UNITED STATES of America, Plaintiff-Appellee, v. Bryan COFFMAN, Defendant, Baniel, LLC; Dacorta, LLC; Megan Coffman, Defendants-Appellants.
Nos. 14-5134, 14-5298.
United States Court of Appeals, Sixth Circuit.
May 11, 2015.
E. Feredonna‘s request for preliminary injunctive relief
Finally, Feredonna appeals the district court‘s denial of its motion for a preliminary injunction, claiming that the court “committed a series of errors, both in fact and law.” Because we affirm the district court‘s grant of summary judgment against Feredonna on all grounds, we need not review the denial of the preliminary injunction.
III. CONCLUSION
For all of the reasons set forth above, we AFFIRM the judgment of the district court.
ALICE M. BATCHELDER, Circuit Judge.
In 2011, a jury convicted Bryan Coffman of various counts of fraud and money laundering. The same jury acquitted his wife, Megan Coffman, of several counts of money laundering. During the investigation leading up to trial, the government sought to divest Bryan of the proceeds of his money-laundering scheme as well as other assets used to shield the money laundering. Following the guilty verdict, the district court issued a preliminary order of forfeiture that included property to which Megan Coffman and two of her LLCs, the appellants in this case, lay claim. Pursuant to
I.
We discussed at length the underlying case against Bryan Coffman and his business partner, Gary Milby, in our disposition of Bryan‘s appeal of his conviction. See United States v. Coffman, 574 Fed. Appx. 541 (6th Cir. 2014). To summarize, during a five-year period beginning in 2004, Bryan and Milby defrauded almost 600 investors out of over thirty-six million dollars through a complex scheme involving shell companies and securities in Kentucky oil wells. Bryan and Milby used forty-two bank accounts in perpetrating the fraud. Bryan also funneled investors’ money through several bank accounts into an investment account he held with his wife Megan, and he later transferred his interest in the investment account to Megan. He further funneled that money into Megan‘s companies’ accounts, and purchased with it a condominium where his sister-in-law lived, and a yacht which became the property of one of Megan‘s companies.
In 2011, the federal jury found Bryan and Milby guilty of almost all the counts against them. The same jury acquitted Megan of the money laundering charges against her. Because the parties elected to have the district judge determine the forfeiture issue rather than submit it to the jury, the district court consolidated the criminal action and the civil forfeiture action, noting that the final order of forfeiture in the criminal action would dispose of the civil action as well. On April 19, 2012, the district court entered a joint-and-several judgment against Bryan and Milby for thirty-three million dollars, which represented the approximate amount of proceeds derived from their scheme. Pursuant to that judgment, the district court adopted a preliminary order of forfeiture of the funds in the thirteen bank accounts, the condominium, and the yacht. Because the monetary value of the property in the preliminary order totaled only about three million dollars, the government petitioned the district court to amend its preliminary order and add to that order two automobiles and eight pieces of real property as substitute property. Over Bryan‘s objections, the district court granted the government‘s motion and included in its last preliminary order of forfeiture the funds in the thirteen bank accounts, the condominium, the yacht, the two automobiles, and the eight pieces of real property.
Megan Coffman and two companies of which she is sole proprietor filed petitions for ancillary hearings under
Megan and her two companies appeal the final order of forfeiture in both the criminal action and the civil action. We have consolidated the criminal case and the civil case for purposes of appeal.
II.
Before we begin, some background on the criminal forfeiture procedures, specifically in this particular context, will be helpful. The government sought forfeiture of the bank account funds and the yacht under both
Because the district court entered a judgment for thirty-three million dollars but only three million of it could be found, the government was entitled to petition the court for the inclusion of substitute property.
the ancillary proceeding, “[w]hen the ancillary proceeding ends, the court must enter a final order of forfeiture.”
But, Appellants contend, someone must be able to contest the basis for the initial forfeiture of the property. This is true. Bryan was able; and he did. During the preliminary order phase, the government must establish “the requisite nexus between the property and the offense.”
