United States v. All Funds on Deposit At ( 2011 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v. ) Civil Action No. 04-0798 (PLF)
)
ALL ASSETS HELD AT )
BANK JULIUS BAER & COMPANY, LTD., )
Guernsey Branch, Account Number )
121128, in the name of Pavlo Lazarenko )
last valued at approximately $2 million )
in United States dollars, et al., )
)
Defendants in rem. )
__________________________________________)
OPINION
On March 1, 2010, the United States, acting as plaintiff in this civil forfeiture
action, moved for judgment on the pleadings against Universal Trading & Investment Company,
Inc. (“UTICo”), which claims an interest in the assets named as defendants in the complaint.
UTICO quickly moved on March 24, 2010, for leave to file an amended claim and answer, a
motion that, if granted, would render moot the plaintiff’s motion for judgment on the pleadings.
The Court heard oral argument on the motion to amend and related matters on May 14, 2010.
After the hearing, UTICo filed a barrage of additional related motions in which it
requested (1) permission to “supplement evidence” to be considered in connection with the
plaintiff’s motion for judgment on the pleadings; (2) a round of briefing by the parties addressing
the law of Guernsey; (3) judicial notice of various documents; and (4) leave to file a surreply
regarding the motion for judgment on the pleadings. Upon consideration of the parties’
arguments, the relevant legal authorities, and the entire extensive record in this matter, the Court
will deny UTICo’s various motions and grant the plaintiff’s motion for judgment on the
pleadings against UTICo.1
I. BACKGROUND
A. Nature of the Forfeiture Action
The United States initiated this litigation in order to seek the forfeiture of
more than $250 million scattered throughout bank accounts located in Guernsey, Antigua and
1
The documents reviewed by the Court in resolving the pending motions include
the following: plaintiff’s amended complaint (“Am. Compl.”); UTICo’s first amended claim
(“1st Am. Cl.”); UTICo’s first amended answer (“1st Am. Ans.”); plaintiff’s Renewed Motion
for Judgment on the Pleadings Against Universal Trading & Investment Company (“MJP”);
UTICo’s opposition to the plaintiff’s motion (“MJP Opp.”); the plaintiff’s reply to UTICo’s
opposition (“MJP Reply”); UTICo’s Motion for Leave to File Its Amended and Supplemental
Claim and Answer (“Mot. Am.”); the plaintiff’s opposition to UTICo’s motion (“Am. Opp.”);
UTICo’s reply to plaintiff’s opposition (“Am. Reply”); plaintiff’s surreply in response to
UTICo’s reply (“Am. Surreply”); UTICo’s proposed second amended complaint, attached to
Mot. Am. (“Prop. 2d Am. Cl.”); UTICo’s proposed second amended answer, attached to Mot.
Am. (“Prop. 2d Am. Ans.”); UTICo’s Motion to Supplement Evidence in Support of Its Motion
for Leave to File Amended and Supplemental Claim and Answer (“Mot. Supp.”); UTICo’s
Motion for Order to Schedule Rule 44.1 Briefing for Determination of Foreign Law (“Foreign
Law Mot.”); UTICo’s Request for Judicial Notice (“JN Mot.”); and UTICo’s motion to file a
surreply in response to MJP Reply (“Surreply Mot.”).
The Court has also reviewed its earlier substantive opinions in this case: United
States v. All Assets Held at Bank Julius Baer & Co., Ltd., 664 F. Supp. 2d 97 (D.D.C. 2009); id.,Memorandum Opinion and Order (D.D.C. Aug. 6, 2009); id., 571 F. Supp. 2d 1 (D.D.C. 2008).
Finally, the Court notes that, after the hearing held in May, UTICo submitted
several notices purporting to identify “new authority” applicable to its claims. The Court has
reviewed the “new” authorities identified by UTICo, but finds that they do not stand for the
propositions that UTICo claims they do. The Court has reviewed a wide range of judicial
opinions, including many that were only recently issued, in considering the matters discussed in
this Opinion, and is satisfied that the decisions announced herein are consistent with the law of
this circuit.
2
Barbuda, Switzerland, Lithuania, and Liechtenstein. Am. Compl. ¶ 1. The money in those
accounts is allegedly “traceable to a series of” acts of “criminal fraud, extortion, bribery,
misappropration, and money laundering” carried out by, among others, Pavlo Ivanovich
Lazarenko, a Ukrainian politician who, with the aid of various associates, was “able to acquire
hundreds of millions of United States dollars through a variety of acts of fraud, extortion, bribery,
misappropriation and/or embezzlement” committed during the 1990s. Id. ¶ 10. According to the
United States, those illegal acts, and subsequent attempts to launder the resulting criminal
proceeds, involved the transfer of large sums of U.S. dollars into and out of United States
financial institutions. Id. ¶¶ 11-13. The plaintiff seeks to claim ownership of those sums of
money pursuant to federal statutes that provide for the forfeiture to the United States government
of funds traceable or otherwise related to criminal activity that occurred at least in part in the
United States. See id. ¶ 1.
