United States v. Any & All Joint Venture Units of Morgan Interest Holders Held in the Morgan King of Prussia Joint Venture

533 F.Supp.3d 115

UNITED STATES of America, Plaintiff,

v.ANY AND ALL JOINT VENTURE UNITS OF MORGAN INTEREST HOLDERS HELD IN the MORGAN KING OF PRUSSIA JOINT VENTURE, Traceable to the Following Real Properties Which Were Contributed to Such Joint Venture: 5111 Ball Road, Syracuse, New York, Known as High Acres Apartments ; 2161 Camelot Drive, Harrisburg, Pennsylvania, Known as King's Manor Apartments; 140 Westbrook Hills Drive, Syracuse, New York, Known as Morgan Meadows Apartments; 1 Oakmonte Boulevard, Webster, New York, Known as Oakmonte Apartment Homes; 825 Ridgewood Drive, Fort Wayne, Indiana, Known as the Summit at Ridgewood ; 40 Webster Manor Drive, Webster, New York, Known as Webster Manor Apartments; and 137 Ringneck Drive, Harrisburg, Pennsylvania, Known as the Village of Laurel Ridge I, Defendants.

1:20-CV-00334 EAW

United States District Court, W.D. New York.

Signed April 9, 2021

Joseph J. Karaszewski, Kevin D. Robinson, Mary C. Kane, U.S. Attorney's Office, Buffalo, NY, for Plaintiff.

DECISION AND ORDER

ELIZABETH A. WOLFORD, United States District Judge

BACKGROUND

Plaintiff the United States of America (hereinafter "the government") commenced the above-referenced civil forfeiture action on March 20, 2020. (Dkt. 1). The government seeks forfeiture of the Joint Venture Units ("JV Units") of "the Morgan Interest Holders"¹ in the Morgan Properties King of Prussia Joint Venture LLC ("MP KofP JV LLC") that are traceable to the properties listed in the above caption. (Id. at ¶ 1). The complaint alleges that MP KofP JV LLC acquired the real properties listed in the above caption on or about October 24, 2019, and in exchange for the contributed properties, "Class A and Class B JV Units were issued to those individuals and entities with ownership interests in the contributed properties which were equivalent in value to net equity in the properties." (Id. at ¶ 2).

Contemporaneously with the filing of the complaint, the government obtained an arrest warrant in rem that was signed by the Clerk of Court and states that it was witnessed by the undersigned. (See Dkt. 10 at 2-3; Dkt. 1-1). The government arranged to serve the arrest warrant in rem on several entitles and individuals. (Dkt. 4; Dkt. 5; Dkt. 6; Dkt. 7; Dkt. 8; Dkt. 10). The undersigned neither witnessed nor authorized the issuance of the arrest warrant in rem.

Several motions are currently pending before the undersigned in connection with the above-referenced matter, including three motions filed pursuant to Federal Rule of Criminal Procedure 41(g), or in the alternative, 28 U.S.C. § 1651, seeking to enjoin the government from unlawfully restraining property and ordering the government to withdraw its instruction to MP KofP JV LLC to escrow distributions of net ordinary proceeds payable on certain Class A JV Units. (Dkt. 106 (motion filed by Robert Morgan and Todd Morgan); Dkt. 114 (motion filed by Maplewood MHP, Inc., Schiava Properties, James Martin, George DeGraca, and the Respective Successors, Assigns, Personal Representatives and Trustees of the foregoing (including Christopher J. Martin and Michelle Bryant, as Trustees) (hereinafter collectively the "Oakmonte Claimants")); Dkt. 116 (motion filed by Lacey Morgan Katz and Robyn Morgan)).² In addition to these three motions for the return of property filed by the Moving Parties, the government has filed a motion for an Order pursuant to 18 U.S.C. § 983(j)(1)(A), for entry of a post-complaint restraining order of all JV Units of Morgan Interest Holders held in the MP KofP JV LLC traceable to the real properties identified in the above caption. (Dkt. 161).

Briefing on the Moving Parties’ motions for return of property occurred during October and November 2020 (See Dkt. 106-108 & Dkt. 121 (submissions on behalf of Robert and Todd Morgan); Dkt. 114 & Dkt. 122 (submissions on behalf of the Oakmonte Claimants); Dkt. 116 & Dkt. 120 (submissions on behalf of Lacey Morgan Katz and Robyn Morgan); Dkt. 118 & Dkt. 130 (government's opposition and sur-reply)). Oral argument was held before the undersigned on December 3, 2020 (Dkt. 133; Dkt. 149), and the Moving Parties filed supplemental submissions on December 11, 2020 (Dkt. 136; Dkt. 137; Dkt. 138).

