United States ( 2011 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
SUNRISE ACADEMY, et al., )
)
Petitioners, )
)
v. ) Misc. No. 11-0172
)
UNITED STATES OF AMERICA )
)
Respondent. )
__________________________________________)
OPINION
Sunrise Academy and Core Ventures, LLC (together, “petitioners”) initiated this
legal action in an attempt to gain possession of approximately $2 million seized by the United
States as part of the ongoing criminal prosecution of Charles Emor, the founder of Sunrise. The
petitioners have filed a Motion for Return of Seized Property, claiming that they are the legal
owners of the seized funds and that the funds are not subject to criminal forfeiture. For its part,
the United States objects that the petitioners are barred by statute from contesting the
forfeitability of the seized assets at this time. Upon review of the parties’ arguments, the relevant
legal authorities, and the record in both this case and the related criminal case, the Court
concludes that the petitioners’ motion is premature. Consequently, the petitioners’ motion will
be denied without prejudice, and this miscellaneous action will be dismissed.
I. BACKGROUND
The criminal indictment of Charles Ike Emor alleges as follows: Mr. Emor
founded Sunrise Academy (“Sunrise”) in 1999 as a tax-exempt, non-profit organization. United
States v. Charles Ike Emor, Crim. No. 10-0298, Indictment ¶¶ 1-2 (D.D.C. Nov. 3, 2010) (“Emor
Indict.”). Mr. Emor served as the president and executive director of Sunrise and “maintained
complete control over Sunrise financial affairs.” Id. ¶¶ 1, 26. Organized as a private school
providing special education services to male students between the ages of 7 and 22, Sunrise
entered into contracts with the District of Columbia to enroll as students varying numbers of
District of Columbia residents who were entitled under federal law to receive special education
services but could not obtain those services in the District’s public schools. See id. ¶¶ 2, 5-9.
Between 2005 and 2009, Sunrise was paid more than $30 million under its contracts with the
District. Id. ¶ 15. Some of Sunrise’s funding derived from the federal Medicaid program, which
reimbursed Sunrise for counseling services that the school claimed to have provided to students
who were Medicaid beneficiaries. See id. ¶ 11.
According to the indictment, Sunrise, under the direction of Mr. Emor, repeatedly
misrepresented the number of students who were attending the school under its contracts with the
District of Columbia, with the result that Sunrise received payment for services that were never
actually rendered to any student. Emor Indict. ¶¶ 27-29. Furthermore, large amounts of District
of Columbia and/or federal funds that were paid to Sunrise were not used to provide special
education services, but were instead diverted into bank accounts held by an entity called Core
Ventures, LLC (“Core”). Id. ¶ 35. To facilitate this diversion of funds, Mr. Emor, another
employee of Sunrise, and Mr. Emor’s adult son, who served on Sunrise’s board of directors,
purported to authorize a loan of more than $2 million to Core by Sunrise. Id. ¶ 36. The “loaned”
money was ostensibly to be used to operate a coffee shop that would be staffed by Sunrise
students. Id.
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The indictment alleges that the money transferred from Sunrise to Core was never
used or intended to be used for any legitimate business purpose, but instead was diverted for the
personal use of Mr. Emor. Emor Indict. ¶ 35. Mr. Emor organized Core as a for-profit
corporation in 2008 and was the sole owner and officer of the company. Id. ¶ 18. Mr. Emor used
Sunrise funds transferred to Core for a variety of personal transactions, including for the
purchase of “luxury watches, gold cuff links, diamond bracelets, real properties, residential
furniture, exercise equipment, electronics, arcade video games, [and] luxury vehicles.” Id. ¶ 27;
see also id. ¶ 51. He structured various financial transactions to conceal his diversion and
personal use of funds from Sunrise. See id. ¶¶ 38-44.
Based on these alleged activities, Mr. Emor has been indicted on 10 counts of
mail fraud, 13 counts of wire fraud, 2 counts of interstate transportation of stolen property, 1
count of theft from a program receiving federal funds, 9 counts of money laundering, 1 count of
first-degree theft, and 1 count of first-degree fraud. See Emor Indict. ¶¶ 54-72. The indictment
also alleges that certain property of Mr. Emor is subject to forfeiture. Id. at 31-34. Among the
property allegedly subject to forfeiture to the United States is more than $2 million seized by the
government from bank accounts maintained by Core. See id. at 31, 33.