The funds at issue in this action allegedly derive in part from what the United
States terms “the UESU energy scheme.” See Am. Compl. at 16. According to the amended
complaint, Mr. Lazarenko served in 1995 and 1996 as the First Vice Prime Minister of Ukraine.
Id. ¶ 35. During that time Mr. Lazarenko “was in charge of the energy sector of the Ukrainian
economy and presided over a re-organization of the natural gas importation and distribution
system.” Id. He used that position to award highly lucrative energy contracts to certain
companies. See id. ¶ 36. In particular, Mr. Lazarenko conferred upon United Energy Systems of
Ukraine (“UESU”), a corporation “controlled by Lazarenko associate Yulia Tymoshenko and
others,” the exclusive right “to distribute natural gas to the Dnepropetrovsk region of Ukraine.”
Id. ¶ 36. In return for his patronage, Mr. Lazarenko and affiliated individuals and entities
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received large sums of money from UESU. Id. ¶¶ 36-38. Because large portions of that
unlawfully obtained money were allegedly laundered through United States financial institutions
on their way to Mr. Lazarenko and his associates, the United States asserts that those assets are
subject to forfeiture. See id. ¶¶ 39, 123, 128,134, 139, 143, 147, 151, 155.
B. Allegations of UTICo’s First Amended Claim and Answer
UTICo has intervened in this action to assert and defend a claimed interest in
some of the defendant assets allegedly paid to Mr. Lazarenko and associates by UESU. See 1st
Am. Cl. ¶¶ 14-20. In support of its claim, UTICo alleges the following: In 1994 UTICo, a
Massachusetts corporation “engage[d] in domestic and international business and consulting,” id.
¶ 2, entered into a contract with Cube Ltd., the “corporate predecessor” of UESU. Id. ¶ 14. In
1997, UESU filed a lawsuit against UTICo in Massachusetts federal district court. Id. ¶ 15.
UTICo filed counterclaims against UESU and, in 2005, after UESU stopped participating in the
litigation, received a default judgment against UESU (“the UESU judgment”) in the amount of
$18,344,480. Id. ¶ 17.
UTICo further alleges that it has never been able to collect on its 2005 judgment
against UESU, at least in part because Mr. Lazarenko, “who secretly held a 50% interest” in
UESU, conspired with other UESU principals “to dissipate UESU’s assets and to defraud
creditors.” 1st Am. Cl. ¶ 15. In particular, a large amount of UESU’s assets, including some of
the assets named as defendants in this forfeiture action, “were converted by or placed under
control of Lazarenko” in the late 1990s in order to “avoid[] creditors.” Id. ¶ 19; see id. ¶ ¶ 26-74
(detailing the movement of alleged “UESU proceeds” into and out of various accounts from 1996
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through 1998). More than $100 million in money deriving from UESU is currently being held
for Mr. Lazarenko’s benefit at Credit Suisse (Guernsey), in an account opened in the name of
“Samante as Trustees for the Balford Trust” (“the Balford Trust account”). Id. ¶ 40-41. The
contents of that account are named as defendants in rem by the United States’ complaint in this
matter. See Am. Compl. ¶ 5(b). UESU itself is currently “inoperative.” 1st Am. Cl. ¶ 18.
In 2008, UTICo registered the UESU judgment granted by the Massachusetts
federal district court by filing a certified copy of it in this Court pursuant to 28 U.S.C. § 1963.
1st Am. Cl. ¶ 1.
C. Allegations of Proposed Second Amended Claim and Answer
The United States has twice filed motions for judgment on the pleadings against
UTICo. The first motion, filed on December 9, 2008, was directed at the claim and answer
originally submitted by UTICo on October 11, 2005, and was rendered moot when the Court
allowed UTICo to file an amended claim and answer on August 17, 2009. After the United
States again moved for judgment on the pleadings on March 1, 2010, UTICo sought leave to file
a second set of amended pleadings. The second amended claim and answer that UTICo now
proposes to file differ from the first set of amended pleadings mainly in that the newer pleadings
recount actions allegedly taken by UTICo after March 1, 2010 — after the filing of the United
States’ second motion for judgment on the pleadings against UTICo, and long after the initiation
of this litigation.
According to the second set of amended pleadings that UTICo seeks to file, after
registering the UESU judgment in this Court in 2008, UTICo also filed that judgment in the
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Superior Court of the District of Columbia, seeking to “g[i]ve that judgment the force and effect
of a local judgment.” Prop. 2d Am. Cl. ¶ 3. Upon application by UTICo, the Superior Court
issued on March 17, 2010, a writ of attachment “directed at garnishee Credit Suisse AG Bank,”
allegedly the same entity as or the parent entity of Credit Suisse (Guernsey), the financial
institution in Guernsey that holds an account in the name of the Balford Trust whose contents are
named as defendants in rem in this litigation. Id. ¶ 4. The writ of attachment, which purported
to attach the contents of the Balford Trust account, was served “on the authorized officer of the
Credit Suisse AG bank in Washington, D.C.” on March 19, 2010. Id. ¶ 6.
