United States v. GilbertUnited States v. Gilbert
Case Information
*1 Before TJOFLAT, EDMONDSON and KRAVITCH, Circuit Judges.
TJOFLAT, Circuit Judge:
This appeal represents the latest—and we hope final—chapter in a protracted RICO prosecution
which has already commanded the attention of four panels of this court. Following our 1996 mandate setting
aside the criminal forfeiture of Michael Gilbert's interest in a California limited partnership, the Government
moved the district court to force Michael Gilbert and his family to file third-party petitions to reclaim their
interests pursuant to
We conclude that the district court did not abuse its discretion in denying the Government's request.
The statutory scheme outlined in
Trust (the "Trust") collectively as the Gilberts. We refer to them by their first names or simply as the Trust to designate them individually.
by the Government, the subsequent proceeding would be needless because the order of forfeiture upon which
the Government relies is invalid. Accordingly, we affirm the district court's denial of the Government's
motion to force the Gilberts to file third-party petitions pursuant to
I.
A. The Bell Gardens Bicycle Club (the "Club") was created on December 5, 1983 [3] as a joint venture between two California partnerships: LCP, a general partnership, [4] and Park Place Associates, a limited partnership ("PPA"). PPA had received an exclusive license from the City of Bell Gardens to operate a card club in 1982, but was unable at that time to raise enough money to buy land and begin construction. PPA thus entered into a joint venture agreement with LCP, which offered to find the funds necessary to finance the Club's construction. For its part, PPA agreed to contribute its rights to property in the City of Bell The history of the case recited herein is a summary of the reсords from both the criminal RICO proceedings, see supra n. 1, and the ancillary proceedings that followed the criminal trial, in which the court adjudicated third-party claims to the defendants' forfeited property. See infra, Part I.E. LCP was a general partnership from its creation on December 5, 1983 until its reorganization as a limited partnership, "LCP Associates, Ltd.," on November 15, 1984. For the sake of simplicity, we refer to the limited partnership as "LCP, Ltd." The Club has been described as:
the world's largest card club. It is located in a 100,000 square foot building on an 8.5 acre parcel in the City of Bell Gardens, California. The [Club] does not generate revenue by participating in the card games it houses. Instead, the Club rents space to card players for an hourly fee, providing the assistance of expert dealers. The Club is open 24 hours a day, 365 days a year, and employs more than 1800 persons. In 1990, it was generating after-tax profits of $23 million per year and was estimated to be worth $150 million. Taxation of the Club is the primary source of revenue for the City of Bell Gardens.
Michael S. Pasano, The Saga of the Bell Gardens Bicycle Club—Lessons and Nightmares, 1998 ABA Center for Ctr. for Continuing Legal Educ. Nat'l Inst. Sec.Crim. Just. [hereinafter "The Saga"]. We note that the author, Mr. Pasano, is co-counsel representing the Gilbert family interests in this appeal.
In 1990, the Government took over the Club after a jury forfeited it to the Government as proceeds of racketeering activity. The Government has faired little better than the previous owners in purging the stain of corruption and scandal surrounding the Club. See Sharon Walsh, Crime Alleged at Casino U.S. Partly Owns, Wash. Post, Mar. 20, 1996, at D3; see also James Bornemeier, U.S.Owned Casino Overrun by Crime, Security Chief Alleges, L.A. Times, Mar. 20, 1996, at B3.
Gardens as well as the gaming license it had already obtained. [6]
Unbeknownst to PPA, one source of funding located by LCP was a large-scale money laundering
operation. From 1982 to 1987, Benjamin Kramer and three of his partners (Randy Lanier, George Brock,
and Gene Fisher) were involved in an intricate scheme to import large quantities of marijuana into the United
States.
See United States v. Kramer,
The level of complicity in the money laundering plan varied among the LCP partners. The three original LCP partners—Dale Lyon, Julie Coyne, and David Pierson—were brought together in 1983 by Michael Gilbert's father, Sam Gilbert. Sam, a wealthy Los Angeles businеssman, was the first Gilbert to establish ties with the Kramer family when he befriended Benjamin Kramer's father, Jack Kramer, in 1978. At that time, Jack Kramer and Sam Gilbert came up with the idea of building a legal card club for the purposes of laundering Benjamin Kramer's dirty money. By 1983, Sam Gilbert was in contact with David Pierson, who was himself thinking of building a card club and was looking for legitimate investors. Pierson gave Sam Gilbert a prospectus, Sam liked what he saw, and Sam agreed to arrange the financing for the project in return for a sixty percent share of Pierson's ownership interest in the Club.
Sam Gilbert went to work putting together a team to undertake the financing side of the project. To that end, Sam Gilbert brought in Dale Lyon, a banker and businessman, and Julie Coyne, who had an experienced background in personnel. For some time, Lyon, Pierson, Coyne, and Sam Gilbert discussed the ownership percentages of what would become the LCP general partnership. Then, for little or no The Joint Venture Agreement provided for the following profit distribution: 70% to LCP and 30% to PPA until the Club's loan was paid off, and then the figures were to be 60% to LCP and 40% to PPA. Additionally, there was a provision stating that when the Club's profits reached six million dollars, the split was to be 65/35 in favor of LCP. This six million dollar threshold has been reached, but the record does not indicate when this happened. PPA was unaware of the money laundering scheme and has been cleared of any wrongdoing. See
United States v. Kramer,
While Sam Gilbert, Lyon, Coyne, and Pierson were negotiating their respective interests in LCP,
Coyne, Sam Gilbert, and Lyon set up CGL Investment Company, Inc. ("CGL"). CGL was created to pose
as a legitimate mortgage broker that would fund and invest in real estate projects, specifically, the Club.
Shortly after Sam Gilbert had taken the necessary steps to organize both LCP and CGL, he met with Jack
Kramer to explain the money laundering scheme, referring at that time to the new LCP partners and PPA as
"your straw people. [The] lily-white people who will be approved by the Gambling Commission."
Kramer,
Approximately $12.6 million of Benjamin Kramer and his three associates' drug money was sent to CGL from a sham lending firm named Troon Mortgage Investment сompany ("Troon"), located in Tortola, which is part of the British Virgin Islands. Troon received the drug money from a trust called the BRT trust, located in Liechtenstein. Sam Gilbert arranged for the money to be sent from Troon to CGL in the form of a loan. CGL then forwarded the money to the Club, once again in the form of a loan. In appreciation for the loan, Sam Gilbert promised Benjamin and Jack Kramer that they would retain their lender's rights of repayment of principal at a fifteen percent rate of interest (payable over fifteen years). In addition, Troon was to receive a fifteen percent income participation "kicker" payable over the life of the project.
With the necessary funds in hand, construction on the Club began in January 1984. By the fall of the same year, however, it became obvious that an additional $10 million would be needed to finish the project. To this aim, the LCP general partners asked Sam Gilbert to personally guarantee a $5 million loan When Sam Gilbert was not laundering drug money for Benjamin Kramer, Sam owned and operated a construction company. The best explanation for why Sam agreed so readily to give up his majority interest in what was to become LCP was that Pierson, Lyon, and Coyne all agreed that Sam's construction company would build the Club and that Sam would receive a 10% fixed-fee contract. According to testimony at trial, Sam thought the casino card club business was too risky a venture and he was content simply making his money by building the Club. Following the criminal RICO trial, the district court held ancillary proceedings to determine issues
of ownership in the property forfeited to the Government.
