United States v. Patel

1

UNITED STATES OF AMERICA, Plaintiff, v. MINAL PATEL, Defendant.

No. 19-CR-80181-RAR

United States District Court, S.D. Florida

March 18, 2024

REPORT AND RECOMMENDATION ON MOTION TO DISMISS PETITION TO ADJUDICATE ASSETS [ECF No. 572]

BRUCE E. REINHART, UNITED STATES MAGISTRATE JUDGE

Petitioners Christopher Grant and Tymekah Ferguson ask for a ruling that their rights to certain forfeited assets is superior to the Government's rights to the same assets. I have reviewed the Verified Petitions, ECF Nos. 560, 564, the Motion to Dismiss, ECF No. 572 and the Response, ECF No. 575. No timely Reply was filed.^[1]I am fully advised and this matter is ripe for decision.^[2] Petitioners have not met their burden of showing an interest in the forfeited property that is superior to the Government's interest, so the Government's Motion to Dismiss the Verified Petitions should be GRANTED.

I. PROCEDURAL BACKGROUND

On December 14, 2022, a jury convicted Minal Patel of health care fraud and money laundering crimes that occurred between July 2016 and August 2019. ECF Nos. 391, 393. After the verdict, the Court entered an Amended Preliminary Order of Forfeiture that forfeited Mr. Patel's right, title, and interest in vehicles, funds seized from bank accounts, and real property (“the Forfeited Assets”). ECF No 552.^[3] After that, Mr. Grant and Ms. Ferguson filed a Verified Ancillary Petition under 21 U.S.C. § 853(n)(2) claiming an interest in the Forfeited Assets.

Petitioners were the relators in a False Claims Act qui tam action against Mr. Patel and others filed August 22, 2018, in the District of South Carolina. In that case, a default final judgment of approximately $616 million was entered on June 6, 2023. ECF No. 560-1. On July 9, 2023, Petitioners filed the default judgment with the Clerk of this Court under case number 23-mc-61300-WPD (the “Default Judgment”). ECF No. 560-6. On August 15, 2023, Petitioners filed the default judgment with the Broward County Clerk of Court. ECF No. 560-7. On August 24, 2023, the South Carolina judge awarded Petitioners “a relators' share of twenty-five percent (25%) which shall be paid out of any recovery obtained by the United States in regard to the Defendants LabSolutions, LLC and Minal Patel.” ECF No. 560-2 at 9 (the “South Carolina Order”).

The United States now moves to dismiss the Verified Petition for failure to state a claim upon which relief can be granted. ECF No. 572. The United States says Petitioners are unsecured creditors whose interest in the Forfeited Assets is inferior to the rights of the United States.

II. LEGAL PRINCIPLES

Proceeds and property derived from, or involved in, federal health care fraud and money laundering crimes are forfeited to the United States by operation of law. 18 U.S.C. §982(a)(1), (a)(7). Procedurally, after conviction, “the court must determine whether the Government established the requisite nexus between the property and the offense of conviction. Once this determination is made, the court must promptly enter a [Preliminary Order of Forfeiture] without regard to any third party's interest in the property.” United States v. Davenport, 668 F.3d 1316, 1320 (11th Cir. 2012) (citation omitted); Fed. R. Crim. P. 32.2(b)(2). The Preliminary Order of Forfeiture is incorporated into the defendant's sentence; it extinguishes the defendant's right, title, and interest in the property and transfers those interests to the United States. 21 U.S.C. § 853(a); Fed. R. Crim. P. 32.2(b)(4). Importantly, the Preliminary Order of Forfeiture leaves in place third party rights in the property. Under the relation-back doctrine, the Government's interest in the property is deemed to have vested at the time of the act that gives rise to the forfeiture. 21 U.S.C. § 853(c).

After the Preliminary Order of Forfeiture, the Court conducts ancillary proceedings in which third parties can assert they should get the property instead of the Government, because they have a right, title, or interest in the property that is superior to the Government's interest. 21 U.S.C. § 853(n); Fed. R. Crim. P. 32.2(c). Ancillary proceedings are the exclusive way for a non-defendant to assert a claim to the forfeited assets. 21 U.S.C. § 853(k). “In fact, § 853 affirmatively bars third-party claimants from intervening in a trial or appeal of a criminal case involving the forfeiture of the subject property, as well as commencing an action against the Government concerning the validity of an alleged interest in the property.” Davenport, 668 F.3d at 1320 (internal citations omitted).

