22 F.4th 843
9th Cir.2022Background:
- PLV East, a Sonoma County development, was controlled through a fraudulent scheme by Madjlessi and Lonich after defaulting on an IndyMac loan; they used a straw-bidder scheme to reacquire the property at an FDIC auction.
- Lonich formed 101 Houseco LLC with House as the nominal majority member; Lonich exercised actual control (accounts, management, appointment powers) and directed the fraudulent transactions with bank officers to obtain financing.
- House pled guilty; Lonich, Cutting, and Melland were convicted; the district court entered a preliminary criminal forfeiture order for PLV East and published notice.
- 101 Houseco filed ancillary petitions in the criminal cases, arguing the defendants never had a forfeitable interest and seeking to avoid forfeiture; the district court found 101 Houseco a sham, held House and Lonich had forfeitable interests, and denied the petitions.
- The district court entered final forfeiture orders and stayed the sale pending appeal; 101 Houseco appealed, raising (1) its ability to relitigate forfeitability as a third party and (2) a procedural due process challenge to § 853(n)(6).
- The Ninth Circuit affirmed: third parties cannot relitigate antecedent forfeitability and are limited to § 853(n)(6)’s two remedies; 101 Houseco—created to perpetrate fraud—could not prevail under either § 853(n)(6) ground.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a third party in criminal forfeiture may relitigate the antecedent forfeitability determination | 101 Houseco: may challenge that the defendants never had a forfeitable interest and thus the forfeiture order is invalid | Government: third parties are barred from relitigating forfeitability and may proceed only under § 853(n) ancillary remedies | Held: Third parties cannot relitigate forfeitability; limited to § 853(n)(6) grounds |
| Whether § 853(n)(6) provides the exclusive statutory avenue for third-party challenges | 101 Houseco: statutory scheme is inadequate; it should be able to challenge underlying forfeitability | Government: § 853(k) bars other challenges and § 853(n)(6) supplies the exclusive remedies | Held: § 853(n)(6) is the exclusive statutory route for third-party claims in ancillary proceedings |
| Whether § 853(n)(6) violates procedural due process | 101 Houseco: prohibiting relitigation of forfeitability denies adequate process to vindicate third-party rights | Government: § 853(n), Rule 32.2, and discretionary remedies (§ 853(i)) provide adequate process; Libretti controls | Held: No due process violation; § 853(n) affords adequate procedures and remedies |
| Whether 101 Houseco prevailed under § 853(n)(6) (superior title or bona fide purchaser) | 101 Houseco: seeks to assert ownership or other defenses to keep title | Government: 101 Houseco was a sham created to perpetrate fraud; Lonich’s knowledge is imputed; not a bona fide purchaser | Held: 101 Houseco cannot show superior title or bona fide purchaser status; ancillary petitions properly dismissed |
Key Cases Cited
- Caplin & Drysdale, Chartered v. United States, 491 U.S. 617 (criminal forfeiture may only vindicate rightful owners)
- Libretti v. United States, 516 U.S. 29 (ancillary proceedings under § 853(n) are the means to protect third-party rights)
- Honeycutt v. United States, 137 S. Ct. 1626 (scope of criminal forfeiture remedies)
- Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (statutory standing analysis for right of action)
- United States v. Hooper, 229 F.3d 818 (9th Cir.) (§ 853 protects superior-title and bona fide purchaser transferees)
- United States v. Nava, 404 F.3d 1119 (9th Cir.) (ancillary petitioner limited to vested/superior title or bona fide purchaser)
- United States v. Liquidators of European Fed. Credit Bank, 630 F.3d 1139 (9th Cir.) (§ 853(n)(6) provides exclusive third-party theories)
- DSI Assocs. LLC v. United States, 496 F.3d 175 (2d Cir.) (§ 853(n) is the exclusive means for third-party claims)