See infra
Part I.E. According to the district
court's findings following the ancillary proceedings, the three letters that form the BRT name stand for
Ben, Randy, and Tom—the first names of the drug smuggling partners: Ben Kramer, Randy Lanier, and
George Brock (who was also known as Tom).
See Kramer,
that LCP had negotiated from a legitimate lending institution. Sam Gilbert refused to provide this guarantee but indicated that his son, Michael Gilbert, might be interested. Sam Gilbert told Michael of LCP's need for additional financing and informed him that a twenty percent interest in LCP was available for $200,000. Michael Gilbert, in turn, discussed this opportunity with his siblings, Robert and Margaret. In November 1984, after some negotiations with the LCP partners, Michael, Robert, and Margaret bought a twenty percеnt interest in LCP in exchange for $200,000 and an agreement to guarantee a $5.5 million loan to help finish construction of the Club. Coyne and Pierson each gave up ten percent of their interest in LCP to carve out the twenty percent share. [12]
Gilbert and his siblings obtained a $200,000 loan from the Olympic National Bank to purchase the twenty percent interest in LCP. By agreement of the parties, LCP, rather than Michael Gilbert or his siblings, made the interest payments on the loan, and the loan principal was paid directly out of Michael Gilbert's and his siblings' profit distributions. As a result of Michael, Robert, and Margaret buying this twenty percent ownership interest, LCP, which had from its inception been organized as a general partnership, was reorganized into a limited partnership ("LCP, Ltd.") on November 15, 1984.
The newly acquired twenty percent interest in LCP, Ltd. was divided among the members of the Gilbert family as follows: Michael and Robert each received one-third (or 6.67% each) and the remaining one-third was divided equally among Margaret, Michael's three children, and Robert's four children. Both Michael Gilbert was involved with the Club even before he was approached by the LCP partners. As the president of his father's construction company, he supervised the Club's construction. According to both Coyne's and Pierson's testimony during the ancillary hearing following the criminal trial, they each gave up ten percent of their ownership interest in LCP because it made sense to give up a little and see the Club open, rather than have a larger ownership interest in an unfinished construction project. The Limited Partnership Agreement, which was not introduced into evidence at trial, provides that
"[t]he General Partners shall cause to be executed and shall execute an amendment to the JOINT VENTURE AGREEMENT reflecting the conversion of [LCP] into a Limited Partnership." In a letter submitted to this court at our request, however, the Government informs us that it was "unable to locate or identify any documentary or testimonial evidence presented in either the criminal trial or the ancillary forfeiture proceeding ... showing that the December 5, 1983 Joint Venture Agreement between LCP Associates and Park Place Associates was ever formally amended to substitute LCP Associates Ltd. (the limited partnership) for LCP Associates (the general partnership)." Thus, we question whether there was ever a novation in the Joint Venture Agreement whereby LCP, Ltd. assumed the rights and/or obligations of the LCP general partnership as a member of the Bell Gardens Bicycle Club Joint Venture. See Restatement (Second) of Contracts § 280 (1979) (explaining that a novation substitutes a new party and discharges one of the original parties to a contract by agreement of all three parties; a new contract is created with the same terms as the original one, but the parties are changed).
Michael and Robert placed their children's shares in trust by creating, respectively, the Michael Gilbert Family Irrevocable Trust (the "Trust") and the Robert Gilbert Family Irrevocable Trust. In total, Michael Gilbert and the Trust owned approximately a ten percent interest (9.1675%) in LCP, Ltd.
The Club opened for business on November 30, 1984. Although the Club was not immediately successful, it started turning a substantial profit within six months. In 1989, the Club's after-tax profits were approximately $23 million. Starting in December 1984, the Club made regular mortgage payments on the CGL loan. LCP, Ltd. also paid CGL its fifteen percent profit participation on a monthly basis. In turn, CGL forwarded the mortgage payments and the kicker to Troon.
In 1986, the net quickly closed in on Benjamin Kramer's money laundering operation. Benjamin Kramer's contact in Tortola who ran Troon was arrested by British police. Shortly after the arrest, the Drug Enforcement Administration ("DEA") obtained Troon's records and launched a joint investigation with the Internal Revenue Service into the Club's financing. In November 1986, DEA agents interviewed Sam Gilbert, Michael Gilbert, and others as part of an investigation into the possible use of drug proceeds to build the Club.
Compounding Benjamin Kramer's woes was the fact that the Club was now turning a substantial profit and, as Jack Kramer testified during the ancillary hearing following the criminal trial, "the Devil raised his head" and Sam Gilbert decided to make the Kramer interest in the Club disappear. 807 F.Supp. at 731. Sam Gilbert swiftly forced Benjamin Kramer out by reneging on the fifteen percent kicker and then refinancing the balance due on the $12.6 million mortgage loan at a more favorable interest rate through a legitimate lending institution. Forcing Benjamin Kramer out was easily accomplished, since his name had been intentionally left off of all Club documents to hide his illegitimate ownership interest. At the same time the $12.6 million loan was being refinanced, Michael Gilbert and Lyon, at a CGL Board of Director's meeting, [15] authorized the transfer of $9.5 million in the form of a cashier's check as repayment of CGL's obligation to Troon. The Government later traced the $9.5 million transfer tо a Bank account in By mid-1985, CGL had apparently sent Troon $860,000 in repayment on the loan. Michael Gilbert became involved with CGL when he accepted a position as Vice-President in June or July 1985. The $9.5 million was apparently transferred to Lyon's bank, The Bank of Beverly Hills, converted
to a cashier's check, deposited into a Swiss bank account and later transferred to Luxembourg. *7 Luxembourg.
B.
On November 24, 1987, a Southern District of Florida grand jury returned an indictment charging Benjamin Kramer, Jack Kramer, Michael Gilbert, and Melvin Kessler (an attorney who is of no conse- quence to this appeal), with various vio- lations of the RICO statute, [18] the Travel Act, [19] and conspiracy to defraud the Internal Revenue Service. [20] Specifically, the RICO count alleged that the defendants had been engaged in a scheme to launder money generated from trafficking marijuana.
The indictment also included a RICO forfeiture count in which the Government alleged that all four
of the defendants had "property constituting, and derived from, proceeds which they obtained, directly or
indirectly, from racketeering activity ... thereby making such property and the entire interest of the
Although the Government put on no evidence to explain what happened to this $9.5 million, Jack
Kramer testified during the ancillary hearing following the criminal proceeding that the money was
divided among Benjamin Kramer and his drug smuggling partners.
RICO is an acronym for the Racketeer Influenced and Corrupt Organizations Act.
See
(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities which affect, interstate or foreign commerce....
(b) It shall be unlawful for any person through a pattern of racketeering activity or though collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
(c) It shall be unlawful for any person employed by or associated with any enterprise engаged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.
(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.
enterprise.
original indictment but died in November 1987, and the indictment against him was dismissed.
Kramer,
defendants, therein or an amount of cash equivalent thereto including but not limited to the amount of
$50,000,000.00, forfeitable to the United States pursuant to Title
C.
On March 28, 1990, following a three month trial, the jury found Benjamin Kramer and Jack Kramer
guilty of,
inter alia,
conspiring to racketeer under
D.
Following these convictions, on April 2, 1990, the same jury considered the forfeiture issue in a separate proceeding. At the outset of the forfeiture phase, the Government called one witness, the Club's chief financial officer, through whom it introduced charts illustrating the origins of the various monies that went into building the Club as well as the Club's profit distributions. A slice taking up slightly more than half of one pie chart reflected the infusion of mortgage money originating from Troon and passing through CGL. The Government rested and closing arguments ensued.
