United States v. -t_T-4,480,466.16 in Funds Seized from Bank of Am. Account Ending in 2653 (In re Rem), Civil Action No. 3:17-CV-2989-D

UNITED STATES OF AMERICA, Plaintiff, v. $4,480,466.16 IN FUNDS SEIZED FROM BANK OFAMERICA ACCOUNT ENDING IN 2653, et al., Defendants in rem.

Civil Action No. 3:17-CV-2989-D

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

August 28, 2018

MEMORANDUM OPINION AND ORDER

In this in rem civil forfeiture action, six claimants—Retail Ready Career Center, Inc. ("RRCC"), Jonathan Davis ("Davis"), Melissa Richey ("Richey"), Lake Forrest Drive Properties, Inc., Clear Conscience, LLC, and Trades United Inc. (collectively, "claimants")—move to dismiss the second amended complaint, and the government moves to seal the affidavit filed in support of its second amended complaint ("verification affidavit"). For the following reasons, the court grants the motions to dismiss but also grants the government leave to file a third amended complaint, and grants the government's motion to seal the verification affidavit.

I

In September and October 2017 the government seized certain property (the "defendant property") as derived from proceeds traceable to a violation, violations, or conspiracy to violate federal law.¹ In October 2017 the government filed the instant in rem action. After receiving notice of the action, claimants filed verified claims to the defendant property. They then moved, in three separate motions, to dismiss the complaint and for a more definite statement. They also moved to unseal court records.

The government later filed an amended complaint and moved to dismiss the constitutional counterclaims of claimant RRCC. Claimants, again in three separate motions, moved to dismiss the amended complaint and for a more definite statement. They also filed a second motion to unseal court records.

The government then filed a motion to stay, pursuant to 18 U.S.C. § 981(g)(1), contending that a stay was necessary to protect an ongoing criminal investigation from expansive civil discovery. In United States v. $4,480,466.16 in Funds Seized from Bank of America Account Ending in 2653 ($4,480,466.16 in Funds Seized I), 2018 WL 1964255 (N.D. Tex. Apr. 26, 2018) (Fitzwater, J.), the court denied the government's motion to stay; granted the government's motion to dismiss RRCC's counterclaims; denied without prejudice as moot claimants' motions to dismiss the complaint and for a more definite statement;granted claimants' motions to dismiss the first amended complaint and for a more definite statement; denied claimants' first and second motions to unseal court records; and granted the government leave to file a second amended complaint. See id. at *8.

Thereafter, the government filed a second amended complaint and a motion to seal the verification affidavit filed with the second amended complaint. Claimants, in turn, filed the three instant motions to dismiss the second amended complaint. The court now addresses claimants' motions to dismiss and the government's motion to seal the verification affidavit.²

II

The court considers first claimants' motions to dismiss the second amended complaint.

A

Pleading requirements for in rem forfeiture actions are governed by Rule G of the Supplemental Rules of the Federal Rules of Civil Procedure. See generally Supp. R. G. Under Supp. R. G(8)(b), "[a] claimant who establishes standing to contest forfeiture may move to dismiss the action under Rule 12(b)."³ The sufficiency of the complaint is governed by Supp. R. G(2), which requires, inter alia, that the verified complaint "identify the statute under which the forfeiture action is brought; and state sufficiently detailed facts to support a reasonable belief that the government will be able to meet its burden of proof at trial."Supp. R. G(2)(e)-(f).⁴ In other words, the government must "state[] the circumstances giving rise to the forfeiture claim with sufficient particularity" to enable a claimant to conduct a "meaningful investigation of the facts and draft[] a responsive pleading." United States v. Mondragon, 313 F.3d 862, 867 (4th Cir. 2002);⁵ accord United States v. Sum of $70,990,605, 4 F.Supp.3d 189, 197 (D.D.C. 2014) ("Essentially, '[a]t the pleading stage, it suffices for the government to simply allege enough facts so that the claimant may understand the theory of forfeiture, file a responsive pleading, and undertake an adequate investigation.'" (quoting United States v. One Gulfstream G-V Jet Aircraft, 941 F.Supp.2d 1, 14 (D.D.C.2013))).

B

In their motions to dismiss, claimants maintain, inter alia, that the government has not alleged sufficiently detailed facts to support a reasonable belief that it will be able to establish that a violation of any of the enumerated statutes occurred.