Having determined that Appellants can raise only their third-party-interest challenges in an ancillary proceeding, we continue on with their assignments of error. In their second contention on appeal, they argue that the district court erroneously required them to demonstrate the innocent source of the funds to which they lay claim. They specifically argue that the district court improperly excused the government from its burden of demonstrating forfeitability and shifted the burden of proof to them. Their contention, however, rests on a misapprehension of the burden of proof in these ancillary proceedings.
Appellants are correct that “[t]he government must prove forfeiture by a preponderance of the evidence.” United States v. Jones, 502 F.3d 388, 391 (6th Cir. 2007). During the preliminary order phrase, the government bears the burden of proof in establishing “the requisite nexus between the property and the offense.”
To the extent that Appellants are contending that the government did not meet its burden of proof in the preliminary order of forfeiture against Bryan, they lack standing to make this claim. Just as they cannot challenge the property‘s inclusion in the preliminary order, they cannot challenge the government‘s success in carrying its burden of furnishing its proposed list of forfeitable property. That challenge was Bryan‘s to raise, and he did, in fact, raise it. See Coffman, 574 Fed. Appx. at 561.
III.
Having noted that Appellants cannot challenge the preliminary order of forfeiture, that they maintained the burden of proof throughout the ancillary proceeding, and that they may raise only claims about their interests in the forfeitable property, we move on to those claims. Megan and Dacorta contend that even if they had the burden of proof at the ancillary proceeding, they met their burden by showing that they exercised complete control over the bank account funds in question. We review de novo the district court‘s interpretation of federal forfeiture laws. United States v. O‘Dell, 247 F.3d 655, 679 (6th Cir. 2001). The district court‘s findings of facts, on the other hand, we review for clear error. United States v. Smith, 749 F.3d 465, 488 (6th Cir. 2014).
As mentioned, the government pursued the forfeiture of the bank account funds under two different statutory provisions. First, it sought the actual investor funds as proceeds of the fraud under
That same requirement, however, does not apply in the context of property “involved in” the money laundering under
After the court issues a preliminary order of forfeiture, if no third party requests an ancillary proceeding, “the preliminary order becomes the final order of forfeiture.”
To summarize, under the relation-back clause, the government steps into the shoes of the defendant as to any forfeitable property from the point of the commission of the money laundering. When the government has pursued funds as being “involved in” the money laundering, once the preliminary order of forfeiture is issued, the government obtains an interest in all forfeited funds—innocent or otherwise—retroactive to the day the money launder-
ing began. At the ancillary proceeding, then, the burden is on the petitioner to prove that he has an interest superior to that of the government, or that he is a bona fide purchaser for value. If the petitioner cannot show one of these two things, then the property is forfeited to the government.
Neither Megan nor Dacorta has carried the burden of proving that they asserted primary dominion or control over the funds in the accounts. In its preliminary order of forfeiture, which Appellants cannot challenge, the district court found that the funds were forfeitable in their entirety. The onus is on Megan and Dacorta to prove by a preponderance of the evidence that they asserted dominion or control over the accounts. They have not done so. Of the roughly three million dollars in the bank accounts, about half is directly traceable to the fraud as proceeds. This means that Bryan was able to launder almost one and a half million dollars through accounts Appellants claim to have controlled.
Appellants’ lack of control is evident in various statements Megan made during the ancillary proceeding. For instance, when asked why her husband gave her a check for $100,000 to deposit into an account, she postulated that he was simply feeling “very happy and generous at the time.” Further, when Bryan asked her to write him a check for $600,000 while leaving the payee line blank, Megan complied without hesitation. And when Bryan transferred his interest in their joint financial account to her for “estate planning” purposes, she accepted his purported estate-planning expertise unquestioningly. Megan‘s testimony shows that Bryan had primary control of the money coming into the accounts, the money when it was in the accounts, and the money going out of the accounts. Indeed, the clearest proof that Bryan was actually in control of the financial accounts is that, as the district court noted, Bryan was convicted of money laundering based on charges rooted in all these accounts, whereas Megan was acquitted. Appellants provided no convincing evidence to the contrary. In fact, all of the accounts were created after the fraud began and also after the civil action against Mid-America had been initiated. We agree with the district court that it is at least more likely than not that these ac-
Appellants have not demonstrated a superior interest in the funds, because Bryan exercised dominion and control over them. The district court did not err by including the funds in its final order of forfeiture.