The third party initiates the ancillary proceeding by filing a verified petition setting forth “the nature and extent of the petitioner's right, title, or interest in the property, the time and circumstances of the petitioner's acquisition of the right, title, or interest in the property, any additional facts supporting the petitioner's claim, and the relief sought.” 21 U.S.C. §853(n)(3). The petitioner has the burden of showing by a preponderance of the evidence that (1) at the time of the acts giving rise to the forfeiture, it had a vested right, title, or interest in the property that was superior to the defendant's right, title, or interest, or (2) it acquired an interest in the asset as an innocent bona fide purchaser for value after the crime. 21 U.S.C. § 853(n)(6)(A). Once all ancillary proceedings end, the Court enters a Final Order of Forfeiture that extinguishes all remaining third-party claims and gives the Government clear title to the assets. Fed. R. Crim. P. 32.2(c)(2); United States v. Avila-Torres, No. 17-20148-CR, 2019 WL 2177342, at *5 (S.D. Fla. May 20, 2019).

“Ancillary forfeiture proceedings that arise out of criminal cases are civil in nature and are thus governed by the Federal Rules of Civil Procedure.” United States v. Negron-Torres, 876 F.Supp.2d 1301, 1304 (M.D. Fla. 2012) (citing United States v. Gilbert, 244 F.3d 888, 907 (11th Cir. 2001)). So, to withstand a motion to dismiss for failure to state a claim, the verified petition must plausibly allege a sufficient interest in the property. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).^[4]

Ancillary proceedings are to resolve claims to an identifiable asset. For that reason, an unsecured creditor of the defendant cannot assert a claim in an ancillary proceeding. United States v. Eldick, 223 Fed.Appx. 837 (11th Cir. 2007); United States v. Jewelry, No. 14-cr-60094, 2015 WL 9700962, at *4 (S.D. Fla. Dec. 23, 2015), report and recommendation adopted, No. 14-cr-60094, 2016 WL 183314 (S.D. Fla. Jan. 13, 2016).

III. DISCUSSION

Petitioners make a series of arguments that rely on the same flawed premise - that they are differently situated from other third parties who want to assert claims to the Forfeited Assets because they are qui tam relators. Or, in their own words,

By the very nature of Petitioners' Order of Default Judgment, and Relators' Share Order, the criminal forfeiture proceedings against defendants Minal Patel and LabSolutions, LLC constitute an “alternative remedy” under 31 USC 3730(c)(5), in which “the person initiating the action shall have the same rights in such proceedings as such person would have had if the action had continued under this section.” 31 U.S.C. § 3730(c)(5).

ECF No. 575 at 1; see also, e.g., id. at 6 (“Petitioners have standing to assert their concrete legal interests in the Subject Property pursuant to the Relators' Share Order obtained by Petitioners and the FCA's ‘alternate remedy' provision.”); ECF No. 560 at 7 (Because criminal prosecution was an alternate proceeding under Section 3730(c)(5), Petitioners' right, title, or interest in the Forfeited Assets “vested at the same time that the United States obtained its right, title, or interest in the forfeited property [because] the relator's interest is not a direct interest in the Defendant's property itself, but rather it is an interest in the United States' interest in the property.”).

This argument is directly foreclosed by the Eleventh Circuit's binding decision in United States v. Couch, 906 F.3d 1223 (11th Cir. 2018). Because Petitioners misread Couch, I first explain the legal principles that derive from that case.

A. United States v. Couch

Even though a relator initiates a qui tam lawsuit on behalf of the United States, the Government may decide not to intervene and/or may decide to seek remedies through other legal proceedings (such as a criminal prosecution or administrative action). To try to prevent the relator from being unduly prejudiced if the Government chooses one of these other paths, Section 3730(c)(5) says the relator “shall have the same rights in such proceeding as [the relator] would have had if the [qui tam] action had continued.”^[5]

In Couch, a relator filed a qui tam lawsuit against a pain management clinic. 906 F.3d 1223. The Government did not intervene. Instead, the Government prosecuted the doctors who ran the clinic.

After the doctors were convicted, a preliminary order of forfeiture was entered. The relator tried to intervene in the forfeiture proceedings “to claim the share of the assets she would have been entitled to if the government had intervened in her qui tam action. In the alternative, she petitioned to assert an interest in the forfeited property under 21 U.S.C. § 853 and Federal Rule of Criminal Procedure 32.2.” Id. at 1226. She conceded that she did not meet the requirements to be a third-party claimant under 21 U.S.C. §853(n)(6). “The government argued [the relator] has no right to intervene under the alternate-remedy provision because her qui tam case remains pending - meaning she has not yet established a right to a relator's share. It further...