Michael Gilbert was the only defendant who argued against forfeiture of the Club. Benjamin Kramer and Jack Kramer, through their counsel, informed the jury in their respective closing arguments that they did not have, and for that matter never had, an ownership interest in the Club. In fact, to stress this point, Benjamin Kramer's attorney openly invited the Government to enter into a stipulation whereby it could have Specifically, this portion of the indictment reads in relevant part: "THE BELL GARDENS BICYCLE CLUB, 7301 Eastern Avenue, Bell Gardens, California, a card club casino, consisting of a commercial building and three parcels of real property located within the city of Bell Gardens, California, of the following legal description...." The legal description of the three parcels followed. Nowhere in the indictment is mention made of the Club's contents, the Club's profit distributions or current valuation, the Club's owners and their respective ownership interests, LCP, Ltd., PPA, or CGL, or whether the $50 million mentioned in the indictment was intended as a substitute for forfeiting the Club. We take this opportunity to correct a misprint in our 1996 opinion which states that Michael Gilbert
was convicted of "one count of violating the RICO statute,
whatever interest Benjamin Kramer had in the Club. [23]
In its closing argument on the forfeiture issue, the Government advanced its theory that "[t]he [Club] was built from the first shovel of dirt being taken out of the ground with drug money that came from Ben Kramer's marijuana smuggling. It was forfeitable from that very point forward." The Government further argued that forfeiture of the entire Club was proper and that the jury "ought not be concerned with ... the innocent people here ... [because] those individuals [could later] petition the court to get back any interest that they have" in the Club. In addition to the Club, the Government sought forfeiture of $9.5 million representing the amount wired from LCP, Ltd. to Troon in 1986.
Following closing arguments on the forfeiture issue, the court instructed the jury that "the term 'forfeiture' means to be divested or deprived of the ownership of something as penalty for the commission of a crime." The court then explained that "to be entitled to such forfeiture, the Government must have proved beyond a reasonable doubt ... [t]hat the proceeds or property forfeited was obtained, directly or indirectly, by the Defendant, as charged; and ... [t]hat such proceeds or property were obtained by the specified Defendant ... from ... racketeering activity." Before it sent the jury out to deliberate, the court gave the jury special verdict of forfeiture forms to complete for each defendant.
The special verdict of forfeiture forms asked the jury whether the Club "constituted or was derived
from any proceeds which [the named defendant] obtained directly or indirectly from racketeering activity."
If the jury answered "yes" to that question, it then had to "indicate whether the [Club] is subject to Forfeiture."
The jury answered "yes" to both questions on the verdict forms pertaining to Benjamin and Jack Kramer. In
addition, the jury forfeited the $9.5 million that LCP, Ltd. sent to Troon in 1986, and held Benjamin and Jack
Shortly before this trial in Florida, a jury in the Southern District of Illinois found Benjamin Kramer
guilty of conspiring to distribute marijuana and of participating in a continuing criminаl enterprise. The
district court sentenced him to life in prison without the possibility of parole and a separate, concurrent
forty-year term of imprisonment. In addition, the Illinois jury returned a $60 million forfeiture verdict
against Benjamin Kramer.
See generally United States v. Kramer,
through Mel Kessler's trust account. The jury held the Kramers and Kessler jointly and severally liable for $280,000.
Kramer jointly and severally liable for that amount. [25] With respect to Michael Gilbert, the jury struggled to come to a consensus on its forfeiture verdict pertaining to the Club. The following day, the jury ultimately answered "yes" to both questions.
Notably, the jury was never asked to delineate the extent of either Michael Gilbert's, Benjamin Kramer's, or Jack Kramer's ownership interest in the Club. For that matter, the jury was never asked to decide whether the Kramers even had an ownership interest in the Club. Over objection, the court disregarded Michael Gilbert's proposed special verdict forms and instructions that addressed both of these concerns.
E.
On April 3, 1990, at an impromptu hearing convened by the district court a few hours after the jury agreed to forfeit Michael Gilbert's interest in the Club, the prosecutor handed the court and those non-defendant parties interested in the Club who were then present a "motion for order of forfeiture and for order of seizure, entry of restraining orders and appointment of interim trustee." The interested parties—persons asserting legitimate ownership interests in the now-forfeited Club—hurriedly entered objections, but "the district court entered the government's proposed order for forfeiture, and also seized the Club in its entirety, appointed an interim trustee, and prevented the Club or its owners from distributing The special verdict of fоrfeiture form pertaining to the $9.5 million read: "Do you find beyond a reasonable doubt that the Nine and one Half (9.5) million dollars, or any portion thereof, is subject to forfeiture as to [the named defendant]? If the answer above is yes, how much was so proved?" The jury did not mark a simple "yes" or "no" on Michael Gilbert's verdict form. The jury found that the Club was proceeds of racketeering but that, with respect the Michael Gilbert, the Club was only forfeitable "as to the portion attributable to the CGL loans and Michael Gilbert [sic] ownership in the [Club] via CGL Investments." The court, sua sponte, expressed concern that the jury's answer was unclear; the Government and Michael Gilbert's attorney disagreed as to the significance of the jury's qualification. The court sent the jury back to deliberate further. After a short while, the jury sent the court the following note: "Yes, subject to forfeiture as to any and all interest in the [Club] which Michael Gilbert obtained from his ownership in CGL Investments, and [Club] profit participation in CGL Investments." This response, too, was deemed unacceptable, so the court sent the jury home for the night and summoned them to return in the morning. The next morning, the jury continued its deliberation and shortly thereafter came back with a simple "yes" to the second question on the verdict form. Over a defense objection, the court accepted the verdict and excused the jury. In 1993, Michael Gilbert was tried and convicted in the Southern District of Florida for money
laundering as well as obstruction of justice and perjury based on his testimony in the 1990 RICO criminal
trial,
profits or transferring their interests."
On or about April 27, the interested parties petitioned the district court
[29]
for an ancillary hearing
pursuant to
Despite the requirement that "[t]he hearing on the petition shall, to the extent practicable and
consistent with the interests of justice, be held within
thirty days
of the filing of the petition,"
Upon conviction of a person under this section, the court shall enter a judgment of forfeiture of the property to the United States and shall also authorize the Attorney General to seize all property ordered forfeited upon such terms and conditions as the court shall deem proper. Following an entry of an order declaring the property forfeited, the court may, upon application of the United States, enter such appropriate restraining orders or injunctions, require the execution of satisfactory performance bonds, appoint receivers, conservators, appraisers, accountants, or trustees, or take any other action to protect the interest of the United States in the property ordered forfeited. Michael Gilbert was among the parties who filed verified petitions. To defeat the government's entitlement to the forfeited property, a third-party must establish by a
preponderance of the evidence that:
(A) the petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section; or (B) the petitioner is a bona fide purchaser for value of the right, title, or interest in the property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture under this section;
the court shall amend the order of forfeiture in accordance with its determination.18 U.S.C. § 1963 ( l )(6). If the third-party successfully establishes one of these two grounds, the forfeiture order must be amended to reflect the third-party's legitimate ownership interest in the property.18 U.S.C. § 1963 ( )(6).
four months.