On March 18, 2010, UTICo recorded the UESU judgment by filing a certified
copy of it with the Recorder’s Office for the District of Columbia. Prop. 2d Am. Cl. ¶ 9.
D. Subsequent Allegations
Since submitting its motion for leave to file a second amended claim and answer,
UTICo has filed a flurry of additional motions, some seeking, on the pretense of requesting other
relief, to supplement UTICo’s pleadings — that is, to amend further its proposed second set of
amended pleadings — with further factual allegations concerning actions taken by UTICo after
March 24, 2010. UTICo’s Motion to Supplement Evidence in Support of Its Motion for Leave to
File Amended and Supplemental Claim and Answer, filed on May 25, 2010, alleges that in April
and May of 2010, UTICo submitted in the District of Columbia, Massachusetts, Texas, and
Connecticut a “National UCC-1 Form” claiming a security interest in the Balford Trust account
based on the UESU judgment. See Mot. Supp. at 2-3. In a motion entitled “Request for Judicial
Notice of Governmental Public Records,” filed on June 28, 2010, UTICo repeats its allegations
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concerning the UCC-1 forms filed in the District of Columbia, Massachusetts, Texas, and
Connecticut, and further alleges that in late May and June of 2010, it filed similar UCC-1 forms
in Georgia, Alabama, and Florida. JN Mot. at 1-2.
E. Other Motions
In addition to its so-called motions to “supplement evidence” and for judicial
notice, UTICo has responded to the plaintiff’s motion for judgment on the pleadings by filing a
Motion for Order to Schedule Rule 44.1 Briefing for Determination of Foreign Law. The
“foreign law” in question is that of Guernsey — a set of islands in the English Channel, a British
Crown Dependency, and the location of the financial institution holding the Balford Trust
account.
UTICo has also moved for leave to file a surreply in response to the plaintiff’s
reply in support of its motion for judgment on the pleadings.
II. STANDARD OF REVIEW
A. Motion for Judgment on the Pleadings
In a forfeiture action brought in rem pursuant to a federal statute, the United States
“may move to strike a claim or answer” at “any time before trial.” SUPPLEMENTAL RULES FOR
ADMIRALTY OR MARITIME CLAIMS AND ASSET FORFEITURE ACTIONS [hereinafter SUPP . R.], Rule
G(c)(i). Such a challenge to a party’s claim and answer “may be presented as a motion for
judgment on the pleadings.” Id. G(c)(ii)(B).
Rule 12(c) of the Federal Rules of Civil Procedure states that “[a]fter the
pleadings are closed — but early enough not to delay trial — a party may move for judgment on
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the pleadings.” FED . R. CIV . P. 12(c). The standard of review for motions for judgment on the
pleadings is essentially the same as that for motions to dismiss under Rule 12(b)(6). See
Schuchart v. La Taberna Del Alabardero, Inc., 365 F.3d 33, 35 (D.C. Cir. 2004). On either
motion, the Court “must accept as true all of the factual allegations contained in the [claim].”
Erickson v. Pardus, 551 U.S. 89, 94 (2007); see also Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555 (2007). The claim “is construed liberally in the [claimant’s] favor, and [the Court
should] grant [the claimant] the benefit of all inferences that can be derived from the facts
alleged.” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). Nevertheless,
the Court need not accept inferences drawn by the claimant if those inferences are unsupported
by facts alleged in the claim and answer, nor must the Court accept the claimant’s legal
conclusions. See id.; see also Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). As with
a motion to dismiss under Rule 12(b)(6), a court may grant judgment on the pleadings only if the
facts alleged in the claim and answer do not “raise a right to relief above the speculative level,”
Bell Atlantic Corp. v. Twombly, 550 U.S. at 555, or fail to “state a claim to relief that is
plausible on its face.” Id. at 570.
As with a motion to dismiss, the Court generally may not rely on facts “outside”
the pleadings in deciding a motion for judgment on the pleadings, but it may consider “matters
incorporated by reference or integral to the claim, items subject to judicial notice, [and] matters
of public record.” 5B CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE &
PROCEDURE § 1357 (3d ed. 2004). The Court notes that UTICo has attached to its motion papers
numerous materials that may not be considered on a motion for judgment on the pleadings. See,
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e.g., MJP Opp., Exs. 1, 2. Those materials therefore were excluded from the Court’s
consideration of the plaintiff’s motion.
B. Motion for Leave to File Amended Pleadings
As already noted, UTICo has moved for leave to file a second amended claim and
answer. The Court will “freely give leave [to amend a pleading] when justice so requires,” FED .
R. CIV . P. 15(a)(2), and “‘[i]t is common ground that Rule 15 embodies a generally favorable
policy toward amendments.’” Howard v. Gutierrez, 237 F.R.D. 310, 312 (D.D.C.2006) (quoting
Davis v. Liberty Mutual Ins. Co., 871 F.2d 1134, 1136–37 (D.C. Cir. 1989)). Where amendment
would be futile, however, the Court may in its discretion deny such a motion. See Vreven v.
