USA v . Waltham, MA CV-05-302-SM 03/29/06 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

United States of America

v. Civil N o . 05-cv-302-SM Opinion N o .

Land and Buildings Located at 99 Sheffield Road, Waltham, Massachusetts, with all Appurtenances and Improvements Thereon, Owned by Delilah Property Services, Inc., a/k/a Delilan Property Services, Inc.

REPORT AND RECOMMENDATION

In this action, the government seeks civil forfeiture of

real property identified as land and buildings located at 99

Sheffield Road, Waltham, Massachusetts, alleging that the

property is subject to forfeiture because it constitutes the

proceeds o f , or was derived from the proceeds o f , a mail fraud

scheme. The complaint was filed on August 3 1 , 2005, and the

government served the putative claimants here within 28 days of

commencing this action. No potential claimant to the property

responded to the government’s complaint until January 6, 2006

when Delilah Property Services, Inc. (“Delilah”), Amy McPherson,

Stasy Ann McPherson, Sara Rose McPherson, Beatrice Berkman and Alan William Berkman filed motions seeking leave to file verified

claims and answers nunc pro tunc. See Document Nos. 1 5 , 1 6 , 1 8 ,

2 0 , 2 2 , 24 and 26. 1 The government filed an objection to these

motions (document n o . 29) and a separate motion to strike the

putative claimants’ verified claims and answers as untimely

(document n o . 2 8 ) . With the exception of Amy McPherson, the

putative claimants filed objections to the motion to strike.

Delilah also filed a motion to amend its motion for leave to file

(document n o . 35) to which the government objects.

The above-referenced motions were referred to me for a

recommended disposition. For the reasons set forth below, I

recommend that the court deny the motions for leave to file

verified claims and answers because the putative claimants have

not shown that their failures to timely file were the result of

excusable neglect. I recommend that the court deny Delilah’s

motion to amend its motion for leave to file on the basis of

futility. And I recommend that the court find that the

government’s motion to strike is moot.

BACKGROUND

The mail fraud scheme that the government alleges in its

1 Document Nos. 16 and 18 are identical copies of the motion filed on behalf of Sara Rose McPherson.

2 complaint was allegedly perpetrated by Amy McPherson through

Delilah, a New Hampshire corporation that Amy McPherson allegedly

controlled. Delilah is the record owner of the defendant-in-rem.

The government alleges that on February 2 8 , 2005 Amy McPherson

pled guilty to multiple counts of making false statements, in

violation of

, related to her participation in a

scheme through which she obtained, in total, more than $60,000

from the U.S. Department of Housing and Urban Development, the

U.S. Department of Agriculture and the U.S. Department of Health

and Human Services that she was not entitled to receive.

Verified Compl., ¶ 17 (citing United States v . Amy McPherson, C r .

N o . 03-175-SM). The government alleges that the defendant-in-rem

is traceable to funds that Amy McPherson wrongly obtained from

those government agencies.

¶ 2 0 .

The government commenced this action on August 3 1 , 2005 by

filing a verified complaint, notice of complaint and a motion for

ex parte finding and endorsement of memorandum lis pendens

pertaining to the defendant-in-rem. See Document Nos. 1-3. The

government served copies of the complaint, notice of complaint,

writ of entry and lis pendens by certified mail, return receipt

requested, on the following persons:

3 • Gary M . Lenehan, Esq., on September 6, 2005;

• Amy McPherson on September 7 , 2005;

• Beatrice Berkman on September 7 , 2005;

• Alan William Berkman on September 1 6 , 2005;

• Oscar Berkman on September 1 9 , 2005;

• Sara Rose McPherson on September 2 0 , 2005;

• Stasy Ann McPherson on September 2 8 , 2005.

See Affidavits of Service (document Nos. 6-13); see also

Declaration of Kimberly C . Cooper dated January 2 0 , 2006

(attached to document n o . 28) (describing the procedure that the

United States followed for serving persons who were determined to

potentially have an interest in the property).