The indictment against Mr. Emor was returned on November 3, 2010. On March
31, 2011, Sunrise and Core filed this miscellaneous action and the pending motion for return of
the funds seized from Core’s bank accounts.1 Sunrise contends in the petitioners’ papers that
Core is Sunrise’s “wholly-owned affiliate,” Motion for Return of Seized Property (“Mot.”) at 1,
and both petitioners assert that the allegations contained in the indictment against Mr. Emor are
1
It is unclear who currently controls Sunrise and/or Core, and so it is not clear who
has authorized counsel for either entity to file this action and seek the relief requested.
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“meritless.” Id. at 2. The petitioners further argue that since the allegations of wrongdoing by
Mr. Emor lack merit, the seized funds are not subject to forfeiture and so should be released by
the government. Id. at 2-3.2
II. DISCUSSION
Before the Court may address the merits of the petitioners’ attacks on the
allegations against Mr. Emor, it must determine as an initial matter whether the relief requested
by the petitioners is available at this time and in this procedural posture. The government seeks
forfeiture of the seized assets in question as part of its criminal prosecution of Mr. Emor. See
Emor Indict. at 31-34. Criminal forfeiture proceedings are governed by 21 U.S.C. § 853 and
Rule 32.2 of the Federal Rules of Criminal Procedure. See FED . R. CRIM . P. 32.2 advisory
committee note (2000 adoption) (“Rule 32.2 consolidates a number of procedural rules governing
the forfeiture of assets in a criminal case.”). Under the scheme established by the statute and the
Rule, the government may, as it has here, obtain a warrant for the seizure of property if a court
“determines that there is probable cause to believe that the property to be seized would, in the
event of conviction [of the defendant in the associated criminal prosecution], be subject to
2
Several weeks after the submission of their motion for the return of seized
property, the petitioners moved for leave to file a supplemental memorandum in which they
argued that the seized property should be released because the affidavit submitted by the
government in support of its application for a seizure warrant was false or misleading. See
Supplemental Memorandum in Support of Motion for Return of Seized Property at 2-5. The
Court granted the petitioners’ motion for leave to file the supplemental memorandum. The Court
has also granted the government’s motion to file a supplemental opposition to petitioners’
supplemental memorandum. The Court finds that petitioners’ supplemental filing merely makes
additional attacks on the substance of the government’s indictment of Mr. Emor. For the reasons
set forth in this Opinion, such attacks by the petitioners are not properly before the Court and will
not be given further consideration at this time.
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forfeiture and that an order [to prevent disposal or dissipation of the property] may not be
sufficient to assure the availability of the property for forfeiture.” 21 U.S.C. § 853(f).
Thus, to seize property allegedly subject to forfeiture, the United States need only
show, in a non-adversary setting, that there is probable cause to believe that the property is
forfeitable and in danger of dissipation. Once that showing has been made, neither Section 853
nor Rule 32.2 provides for any further inquiry into the property’s forfeitability until the defendant
in an associated criminal proceeding is found or pleads guilty “on any count in [the] indictment
or information regarding which criminal forfeiture is sought.” FED . R. CRIM . P. 32.2(b)(1)(A).
At that point in the proceedings, either the court or the jury must determine, based on the
evidence presented at trial and/or any additional evidence presented with respect to the forfeiture
issue, “whether the government has established the requisite nexus between the property and the
offense committed by the defendant.” FED . R. CRIM . P. 32.2.(b)(1)(A), (b)(5)(B). If the finder of
fact decides that the government has met its burden, then the court must enter “a preliminary
order of forfeiture setting forth the amount of any money judgment, directing the forfeiture of
specific property, and directing the forfeiture of any substitute property if the government has
met the statutory criteria.” FED . R. CRIM . P. 32.2(b)(2)(A). “The Court must enter the order
without regard to any third party’s interest in the property.” Id.After the entry of the preliminary forfeiture order, the court may conduct an
“ancillary proceeding” to adjudicate the claims of any third-party — i.e., any party other than the
criminal defendant or the United States — who asserts an interest in the property to be forfeited.
FED . R. CRIM . P. 32.2(c)(1); see 21 U.S.C. § 853(n). Those claims are determined by the court
after an adversarial hearing at which the third-party claimant “may testify and present evidence
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and witnesses on his own behalf, and cross-examine witnesses. . . .” 21 U.S.C. § 853(n)(5). The
ancillary proceeding “does not involve relitigation of the forfeitability of the property; its only
purpose is to determine whether any third party has a legal interest in the forfeited property.”
FED . R. CRIM . P. 32.2 advisory committee note (2000 adoption).