AARP, 604 F. Supp. 2d 9, 13 (D.D.C. 2009) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).
Amendment of a complaint — or in this case, a claim and answer — is futile where the proposed
amendment does not modify the substance of the complaint, Hantzis v. Grantland, Civil Action
No. 08-cv-2190, 2009 WL 3490757, at *1 n.2 (D.D.C. Oct. 30, 2009), or where the pleading as
amended would “not survive a motion to dismiss or for judgment on the pleadings.” Jung v.
Assoc. of Am. Med. Colls., 226 F.R.D. 7, 9 (D.D.C. 2005).
III. GOVERNING LAW
The United States brings this action pursuant to 18 U.S.C. § 981, which
authorizes the forfeiture of property “involved in,” “derived from,” or “traceable to” a variety of
specified federal crimes. 18 U.S.C. § 981(a)(1). According to UTICo, however, before
determining the forfeitability of the defendant assets under United States law, this Court must
first determine whether those assets would be subject to forfeiture under the laws of Guernsey
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and/or the other foreign nations in which defendant assets are located. See Foreign Law Mot. at
1-2; MJP Opp. at 33-43. That argument is frivolous, and the Court rejects it for the reasons
provided this same day in its Opinion granting the motion of the United States for judgment on
the pleadings against claimant OAO Gazprom. See United States v. All Assets Held at Bank
Julius Baer & Co., Ltd., Civil Action No. 04-0798, Opinion Dismissing Claim of OAO Gazprom,
at 5-7 (D.D.C. Mar. 25, 2011).
Civil forfeiture proceedings such as this one are governed by 18 U.S.C. § 983 and
Supplemental Rule G. See 18 U.S.C. § 1983 (entitled “General Rules for Civil Forfeiture
Proceedings”); SUPP . R. G(1) (“This rule governs a forfeiture action in rem arising from a federal
statute.”). Both the statute and the rule require that a claimant in a forfeiture action in rem
“assert[] an interest” in “specific property” that is named as a defendant asset. 18 U.S.C.
§ 983(a)(2)(C); Supp. R. G(5)(i). Without such an interest, the claimant lacks standing to
challenge the forfeiture. See SUPP. R. G(8)(c)(i)(B); United States v. Funds from Prudential
Securities, 300 F. Supp. 2d 99, 103 (D.D.C. 2004) (referring to Supplemental Rule C(6), the
predecessor of Supplemental Rules G(5) and G(6)); John K. Rabiej, Supplemental Rule G
Governing Pretrial Procedures in Forfeiture in Rem Actions, PRAC. LITIG ., May 2008, at 47, 55.
“The extent of the interest in the defendant property sufficient to meet this standing requirement
is left to case law.” Rabiej, supra, at 55; see also United States v. Funds from Prudential
Securities, 300 F. Supp. 2d at 103 (claimant must “demonstrat[e] an interest . . . sufficient to
satisfy the court of his standing”). 2
2
Most courts have characterized the rule that a claimant must have an “interest” in
specific defendant property as a standing requirement arising from Article III of the Constitution.
See, e.g., United States v. One-Sixth Share of James Bulger, 326 F.3d 34, 40 (1st Cir. 2003);
10
In the preliminary stages of a forfeiture action, a claimant must establish standing
by pleading “a colorable interest in the property, for example, by [alleging] actual possession,
control, title, or financial stake.” United States v. 475 Martin Lane, 545 F.3d 1134, 1140 (9th
Cir. 2008) (citation and internal quotation marks omitted); see also United States v. $148,840 in
U.S. Currency, 521 F.3d 1268, 1275 (10th Cir. 2008); United States v. One Lincoln Navigator,
328 F.3d 1011, 1013 (8th Cir. 2003). While a variety of types of property interests in defendant
assets thus may confer standing upon a claimant, “[t]he federal courts have consistently held that
unsecured creditors do not have standing to challenge the civil forfeiture of their debtors’
property.” United States v. One-Sixth Share, 326 F.3d 36, 41 (1st Cir. 2003) (citing United
States v. $20,193.39, 16 F.3d 344, 346 (9th Cir. 1994)); see also United States v. BCCI Holdings
(Luxembourg), S.A., 46 F.3d 1185, 1191 (D.C. Cir. 1995) (holding, in a forfeiture action brought
pursuant to 18 U.S.C. §§ 1961-1968, that “a general creditor can never have an interest in
specific forfeited property”). The nature of a claimant’s asserted property interest in defendant
assets is “defined by the law of the State” or other jurisdiction “in which the interest arose.”
United States v. One Lincoln Navigator, 328 F.3d at 1013; see United States v. $100,348 U.S.
Currency, 354 F.3d 1110, 1119 (9th Cir. 2004); United States v. One-Sixth Share, 326 F.3d at 45.
United States v. One Lincoln Navigator, 328 F.3d 1011, 1013 (8th Cir. 2003); United States v.