IV.
Baniel challenges the district court‘s including in the final order of forfeiture a yacht titled in its name. Rather than relying on a superior interest, Baniel claims that it is a bona fide purchaser for value. “The bona fide purchaser exception protects a third party who acquires a legal interest in property for value after the acts giving rise to the forfeiture have occurred and who had no reason to believe that the property was subject to forfeiture.” United States v. Huntington Nat. Bank, 682 F.3d 429, 433 (6th Cir. 2012) (emphasis in original). The relevant inquiry is not whether the petitioner actually believed that the property was subject to forfeiture, but whether the petitioner “was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture.”
Baniel has not met its burden of proving by a preponderance of the evidence that it was reasonably without cause to believe that the yacht was subject to forfeiture. Megan, on behalf of Baniel, paid $900,000 cash for the yacht. Of that money, $450,000 is admittedly from investor funds. The only way that Baniel would be a bona fide purchaser for value, then, is if it was reasonably without cause to believe that that money was not subject to forfeiture as proceeds of the fraud. At the ancillary proceeding, Megan recounted how she obtained the $450,000 in investor funds. Sometime in July 2008, Bryan came home one day and asked her for a $600,000 loan which he said he would pay back right away. He never said where the money was going, and Megan never asked. Bryan further told her to leave the payee line of the check blank, an instruction Megan followed without hesitation. Four days later, Bryan repaid $460,000 of the $600,000 loan out of investor funds. Megan then used that money as half of the down payment for the yacht, on behalf of Baniel.
Baniel bought the yacht on August 1, 2008. But in 2007, the SEC was already investigating Milby. Bryan was served with a subpoena for his financial records in connection with the SEC investigation in June 2008. Further, throughout 2008 Bryan had transferred many properties the couple had held jointly solely into Megan‘s possession. Given the red flags around Bryan‘s financial status in August 2008, Baniel has not shown by preponderance that it was reasonably without cause to believe that the money was not proceeds of the fraud. Baniel was thus not a bona fide purchaser for value, and the district court did not err by including the yacht in its final order of forfeiture.
V.
Megan further challenges the district court‘s inclusion of Bryan‘s interest in eight properties determined by the court to be held in tenancies by the entirety. At the time of the forfeiture, three of the properties were held in tenancies by the entirety, whereas the other five were ostensibly held solely in Megan‘s name. These five properties, however, had been held in tenancies by the entirety until December 2007, at which point Bryan transferred his interest in them to Megan by quit-claim deeds. The government claims that Bryan‘s interests in all eight properties are forfeitable because the December 2007 transfers were fraudulent. Again,
The eight pieces of real property were included in the preliminary order of forfeiture as substitute assets.
Her challenge is primarily premised on her contention that fraudulent conveyance law is inapplicable to federal forfeiture proceedings. Federal courts, however, have used fraudulent conveyance statutes in forfeiture proceedings. See, e.g., United States v. Frykholm, 362 F.3d 413, 417 (7th Cir. 2004) (applying Wisconsin fraudulent conveyance law). In fact, federal courts must apply these statutes if applicable, because “[s]tate law defines and classifies property interests for purposes of the forfeiture statutes, while federal law determines the effect of the property interest on the claimant‘s standing.” United States v. Salti, 579 F.3d 656, 669 (6th Cir. 2009) (quoting United States v. 5 S 351 Tuthill Road, Naperville, Ill., 233 F.3d 1017, 1021 (7th Cir. 2001)).
Kentucky law provides that “[e]very gift, conveyance, assignment or transfer of, or charge upon, any estate, real or personal ... made with the intent to delay, hinder or defraud creditors, purchasers or other persons ... shall be void as against such creditors, purchasers, and other persons.”
The December 2007 transfers were transfers between two related parties. Megan is wholly unable to produce explanatory evidence as to why the transfers took place. And although Megan claims the transfers were done to equalize their estates for estate-planning purposes, she offered no evidence during the ancillary proceeding that these transfers would have helped balance the couple‘s estates. For the first time, on appeal, she included some provisions of the tax code in her brief‘s addendum in order to show the benefit of the transfers, but that informa-
VI.