On September 1 9 , 2005, the United States received a letter

from Alan Berkman requesting an extension of time to respond to

the complaint. Cooper Decl., ¶ 8 . Assistant United States

Attorney John J. Farley responded to M r . Berkman’s request in a

letter dated that same day. He addressed M r . Berkman as

Delilah’s President. See Cooper Decl., Attachment N o . 7. 2 Mr.

2 Alan Berkman admits that he is Delilah’s President and that he was personally served with notice of this action on or about September 7 , 2005. See Affidavit of Alan Berkman dated February 2 , 2006, ¶¶ 6-7, attached to document n o . 3 0 . The government points out that the return receipt for service by certified mail on Alan Berkman is actually dated September 1 6 , 2005.

4 Farley advised M r . Berkman that if he needed an extension of time

he needed to file a request for such with the court.

He

further stated that under the applicable federal rules any claim

needed to be filed by October 1 7 , 2005, and that if he failed to

file a timely claim or make a timely request for an extension of

time his claim might be found to be in default.

Similarly, on September 2 0 , 2005, the United States received

a letter from Stasy McPherson requesting an extension of time to

respond to the complaint. Cooper Decl., ¶ 9. In a letter dated

September 2 7 , 2005, M r . Farley responded to M s . McPherson’s

letter addressing her as Delilah’s Secretary. Cooper Decl.,

Attachment N o . 8.3 M r . Farley advised M s . McPherson that any

request for an extension of time needed to be directed to the

court, that under the applicable rules any claim to the

defendant-in-rem was required to be filed by October 1 7 , 2005,

and that if M s . McPherson did not either file a timely claim or

make a timely request for an extension of time with the court her

claim could be found to be in default.

The United States

3 Stasy McPherson admits that she is Delilah’s Registered Agent. See Affidavit of Stasy Ann McPherson dated February 1 , 2006, ¶ 6, attached to document n o . 3 3 . M s . McPherson further admits that she was personally served with notice of this action on or about September 2 8 , 2005.

¶ 7 .

5 did not receive any further correspondence from either M r .

Berkman or M s . McPherson, see Cooper Decl., ¶¶ 8-9.

In their motions for leave to file their verified claims and

answers, all filed by the same counsel on January 6, 2006, the

putative claimants acknowledge that their verified claims should

have been filed with the court in October 2005, and that their

answers to the complaint were due on various dates in late

October and November 2005. They did not provide any reason for

the late filing of their verified claims and answers in their

motions for leave to file, but asserted that the government would

not be prejudiced by the late filing of their claims. The

government filed an objection and a motion to strike.

In response to the government’s motion to strike, Stasy

McPherson, Sara Rose McPherson, Alan Berkman and Beatrice Berkman

argue that their late filing should be excused as the result of

excusable neglect attributable to the government’s

representations. For its part, Delilah argues that the

government did not strictly comply with the applicable rules

pertaining to service of process, execution of process and return

of process as to Delilah, and therefore the filing of Delilah’s

verified claim and answer was not untimely. Delilah seeks to

6 amend its motion for leave to file to remove its acknowledgment

that its verified claim and answer is late based on its improper

service argument and its current contention that the filing of

its verified claim and answer should not be considered untimely.

See Mot. to Amend Mot. to File Verified Claim and Answer Nunc Pro

Tunc, ¶ 4 .

DISCUSSION

I. Motions for Leave to File Verified Claims and Answers

In a civil forfeiture action, the defendant is the property

subject to forfeiture. United States v . One-Sixth Share of James

J. Bulger in All Present & Future Proceeds of Mass Millions

Lottery Ticket N o . M246233,

6 , 40 (1st Cir. 2003). A

person who claims an interest in the property must intervene in

the forfeiture proceeding in accordance with the Supplemental

Rules for Certain Admiralty and Maritime Claims (the

“Supplemental Rules”). Id.; United States v . $23,000 In U.S.

Currency,

5 7 , 161 (1st Cir. 2004). Supplemental Rule

C(6) provides, in relevant part, that:

In an in rem forfeiture action for violation of a federal statute:

(i) a person who asserts an interest in or right against the property that is the subject of the action

7 must file a verified statement4 identifying the interest or right:

(A) within 30 days after the earlier of (1) the date of service of the Government’s complaint or (2) completed publication of notice under Rule C ( 4 ) , or

(B) within the time that the court allows.