As the foregoing description of the statutory scheme governing criminal forfeiture
suggests, Congress envisioned that any third-party claims to property seized by the government
and alleged to be forfeitable would be adjudicated only after the conviction of the defendant in
the associated criminal proceeding. Indeed, third parties are explicitly barred by Section 853
from presenting their claims in any other manner:
Except as provided in subsection (n) of this section, no
party claiming an interest in property subject to forfeiture under
this section may —
(1) intervene in a trial or appeal of a criminal case
involving the forfeiture of such property under this section; or
(2) commence an action at law or equity against the United
States concerning the validity of his alleged interest in the property
subsequent to the filing of an indictment or information alleging
that the property is subject to forfeiture under this section.
21 U.S.C. § 853(k). Similarly, Rule 32.2 provides that “[d]etermining whether a third party has
[any interest in property subject to forfeiture] must be deferred until any third party files a claim
in an ancillary proceeding” held after the entry of a preliminary forfeiture order in the criminal
case. FED . R. CRIM . P. 32.2(b)(2)(A).
These provisions would seem to definitively establish that third parties are
forbidden by statute from doing exactly what the petitioners attempt to do here: challenging the
forfeitability of property prior to a trial or plea in the related criminal case. The petitioners
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protest, however, that there is no statutory bar to their motion because (1) Rule 41(g) of the
Federal Rules of Criminal Procedure authorizes the relief they request, see Mot. at 16-17, and
(2) Section 853(k) bars intervention only in the “trial or appeal of a criminal case,” not the
pretrial phase of such a proceeding. Id. at 19-21.
Neither of these arguments is persuasive. Pursuant to Rule 41(g), “[a] person
aggrieved by an unlawful search and seizure of property or by the deprivation of property may
move for the property’s return . . . .” FED . R. CRIM . P. 41(g). This general pronouncement,
however, must give way to Rule 32.2(b)(2)(A)’s specific requirement that adjudication of any
third-party claims to property be deferred until after the entry of a preliminary forfeiture order.
See Gozlon-Peretz v. United States, 498 U.S. 394, 407 (1991) (“A specific provision controls
over one of more general application.” (citing Crawford Fitting Co. v. J.T. Gibbons, Inc., 482
U.S. 437, 445 (1987)).
As for the petitioners’ argument that Section 853(k) forbids intervention into
criminal trials but not criminal pretrial proceedings, this strained reading of the statute makes
little sense. See United States v. Rogers, Crim. No. 09-0441, 2010 WL 1872855, at *5 (N.D. Ga.
Apr. 12, 2010) (dismissing this interpretation of the statute as “read[ing] § 853(k)(1) too
literally”). Pretrial proceedings are preliminary preparations leading to trial; it is difficult to
discern why a third party would be permitted to inject itself into those proceedings but not the
trial itself. Furthermore, the petitioners’ reading of the statute conflicts with Rule 32.2, which
quite clearly prohibits adjudication of third-party claims at any point prior to the entry of a
preliminary forfeiture order. See FED . R. CRIM . P. 32.2(b)(2)(A).
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The statutory scheme governing criminal forfeiture proceedings thus affords third-
party claimants only one avenue for asserting their interests in property allgedly subject to
forfeiture: an ancillary proceeding held after the entry of a preliminary order of forfeiture in the
criminal case. See Libretti v. United States, 516 U.S. 29, 44 (1995) (“Congress has determined
that § 853(n) . . . provides the means by which third-party rights must be vindicated.”); United
States v. Cone, 627 F.3d 1356, 1358 (11th Cir. 2010) (“Section 853 affirmatively bars
interference [in a criminal case involving a forfeiture component] by non-party petitioners
outside of the ancillary proceeding described in Section 853(n) and in Federal Rule of Criminal
Procedure 32.2(c).”); United States v. Cox, 575 F.3d 352, 358 (4th Cir. 2009) (“Third parties
claiming an interest in the property have no right to intervene in the criminal proceeding . . .
before the entry of a preliminary order of forfeiture.”); accord De Almeida v. United States, 459
F.3d 377, 381 (2d Cir. 2006); United States v. Puig, 419 F.3d 700, 703 (8th Cir. 2005); United
States v. Nava, 404 F.3d 1119, 1125 (9th Cir. 2005). The petitioners protest, however, that “due
process considerations require the Court to entertain” their motion for the return of property.
Mot. at 21. While the petitioners without question are entitled to a hearing to adjudicate their
interest in the seized assets, they have failed to demonstrate that due process requires such a
hearing to be held in advance of Mr. Emor’s criminal trial.