Kramer,
a) M. Dale Lyon—28% owner and general partner of LCP.
b) The Lyon Children Trust—2% owner and limited partner of LCP.
c) David C. Pierson—30% owner and general partner of LCP.
d) Lois J. Pierson—former spouse of David Pierson and owns one-half of his interest in LCP under California community property law.
e) Julieann Coyne Wasson—20% owner and limited partner of LCP.
f) Christopher Wasson—spouse of Julieann Coyne Wasson and owns one-half of her interest in LCP under California community property law.
g) Michael Gilbert—only member of appellants that was a defendant at trial; 6.67% owner and limited partner of LCP.
h) Karen Gilbert—spouse of Michael Gilbert and owns one-half of his interest in LCP under California community property law.
i) Robert Gilbert—6.67% owner and limited partner of LCP.
j) Margaret Gilbert—.8325% owner and limited partner of LCP.
k) The Michael Gilbert Family Irrevocable Trust—2.4975% owner and limited partner of LCP.
l) The Robert Gilbert Family Irrevocable Trust—3.33% owner and limited partner of
LCP.
grant[ed] his pending motion to set aside the forfeiture verdict against him."
On May 23, 1990, the district court, in accordance with the Government's stipulation with PPA,
permitted the PPA partners to receive their monthly profit distributions. On September 13, 1990, the
court accepted a stipulated release of PPA's 35% ownership interest in the Club on the ground that PPA
was an innocent owner under
The ancillary hearings began on September 10, 1990. Michael Gilbert, through his attorney, argued
that he should be allowed to participate in the proceedings and show that he was a bona fide purchaser of his
interest in the Club. The Government opposed the motion, pointing out that
On September 28, 1990, the district court continued the ancillary proceeding to allow the Government and the third-parties to engage in settlement discussions. Both Coyne and Pierson, among others, settled with the Government. As a result, Lyon was the only founding LCP partner to participate in the ancillary proceeding through its conclusion. Joining him were the Lyon Family Trust, Karen Gilbert, and the Trust.
In a lengthy Amended Final Order of Forfeiture dated July 22, 1991, the district court found that the
"real owners" of the Club at its inception were Benjamin Kramer and his three drug smuggling associates
(Randy Lanier, George Brock, and Brock's half-partner, Gene Fisher)—Benjamin Kramer was not the sole
owner since he only contributed approximately $4 million (or 1/3) of the initial $12.6 million mortgage
proceeds used to build the Club.
Kramer,
the Robert Gilbert Family Irrevocable Trust settled with the Government. The terms of the settlement were not disclosed to the district court before the ancillary hearing for fear that they might influence the court's decision. Christine Kramer, the former wife of Benjamin Kramer, also tried to establish that she was the
legitimate owner of one-half of her ex-husband's interest in the Club. The court denied her petition in its
entirety.
partners [36] were merely straw persons whose purpose was to obtain the requisite licenses for a card club and make the Club look legitimate, id. at 736, and that the three original LCP general partners were nominees for the investments of Benjamin Kramer and his three drug-smuggling associates. Id. at 739.
Faced with trying to delineate the extent of third-party Lyon's ownership interest in the Club, the court concluded that "[w]hatever interest Ben Kramer had at [the time he and his three drug-smuggling associates loaned approximately $12 million to LCP] precludes Lyon, under the relation back dоctrine, from asserting either that title was vested in him rather than the Defendant Ben Kramer or that he was a title holder superior to Ben Kramer's interest." Id. Because forfeiture under RICO reaches only the ownership interest held by the defendant (and Benjamin Kramer's three drug-smuggling associates had not been indicted), the district court denied "Lyon's petition in the amount of one-third (1/3) of his current holdings in LCP" since Benjamin Kramer's share of the invested drug proceeds was approximately $4 million of the total $12.6 million investment, or one-third. Id. The district court also concluded that Lyon was not a bona fide purchaser of that portion of his interest. Id. at 740.
Michael Gilbert's wife, Karen, also participated in the ancillary hearings. She claimed an interest in
the Club by virtue of the fact that, as Michael Gilbert's wife, California community property laws entitled her
The district court concluded that PPA as well as Robert and Margaret Gilbert were unaware of the
money laundering scheme "but the others (LCP and Michael Gilbert) were involved heavily, or knew or
should have known of the illicit nature of the operation. Julie Coyne and possibly David Pierson, too,
may well fall into the latter category; whether they fit into any of the categories or were duped by Sam, et
al., are questions this court does not have to decide."
Kramer,
limited sense."
Schuh Trading Co. v. Comm'r,
to half of her husband's interest in the Club at the time Michael Gilbert bought into LCP. The court denied her petition in its entirety, reasoning that she was not a bona fide purchaser because she "knew, or at least should have known of the tainted nature of her husband's interest." Id. The court also denied the claim of the Trust. Id. at 742.
Following the ancillary hearings, Karen Gilbert and the Trust appealed the district court's decision denying them any interest in the Club. [39] These appeals were consolidated with the appeal of Benjamin Kramer's and Michael Gilbert's convictions. Both Benjamin Kramer and Michael Gilbert appealed their RICO and Travel Act convictions; Michael, alone, contested the forfeiture judgment. See Kramer, 73 F.3d at 1070.
F.
On appeal, we affirmed Benjamin Kramer's convictions.
Property forfeitable in a RICO proceeding is limited to that which the defendant obtains directly or indirectly as a result of the racketeering activity. See18 U.S.C. § 1963(a)(3) . The only acts of racketeering which were both charged by the government and found by the jury to have been committed by Gilbert occurred after he had obtained his interest in the [Club]. Property acquired before a defendant commits an act of racketeering cannot be said to have been derived from it. As such, the forfeiture of Michael Gilbert's interest in the [Club] must be set aside.
Id. at 1076. Consequently, we concluded further in a footnote that:
Because we hold that Michael Gilbert's interest in the [Club] is not subject to forfeiture, neither are the interests of Karen Gilbert and [the Trust]. And, orders restraining Michael Gilbert, Karen Gilbert or the [Trust] from the use and enjoyment of their interest in the [Club], including profits, are to be, Lyon and the Lyon Trust also filed timely notices of appeal from the judgment in the ancillary hearing. Both subsequently dismissed their appeals in connection with Dale Lyon's guilty plea in the United States District Court for the Southern District of Florida, in which he admitted obstructing justice and committing perjury in the ancillary hearing. As a result, the Government acquired their remaining two-thirds interest in LCP, Ltd. and Lyon was sentenced to three months' imprisonment and a $20,000 fine. United States v. Lyon, No. 91-06192 (S.D. Fla. June 30, 1993). For simplicity, we refer to these consolidated appeals as "the 1996 appeal." Benjamin Kramer was sentenced on August 29, 1990 to a forty-five year jail term and ordered to
pay a fine of $460,000. Jack Kramer was sentenced on August 29, 1990 to nineteen years in prison and ordered to pay a $200,000 fine. Michael Gilbert was sentenced on August 28, 1990 to four years in prison and was ordered to pay a $350,000 fine. None of the three defendants was ordered, as part of his sentence, to forfeit any property to the Government. We discuss in Part IV.D., infra, the ramifications of the district court's failure to order forfeiture as part of the final judgment.
for them, set aside also.
Because the government, as we understand it, still does have some interest in the [Club] due to other forfeitures, we anticipate the district court, will, in the light of the differing ownership interests, need to hold a hearing or hearings and to issue additional orders about the [Club]'s future operations upon the district court's receiving of the mandate from this court.
Id. at 1076 n. 23.