Supplemental Rule C(6)(a)(i). A party who fails to assert his

interest in the subject property pursuant to the requirements of

Supplemental Rule C(6) normally lacks standing to contest

forfeiture of the property. One-Sixth Share, 326 F.3d at 4 1 ;

United States v . One Dairy Farm,

1 0 , 311 (1st Cir.

1990); see also Ortiz-Cameron v . DEA,

, 6 (1st Cir.

1998) (“If a putative claimant who has received proper notice

fails to file within Rule C(6)’s time limits, he or she may not

bring a future claim for the properties at issue”).

Here, each of the putative claimants acknowledged in their

motions for leave to file that they received service of the

government’s civil forfeiture complaint and related documents.

See Document Nos. 1 5 , 1 6 , 1 8 , 2 0 , 2 2 , 24 and 2 6 , ¶ 2 . And they

4 The putative claimants have filed motions seeking leave to file verified claims. The Supplemental Rules were amended in 2000 and now require the filing of a “verified statement” of interest rather than a “verified claim.” See Supplemental Rule C advisory committee’s notes on the 2000 Amendment; see also $23,000 In U.S. Currency,

n.3. This distinction is not material to my recommended disposition.

8 admitted that their verified claims were due in October 2005.

See

¶ 3 . None of the putative claimants petitioned the

court for an extension of time to assert their interest in the

property under Supplemental Rule C(6)(a)(i)(B). Accordingly, the

government argues that the court should find that the putative

claimants lack standing to challenge the forfeiture because their

filings are untimely. The legal authorities support the

government’s position. See One Dairy Farm,

(citing cases for the proposition that strict adherence to the

filing requirements of Rule C(6) is required in order to contest

a civil forfeiture); United States v . $10,000 in U.S. Funds,

1 2 , 814 (S.D. Ill. 1994) (“courts have taken a severe

stance against a claimant who has not properly perfected his

claim in a forfeiture proceeding in a timely manner”).

As the government acknowledges, however, the courts do not

preclude untimely Rule C(6) claims in all circumstances. In One

Dairy Farm, for instance, the First Circuit recognized that

technical noncompliance with the requirements of Rule C(6) has

been excused in limited instances based upon consideration of

mitigating factors such a s : (1) whether the claimant made a good

faith attempt to file a claim on time; (2) whether the claimant

9 relied detrimentally on misinformation from a governmental

agency; or (3) whether the claimant expended considerable

resources preparing the case for trial. Id.; see also United

States v . $100,348.00 In U.S. Currency,

, 1117-18

(9th Cir. 2004) (discussing similar lists of mitigating factors

considered by courts in the Ninth, Seventh and Fourth Circuit

Courts of Appeals in deciding whether to grant leave to file

untimely claims).

Other courts have addressed the mitigating factors in the

cases cited above within the context of determining whether a

party seeking to file a late claim under Rule C(6) could

demonstrate “excusable neglect” under Fed. R. Civ. P. 6(b). 5 See

United States v . Borromeo,

5 0 , 753 (4th Cir. 1991);

United States v . $230,963.88 In U.S. Currency, More or Less, N o .

Civ. 00-378-B,

at *1 (D.N.H. Nov. 1 6 , 2000).

Rule 6(b) provides in relevant part:

When by these rules or by a notice given thereunder or by order of court an act is required or allowed to be done at or within a specified time, the court for cause shown may at any time in its discretion . . . upon motion made after the expiration of the specified

5 The Supplemental Rules provide that the general rules of the Federal Rules of Civil Procedure apply to actions in rem except to the extent that the those rules are inconsistent with the Supplemental Rules. Supplemental Rule A .

10 period permit the act to be done where the failure to act was the result of excusable neglect.

Fed. R. Civ. P. 6 ( b ) . The determination of whether excusable

neglect exists is equitable in nature. Mirpuri v . ACT Mfg.,

Inc.,

2 4 , 630 (1st Cir. 2000) (citing Pioneer Inv.