In support of its claim for civil forfeiture, the government alleges the following "factsand basis for forfeiture":

[t]he defendant property is subject to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(C) because it is derived from proceeds traceable to a violation, violations, or conspiracy to violate 18 U.S.C. § 1031, 18 U.S.C. §§ 286 and 371, 18 U.S.C. § 641, 18 U.S.C. § 1001, 18 U.S.C. § 1341, and 18 U.S.C. § 1343. This is shown by the Verification Affidavit in Support of the United States' Second Amended Complaint for Forfeiture of Special Agent Miguel Coias, filed under seal, and incorporated as Plaintiff's Exhibit 1, in the Appendix filed in support of this second amended complaint.

2d Am. Compl. ¶ 8. As the court concluded in $4,480,466.16 in Funds Seized I, 2018 WL 1964255, at *5, these allegations are alone insufficient to comply with Supp. R. G(2)'s requirement that the complaint "state sufficiently detailed facts to support a reasonable belief that the government will be able to meet its burden of proof at trial." Supp. R. G(2)(f). But claimants recognize that, "[u]nlike previously, [they] are now able to view the purported 'Verification Affidavit,'" Richey, et al. 6/7/18 Mot. Dis. Br. 3, which the government contends provides the factual basis for its second amended complaint.

Although claimants dispute whether the verification affidavit provides a plausible basis for the government's requested relief, they do not contest the propriety of the court's considering the verification affidavit in deciding the instant motions. Indeed, courts routinely conclude—consistent with Fed. R. Civ. P. 10(c)—that facts set out within affidavits can be considered when determining the sufficiency of a forfeiture complaint. See, e.g., United States v. One Parcel of Real Property, 921 F.2d 370, 376 (1st Cir. 1990) (reversing dismissal of in rem action where, although forfeiture complaint was insufficient, government's secondaffidavit, "expressly made part of the second forfeiture complaint, alleges facts sufficient to support a reasonable belief that the government, at trial, can make a probable cause showing that most, if not all, of the defendant property is connected to illegal drug proceeds." (footnote omitted)); United States v. $40,960.00 in U.S. Currency, 831 F.Supp.2d 968, 969-71 (N.D. Tex. 2011) (Means, J.) (denying motion to dismiss forfeiture complaint where sufficient statements existed in affidavit attached to complaint); United States v. $448,163.10 in U.S. Currency, 2007 WL 4178508, at *5 (D. Conn. Nov. 20, 2007) ("Facts set forth in an affidavit accompanying a forfeiture complaint may serve to cure a lack of specificity in the complaint even when the affidavit was originally filed under seal."). Accordingly, the court will consider the verification affidavit together with the second amended complaint when deciding whether this action should be dismissed.

C

Claimants contend that, even taking the verification affidavit into account, the second amended complaint should be dismissed on multiple grounds.⁶ Having considered claimants' motion and the second amended complaint and verification affidavit, the court concludes that the second amended complaint is deficient and that the motions to dismiss should be granted,but that the government should be permitted to file a third amended complaint.

The principal problems with the second amended complaint and verification affidavit stem from a lack of specificity, as required by Supp. R. G, which claimants largely point out in their motions. For example, Supp. R. G(2)(e) requires that the forfeiture complaint "identify the statute under which the forfeiture action is brought." The second amended complaint asserts multiple times that violations of 18 U.S.C. §§ 286, 371, 641, 1001, 1031, 1341, and 1343 give rise to a forfeiture action under 18 U.S.C § 981(a)(1)(C). See, e.g., 2d Am. Compl. ¶ 8; 2d Am. Compl. Ex. 1 ¶¶ 7, 8, 43, and 84. Yet, as claimants point out, several of the criminal offenses alleged, including §§ 1001 and 1031, are decidedly not included in the enumerated list of offenses that give rise to a forfeiture action under § 981(a)(1)(C).⁷ And when pleading the statutory bases that allegedly subject each individual asset to forfeiture, the government only asserts that offenses constituting "specified unlawful activity" give rise to forfeiture. See, e.g., 2d Am. Compl. Ex. 1 ¶¶ 52, 55, 59, 63, 65, 67, 69, 73, 76, and 83. It is thus unclear whether the government is over-inclusive in its violation allegations in certain instances or under-inclusive in its identificationof statutes under which it brings the instant action.

Further, Supp. R. G(2)(f) requires that the forfeiture complaint "state sufficiently detailed facts to support a reasonable belief that the government will be able to meet its burden of proof at trial." Given the lack of clarity regarding the government's theories of forfeiture, it is difficult to assess whether the government has pleaded sufficiently detailed facts to support a reasonable belief that the defendant property is subject to forfeiture, or to enable claimants to file responsive pleadings or conduct meaningful discovery. See United States v. Real Prop. Located at 5833 Coronado Ridge, El Paso, Tex., 2010 WL 5540939, at *2 (W.D. Tex. Oct. 15, 2010) (g...