After we handed down our decision on January 16, 1996, the Government sought rehearing and modification on the issue of resentencing, arguing that the district court should be allowed to resentence Michael Gilbert since a valuable property interest was returned to him. Rehearing was denied in July, and our mandate issued on July 18, 1996. The mandate stated, "it is now hereby ordered and adjudged by this Court that the judgments and convictions of the District Court in these causes be and the same hereby AFFIRMED except as to Gilbert's conviction for money laundering and the forfeiture judgment which are REVERSED."
Back in the district court, the Gilberts moved for an Order on the Mandate. Not to be outdone, the
Government moved the district court to enter a protective order "maintaining the status quo of the Gilberts'
alleged interests in the [Club]." The Government's motion requested that the district court "enter an order
directing that the defendant Michael S. Gilbert be required to file a petition pursuant to
Under the Government's reading of our 1996 decision setting aside Michael Gilbert's forfeiture
verdict, we resolved only that Michael Gilbert's interest in the Club was improperly forfeited because it was
The Government took its cue from a footnote in the district court's Amended Final Order of
Forfeiture following the ancillary hearing in which the court stated that, in light of the evidence presented
at the hearing (which never surfaced during the criminal trial), it would welcome an opportunity to
increase Michael Gilbert's sentence.
See Kramer,
not derived, directly or indirectly, from
his
racketeering activity. The Government notes in its brief that our
"opinion [did] not address the issue of whether the Gilberts are entitled to their interest in the [Club] pursuant
to
Following a hearing, the district court denied the Government's request for a protective order and
contemporaneously entered an order on the mandate. The district court reasoned that the Government's
argument, "however sound and well-reasoned it might be ... could have been pursued much earlier in these
proceedings. The government could have raised this during the ancillary proceedings, the appeal and the
petition for rehearing or have sought certiorari in the Supreme Court, but did not. As such, the government
has waived this issue.
United States v. Thompson,
II.
A.
As a threshold matter, we must address the Gilberts' challenge that we lack jurisdiction to hear this
appeal. The Government maintains that
1.
The question which confronts us at this stage is whether a third-party proceeding ancillary to a
criminal forfeiture prosecution is a criminal or civil proceeding for the purposes of a government appeal. If
to this court (Case Nos. 97-4475, 97-5173, 97-5174) and we heard oral argument on October 8, 1998.
While a decision in Coyne's case was still pending, Coyne consented to the Government selling its LCP
interest to a different buyer. The Government and Coyne then agreed that the right of first refusal issue
was moot. In their Joint Motion to Dismiss Appeal, the Government conceded that "the United States no
longer owns any interest in LCP or the Bell Garden's Bicycle Club." We granted dismissal in that case,
thus raising the possibility that the present case was subsequently rendered moot by the Government's
total divestiture. Upon request by this court, the Government assuaged our concern—the Government
had curiously agreed "as part of the sale of its forfeited interest ... to sell the Michael Gilbert, Karen
Gilbert, and Trust, interests if and when those interests are finally forfeited to and owned by the United
States." (We say "curiously" in light of the fact that the Government informs us that the Gilbert family
limited partnership interests are currently valued at over ten million dollars. The legal card club business
in California must indeed be a profitable business for a buyer to agree to a sale that might prove $10
million short.)
courts of the United States." A final decision is one that " 'ends the litigation on the merits and leaves
nothing for the court to do but execute the judgment.' "
Pitney Bowes, Inc. v. Mestre,
a
In
United States v. Douglas,
On appeal, the government argued that a third-party proceeding ancillary to a criminal forfeiture
prosecution was not a civil case and therefore the assessment of fees against the government was in error.
The
Douglas
court's
Criminal Enterprise statute,
forfeiture provisions in
2.
While we agree with the Government that
H.R.Rep. No. 98-1030, at 206-07 (1984), reprinted in 1984 U.S.C.C.A.N. 3182, 3389-90. *21 issue in (1) above. While the Government's motion is couched as request for a protective order, this designation is nothing more than smoke and mirrors. In effect, the Government has taken a request for an injunction —ordering Michael Gilbert to file a third-party petition pursuant to section 1963( )—and cleverly dressed it up to look like a request for a protective order.
It is clear from the language of the Government's motion that the "status quo" of the Gilberts'
property stands or falls upon the district court's decision to grant (or deny) the injunction. We conclude,
therefore, that the Government's motion should be properly treated as a request for an injunction.
Cf.
Chatman v. Spillers,
B.
A mixed standard of review applies when a district court grants or denies an injunction. We review
the district court's decision to grant or deny an injunction for clear abuse of discretion,
United States v. Bd.
of Educ. of Greene County, Mississippi,
of the United States ... granting, continuing, modifying, refusing or dissolving injunctions."
81, 100,
III.
A. The Government must demonstrate a substantive or procedural right before it may obtain an injunctive remedy. Thus, we must look to RICO's statutory forfeiture scheme to determine whether it grants the Government a right to force third-parties to file petitions in a section 1963( l ) ancillary proceeding.
1.
The RICO statute, introduced into law by the Organized Crime Control Act of 1970, "was intended
to provide new weapons of unprecedented scope for an assault upon organized crime and its economic roots"
by providing "enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in
organized crime."
Russello v. United States,
The Government's request is apparently an unprecedented move; our independent research has uncovered no case in which the Government has attempted to obtain such an injunction. The Gilberts and the Trust completely fail to question the propriety of the Government's motion, arguing instead that the Government's request is barred by the law of the case doctrine or, alternatively, that we lack jurisdiction to hear the Government's appeal ( see supra Part II.A.).
The law of the case doctrine dictates that "both the district court and the court of appeals generally are bound by findings of fact and conclusions of law made by the court of appeals in a prior appeal of the same case." United States v. Robinson,690 F.2d 869 , 872 (11th Cir.1982). The law of the case doctrine does not apply in this case because the issue in the 1996 appeal was whether Michael Gilbert's interest in the Club was properly forfeited under the Government's theory at trial, i.e., that his interest was derived from his own racketeering activity. The issue in this appeal, however, is whether the Government can force a third-party subsequent transferee, as defined in18 U.S.C. § 1963(c) , to file asection 1963 ( ) petition.
Surprisingly, from RICO's enactment in 1970 until 1984, RICO's forfeiture provisions contained no
procedure by which a third-party property holder could adjudicate his claim to forfeited property. Instead,
an innocent third-party who claimed an interest in forfeited property could only petition the Attorney General,
who had been exclusively charged with making "due provision for the rights of innocent persons."
Under current RICO forfeiture provisions, third-parties must wait for a final order of forfeiture in
the criminal trial before they can "hale the government into [court]" to adjudicate their interests in forfeited
property.
United States v. Kramer,
(2) Criminal Forfeiture. When a verdict contains a finding of property subject to a criminal forfeiture, the judgment of criminal forfeiture shall authorize the Attorney General to seize the interest or property subject to forfeiture, fixing such terms and conditions as the court shall deem proper.
to the extent practicable, provide direct written notice to any person known to have alleged an interest in the
property."
Next, the statute defines the class of people who are entitled to challenge the order of forfeiture and sets forth the time limits applicable to such challenges:
Any person other than the defendant, asserting a legal interest in property which has been ordered fоrfeited to the United States pursuant to this section may, within thirty days of the final publication of notice or his receipt of notice under paragraph (1), whichever is earlier, petition the court for a hearing to adjudicate the validity of his alleged interest in the property. The hearing shall be held before the court alone, without a jury.
applies to "[a]ny person other than the defendant."
)(6)(A)—(B) (reprinted in full
supra,
n. 30). By successfully establishing one of these three grounds, the
petitioner defeats the government's entitlement under the forfeiture order.