Serv. C o . v . Brunswick Assocs. Ltd. P’ship.,

8 0 , 395

(1993)). The court must consider all of the relevant

circumstances pertaining to the movant’s failure to meet the

filing deadline including the danger of prejudice to the non-

movant, the length of the delay and its potential impact on

judicial proceedings, the reason for the delay, including whether

the delay was in the reasonable control of the movant, and

whether the movant acted in good faith. Mirpuri,

; $230,963.88 In U.S. Currency,

at * 2 .

Standing alone, “inadvertence, ignorance of the rules, or

mistakes construing the rules do not usually constitute

‘excusable’ neglect.” Pioneer,

. Rather, the

party seeking to file after the expiration of a specified period

“must demonstrate unique or extraordinary circumstances.”

Mirpuri,

.

In this case, the putative claimants assert that the late

filing of their claims should be allowed because their failure to

11 timely file was the result of excusable neglect. I consider

their support for this argument next.

A. Prejudice and Delay

Since the prejudice and length of delay factors are closely

related, I consider them together. The purpose behind Rule C(6)

is “to require claimants to come forward as quickly as possible

after the initiation of forfeiture proceedings, so that the court

may hear all interested parties and resolve the dispute without

delay.” Ortiz-Cameron,

(quoting United States v .

Various Computers & Computer Equip.,

8 2 , 585 (3d Cir.

1996)); see also United States v . One Urban Lot Located at 1

Street A - 1 ,

9 4 , 1001 (1st Cir. 1989) (finding that the

Rule C(6) filing deadlines exist to “force claimants to come

forward as soon as possible after forfeiture proceedings have

begun and to prevent false claims”). The First Circuit has found

that the time limits in Rule C(6) are analogous to a statute of

limitations. Ortiz-Cameron,

. Here, the putative

claimants’ verified statements were more than two months late

when they filed the instant motions for leave. Therefore, the

delay factor clearly weighs against them.

Weighing in the putative claimants’ favor is that the danger

12 of prejudice to the government at this early stage of the

proceedings is slight. The government argues that it will be

prejudiced if it is required to respond to these untimely

filings, but as the court found in $230,963.88 In U.S. Currency,

“[t]he mere likelihood that the government would not be able to

obtain an entry of default is not cognizable prejudice for

purposes of a Rule 6(b) inquiry.”

at *2 (citing

Pratt v . Philbrook,

8 , 22 (1st Cir. 1997)).

B. The Reason for the Delay

Stasy McPherson, Sara Rose McPherson, Alan Berkman and

Beatrice Berkman argue that their late filing should be permitted

because the delay was the result of detrimental reliance on

comments made to them by Amy McPherson that the United States

would dismiss this civil forfeiture action upon the settlement of

a related civil false claims case. In support of their

assertions, they attach to their affidavits a copy of a draft

consent decree and order of payment dated November 2 1 , 2005. See

Document Nos. 30-33.

The government provides three persuasive reasons for

rejecting the putative claimants’ argument that the government

bears responsibility for their failure to act timely. First, the

13 putative claimants have not cited any affirmative

misrepresentations made directly to them by the government that

could have induced them to fail to file a timely verified claim.

Indeed, in responses to requests for extensions of time made by

Alan Berkman and Stasy McPherson, an Assistant United States

Attorney emphasized that they needed to either file a timely

claim or a timely request for an extension of time to file with

the court. There is no evidence in the record that the

government ever explicitly or implicitly encouraged the putative

claimants not to assert their interests in this action. Second,

while the putative claimants refer generally to conversations

that they had with Amy McPherson that caused them to believe that

this action might be dismissed, none of them state that such

conversations occurred before the expiration of their time to

assert their interest in the property. And third, while the

putative claimants suggest that they relied to their detriment on

a draft consent decree that was being negotiated by Amy McPherson

and the United States, that draft was dated November 2 1 , 2005,

which is well after the date that the putative claimants were

required to file their verified statements of interest.

