United States v. Peck

644 F.Supp.3d 954

UNITED STATES of America, Plaintiff, v. Justin PECK, Defendant.

Case No. 2:20-CR-185-HCN

United States District Court, D. Utah

Signed December 5, 2022

Jamie Z. Thomas, Mark Evan Woolf, Assistant U.S. Attorneys, U.S. Attorney's Office, Salt Lake City, UT, for Plaintiff.

MEMORANDUM DECISION AND ORDER GRANTING THIRD-PARTY PETITION

Howard C. Nielson, Jr., United States District Judge

Proceeds of Defendant Justin Peck's crime were used to pay off a deed of trust secured by real property and the United States seeks criminal forfeiture of that property. Third-party claimant Jesse Dunn filed a petition asserting ownership of the property. The court grants the petition and vacates the preliminary order granting the Government's motion for forfeiture.

I.

Mr. Peck pleaded guilty to operating an unlicensed money transmitting business in violation of 18 U.S.C. § 1960. See Dkt. No. 34. As part of the written plea agreement, Mr. Peck agreed to forfeit Salt Lake County Parcel No. 27-02-177-005, which is located at 8891 S. 1030 W., West Jordan, UT 84088. See Dkt. No. 15 at 5. But at the change of plea hearing, Mr. Peck represented to the magistrate judge "that he does not have any interest in that property." Dkt. No. 43 at 5. The Government failed to disclose this representation when it filed a motion with the undersigned district judge seeking forfeiture of the real property. See Dkt. No. 16. The court granted the Government's motion and entered a preliminary order of forfeiture. See Dkt. No. 17. That order became final as against Mr. Peck when the court imposed sentence. See Dkt. No. 33.

Meanwhile, Mr. Dunn filed a petition asserting ownership of the real property as a third-party claimant pursuant to Federal Rule of Criminal Procedure 32.2 and 21 U.S.C. § 853(n). See Dkt. No. 22. The court held an evidentiary hearing on the petition. See Dkt. Nos. 42, 46, 49. The evidence presented at the hearing established the following, largely undisputed facts.

Mr. Dunn was a friend and employee of Mr. Peck. See Dkt. No. 52 at 44:2-19. While working with Mr. Peck, Mr. Dunn became familiar with how Mr. Peck's unlawful enterprise, Source Investments, operated. See id. at 49:14-50:20, 97:5-7. Generally, contractors would write checks payable to the Source Investments bank account at Mountain America Credit Union, and Mr. Peck or Mr. Dunn would meet them and accept the checks in exchange for an equivalent amount of cash, minus a commission. See id. at 43:3-8; 49:14-50:5. Mr. Dunn was an authorized user of the Source Investments account and deposited checks into, and withdrew cash from, this account. See id. at 55:19-23, 97:16-24. He also kept records of the transactions by filling out spreadsheets tracking the names of the contractors he met, the number and dollar amounts of checks he received, and the amounts he paid out in cash. See id. at 98:25-99:10.

Mr. Dunn purchased the disputed real property on March 14, 2018, for $475,000. See Dkt. No. 57 at 9. This money came from a variety of sources, including a hard money loan of $280,500. See id.; Dkt. No. 52 at 89:9-23; Gov't Ex. 6. The hard money loan was secured by a deed of trust covering the disputed property. See Gov't Ex. 5. Although it initially questioned the source of the funds (other than the hard money loan) used for the purchase, the Government now concedes that these funds were not proceeds of Mr. Peck's offense. See Dkt No. 57 at 9. The Government also concedes that the disputed real property was not an instrumentality of, or used to facilitate, Mr. Peck's offense. See Dkt. No. 52 at 53:1-15.

Proceeds of Mr. Peck's offense were used to pay off the hard money loan, however. Specifically, Mr. Peck authorized Mr. Dunn to wire $304,795.66 from the Source Investments account to the title company for payment to the hard money lender. See id. at 26:5-7; 94:20-23.

II.

The United States obtained the preliminary forfeiture order pursuant to 18 U.S.C. § 982(a)(1). See Dkt. Nos. 16, 17. That statute requires that "[t]he court, in imposing sentence on a person convicted of an offense in violation of section 1956, 1957, or 1960 of this title, shall order that the person forfeit to the United States any property, real or personal, involved in such offense, or any property traceable to such property." "Once an asset is determined to be 'forfeitable' pursuant to § 982(a)(1), . . . the seizure and disposition, including any administrative or judicial proceeding, is governed by the Comprehensive Drug Abuse Prevention and Control Act, 21 U.S.C. § 853(c) and (e) through (p)." United States v. Bornfield, 145 F.3d 1123, 1136 (10th Cir. 1998). In addition, "Rule 32.2 of the Federal Rules of Criminal Procedure governs the criminal forfeiture procedure." United States v. Arnold, 878 F.3d 940, 943 (10th Cir. 2017).