See
As the foregoing reveals, a
The language of the statute makes clear that if a third-party does not file a petition in the ancillary
proceeding within thirty days of receipt or publication of notice, his rights in the defendant's forfeited
property are automatically extinguished and the government obtains "clear title to property that is the subject
of the order of forfeiture and may warrant good title to any subsequent purchaser or transferee."
2.
Applying the
As noted
supra
in Part III.A.1., third-parties
cannot
petition the court to adjudicate their interests in
forfeited property until a final order of forfeiture has been entered in the criminal case. If such an order was
ever entered against Benjamin Kramer, we are unable to locate it in the record. Rather, the final judgment
in the criminal case only sentenced Kramer to prison confinement and a fine. This fact alone is sufficient to
affirm the denial of the Government's request, because third-parties such as the Gilberts are not permitted to
file
court shall enter a judgment of forfeiture of the property to the United States and shall also authorize the
Attorney General to seize all property ordered forfeited upon such terms and conditions as the court shall
deem proper...."
At the time of trial,
(b) Judgment.
(1) In General. A judgment of conviction shall set forth the plea, the verdict or findings, and the adjudication and sentence....
(2) Criminal Forfeiture. When a verdict contains a finding of property subject to a criminal forfeiture, the judgment of criminal forfeiture shall authorize the Attorney General to seize the interest or property subject to forfeiture, fixing such terms and conditions as the court shall deem proper.
3.
"In determining whether to infer a private cause of action from a federal statute, our focal point is
Congress' intent in enacting the statute."
Thompson v. Thompson,
We need not consider all four factors of the
Cort
analysis, as our consideration of the first two factors
is dispositive.
See Florida v. Seminole Tribe of Florida,
an implied private right of action.
See Touche Ross & Co. v. Redington,
The structure of RICO's criminal forfeiture scheme clearly indicates that Congress did not expect
the government to play an active role under
B.
1.
As a general matter, our conclusion that
because the defendant purchased them with drug proceeds, the Government would automatically obtain clear
title to any of those assets if no third-party petitions were filed before the statutory deadline. If there were
any question about the propriety of the Government's title, the Government could simply move the court for
an order declaring the status of its interest based on the final order of forfeiture and the disposition of
third-party petitions. The question then arises: why would the Government ask a court to force third-parties
to file
2.
As a result of our 1996 opinion setting aside the order of forfeiture against Michael Gilbert, the Government is left with only that interest in property which belonged to Benjamin Kramer at the time it became subject to forfeiture. The problem, however, is that the exact nature of that interest is undetermined. In an attempt to correct fundamental errors made during the criminal trial, the district court modified the forfeiture verdict (returned on April 2) and initial order of forfeiture (entered on April 3) after it heard evidence in the ancillary proceedings. The resulting Amended Final Order purported to forfeit Kramer's interest in LCP, Ltd., rather than the entire Bell Gardens Bicycle Club. The court made this change despite the fact that LCP, Ltd. was not named in the indictment, verdict, or initial order of forfeiture. The Government, believing that the court's post-trial amendment was valid, now claims title to Kramer's interest in LCP, Ltd., rather than the Club.
The dilemma presented by this purported change is that the Government does not know the extent of Kramer's interest—and, therefore, the extent of its own interest—in LCP, Ltd. Because the jury was never instructed to determine Kramer's interest in the partnership, his interest could conceivably range anywhere from .01 to 100 percent. Thus, what the Government has, at best, is an unspecified interest in LCP, Ltd. The question now becomes: what can the Government do with that unspecified interest?
What the Government presumably
wants
to do is sell its interest in LCP, Ltd. This would not
We set aside the forfeiture verdict against Michael Gilbert because, under a logical reading of
Venture, rather than any defendant in the case, owned the Bell Gardens Bicycle Club. See infra, Part IV.B.
normally be a problem, as the time for filing third-party petitions has long passed and title to the interest has
vested in the Government by opеration of law.
See
The Government's problem in this case is that the LCP, Ltd. Partnership Agreement cannot be amended to reflect the Government's ownership interest because the Government has no evidence to establish what percentage of the partnership it owns. It is hardly sufficient for the Government to allege that it owns "some" of LCP, Ltd. The initial order of forfeiture contains no useful information, as it does not even mention LCP, Ltd. Moreover, the name "Kramer" is nowhere to be found on the LCP, Ltd. partnership documents, for the Kramers were either silent partners in LCP, Ltd., or simply two of the Club's illegitimate creditors.
The jury was never asked to make sense of the crucial partner/creditor distinction, or to delineate the
extent of Kramer's ownership interest in LCP, Ltd. Instead, the court waited until the ancillary proceedings
following the trial to address the difficult factual questions of ownership and apportionment. At the
conclusion of those proceedings, the district court found that "the real owners of the Bicycle Club were Ben
Kramer, Randy Lanier, Tom, known as George Brock, and ... Gene Fisher.... The LCP partners and Gilberts,
The district court's post-trial findings, however, cannot retroactively amend the jury's verdict.
requirements promulgated in these Rules must be obeyed.' "
United States v. Cowan,
information alleges that an interest or property is subject to criminal forfeiture, a special verdict shall be
returned as to the extent of the interest or property subject to forfeiture, if any."
interests in the defendant's forfeited property. If the verdict and subsequent order of forfeiture are vague, they greatly expand the universe of third-parties whose interests are in jeopardy and who therefore require notice. The specificity requirement also fosters judicial economy, as those who are unsure whether their interests are implicated may file petitions out of an abundance of caution and burden the courts with unnecessary litigation.
Gardens Bicycle Club [was] subject to forfeiture." Since the verdict forms did not even suggest that LCP, Ltd. was an item of forfeitable property, the jury never had occasion to consider the extent of any defendant's interest in the partnership.
Because the court's "simplified" forms did not ask the jury to identify any defendant's interest in
LCP, Ltd. or to determine whether that interest was subject to forfeiture, those questions must remain
unanswered. Absent a waiver by defendants of their
3.
Let us assume,
arguendo,
that the district court
could
retroactively correct the forfeiture judgment
against Benjamin Kramer, thereby giving the Government title to a fixed percentage of LCP, Ltd. In such a
case, the Government might simply seek an order from the court declaring the status of its title, rather than
a
One problem with this approach, however, is that the district court's prior findings on the issue of
ownership are in direct conflict. While the court found that "of the defendants, only Ben Kramer and Michael
Gilbert actually
owned a forfeitable interest
in the Club,"
ancillary proceedings. This was presumably because no one had yet alleged that they were subsequent
transferees of his interest. Additionally, because Michael Gilbert was still a defendant in the case during
those proceedings, he was precluded from claiming an interest in his own forfeited property.
See
found that "the real owners of the Bicycle Club were Ben Kramer, Randy Lanier, ... George Brock, and ... Gene Fisher," and that "[t]he LCP partners and Gilberts ... were just 'straw persons' for purposes of the licenses," id. at 736 (emphasis added). As the trial court accurately noted, however, a person cannot "have a vested interest in property if he is found to be acting as a nominee for persons whose property is subject to forfeiture." Id. at 738. Which is it, then? Did Michael Gilbert own a forfeitable interest in the Club, or was he a nominee, or "straw man," holding Kramer's LCP, Ltd. interest? Because these questions have never been answered, it is unclear whether even the district court knows the origin of the Gilbert interests.
The Government, therefore, seeks to use the
4.