On December 21, 2020, the Court issued a Text Order directing the government to explain the basis for its position that the arrest warrant in rem was properly issued by the Clerk in this case, in view of the fact that Supplemental Admiralty and Maritime Claims Rule G(3)(b)(ii), requires a court—not a clerk—to issue an arrest warrant in rem on a finding of probable cause where property is not in the possession, custody or control of the government (as is the case with the JV Units and any distributions). (Dkt. 139). The government responded on December 28, 2020, indicating that "[i]n hindsight" the arrest warrant in rem was "not necessary" but it nonetheless served "a useful purpose, as it operated to inform the MP KofP JV LLC and all parties that the action had been filed and informed the parties [of] certain filing deadlines." (Dkt. 142 at 5 n.1).

The Court thereafter held a status conference on January 6, 2021, at which time it raised a number of questions with respect to the pending motions for return of property and the status of the matter, including the issuance of the arrest warrant in rem, and requested supplemental briefing from the parties. (Dkt. 152; Dkt. 154). The Court asked the parties to directly answer the questions raised with their supplemental briefing. (See Dkt. 154 at 20 ("I would like for everybody to submit further briefing that, as best as possible, directly answers my questions.")).³

In compliance with the Court's requests, the Moving Parties filed their submissions on February 12, 2021, addressing the questions raised by the Court. (Dkt. 162; Dkt 163; Dkt. 164). On the other hand, the government only answered some of the questions as requested by the Court. An affidavit filed by Assistant United States Attorney ("AUSA") Joseph J. Karaszewski, Chief of the Asset Recovery Division in the United States Attorney's Office for the Western District of New York, outlined certain steps that his office had taken that he claimed rendered moot the pending motions for return of property. (Dkt. 160). In that affidavit, AUSA Karaszewski stated that the government "notified MP KofP JV LLC in writing that it does not object to the release to the movants of all net ordinary proceeds paid and payable to the movants based on their ownership interests in the JV Units named" in the above-captioned matter. (Id. at ¶ 4). Thus, according to the government, the pending motions for return of property were moot. At the same time that it filed AUSA Karaszewski's affidavit, the government also filed its motion for a restraining order. (Dkt. 161).

In accordance with the schedule set by the Court, each party filed a response to the opposing party's supplemental submission on February 26, 2021. (Dkt. 168; Dkt. 170; Dkt. 171; Dkt. 173). On that same date, the Moving Parties filed opposition papers to the government's motion for a restraining order. (Dkt. 169; Dkt. 171; Dkt. 172).

MOTIONS FOR RETURN OF PROPERTY

The Moving Parties each acknowledge that based on the government's communication to MP KofP JV LLC that it does not object to the release of all net ordinary proceeds "paid and payable" based on their ownership interests in the JV Units named in the above-referenced litigation, they have obtained all of the relief they sought with their pending motions so long as the government means that this also applies to any future distributions. (Dkt. 168 at 4; Dkt. 171 at 2; Dkt. 173 at 2).

The Court interprets the government's communication to MP KofP JV LLC as indicating that it is no longer seeking to restrain the distributions of net ordinary proceeds on the JV Units. In the event that in the future the government attempts to restrain these distributions in one way or another, the dispute may be brought to the Court's attention to resolve, but the pending motions are not the appropriate forum in which to litigate hypothetical possibilities as to potential future efforts by the government to restrain property. To be clear, though, so long as the current status remains the same and the distributions are not within the government's possession, custody or control, the Court would expect the government to first seek an order from the undersigned before attempting to restrain the Moving Parties’ distributions of net ordinary proceeds on the JV Units at issue in this litigation.

Accordingly, the Court denies the motions for return of property (Dkt. 106; Dkt. 114; Dkt. 116) as moot.

THE GOVERNMENT'S MOTION FOR A RESTRAINING ORDER

The government seeks a restraining order pursuant to 18 U.S.C. § 983(j)(1)(A), which provides, in relevant part, as follows:

Upon application of the United States, the court may enter a restraining order or injunction, ... or take any other action to seize, secure, maintain, or preserve the availability of property subject to civil forfeiture ... upon the filing of a civil forfeiture complaint alleging that the property with respect to which the order is sought is subject to civil forfeiture....

Specifically, the government seeks a restraining order for the following property:

the defendants inrem in the above captioned case: Any and All Joint Venture Units ("JV Units") of Morgan Interest Holders held in the Morgan King of Prussia Joint Venture, traceable to the following real properties which were contributed to such Joint Venture:

5111 Ball Road, Syracuse, New York, known as High Acres Apartments [10,031,739 JV Units];

2161 Camelot Drive, Harrisburg, Pennsylvania, known as King's Manor Apartments [9,715,315 JV Units]; 140 Westbrook Hills Drive, Syracuse, New York, known as Morgan Meadows Apartments [14,129,173 JV Units];

1 Oakmonte Boulevard, Webster, New York, known as Oakmonte Apartment Homes [11,804,286 JV Units];

825 Ridgewood Drive, Fort Wayne, Indiana, known

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