. at 16 n.5, 18-19 (citing, inter alia, Dep’t of the Army v. Blue Fox, Inc., 525 U.S.
255, 264 (1999)); see also U.S. Reply at 9-10. While the Stethem Claimants suggest that counsel
for the United States misled them into foregoing the opportunity to perfect a lien against the
defendant funds, they fail to address whether the Maryland writ was, in fact, destined to futility
due to the United States’ assertion of sovereign immunity. Unfortunately for the Stethem
Claimants, it most certainly was. See Dep’t of the Army v. Blue Fox, Inc., 525 U.S. at 264
(“[S]overeign immunity bars creditors from attaching or garnishing funds in the Treasury . . . .”).
Moreover, counsel for the Stethem Claimants was under no compulsion to accept the assertions
made by the government’s lawyers regarding the validity of the United States’ sovereign
immunity defense.
Because the Stethem Claimants’ judgment against Iran’s Ministry of Information
and Security makes them only general unsecured creditors of Iran, and as the Stethems do not
possess a perfected security interest in the defendant property, the Court must agree with the
not subscribe to this theory of standing in forfeiture cases.” United States v. All Assets Held at
Bank Julius Baer & Co., 772 F. Supp. 2d at 200 (citing United States v. BCCI Holdings
(Luxembourg), S.A., 46 F.3d 1185 (D.C. Cir. 1995)).
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government that the Claimants lack Article III standing to assert a claim to the funds in this
case. 5
B. Claims for Remission and Mitigation
The Stethem Claimants also assert a claim for “remission” and a claim for
“mitigation.” As noted supra at 3 n.2, remission and mitigation are administrative remedies that
fall within the purview of the Department of Justice. The Stethem Claimants offer no support for
the view that these claims are justiciable in a federal court. See U.S. Reply at 12 (noting that the
Stethems did not respond to the government’s arguments on this point). The Court therefore will
not consider these claims. Upon resolution of this forfeiture action, the Stethem Claimants may
have the opportunity to pursue their administrative remedies with the Department of Justice. See
Letter from Tim Virtue, Deputy Chief, Asset Forfeiture and Money Laundering Section, U.S.
Department of Justice, to Evan Van Leer-Greenberg, Esq. (Sept. 26, 2012) [Dkt. No. 7-6]
(stating that “[t]he petition for remission that you submitted has been placed on file,” and “[if]
and when the seized funds are judicially forfeited, [we] will reopen the petition and render a
decision”).
5
The United States advances a separate challenge to the Stethems’ claim based on
a purported lack of “prudential standing,” on the ground that the Stethems are not “owners” of
the defendant property within the meaning of 18 U.S.C. § 983(d). U.S. Mot. at 22-24. It is
doubtful whether such a characterization of the argument remains accurate. See Lexmark Int’l,
Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1386-87 & nn.3-4 (2014) (casting doubt
on validity of prudential standing doctrine). Nonetheless, however characterized, the Court
agrees that the Stethem Claimants lack an ownership interest in the defendant funds, for the same
reasons explained in the main text above.
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IV. CONCLUSION
For the foregoing reasons, it is hereby
ORDERED that the United States’ motion [Dkt. No. 11] to strike the Stethem
Claimants’ Verified Claim and Answer is GRANTED; and it is
FURTHER ORDERED that the Stethem Claimants are DISMISSED from this
litigation.
SO ORDERED.
/s/________________________
DATE: March 27, 2015 PAUL L. FRIEDMAN
United States District Judge
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