In sum, the circumstances make clear why the Government would like the Gilberts to file
While the Government's approach is an innovative one, it cannot succeed. For the reasons stated
supra,
Part III.A.,
IV.
Even if
Notably, the Government will bear the burden in the quiet title proceeding of proving that it has a superior claim to the property at issue. SeeCal.Code § 637 ("The things which a person possesses are presumed to be owned by him."); Davis v. Crump162 Cal. 513 ,123 P. 294 , 296-97 (1912) ("Proof of possession makes a prima facie case of ownership as against one not shown to have had any title or possession.").
forfeiture verdict had been in flawless form—targeting Kramer's interest in LCP, Ltd. and specifying his percentage of ownership—the district court neither entered the verdict nor ordered forfeiture as part of Kramer's sentence. In other words, the district court allowed the forfeiture verdict to vanish, without any force or effect. As a result, the event triggering ancillary proceedings and seizure of the property never occurred. Thus, the district court properly denied the Government's request for a mandatory injunction. The Gilberts cannot be forced to claim an interest in property the Government does not have, or be forced to file petitions in a proceeding not authorized by law.
A.
1. The distinction between in rem forfeiture (civil) and in personam forfeiture (criminal) is of great import in this case, and has an illustrative history:
The law of forfeiture dates back to the Old Testament. According to Exodus 21:28 (King James), "If an ox gore a man or a woman, and they die: then the ox shall be surely stoned, and his flesh shall not be eaten." A suggested basis for the text is that if the ox offended the heirarchical [sic] order, appeasement of God, the sovereign, required reparation which could only be attained by the ox forfeiting its life. See Finkelstein, The Goring Ox: Some Historical Perspectives on Deodands, Forfeitures, Wrongful Death and the Western Notion of Sovereignty, 46 TEMP. L.Q. 169, 180 (1973). The forfeiture doctrine continued into the common law of England where the Crown became the sovereign to be appeased. Thus, if an object such as a cart, tree, or well took the life of a King's subject, the object became the Crown's in order to redress the loss of human life and provide revenue. See Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 681, 94 S.Ct. 2080, 2090, 40 L.Ed.2d 452 (1974) (citing O. Holmes, The Common Law, c 1 (1881)).
Forfeiture survived the journey into American law, although not without criticism. Cf. Calero-Toledo,416 U.S. at 689, n. 27 ,94 S.Ct. at 2095, n. 27 ; United States v. U.S. Coin and Currency,401 U.S. 715 , 719-20,91 S.Ct. 1041 , 1043-44,28 L.Ed.2d 434 (1971); United States v. One 1976 Mercedes Benz 280S, 618 F.2d 453, 461 (7th Cir.1980) (forfeiture in present law constitutes vestiges of "old, forgotten, far-off things and battles long ago")....
The classical distinction between civil and criminal forfeiture was founded upon whether the penalty assessed was against the person or against the thing. Forfeiture against the person operated in personam and required a conviction before the property could be wrested from the defendant. See Calero-Toledo,416 U.S. at 682 ,94 S.Ct. at 2091 ; One 1958 Plymouth Sedan v. Pennsylvania, 380 U.S. 693, 700,85 S.Ct. 1246 , 1250,14 L.Ed.2d 170 (1965). Such forfeitures were regarded as criminal in nature because they were penal; they primarily sought to punish. Forfeiture against the thing was in rem and the forfeiture was based upon the unlawful use of the res, irrespective of its owner's culpability. These forfeitures were regarded as civil; their purpose was remedial. Calero- Toledo,416 U.S. at 680-81 ,94 S.Ct. at 2090 ; U.S. Coin & Currency,401 U.S. at 719 ,91 S.Ct. at 1043 .
United States v. Seifuddin,
Criminal forfeiture under RICO is
in personam. United States v. Bissell,
Because it seeks to penalize the defendant for his illegal activities,
in personam
forfeiture reaches
only that property, or portion thereof, owned by the defendant.
United States v. Peters,
That criminal forfeiture can only reach a defendant's interest in the subject property makes sense.
In the case of criminal forfeiture, the district court has "jurisdiction to enter orders ... without regard to the
location of any property which may be subject to forfeiture ... or which has been ordered forfeited."
2.
The Government in this case sought forfeiture of the Club under
The jury knew that the three defendants were not the exclusive owners of the Club; they had seen ample evidence showing that PPA—an innocent party—held an interest in the Club. They were reminded of that fact by the Government during its closing argument, when it attempted to assuage the jury's fears about forfeiting property belonging, in part, to innocent owners:
Now, during your deliberations, you ought not to be concerned with, well, what about the innocent people here? What about Park Place Associates? What about Sanwa Bank[,] where there is a *38 legitimate loan. [T]hose individuals can petition the court to get back any interest that they have, or to preserve and protect any interest that they have in the [Club], or any loans that are outstanding.
Thus, the jury clearly understood that it was being asked to forfeit property beyond that owned by the defendants.
Despite the evidence showing that the defendants were not the exclusive owners of the Club, the jury was never asked whether only part of the Club was subject to forfeiture. Rather, the jury was limited to an all-or-nothing decision. In accordance with the Government's request, the forfeiture verdicts returned against Benjamin Kramer, Jack Kramer, and Michael Gilbert purported to forfeit the entire Club—"the ongoing business, premises and building, together with fixtures."
The jury, however, could not legally order the forfeiture of the entire Club. While the defendants' tainted interests in the business were subject to forfeiture, the poorly drafted verdict forms did not give the jury the opportunity to limit the forfeiture to those interests. The end result was a verdict of forfeiture that purported to forfeit the Club in its entirety, even though the evidencе clearly established that the three defendants did not own the entire Club.
As a result of the jury's overbroad pronouncement, the Bell Gardens Bicycle Club—a business with
an approximate value of $150 million in 1990—became the centerpiece of an order of forfeiture entered by
the district court on April 3, 1990, immediately after the jury returned the last forfeiture verdict. In
accordance with the verdict, the court ordered that "the ongoing business, premises and building, together
with fixtures, ... known as the Bell Gardens Bicycle Club be and hereby are forfeited to the United States of
America for its full use and benefit, pursuant to
Despite the
in personam
limitations of criminal forfeiture proceedings, the district court's order
erroneously conflated the concepts of
in personam
and
in rem
forfeiture by professing to give the Government
a piece of real estate and an ongoing business in California, as opposed to the defendants' limited ownership
interest in the business. At least one commentator was puzzled by this result, and admitted being unable to
"explain how the jury could find that the entire Club was subject to forfeiture as racketeering proceeds under
Prosecution and Defense of Forfeiture Cases ¶ 14.08 n. 37 (2000).
The trial court sought to correct its mistake in its Amended Final Order following the ancillary
proceedings, in which it described the jury verdict as "forfeiting
the interests
of Ben Kramer, Jack Kramer
and Michael Gilbert in the Bicycle Club," and stating that "[o]nly
the interests
of [the] three convicted
defendants in the Bicycle Club were forfeited."
B.
In addition to its vagueness and overbreadth, the verdict of forfeiture agаinst Benjamin Kramer was
improper on a more fundamental level. Benjamin Kramer never owned any part of the Club. The Club itself
was a joint venture between two partnerships: PPA and LCP. Thus, the Joint Venture was the club's true
owner.