475 Martin Lane, 545 F.3d 1134, 1140 (9th Cir. 2004). There is some suggestion, however, that
the standing requirements imposed on a claimant in a forfeiture action are statutory or prudential,
not constitutional, in nature. See United States v. $557,933.89, More or Less, 287 F.3d 66, 78
n.9 (Sotomayor, J.) (“[I]t might very well be argued that, at least as far as Article III — as
opposed to statutory — standing goes, the claimant bears no burden at all, as it is really the
government which is invoking the power of the federal courts to effect the forfeiture.”). Because
the source of the standing requirement has no effect on the outcome of Gazprom’s claim, the
Court does not address further whether that requirement is more properly considered statutory,
prudential, or constitutional.
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IV. DISCUSSION
UTICo has advanced a wide variety of theories under which it supposedly has
standing to participate in this litigation; indeed, each new filing from UTICo seems to include
new theories, even if the factual allegations upon which those theories rely appear nowhere in
either UTICo’s currently operative or proposed amended pleadings. Those theories, although
numerous, are also profoundly unpersuasive, whether based on the first amended claim and
answer or the second amended set of pleadings that UTICo seeks leave to file. The Court
therefore will grant the plaintiff’s motion for judgment on the pleadings and deny as futile
UTICo’s motion to amend its claim and answer yet again.
The Court addresses each of UTICo’s theories of standing in turn, beginning with
theories based solely on the first amended claim and answer and ultimately reaching theories
arising from new allegations made in the proposed second amended claim and answer or, in
some cases, from allegations made only in UTICo’s motion papers.
A. UESU Judgment
In its first amended answer UTICo suggests that it is “the innocent title holder to
$18.3 million due under the [UESU] judgment.” 1st Am. Ans. at 30. This assertion misstates
the law and falls far short of establishing a cognizable interest in the defendant assets. Even if
the Court assumes for the sake of argument that any of the defendant assets are currently owned
by UESU — an allegation that UTICo does not make — UTICo’s status as the holder of an in
personam judgment against UESU does not give UTICo an interest in “specific property,” as is
required to establish standing in this action in rem. See United States v. One-Sixth Share, 326
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F.3d at 44 (holder of an in personam judgment is a “general creditor” without standing); United
States v. BCCI Holdings (Luxembourg), S.A., 46 F.3d at 1191 ( “[A] general creditor can never
have an interest in specific forfeited property.”).
B. Constructive Trust
UTICo contends in both its first amended and proposed second amended answer
that when UESU transferred assets to Mr. Lazarenko, “a constructive trust in favor of [UTICo]
attached to the funds by virtue of Lazarenko’s fraud.” 1st Am. Ans. at 30; Prop. 2d Am. Ans. at
35. Although UTICo declares in an entirely conclusory manner that “[a] constructive trust
should be imposed with regard to UTICo’s judgment debt,” MJP Opp. at 26, there is no basis in
any relevant body of law for the conclusion that UTICo is or could be — based on the allegations
in the operative or proposed amended pleadings — the beneficiary of a constructive trust
imposed over any of the defendant assets. Furthermore, even if UTICo did have the status of
such a beneficiary, that status would, under the law of this circuit, be insufficient to confer
standing upon the company. See United States v. BCCI Holdings (Luxembourg), S.A., 46 F.3d
1185 (D.C. Cir. 1995).
As a general principle, and without accounting for variations in the common law
of different states, a constructive trust is said to arise “[w]here a person holding title to property
is subject to an equitable duty to convey it to another on the ground that he would be unjustly
enriched if he were permitted to retain it.” RESTATEMENT (FIRST ) OF RESTITUTION § 160 (1937).
So, for example, if “a fraudster acquires property from a victim by fraud,” a court may find that
“the fraudster holds the property in constructive trust for his victim,” and thus may be compelled
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to return the property. United States v. $4,224,958.57, 392 F.3d 1002, 1004 (9th Cir. 2004).
Under the common law of some states, a constructive trust is said to arise automatically upon the
commission of the act — fraud, for example — resulting in the unjust enrichment of one party
and injury to another. See, e.g., id. In other states, the trust arises only at the time that a court
orders it imposed as a remedy. See, e.g., United States v. One Silicon Valley Bank Account, 549
F. Supp. 2d 940, 954 (W.D. Mich. 2008) (“Under Michigan law, a constructive trust does not
exist until so ordered by a court.”).
Constructive trust doctrine has proven useful for would-be claimants in forfeiture
actions because it may permit a party who has neither title, nor possession, nor a secured interest
in the defendant property to claim standing to challenge the forfeiture on the ground that the
party has an equitable interest in the property arising from the automatic imposition of a
constructive trust upon the occurrence of some act of fraud or mistake. See, e.g., United States v.
$4,224,958.57, 392 F.3d at 1004. Even where a claimant has never litigated the underlying
unjust enrichment claim, so that no constructive trust has yet been imposed by a court, some
courts have found that the mere assertion of the claim, which may someday be remedied by the
imposition of a trust, is sufficient to demonstrate an interest in the defendant property and so to
confer standing upon the claimant. See, e.g., Torres v. $36,256.80, 25 F.3d 1154, 1157 (2d Cir.
