United States v. Wallace

UNITED STATES OF AMERICA, Plaintiff, v. ROBERT EARL WALLACE, Defendant, JULIET BRAVO LLC and JEFFREY MARCONET, Petitioners.

CRIMINAL ACTION No. 5:17-118-KKC

United States District Court, E.D. Kentucky, Central Division, Lexington

September 10, 2021

OPINION AND ORDER

KAREN K. CALDWELL, UNITED STATES DISTRICT JUDGE

This matter is before the Court on Petitioners Juliet Bravo LLC and Jeffrey Marconet's joint motion for summary judgment regarding their petition for a hearing to adjudicate the validity of their alleged legal interest in a forfeited airplane. (DE 752.) For the following reasons, the Court denies the motion for summary judgment.

I. Background

A. Related Criminal Case

On February 21, 2020, Defendant Robert Earl Wallace pleaded guilty to Count I of the Superseding Indictment for conspiracy to distribute cocaine under 21 U.S.C. § 846. (DE 462; DE 463.) According to the Superseding Indictment, the conspiracy existed from approximately March 2014 to April 2017. (DE 78 at 1.) The Superseding Indictment also included forfeiture allegations claiming that Defendant used a Hawker 700A airplane, Registration #N18CC, in committing the conspiracy and that the airplane constituted proceeds obtained from the conspiracy. (Id. at 4.) The Government asserted that the airplane was accordingly forfeited to the United States pursuant to 21 U.S.C. § 853 and 18 U.S.C. § 982. (Id.) In pleading guilty, Defendant admitted to piloting flights for his co-conspirators between July 5, 2016, and March 15, 2017, to move drugs and drug proceeds. (DE 462 ¶ 3.) As part of the plea agreement, Defendant agreed that the United States could prove the required nexus for the forfeiture of the airplane and agreed to forfeit the airplane. (Id. ¶ 9.) On September 15, 2020, the Court entered a preliminary judgment of forfeiture and ordered the airplane forfeited to the United States pursuant to 21 U.S.C. § 853. (DE 654 at 1.)

B. Airplane Ownership

On November 6, 2014, Petitioner Juliet Bravo LLC (“Juliet”), a Delaware Limited Liability Company (“LLC”), purchased the subject airplane for $496, 775.48. (DE 752-6 at 1, 3.) Juliet was created to purchase the airplane and subsequently lease it to clients. (Id. at 3.) Defendant, Petitioner Jeffrey Marconet, and James Irish act as Juliet's three members, and each owns one-third of Juliet. (Id. at 2.) Robert Etchell is Juliet's manager. (Id. at 53, 55.)

Defendant, Marconet, and Irish all contributed money to Juliet to fund the purchase of the airplane, but Marconet primarily arranged the financing. (Id. at 3.) Marconet personally borrowed $375, 000 from a family trust to finance the purchase, and in turn, Juliet borrowed $410, 000 from Marconet to purchase the airplane. (DE 752-6 at 3-4, 52-55.) Juliet and Marconet then executed a security agreement under which Marconet obtained a security interest in the airplane as collateral to secure payment from Juliet for the funding it borrowed from Marconet to finance the purchase. (Id. at 3, 52-53.)

On November 4, 2017, authorities seized the airplane in Florida in connection with Defendant's crime. (DE 752-3 at 7.)

C. Procedural History of Ancillary Proceeding

On October 9, 2020, Juliet and Marconet filed a petition to adjudicate the validity of their third-party legal interests in the airplane. (DE 674.) In the petition, Juliet asserts an interest as the airplane's registered owner. (Id. ¶ 2.) Marconet asserts an interest as a “lienholder” because he loaned money to Juliet to finance the purchase of the airplane, and the airplane acts as the collateral to that loan. (Id. ¶ 3.) Petitioners claim they are “innocent owners” under 18 U.S.C. § 983(d). (Id. ¶ 16.) They further allege that they had no notice that the airplane was used for “illicit purposes, ” were not “willfully negligent” in operating the airplane, and did not have “any intent to commit any criminal offense.” (Id. ¶ 9 (quotation marks omitted).) Irish and Etchell have not claimed any interest in the airplane.

The Government filed a response opposing Petitioners' claims and requesting a 120-day period of discovery pursuant to Federal Rule of Criminal Procedure 32.2(c)(1)(B), which this Court granted. (DE 684; DE 685.) In its response, the Government indicated that it had reached an initial agreement with Petitioners. (DE 684.) The negotiations between the Government and Petitioners apparently broke down (DE 743 at 2-3; DE 744), and Petitioners have now moved for summary judgment pursuant to Federal Rule of Civil Procedure 56 (DE 752).