See Barr Lumber Co., Inc. v. Old Ivy Homebuilders, Inc.,
The fact that the Joint Venture, and not Benjamin Kramer, owned the Club was conclusively established at trial. The jury saw the Joint Venture Agreement between PPA and the LCP general partnership, which stated clearly that PPA and LCP had associated to form the Joint Venture known as the Bell Gardens Bicycle Club. Further, the purpose of the Joint Venture set forth in the agreement was "to organize, own, and During the ancillary proceedings, counsel for Julie Coyne, Richard Kirschner, advanced an illustrative hypothetical:
If you take the Government's reasoning to its logical conclusion ... you can have a convicted felon who bought a hundred shares of General Motors, and he used drug proceeds, and you have a hundred thousand other shareholders in General Motors, all of the shareholders['], including the drug dealer's money, are used to develop General Motors[.] [I]f you follow the Government's reasoning and theory, all of General Motors is forfeited to the Government, all of the dividends are suspended, and it's up to the other 99,000 shareholders to prove their interest in an ancillary hearing, because the money got commingled, and it was used to develop General Motors. Just not the law. Just doesn't happen.
operate the Bell Gardens Bicycle Club ... and to ... own the real property on which said card club is to be operated" (emphasis added). The jury also saw the loan agreement between CGL and the Club, in which the Bell Gardens Bicycle Club was described as "a Joint Venture consisting of [PPA], a California Limited Partnership ... and [LCP], a California General Partnership" and was referred to as "Owner" throughout. Finally, the jury saw the Deed of Trust executed by the Bell Gardens Bicycle Club in favor of CGL, wherein the Club was named as the owner of the parcels of land on which the card club was built.
At most, then, what Benjamin Kramer owned was a silent partnership interest in LCP general partnership, which later became LCP, Ltd. Thus, it was Benjamin Kramer's silent interest in LCP, Ltd. that should have been targeted for forfeiture in the indictment, jury instructions, and special verdict forms, not the Bell Gardens Bicycle Club. Unfortunately for the Government, this was only made clear during the ancillary proceedings. Because the jury—and the district court, by its initial order of forfeiture—forfeited property that Kramer did not own, the Government holds nothing by virtue of the order of forfeiture against Benjamin Kramer.
C.
Even if the forfeiture proceedings had properly targeted Kramer's interest in LCP, Ltd., rather than
the Club, the jury's verdict would remain fatally deficient. "
to shift the focus of forfeiture from the Club to LCP, Ltd. The court could not have ordered forfeiture of
LCP, Ltd. at any time during the proceedings, however, because
any."
Quite simply, there was nothing special about the special verdict of forfeiture forms submitted to the jury. The forms, essentially identical as to each defendant, merely asked whether the Club "constituted or was derived from any proceeds which Benjаmin Kramer obtained directly or indirectly from racketeering activity." If the jury answered in the affirmative, the only remaining question regarding the Club was whether "the Bell Gardens Bicycle Club [was] subject to forfeiture."
During the ancillary proceedings, petitioner Julie Coyne's counsel, Richard Kirschner, pointed out that "only a convicted defendant's interest in a club is forfeited or an asset is forfeited, not every other interest in the world. And that's the problem. This jury didn't come back and say what interest the Kramers held in the club." The court replied that "[t]hey didn't have any evidence on that. They weren't asked to do that." Indeed, the verdict forms asked neither what percentage of ownership each defendant held in the subject property nor how much of that interest was subject to forfeiture. As discussed supra, Part III.B., the effect of this deficiency, when read in the light most favorable to the Government, was to assign the Government an unspecified, and therefore worthless, interest in LCP, Ltd. [77]
D.
Finally, even if the special verdict of forfeiture had been in proper form, title to Kramer's property
never vested in the Government. On August 29, 1990, the district court sentenced Benjamin Kramer to a
"TOTAL sentence" of "FORTY FIVE years confinement.... Commited [sic] fines of $460,000.00 ... [and a]
$1,000.00 assessment." The court made no mention of forfeiture, apparently relying on its April 3 order as the final disposition of that issue. The court could not have ordered forfeiture of Kramer's property on
April 3, however, because criminal forfeiture "may not take place until a judgment of conviction is entered
and sentence imposed."
United States v. Alexander,
government's proposed order for forfeiture, and also seized the Club in its entirety, appointed an interim
trustee, аnd prevented the Club or its owners from distributing profits or transferring their interests."
1.
It is beyond doubt that criminal forfeiture is part of a defendant's sentence.
(A) determine that the defendant and defendant's counsel have had the opportunity to read and discuss the presentence investigation report[;]
(B) afford counsel for the defendant an opportunity to speak on behalf of the defendant; and (C) address the defendant personally and determine if the defendant wishes to make a statement and to present any information in mitigation of the sentence.
Black's Law Dictionary defines "allocution" as:
1. A trial judge's formal address to a convicted defendant, asking him or her to speak in
mitigation of the sentence to be imposed. This address is required under
2. An unsworn statement from a convicted defendant to the sentencing judge or jury in which the defendant can ask for mercy, explain his or her conduct, apologize for the crime, or say anything else in an effort to lessen the impending sentence. This statement is not subject to cross-examination.
Black's Law Dictionary 75 (7th ed.1999).
Moreover, it is clear that the trial court did not intend the impromptu gathering to function as a
sentencing hearing. Counsel for David Pierson—a third party claimant—called the court's attention to the
fact that "the Government seeks a final judgment of forfeiture, notwithstanding the fact that
2.
Because the April 3 order was not part of Kramer's sentence, it did not forfeit his property to the
(A) upon the filing of an indictment or information charging a violation ofsection 1962 of this chapter and alleging that the property with respect to which the order is sought would, in the event of a conviction, be subject to forfeiture under this section.
The court's judgment on August 29—containing no order of forfeiture—superseded the April 3
order, terminated any temporary restraints on the property, and ended the case.
See United States
v. Gelb,
F.2d at 809-13, Kramer's sentence "was imposed in violation of law."
Government. The premature order was merely an invalid attempt to bypass the procedurally required method
of criminal forfeiture set forth in
(b) Judgment.
(1) In General. A judgment of conviction shall set forth the plea, the verdict or findings, and the adjudication and sentence....
(2) Criminal Forfeiture. When a verdict contains a finding of property subject to a criminal forfeiture, the judgment of criminal forfeiture shall authorize the Attorney General to seize the interest or property subject to forfeiture....
before sentencing. The purpose of the order is merely to protect the forfeitable property between verdict
and sentencing, much like a pre-1996 restraining order. The preliminary order, however, is not final as to
the defendant and thus not appealable. "[B]oth before and after the 1996 amendments the key moment for
determining finality for the purpose of appeal is sentencing."
United States v. Derman,
in fact, imposition of forfeiture at the time of sentencing." Id. at 442 (collecting cases). *45 authorizing the Government to seize Kramer's property.
Similarly, the court's April 3 order was not the "order of forfeiturе" required to begin ancillary
proceedings under
Moreover,
V.
For the reasons herein stated, the judgment of the district court is
The law of the case doctrine,
see supra
note 51, is no impediment to our statement that there was no
valid judgment of forfeiture against Benjamin Kramer. The 1990 expedited appeal generated a
memorandum opinion, in which the court stated that "[b]ecause no hearing has been conducted, the facts
recited by the court are taken from the briefs and do not represent opinions of the court."
Kramer,
912
F.2d at 1258. Thus, the panel's characterization of the April 3 order as an order of forfeiture is merely a
misrepresentation by the parties in their briefs. As for the 1996 opinion, the panel did not consider the
forfeiture issue as to Kramer because Kramer did not challenge the forfeiture verdict the jury returned
against him.
AFFIRMED.
EDMONDSON, Circuit Judge, concurs in judgment only.