Appellants also raise some broader constitutional claims regarding the ancillary proceeding and the final order of forfeiture. First, they contend that the forfeiture proceedings subjected Megan to double jeopardy and violated Appellants’ Eighth Amendment rights. Having been acquitted of the money laundering charges against her, Megan argues that the forfeiture of hundreds of thousands of dollars of her assets constitutes a successive prosecution and punishment. This contention is meritless. Even assuming the assets in question were hers, double jeopardy would not apply because this forfeiture proceeding is a component of Bryan‘s sentence, not her prosecution and acquittal. Megan voluntarily entered the forfeiture proceeding by petitioning for an ancillary hearing. This voluntary participation exposes the contradiction in her assertion that she was successively prosecuted through the ancillary proceeding. Further, as we have already explained, Bryan asserted dominion and control over the assets, and because the conveyances were fraudulent, maintained an interest in the real properties. Therefore, the district court did not forfeit thousands of dollars of Megan‘s assets.
Appellants’ Eighth Amendment claim of violation of the Excessive Fines Clause fails for similar reasons. Megan was not facing another prosecution, and thus she did not face the possibility of a fine. Instead, Appellants inserted themselves into Bryan‘s forfeiture proceedings in order to claim an interest in some of the property. They cannot now, after having intervened in the proceedings, claim that the order of forfeiture operates as a fine, even if they eventually lose what they believe are their assets. The ancillary proceeding did not subject Megan to double jeopardy or Appellants to excessive fines.
VII.
Appellants further contend that the district court violated their due process rights by delaying the adjudication of their claims for nearly four and a half years—from their property‘s initial seizure in late 2008 to the ancillary hearing in March 2013. This circuit weighs four factors in assessing whether delay in bringing a forfeiture action violates due process: “the length of the delay, the reason for the delay, the claimant‘s assertion of his right, and the prejudice to the claimant.” United States v. Ninety Three Firearms, 330 F.3d 414, 424-25 (6th Cir. 2003) (citing Barker v. Wingo, 407 U.S. 514, 530 (1972)); see also United States v. Banco Cafetero Panama, 797 F.2d 1154, 1163 (2d Cir. 1986) (applying Barker framework to holding of
the forfeiture trial as well as to the filing of the action). “The length of the delay is to some extent a triggering mechanism. Until there is some delay which is presumptively prejudicial, there is no necessity for inquiry into the other factors that go into the balance.” Barker, 407 U.S. at 530. Assuming arguendo that four and a half years is presumptively prejudicial, Appellants’ claim fails on each of the other three factors.
The third factor is the claimant‘s assertion of his right. Here, Appellants asserted their rights almost immediately after the court issued its preliminary order of forfeiture in April 2012. This, however, shows a weakness in Appellants’ argument. Although the forfeiture proceedings can be traced back to 2008, Appellants’ role in the proceedings did not arise until 2012. While we understand Appellants’ frustration with having to wait for the criminal case to end and the preliminary order of forfeiture to be released, “we are readily satisfied that the system set out in
This conclusion is further bolstered by the fact that Appellants have shown no prejudice from the delay. “The primary inquiry here is whether the delay has hampered the claimant in presenting a defense on the merits, through, for example, the loss of witnesses or other important evidence.” $8,850, 461 U.S. at 569. Appellants have failed to provide any evidence of how the delay has prejudiced them. Accordingly, we must conclude that no such prejudice exists.
Weighing the four factors, we hold that Appellants were not denied due process by the supposed delay in the proceedings. Although the ancillary proceeding was held almost four and a half years after the filing of the initial forfeiture complaint, the intervening criminal trial and appeals necessitated much of the delay.
VIII.
Appellants’ final contention is that the district court erred by entering a final order of forfeiture without addressing their civil forfeiture claims. Their argu-
IX.
For the foregoing reasons, we AFFIRM the district court‘s final order of forfeiture as to Megan Coffman, Baniel, and Dacorta.
Yolanda Dionne WADE, Plaintiff-Appellant, v. AUTOMATION PERSONNEL SERVICES, INC. and Tammy Gross, Defendants-Appellees.
No. 14-5890.
United States Court of Appeals, Sixth Circuit.
May 11, 2015.