1994). Those courts reason that if a trust is ultimately imposed, it will be found to have arisen at
the time of the act causing unjust enrichment, and so to have existed when the claimant originally
intervened in the forfeiture action. See, e.g., id.; United States v. 116 Emerson Street, 942 F.2d
74, 79-80 (1st Cir. 1991).
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The United States Court of Appeals for the District of Columbia Circuit does not
subscribe to this theory of standing in forfeiture cases. In United States v. BCCI Holdings
(Luxembourg), S.A., 46 F.3d 1185 (D.C. Cir. 1995), the court of appeals considered the claims
of an intervenor in a forfeiture action brought under the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. §§ 1961-1968 (1988 and Supp. V 1993). A number of intervening
parties claimed to be “entitled to a constructive trust over the funds [to be forfeited] because the
alternative . . . would unjustly enrich BCCI.” United States v. BCCI Holdings (Luxembourg),
S.A., 46 F.3d at 1188. The court of appeals rejected the notion that such a constructive trust
could be asserted as a cognizable interest under the forfeiture statute. Under the applicable
statute, a third-party’s interest in the property could trump the government’s only if that interest
was superior “at the time of the commission of the acts which gave rise to the forfeiture of the
property.” 18 U.S.C. § 1963(l)(6)(A). “[A] third party’s claim” is thus “to be measured not as it
might appear at the time of litigation, but rather as it existed at the time the illegal acts were
committed.” United States v. BCCI Holdings (Luxembourg), S.A., 46 F.3d at 1190. But a
constructive trust, as “a remedy that a court devises after litigation,” could not “be[] shown to
exist at the time the acts were committed.” Id. at 1191.
Furthermore, the court of appeals reasoned that because the forfeiture statute
provides that “all criminally acquired property of the defendant . . . ‘vest[s] in the United States
upon the commission of the act giving rise to the forfeiture,’” the statute creates a “remedial
scheme that reaches back to the time of the criminal acts to forfeit the property to the United
States.” United States v. BCCI Holdings (Luxembourg), S.A., 46 F.3d at 1191 (quoting 18
U.S.C. § 1963(c)). That “retroactive legal fiction” is “similar to a constructive trust for the
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benefit of the United States,” and “[i]t is not open to a court to fashion another remedy (a
competing fiction) that also reaches back to snatch the property away from the United States —
which is exactly what a constructive trust would do.” Id.Although this case is brought pursuant to 18 U.S.C. §§ 981 and 983 rather than
under the RICO statute, the same reasoning applied by the court of appeals in BCCI applies here.
Like the RICO statute, 18 U.S.C. § 981 provides that “[a]ll right, title, and interest in property
[subject to forfeiture] . . . shall vest in the United States upon commission of the act giving rise to
forfeiture.” 18 U.S.C. § 981(f). Thus, like the RICO statute, Section 981 reaches back in time to
forfeit property to the government and pre-empts competing legal fictions, such as a constructive
trust. Because the government’s interest is considered to vest at the time of the commission of
the acts giving rise to forfeiture, and interests acquired after that point are cognizable only if they
are the interests of a “bona fide purchaser or seller for value,” see 18 U.S.C. § 983 (d)(3)(A),
claimed third-party interests are measured as of the time at which the criminal acts in question
occurred, as under 18 U.S.C. § 1963. As stated by the court of appeals, a constructive trust not
yet imposed by a court cannot “be[] shown to [have] exist[ed] at” that time. United States v.
BCCI Holdings (Luxembourg), S.A., 46 F.3d at 1191.
Under the law of this circuit, therefore, UTICo’s claim that it is the beneficiary of
a constructive trust is not cognizable in this forfeiture action and does not suffice to confer
standing. Even if such an interest were cognizable, however, the end result would be the same,
for the simple reason that UTICo has failed to state a claim for the imposition of a constructive
trust.
16
Unsurprisingly, given the cursory and at times incoherent discussion of
constructive trusts contained in UTICo’s motion papers, see MJP Opp. at 25-26, UTICo does not
make any attempt to identify the state under whose law it is supposedly the beneficiary of a
constructive trust over defendant assets. In its first amended claim, however, UTICo asserts that
Massachusetts law is applicable to its fraudulent transfer claims, see 1st Am. Cl. ¶ 105, and
indeed, it appears, based on the allegations contained in the complaint, that no state other than
Massachusetts would have any interest in the adjudication of those claims. See Drs. Groover,
Christie & Merritt, P.C. v. Burke, 917 A.2d 1110, 1117 (D.C. 2007) (District of Columbia
determines law applicable to substantive claims by using “‘governmental interests’ analysis,
under which . . . governmental policies underlying the applicable laws” are analyzed to
“determine which jurisdiction’s policy would be more advanced by the application of its law to
the facts of the case under review”). UTICo is a Massachusetts corporation, and its claim to the
assets of UESU arises from a judgment entered by a Massachusetts court. No substantial
connection between UTICo’s claims and any other U.S. state is discernible from the complaint or
any of the papers filed by UTICo. UTICo also provides no remotely convincing arguments that it
holds a constructive trust under any applicable foreign law.