In their summary judgment motion, Petitioners argue that they had a valid legal interest in the airplane under 21 U.S.C. § 853(n)(6)(A) that arose prior to Defendant's offense, and therefore, they are entitled summary judgment. (DE 752-1 at 8-9.) Petitioners also ask the Court for leave to file a motion for attorney's fees under the Equal Access to Justice Act (“EAJA”) if they prevail. (DE 752-1 at 22-23.)

The Government opposes the motion for summary judgment. (DE 753.) It contends that to determine if Petitioners have an interest in the airplane superior to that of Defendant, the Court must consider if Petitioners “had knowledge of, or were willfully blind to, the use of [the airplane] to facilitate trafficking of narcotics and proceeds of the sale of said narcotics.” (DE 753 at 2.) The Government maintains that evidence suggests that Petitioners had notice of the illegal activity that occurred on the airplane, and therefore, the Court should deny Petitioners' summary judgment motion and order a hearing. (Id. at 1-4.) The Government also opposes Petitioners' request for leave to file a motion for attorney's fees under the EAJA. (Id. at 4-5.)

II. Discussion

A. Forfeiture Procedure

A person convicted of conspiracy to distribute cocaine “shall forfeit to the United States . . . any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation [and] any of the person's property used . . . to commit, or to facilitate the commission of, such violation[.]” 21 U.S.C. § 853(a). A third-party may assert a legal interest in property forfeited to the United States by petitioning for a hearing to adjudicate the validity of that alleged interest in the property. § 853(n)(2). Before the Court holds a hearing on the petition, the third-party and the Government may conduct discovery. See Fed. R. Crim. P. 32.2(c)(1)(B). After discovery closes, “a party may move for summary judgment under Federal Rule of Civil Procedure 56.” Id. The summary judgment standard under the Federal Rules applies. United States v. Coffman, Criminal Action No. 5:09-CR-181-KKC, 2012 WL 5611510, at *1 (E.D. Ky. Nov. 15, 2012). Under Rule 56, the Court must grant summary judgment if “the movant shows that there is no genuine dispute as to any material fact[, ] and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a).

The court must amend the forfeiture order to recognize a third party's legal interest if

the petitioner has established by a preponderance of the evidence that the petitioner has a legal right, title, or interest in the property, and . . . 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.

21 U.S.C. § 853(n)(6)(A). Put more simply, under § 853(n)(6)(A), the petitioner must prove that when the criminal acts were committed, “1) [it] was the one that had an interest in the property, not the defendant; or 2) [its] interest was superior to the defendant's interest.” United States v. Tovar, CRIMINAL NO. 5:15-13-KKC, 2019 WL 3801841, at *1 (E.D. Ky. Aug. 13, 2019).

As a result of Defendant pleading guilty to conspiracy to distribute cocaine, the airplane was forfeited to the United States pursuant to § 853. (DE 654.) Petitioners asserted their legal interest in the airplane by filing their petition to adjudicate the validity of their alleged interest in the airplane. (DE 674.) Since the Court already allowed parties to conduct discovery, Petitioners' motion for summary judgment under Rule 56 is proper. However, as the Court will explain, there are genuine disputes as to several material facts bearing on whether Petitioners had an interest in the property instead of Defendant or whether their interest was superior to that of Defendant. Accordingly, the Court denies Petitioners' motion for summary judgment.

B. Whether Petitioners Have Standing

In contesting a governmental forfeiture action, the petitioner must establish both Article III standing and statutory standing. United States v. $515, 060.42 in U.S. Currency, 152 F.3d 491, 497 (6th Cir. 1998) (civil forfeiture); United States v. Howard, Case No. 1:12cr95-4, 2017 WL 2955758, at *2 (S.D. Ohio July 11, 2017) (criminal forfeiture); United States v. Fabian, No. 1:11-CR-157, 2013 WL 150361, at *3 (W.D. Mich. Jan. 14, 2013) (criminal forfeiture), aff'd, 764 F.3d 636 (6th Cir. 2014).

To have Article III standing, the petitioner “must make at least a prima facie showing of a ‘vested' or a ‘superior' interest.” United States v Campos, 859 F.2d 1233, 1239 (6th Cir. 1988). This means that the petitioner “must claim a facially colorable interest in the seized property.” United States v. Salti, 579 F.3d 656, 667 (6th Cir. 2009) (citation and quotation marks omitted). Relatedly, when determining whether the petitioner has such a facially colorable property interest, “courts look to the law of the jurisdiction that created the property right.” United States v. Hall, 877 F.3d 676, 681 (6th Cir. 2017) (citation and quotation marks omitted). The applicable state...