The scheme established by 21 U.S.C. § 853 and Rule 32.2 provides for a post-
deprivation hearing for third-party claimants, but, as has already been discussed, allows that
hearing to be held only after the conclusion of the criminal trial or the entry of a plea of guilty by
the defendant, and after the entry of a preliminary order of forfeiture. See 21 U.S.C. § 853(n);
FED . R. CRIM . P. 32.2(b)(2)(A). The ancillary proceeding to which third-party claimants are
8
entitled under that scheme is extensive; both claimants and the government may present evidence
and witnesses, who are subject to cross-examination. See 21 U.S.C. § 853(n)(5). Discovery is
also permitted. See FED . R. CRIM . P. 32.2(c)(1)(B). Such a means of adjudicating the interests of
third-parties in forfeitable property has been found constitutionally adequate by other courts.
See, e.g., United States v. Holy Land Found. for Relief & Dev., 493 F.3d 469, 477-78 (5th Cir.
2007) (en banc); United States v. McHan, 345 F.3d 262, 270 (4th Cir. 2003). Indeed, the
petitioners here do not contend that the format of the ancillary proceeding fails to comply with
the requirements of due process. Instead, the petitioners complain that the ancillary proceeding
comes too late, and that they have a right under the Due Process Clause to an “early opportunity”
— in the form of a pretrial evidentiary hearing — to challenge the seizure of the assets in
question. Mot. at 21, 24.
To determine the process that is constitutionally due to the petitioners, the Court
turns to the three-part balancing test first announced in Mathews v. Eldridge, 424 U.S. 319(1976). See United States v. E-Gold, Ltd., 521 F.3d 411, 417 (D.C. Cir. 2008) (applying the
Mathews test to determine whether due process requires a pretrial evidentiary hearing regarding
the forfeitability of assets needed by a criminal defendant to obtain counsel of his choice). That
test involves a weighing of the following factors:
First, the private interest that will be affected by the official action;
second, the risk of an erroneous deprivation of such interest
through the procedures used, and the probable value, if any, of
additional or substitute procedural safeguards; and finally, the
Government’s interest, including the function involved and the
fiscal and administrative burdens that the additional or substitute
procedural requirement would entail.
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Mathews v. Eldridge, 424 U.S. at 335. The weighing of those factors is distinctive in this case
because the Court’s task here is not so much to determine what process is due, but rather when.
Since the petitioners are entitled by statute to an evidentiary hearing, which will follow any
criminal conviction of Mr. Emor in short order, see 21 U.S.C. § 853(n)(4), the additional pretrial
process they request would, at best, result in the release of their property some time sooner than
would otherwise be the case.3
The United States Court of Appeals for the District of Columbia Circuit has thus
far recognized only one interest so weighty that it justifies a pretrial evidentiary hearing and
determination regarding assets allegedly subject to criminal forfeiture: a criminal defendant’s
Sixth Amendment right to counsel. See United States v. E-Gold, Ltd., 521 F.3d at 417-18, 421.
Where a criminal defendant submits evidence that he must rely exclusively on assets seized from
him to pay for counsel of his choice, due process requires that the accused be afforded a pretrial
opportunity to challenge the seizure. See id. A criminal defendant’s interest in obtaining counsel
of his choice is, for obvious reasons, of supreme importance. See United States v. Gonzalez-
Lopez, 548 U.S. 140, 150 (2006) (classifying the right to counsel of choice as a “structural”
element of the “‘framework within which the trial proceeds’”). It is also time-sensitive. In order
for the defendant’s counsel of choice to be effective, s/he must participate in pretrial and trial
proceedings; the loss of the right to counsel of choice becomes “effectively . . . permanent” once
the trial has concluded. United States v. E-Gold, Ltd., 521 F.3d at 418.
3
Mr. Emor’s trial is scheduled to begin in August 2011, so the post-trial ancillary
proceeding to which petitioners are entitled would likely take place in October or November
2011.
10
The petitioners’ interest in unfettered use of the assets allegedly belonging to them
during the months preceding Mr. Emor’s trial is obviously far less pressing than the right of an
accused to counsel of his or her choice. The petitioners contend that they have an immediate
need to use the seized assets “to pay the cost of Mr. Emor’s defense and to fund [Sunrise’s]
charitable obligations.” Reply at 3. These conclusory allegations carry little weight. Mr. Emor’s
right to counsel is personal and can be asserted by him alone; Sunrise has no Sixth Amendment
right which is threatened by the government’s continued restraint of the assets in question, and it
has made no attempt to demonstrate that it has standing to assert Mr. Emor’s rights on his behalf.
See Fair Employment Council of Greater Washington, Inc. v. BMC Marketing Corp., 28 F.3d
1268, 1281 (D.C. Cir. 1994) (explaining the requirements of third-party standing doctrine).