UTICo’s claims that a constructive trust should be imposed on any of the
defendant assets derive solely from its contention that UESU effected the fraudulent transfer of
those assets to Mr. Lazarenko and/or other affiliates in order to evade its creditors. See, e.g., 1st
Am. Cl. ¶¶ 4, 6, 15, 21. Under Massachusetts law, however, claims that a transfer from one party
to another disadvantaged a third-party creditor are governed by the Uniform Fraudulent Transfer
Act, a statute that pre-empts constructive trust claims of the sort advanced by UTICo. See
17
Cavadi v. DeYeso, 941 N.E.2d 23, 39 (Mass. 2011). That statute provides that the creditor of a
debtor who has made fraudulent transfers to a third party may seek to attach the transferred assets
or to void the fraudulent transfers. See MASS. GEN . LAWS ch. 109A, § 8. It does not provide that
the creditor obtains any equitable interest in the transferred property at the time the transfer takes
place. UTICo thus may have the option under Massachusetts law to attempt to attach the assets
that it contends were fraudulently transferred by UESU. It currently does not have any property
interest in the transferred assets. See Shrewsbury v. Seaport Partners Ltd. Partnership, 826
N.E.2d 203, 207 (Mass. App. Ct. 2005) (a plaintiff claiming fraudulent transfer does not have an
interest in the transferred property, but rather has only a potential “right to require the party to
whom the [debtor] conveyed [the property] to reconvey it back to the [debtor] in order to enable
the [plaintiff creditor] to satisfy a judgment”).
The Court notes that UTICo appears to suggest that Guernsey law confers an
interest in the Balford Trust on UTICo. See MJP Opp. at 29-30; JN Mot. at 2. None of the
copious and largely irrelevant foreign legal authorities cited by UTICo supports that proposition.
C. Allegations of Proposed Second Amended Claim
UTICo seeks to file a second amended claim and answer so that it may assert an
interest in defendant assets based on actions taken by UTICo in or after March 2010 — namely,
recording the UESU judgment as certified by this Court, and obtaining a writ of attachment from
the Superior Court. See Mot. to Amend at 5-7. UTICo fares no better with its proposed second
amended claim than it does with its current one; the new allegations made in the proposed claim
18
fail to state an interest in specific property. Because the second amended claim does not cure the
defects in the first, the Court will deny as futile UTICo’s motion to amend its claim and answer.
1. Interests Acquired After the Initiation of Forfeiture Litigation
As an initial matter, the Court notes that even if UTICo had managed to obtain a
lien on any of the defendant assets by means of actions taken beginning in March 2010, such a
lien would likely not constitute a cognizable interest sufficient to confer standing. Under 18
U.S.C. § 983, a would-be claimant must state its interest in the property named as a defendant in
a forfeiture action at a specific time: “not later than 30 days after the date of service of the
Government’s complaint or, as applicable, not later than 30 days after the date of final
publication of notice of the filing of the complaint.” 18 U.S.C. § 983(a)(4)(A). Although a claim
is merely a pleading and so need not be highly detailed, the requirement that a claimant state its
interest at the commencement of a forfeiture action suggests that the interest must be in existence
at that time. Other provisions of Section 983 confirm that proposition. A claimant cannot defeat
the government’s claim to forfeitable property by asserting an interest acquired after the
commission of the criminal acts leading to the forfeiture unless the claimant “did not know and
was reasonably without cause to believe that the property was subject to forfeiture” at the time
the interest was acquired. 18 U.S.C. § 983(d)(3)(A)(ii). The statutory structure of Section 983
thus does not contemplate that a claimant may, as UTICo claims to have done, acquire an interest
years after first asserting a claim in forfeiture litigation.
19
Even if such an interest were cognizable under the statute, UTICo’s claim would
still fail, as the interests that it claims to have acquired in the defendant assets since March 2010
do not exist.
2. Writ of Attachment
UTICo alleges in its proposed second amended claim that it has a secured interest
in specific defendant assets because it requested and obtained a writ of attachment, directed at the
Balford Trust, in the Superior Court of the District of Columbia. See Prop. 2d Am. Cl. ¶ 7. The
United States disputes UTICo’s contention that the writ was properly served on an agent capable
of accepting service on behalf of Credit Suisse (Guernsey), the institution holding the Balford
Trust. See Amend Opp. at 13-15. The Court need not resolve that question. Even if UTICo did
effect proper service of the writ, it has no lien on or other interest in the Balford Trust.
“In 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.” Id. at 1352. 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. See D.C. CODE § 16-556. The motion for judgment must be made within
four weeks of (1) the submission by the garnishee of answers to the interrogatories served with
the writ of attachment, or (2) the garnishee’s failure to respond to the interrogatories. D.C.