Therefore, the draft consent decree could not have been the

14 reason for their failure to act timely. For all these reasons,

the putative claimants’ assertions of the government’s

responsibility for their failure to act are wholly unpersuasive.

C. The Movants’ Good Faith

Finally, the court must consider whether the putative

claimants acted in good faith. I find no facts that weigh in the

putative claimant’s favor on this factor. Despite having actual

notice of this action, the putative claimants neither petitioned

the court for an extension of time, nor filed any other pleading

with the court that could be deemed a good faith attempt to

comply with Rule C(6) before filing the instant motions for leave

to file on January 6, 2006. And as discussed above, the putative

claimants’ only asserted reason for their delay, reliance on the

government’s representations, is not supported by the record. To

the extent that the putative claimants may have relied on the

hope that this action would be dismissed as part of the

settlement of a related case, such speculation cannot be

considered an adequate reason for failing to comply with the

requirements of Rule C ( 6 ) . C f . Valderrama v . United States,

(S.D. Fla. 2004) (where the plaintiff

failed to timely assert his interest in property in an

15 administrative forfeiture proceeding, the court found that an

objectively reasonable person would have realized that the

government’s letters regarding the commencement of proceedings,

and not a purported settlement agreement that had never been put

in writing, established the government’s position).

D. Conclusion

The putative claimants first sought leave to assert their

interest in this action more than two months after their Rule

C(6) filings were due, they have not advanced any good reason for

their delay, and they did not make a good faith attempt to timely

comply with Rule C ( 6 ) . I find no facts that suggest that the

putative claimants’ failure to act timely resulted from unique or

extraordinary circumstances. Therefore, considering all of the

circumstances, I find that the putative claimants’ failure to

timely file their verified statements and answers should not be

deemed excusable neglect. Accordingly, I further find that the

putative claimants’ motions for leave to file should be denied

because they now lack standing to challenge the forfeiture. See

One Dairy Farm,

(affirming a district court’s

decision to dismiss the appellant’s claims because they failed to

file a claim or answer within the time prescribed by Rule C(6)

16 and did not advance any reason that would warrant relieving the

putative claimants from the consequences of their inaction).

II. Delilah’s Motion for Leave to Amend

Delilah argues that the government did not strictly comply

with the applicable rules pertaining to service of process,

execution of process and return of process, and therefore the

filing of Delilah’s verified claim and answer was not untimely.

Delilah seeks to amend its motion for leave to file based on its

improper service argument and its contention that the filing of

its verified claim and answer should not be considered untimely.

Delilah bases its improper service argument on the First

Circuit’s findings in United States v . Approximately Two

Thousand, Five Hundred Thirty-Eight Point Eighty-Five Shares

(2,538.85) etc.,

(1st Cir. 1993), that:

“Process” in an in rem action consists fundamentally of the warrant for arrest of the property to be seized. “Execution” of such “process” consists of service of the arrest warrant upon the defendant property, after which the marshal files with the court proof of service.

988 F.2d at 1282. Delilah fails to recognize, however, that

there have been changes to the forfeiture law, particularly as it

17 applies to the civil forfeiture of real property,6 since the

First Circuit decided Approximately 2,538.85 Shares that

invalidate Delilah’s argument. In particular, Congress enacted

the Civil Asset Forfeiture Reform Act of 2000 (“CAFRA”), which

applies to all forfeiture proceedings commenced on or after

August 2 3 , 2000. Pub. L . N o . 106-185, § 2 1 ,

0 2 , 225;

see also One-Sixth Share, 326 F.3d at 40 n.3 (describing CAFRA as

a substantial overhaul of federal civil asset forfeiture).

“CAFRA provides for a specific procedure in all forfeiture

proceedings involving real property that overrides the more

general requirements of the Supplemental Rules.” United States

v . 630 Ardmore Drive,

7 2 , 578 (M.D.N.C. 2001);

see also

.

