United States v. Rudolph

1

UNITED STATES OF AMERICA, Plaintiff, v. 1. LAWRENCE RUDOLPH, and 2. LORI MILLIRON, Defendants.

CRIMINAL No. 22-cr-012-WJM

United States District Court, D. Colorado

October 26, 2023

ORDER STRIKING BRIEFING ON PETITION AND MOTION TO DISMISS

William J. Martinez Judge

This case is before the Court on Petitioners' Julian and AnaBianca Rudolph (jointly, “Petitioners”) Verified Petition for Adjudication of Interests in Property Ordered Forfeited (“Petition”) (ECF No. 367) and a memorandum of law in support (ECF No. 368). The Government filed a Response and Motion to Dismiss Verified Petition for Adjudication of Interests in Property Ordered Forfeited (“Motion”). (ECF No. 396.) Petitioners filed a response in opposition. (ECF No. 422.) The Government filed a reply and notice of errata. (ECF Nos. 441, 442.)

I. INTRODUCTION

The Petition was filed on June 16, 2023, a couple of months before Defendant Lawrence Rudolph's (“Defendant”) August 21, 203 sentencing hearing, asserting Petitioners' legal interest in all of the property ordered forfeited to the Government in the Preliminary Order of Forfeiture. (ECF No. 367, 412.) At the conclusion of the sentencing hearing, the Court ordered Defendant to pay $4,877,744.93 in restitution to several life insurance companies. (ECF No. 415 at 6-7.) The Court also made its Preliminary Order of Forfeiture (ECF No. 354) final as to Defendant individually. (ECF No. 412.) Approximately one month after the sentencing hearing, on September 25, 2023, the parties' briefing on the Petition became ripe. (ECF Nos. 367, 368, 396, 422, 441.)

The Court has thoroughly reviewed the parties' briefs on the Motion and, for the following reasons, has determined it is necessary to strike the parties' relevant briefing and begin anew. Instead of setting forth the facts and law on the relevant issues, the briefing in this cases seems to raise more questions than it answers. One primary point of confusion is the parties' persistent conflation of restitution and forfeiture in the ancillary portion of the case. While the Court will discuss this issue in more depth below, suffice it to say that Petitioners' reliance on the Restatement of Restitution to support many of its arguments has left the Court hopelessly confused as to how to apply their arguments and authority to this proceeding involving forfeited assets.

Adding to the Court's confusion is the parties' dispute concerning the status of certain relevant entities in the case, including: Petitioners, Defendant, the trusts and trustees, and the insurance companies. Questions abound concerning Petitioners' status as contingent beneficiaries of the life insurance policies, Defendant's shifting status as a trustee of the Rudolph Trust (and any other trusts involved in this case), Julian Rudolph's purported status as current trustee of at least one of the trusts in this case, and the insurance companies' positions as to whether they are victims or wish to assign Petitioners their restitution money.

Finally, rather than making cogent arguments based on the applicable law, the Court also finds the parties are in large part speaking past each other regarding whether the elements of an equitable constructive trust have been met.

The forementioned issues have rendered the Court unable to address the merits of the Motion, or to determine whether Petitioners have standing to continue in this ancillary proceeding. Therefore, below, the Court identifies in more detail some of the numerous issues and questions raised by the briefing and some points of clarification.

II. ISSUES TO ADDRESS IN AMENDED MOTION PRACTICE

A. Conflation of Restitution and Forfeiture

The Petition asks the Court to adjudicate Petitioners' interests in the property ordered forfeited-not the restitution funds the Court ordered Defendant to pay to the insurance companies. (ECF No. 367.) Nevertheless, Petitioners' response relies on the Restatement of Restitution; informs the Court that at least five insurance companies have agreed to assign their restitution rights to Petitioners; and in a footnote “ask[s] that this Court find the insurance companies are the rightful beneficiaries of the constructive trust, such that the full amount of the proceeds and all appreciation be surrendered to them” and states that “[e]ither way, it is clear that the proceeds should not be forfeited to the government.” (ECF No. 422 at 7, 8, 9, 13.)