Section 853 and Rule 32.2 provide a two-step process for criminal forfeitures. At the first step, "the court must determine whether the government has established the requisite nexus between the property and the offense." Fed. R. Crim. P. 32.2(b)(1)(A). In cases involving Section 982(a)(1), this requires a determination whether the property was involved in the offense or traceable to property that was so involved. If this nexus is established, the court must enter a preliminary order of forfeiture "without regard to any third party's interest in the property." Fed. R. Crim. P. 32.2(b)(2)(A). "Determining whether a third party has such an interest must be deferred until any third party files a claim in an ancillary proceeding under Rule 32.2(c)." Id.

At the second step, following the entry of the preliminary order, any third party "asserting a legal interest in property which has been ordered forfeited to the United States . . . may . . . petition the court for a hearing to adjudicate the validity of his alleged interest in the property." 21 U.S.C. § 853(n)(2). The preliminary order "becomes final as to the defendant" "at sentencing—or at any time before sentencing if the defendant consents." Fed. R. Crim. P. 32.2(b)(4)(A). But the order "remains preliminary as to third parties until the ancillary proceeding is concluded." Id.

After the ancillary proceeding, the court must amend the forfeiture to account for the third-party petitioner's interest if the petitioner establishes by a preponderance of the evidence that he or she

(A) . . . 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) . . . 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[.]

21 U.S.C. § 853(n)(6).

III.

Based on the evidence and argument presented during the ancillary proceedings, as well as its analysis of governing law, the court concludes that Mr. Dunn had a legal right, title, or interest in the disputed property that renders the order of forfeiture invalid because at the time Mr. Peck committed his crime, title to the property was vested in Mr. Dunn rather than Mr. Peck or at least Mr. Dunn's interest in the property was superior to that of Mr. Peck.

Given that the Government now concedes that proceeds of Mr. Peck's offense of conviction were not used in the initial transaction, it is clear that Mr. Peck did not acquire any interest in the disputed property when Mr. Dunn purchased it. And although such proceeds were later used to pay off the deed of trust, the court concludes that this transaction did not give Mr. Peck (or, through him, the Government) any legal interest in the disputed property.

State law defines ownership interests. See United States v. Andrews, 530 F.3d 1232, 1238 (10th Cir. 2008). Under Utah law, a deed of trust is a deed executed in conformity with Utah Code §§ 57-1-20-36 that conveys real property to a trustee to secure performance of an obligation of the grantor to a beneficiary. See General Glass Corp. v. Mast Constr. Co., 766 P.2d 429, 432 (Utah Ct. App. 1988); Utah Code § 57-1-19. Mr. Dunn obviously must have first received title to the disputed property at the time of purchase for him to have been able to then convey that title to the trustee. See Utah Code § 57-1-19; First Sec. Bank of Utah, N.A. v. Banberry Crossing, 780 P.2d 1253, 1256 (Utah 1989) ("[A] trust deed is a conveyance by which title to the trust property passes to the trustee."). And the language of the deed of trust itself confirms that Mr. Dunn held unencumbered title to the property when he executed the conveyance. See Gov't Ex. 5 at 1.

Utah follows the "general rule . . . that payment of the secured debt extinguishes the lien of the mortgage or deed of trust by itself and instantaneously." Stenquist v. Jmg Holdings LLC, 379 P.3d 941, 944 (Utah Ct. App. 2016) (quoting 55 Am. Jur. 2d Mortgages § 318 (2016)). Thus, under Utah law, once the debt secured by a deed of trust is paid, "a trust deed is a mere nullity." Id. at 947; cf. Hector, Inc. v. United Sav. & Loan Ass'n, 741 P.2d 542, 545 (Utah 1987) ("[W]hen the debt is paid . . . the lender no longer has a legitimate interest in the security."). It follows here that once the hard money loan was paid off, the deed of trust was extinguished, leaving Mr. Dunn with the unencumbered title he initially acquired on the date of purchase. The Government has not identified, and the court has not located, any authority that would support a conclusion that Mr. Peck (and through him, the Government) obtained any sort of legal interest in the real property simply because proceeds of Mr. Peck's crime were used to pay the hard money lender. Indeed, a contrary conclusion...