20
SUPER. CT . R. 69-I(e). If the judgment creditor fails to move for judgment within the appropriate
time period, “the garnishment and attachment shall stand dismissed.” Id.; see Pride Transport,
Inc. v. Northeastern Penn. Shippers Cooperative Ass’n, Inc., 832 A.2d 163, 167-68 (D.C. 2003)
(as soon as time period specified by Rule 69-I(e) passes without the entry of judgment or a
motion for entry of judgment, attachment is dissolved “by operation of law”).
UTICo never suggests in its papers or in its proposed second amended complaint
that it ever moved for or obtained entry of judgment in connection with the writ of attachment
directed at the Balford Trust, and a review of the Superior Court docket, which this Court may
properly consider, see Meijer, Inc. v. Biovail Corp., 533 F.3d 857, 867 n.* (D.C. Cir. 2008),
reveals that it never did so. See United Energy Systems of Ukraine PFG v. Universal Trading &
Investment Co. Inc., No. 2009 CA 1119, Docket (District of Columbia Superior Court) (“Super.
Ct. Docket”). UTICo alleges that the appropriate garnishee was served with the writ of
attachment on March 19, 2010. Prop. 2d Am. Cl. ¶ 6. The garnishee was obligated to respond
within ten days. See D.C. Code § 16-552(a). It never responded. See Super. Ct. Docket.
UTICo therefore was obligated by the law of the District of Columbia to move for entry of
judgment within four weeks after those ten days had passed. See D.C. Super. Ct. R. 69-I(e). It
failed to do so. See Super. Ct. Docket. As a result, “by operation of law,” the writ of attachment
“was effectively dismissed” in May 2010. Pride Transport, Inc. v. Northeastern Penn. Shippers
Cooperative Ass’n, Inc., 832 A.2d at 167-68.
21
3. Recording of UESU Judgment
UTICo’s allegation that it has registered and recorded the UESU judgment in the
District of Columbia is irrelevant to the question of standing. Under District of Columbia law, a
recorded judgment “constitute[s] a lien on all the freehold and leasehold estates . . . of the
defendants bound by such judgment,” D.C. Code § 15-102(a), but the Court has found, and
UTICo has cited, no District of Columbia legal authority providing that such a recorded
judgment creates a lien on property other than real estate. The mere recording of the UESU
judgment thus did nothing to give UTICo an interest in specific property, such as the contents of
bank accounts named as the defendants in rem in this litigation.
D. Allegations Made Only in Motions
In motion papers filed after its motion for leave to file yet another amended
complaint, UTICo asserts that beginning in April 2010, it submitted in several states UCC filings
in which it claimed a security interest in the Balford Trust. See JN Mot. at 1-2; Mot. Supp. at
1-2. As allegations of fact contained nowhere in either UTICo’s operative pleadings or its
proposed amended pleadings, these claims are not appropriate responses to the plaintiff’s motion
for judgment on the pleadings. See, e.g., Bender v. Jordan, 612 F. Supp. 2d 62, 66 (D.D.C.
2009) (parties “cannot enlarge the allegations of their [pleadings] by arguments made in an
opposition to a motion”). Even if they were, they do not serve to bolster UTICo’s assertions of
standing. Since, as already explained, UTICo does not actually have any lien on the Balford
Trust, it has no security interest to record — and it has cited no law suggesting that the mere
execution and filing of a UCC form creates an interest that previously did not exist. In any case,
22
interests deriving from court judgments are not addressed by the UCC, as the very forms that
UTICo executed and filed indicate. See Uniform Commercial Code National Forms § 1:2, ¶ 5
(Instructions for Official Form UCC1, UCC Financing Statement) (indicating that a “judgment
lien” is “not a UCC security interest filing”).
In another factual allegation not found in any existing or proposed pleading,
UTICo also claims that the United States District Court in Massachusetts issued Letters Rogatory
in 2006 that were sent to Guernsey in an attempt by UTICo to discern the provenance of the
Balford Trust. MJP Opp. at 30. UTICo states that those letters “have operated as a local lien as
to the Balford Trust.” Id. That rather ludicrous assertion is unsupported by any citation to
relevant law and so is rejected.
V. CONCLUSION
For the foregoing reasons, the Court concludes that UTICo lacks standing to
challenge the plaintiff’s complaint for forfeiture. The plaintiff’s motion for judgment on the
pleadings therefore will be granted, and UTICo’s motion for leave to file a second amended
claim and answer will be denied as futile. Because UTICo has failed to demonstrate that the law
of Guernsey is relevant to the motions under review, UTICo’s motion for a round of briefing on
Guernsey law will be denied, as will UTICo’s motions to “supplement evidence” and for judicial
notice, which the Court construes as improper attempts to make additional factual allegations in
motion papers. Finally, since the Court does not rely upon any of the arguments of the United
23
States to which UTICo wishes to respond by filing a surreply, UTICo’s motion for leave to file a
surreply will also be denied. An Order consistent with this Opinion shall issue this same day.
SO ORDERED.
/s/_____________________
PAUL L. FRIEDMAN
United States District Judge
DATE: March 25, 2011
24