Petitioners' citation to restitution law, reliance on the assignment of restitution funds, and request to find that the insurance companies are beneficiaries of a constructive trust simply make no sense to the Court in this context, particularly given the disparate purposes of restitution and forfeiture under the law.^[1] This Court has already ruled that the insurance companies, not Petitioners, are the victims of Defendant's mail fraud for restitution purposes. (ECF No. 344.) The Tenth Circuit affirmed this ruling. (ECF No. 356.) As the Government points out, “[h]ere, the criminal forfeiture is based on the mail fraud on the insurance companies.” (ECF No. 441 at 6.) Accordingly, Petitioners' reliance on restitution law in the context of the Petition to adjudicate interests in property ordered forfeited is not adequately explained such that the Court can properly assess these arguments. Similarly, Petitioners fail to adequately explain to what end the Court would rule that the insurance companies-who will already be made whole through restitution-should be made the beneficiaries of an equitable constructive trust.

B. Petitioners' Legal Status

The Court has been bogged down by the back and forth between the parties with respect to: Petitioners' legal status under the insurance policies as contingent beneficiaries^[2]; Petitioners' legal status with respect to the Rudolph Trust and the Lawrence P. Rudolph Survivor's Trust; and the ultimate effect of the assignment agreements with at least five of the insurance companies.^[3]At bottom, Petitioners need to clarify for the Court their legal status on all of these points and clearly explain why their status entitles them to a constructive trust, as opposed to the insurance companies being the injured parties and obviating the Petition, or why Petitioners should not merely file a claim for insurance proceeds with the insurance companies. (See ECF No. 396 at 13 (Government argues “[n]ot insignificantly, petitioners are also attempting to shortcut a process which could provide them a legal remedy. The appropriate procedure would be for the proper contingent beneficiaries to file claims under each policy with the insurance companies. Once the restitution is paid to the insurance companies, each insurance company would be able to determine whether the benefits would be paid to any contingent beneficiaries, any trusts, any estate, or whether any benefit would be paid at all under the policy.”).)

In a similar vein, Petitioners state that at least five insurance companies have assigned their rights to Petitioners, but the Government points out that these “agreements with the insurance companies do not appear to give the Petitioners the right to seek equitable rights in lieu of the legal right to obtain restitution.” (ECF No. 441 at 3.)

The Petition is not based on the recent assignment of rights agreements but the notion that all of the insurance funds are rightfully Petitioners'. (Id. at 2.) The Government also points out some legal and factual issues concerning the fact that several of the agreements reference the ability to seek restitution in the “Forfeiture Proceeding,” which relates to the related civil forfeiture case, not this criminal case. (Id.) The Court simply does not know what to make of this legal wrinkle.

The parties must untangle these factual issues before the Court can evaluate the merits of the Petition. Moreover, if Petitioners have valid, binding assignment agreements from certain insurance companies, they must clarify why they continue to seek relief from this Court and not the insurance companies.^[4] (See ECF No. 441 at 9.)

However, the fault does not entirely lie with Petitioners. In its reply, the Government states that it is “sending letters to the insurance companies to determine where any restitution payments should be made from the Clerk of Court. Specifically, whether to have the funds remitted directly to Petitioners or to the insurance company so that they can remit to the Petitioners for accounting purposes.” (ECF No. 441 at 3 n.2.) In the Court's view, this statement appears to be key to this ancillary proceeding and could affect Petitioners' (and perhaps the Government's) position on whether the Court must adjudicate their interests in that portion of the forfeiture assets.^[5]

C. Other Issues

As the parties are well aware, the aforementioned legal and factual issues are not the only ones raised in the briefing on the Motion. For instance, while the Court will not give the tracing arguments the same thorough treatment as the issues above, the Court requires the Government to clarify how it can argue that the assets were traceable at the sentencing hearing but now contend that Petitioners cannot trace the assets to establish the fourth element of a constructive trust. (See ECF No. 441 at 7 (“[A]s shown during sentencing, all of the life insurance proceeds were eventually commingled into one [Vanguard account]. From there, those commingled funds were then transferred to multiple accounts and eventually the assets subject to forfeiture. Thus, while all of the forfeiture assets are traceable to the collective life insurance proceeds, it is incredibly difficult to delineate between the proceeds from the seven different life insurance companies and their traceability to the forfeited...