Furthermore, the petitioners have given the Court no reason to believe that either Sunrise or Core
will be significantly damaged if adjudication of their claims is postponed pending a post-trial
ancillary proceeding. Obviously, if the petitioners had an additional $2 million in their
possession, they would be able to cover more business expenses. See Reply Brief of Sunrise
Academy and Core Ventures, LLC (“Reply”) at 2 (claiming that “Core lacks funds to proceed
with [its] effort” to open a coffee shop that would be run by “former [Sunrise] students”). But
there is no reason to believe that an additional delay of a few months in the adjudication of the
petitioners’ claims will affect the viability of either organization; indeed, there is no evidence
whatsoever before the Court regarding the near-term financial obligations of either Core or
Sunrise.
The petitioners’ interest in the early release of the seized funds thus does not
weigh significantly in favor of a pretrial hearing. The same is true of the second Mathews factor,
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“the risk of an erroneous deprivation of [petitioners’] interest . . . , and the probable value of
procedural alternatives.” United States v. E-Gold, Ltd., 521 F.3d at 418. Because the assets in
question have been seized on the basis of a probable cause finding reached in a nonadversarial
context by a magistrate judge, there is some risk that the seizure may ultimately be proven
erroneous. See id. (“The inherent risk in allowing the deprivation of a property interest through
ex parte proceedings accounts for the general rule that a prior adversary hearing is required,
absent special circumstances.” (internal quotation marks and citation omitted)). But an erroneous
deprivation will be detected either by the Court or a jury at or immediately after the criminal trial
in an adversary proceeding leading, if the government prevails, to issuance of a preliminary order
of forfeiture, and the petitioners’ interest in the property then can be litigated at the post-trial
ancillary proceeding. The only added benefit of a pretrial hearing would be an earlier, but
preliminary, determination. And again, unlike a criminal defendant who stands to lose the right
to meaningful choice of counsel, the petitioners do not appear to run the risk of a comparably
significant injury if they are forced to wait a few months for the result of an ancillary proceeding.
Finally, the government’s interest in avoiding additional pretrial process initiated
by third parties is strong. Mr. Emor has a constitutional right to a speedy criminal trial, one that
would be endangered if third-party claimants to seized property were generally permitted to
demand the adjudication of their property interests before the government could turn its attention
to prosecuting a criminal trial. Furthermore, as the Seventh Circuit has pointed out, Congress
identified the relevant governmental interests in drafting 21 U.S.C. § 853. See United States v.
Moya-Gomez, 860 F.2d 706, 729 (7th Cir. 1988). Explaining why that statute does not provide
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for a pretrial, post-seizure hearing on the validity of any forfeiture allegations contained in an
indictment, the relevant Senate Report states:
[Such a hearing] would require the government to prove the merits
of the underlying criminal case and forfeiture counts and put on its
witnesses well in advance of trial. . . . [Such] requirements m[ight]
make pursuing a restraining order [or seizure warrant] inadvisable
from the prosecutor’s point of view because of the potential for
damaging premature disclosure of the government’s case and trial
strategy. . . .
S. Rep. No 98-225, reprinted in 1984 U.S. Code Cong. & Admin. News 3182, 3378-78 (quoted
in United States v. Moya-Gomez, 860 F.2d at 729); accord United States v. Kaley, 579 F.3d
1246, 1257 (11th Cir. 2009) (a pretrial challenge to indictment’s forfeiture allegations “would
require the Government to preview its case”).
While these governmental interests are outweighed by a criminal defendant’s
interest in obtaining the counsel of his or her choice, see United States v. E-Gold, Ltd., 521 F.3d
at 419, the result is not the same when those governmental interests are weighed only against
petitioners’ interest in gaining access to seized funds a few months earlier than would otherwise
be the case. In those circumstances, the interests of the government, the public, and the criminal
defendant in a fair and orderly trial on the merits of the criminal indictment must take precedence
over the petitioners’ desire for earlier adjudication of their claims. See United States v.
Lazarenko, 476 F.3d 642, 651 (9th Cir. 2007) (third-party claimants’ due process rights were not
violated where delay between seizure of assets and post-trial ancillary proceeding was not
“unreasonable”); United States v. McHan, 345 F.3d at 269-70 (Due Process Clause is not
offended by statutory scheme limiting participation of third-party claimants in criminal forfeiture
proceedings to post-trial ancillary proceeding). This conclusion, of course, is based on the
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premise that Mr. Emor’s trial will take place soon; a lengthy postponement of that trial might
possibly alter the calculus. For that reason, the Court’s dismissal of the petition submitted by
Sunrise and Core will be without prejudice.
An Order consistent with this Opinion shall issue this same day.
SO ORDERED.
/s/_______________________________
PAUL L. FRIEDMAN
United States District Judge
DATE: June 17, 2011
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