Under § 985, the government initiates a civil forfeiture

action against real property by:

(A) filing a complaint of forfeiture;

6 Delilah asserts in its memorandum of law in support of its objection to the motion to strike that the government seeks the forfeiture of shares of stock of Delilah Property Services, Inc. See Document N o . 3 6 . Delilah is mistaken. In its verified complaint, the government clearly identifies the defendant-in-rem as “Land and Buildings Located at 99 Sheffield Road, Waltham, Massachusetts, with all Appurtenances and Improvements Thereon owned by Delilah Property Services, Inc., a/k/a Delilan Property Services, Inc.” See Document N o . 1 (Verified Compl. at 1 ) .

18 (B) posting a notice of the complaint on the property; and

(C) serving notice on the property owner, along with a copy of the complaint.

(c)(1). As long as the real property has been

posted in accordance with

(c), and there has been

no allegation that it was not in this case, the government is not

required to obtain a summons and warrant for arrest of real

property.

(c)(3); 630 Ardmore Drive,

. I find no support for Delilah’s contention that the

Supplemental Rules impose additional service requirements on the

government in this case.

Although Delilah has not argued in the alternative that the

government’s service of notice in this case violated its due

process rights, the facts show that any such claim would fail.

The Due Process Clause of the Fifth Amendment requires the

provision of “notice reasonably calculated, under all the

circumstances, to apprise interested parties of the pendency of

the action and afford them an opportunity to present their

objections.” Mullane v . Cent. Hanover Bank & Trust Co.,

(1950); see also Dusenbery v . United States,

(2002) (finding in a forfeiture case that the government

19 may demonstrate that it satisfied the requirements of due process

even in the absence of actual notice to the claimant where the

government took steps that were reasonably certain to inform

those affected of the pendency of the action). In this case,

there is no question that the government met its burden.

Alan Berkman, Delilah’s President, and Stasy McPherson,

Delilah’s Registered Agent, both submitted affidavits

acknowledging that they received service of this action in

September 2005. Even though the notice that Alan Berkman and

Stasy McPherson received was not specifically addressed to

Delilah, I find that providing notice and a copy of the complaint

to Delilah’s President and Registered Agent satisfies the

requirements of

(c)(1)(C) and Delilah’s right to

due process because such notice was reasonably calculated, under

all the circumstances, to apprise Delilah of the pendency of this

action. Furthermore, the facts demonstrate that Delilah had

actual notice of this action as evidenced by Alan Berkman’s and

Stasy McPherson’s affidavits and communications with the United

States Attorney’s Office in their corporate capacities regarding

this action before Delilah’s Rule C(6) filings were due.

Since the facts show that Delilah received adequate notice

20 of this action in September 2005, the Rule C(6) time period for

responding to the government’s complaint was triggered at that

time. Therefore, Delilah’s motion for leave to file its verified

claim and answer, submitted on January 6, 2006, is in fact

untimely. Accordingly, Delilah’s motion to amend, which seeks to

withdraw its acknowledgment that its Rule C(6) filings are late,

should be denied because it is futile.

III. The Government’s Motion To Strike

Since I recommend that the court deny the putative

claimant’s motions for leave to file verified claims and answers

nunc pro tunc, I further find that the government’s motion to

strike the putative claimants’ verified claims and answers should

be deemed moot.

CONCLUSION

For the reasons set forth above, I recommend that the

motions to file verified claims and answers nunc pro tunc

(document nos. 1 5 , 1 6 , 1 8 , 2 0 , 2 2 , 24 and 26) be denied. I

recommend that the motion to amend motion to file verified claim

and answer nunc pro tunc filed by Delilah Property Services, Inc.

(document n o . 35) be denied. I recommend that the government’s

motion to strike untimely verified claims and answers (document

21 n o . 28) be deemed moot.

Any objections to this Report and Recommendation must be

filed within ten (10) days of receipt of this notice. Failure to

file objections within the specified time waives the right to

appeal the district court’s order. See Unauthorized Practice of

Law Comm. v . Gordon,

1 , 13-14 (1st Cir. 1992); United

States v . Valencia-Copete,

, 6 (1st Cir. 1986).

____ /Jam ___ s R. Muirhead ited States Magistrate Judge

Date: March 2 9 , 2006

cc: John J. Farley, Esq. Rodkey Craighead, Jr., Esq.

22