United States v. Gas Pipe, Incorporated
Opinion
*271 Claimants challenge the pretrial restraint of their property under civil forfeiture laws, arguing the Government failed to show the requisite probable cause. The district court denied Claimants' motion to release their property. For the reasons set forth below, we AFFIRM.
I. Background
The grand jury's indictment in this case charges a scheme to sell a designer drug known as "spice" through Gas Pipe, Inc. and Amy Lynn Inc., which has locations throughout Texas and New Mexico. The indictment accused Gerald Shults and his daughter Amy Lynn Herrig 1 of conspiring to market the drug as "herbal incense," "potpourri," or "aroma therapy" and then laundering the proceeds through related businesses.
Although these products were labeled as "synthetic cannabinoid free" and "not for human consumption," the indictment alleged that they in fact contained synthetic cannabinoids that were a controlled substance or controlled substance analogues intended for human consumption.
The Government executed civil seizure warrants against Claimants' accounts at UBS Financial Services. UBS froze the accounts, and the Government filed a civil forfeiture suit which, as amended, listed UBS accounts totaling more than $7 million as defendants in rem. The Government subsequently seized the UBS accounts pursuant to an arrest warrant under Federal Rule of Civil Procedure Supplemental Rule G(3)(b)(ii). The Government alleged that the defendant Claimants used the UBS accounts to receive proceeds of the spice scheme and conceal unlawful activity.
The Government's civil forfeiture suit also listed several pieces of real property as defendants in rem. The properties include Gas Pipe store locations and properties allegedly purchased with funds traceable to the charged crimes. The Government has not seized this real property, but it filed notices of lis pendens pursuant to
Claimants filed a motion asking the district court to lift the pretrial restraints on their UBS accounts and real property, arguing the Government failed to show probable cause that the property is subject to forfeiture. The district court denied the motion, and Claimants filed this interlocutory appeal.
II. Jurisdiction
The parties dispute whether we have jurisdiction over this appeal. Claimants invoke
The Government argues
Floyd
is distinguishable because there the order operated like an injunction by requiring the defendant to do something (i.e., to deposit money subject to forfeiture with the court). But our jurisdictional analysis in
Floyd
did not rely on that fact.
See
As to the lis pendens on Claimants' real property, we have invoked § 1292(a)(1) to review an order releasing real property from a lis pendens.
See
Beefy King Int'l, Inc. v. Veigle
,
*273
Our opinion in
Beefy King
did not elaborate on the issue. But in discussing the separate issue of why Florida law allowed courts to discharge a notice of lis pendens in the same way courts dissolve injunctions, we observed that "the effect of a lis pendens on the owner of property ... is constraining."
The same rationale explains our conclusion in
Beefy King
that an order releasing property from a lis pendens is immediately appealable under § 1292(a)(1).
4
See
III. Standard of Review
We review the district court's decision de novo because whether to grant or deny injunctive relief by denying a motion to lift pretrial property restraints turns on whether probable cause exists. "[T]he question of whether the facts are sufficient to constitute probable cause is a question of law" subject to de novo review.
Melrose
,
IV. Discussion
The Government may restrain property prior to trial when there is probable cause to think the property is forfeitable.
See
Kaley v. United States
,
The probable cause standard "is not a high bar," requiring "only the kind of fair probability on which reasonable and prudent people, not legal technicians, act."
Id.
at 338,
*274
A. Forfeiture Based on Money Laundering
1. Sufficiency of the Complaint
We first address Claimants' argument that the district court wrongly reviewed the Government's forfeiture allegations as to money laundering based on "the minimal standards applicable to a motion to dismiss ... in an ordinary civil case," instead of the more stringent standard applied to civil forfeiture suits. See FED. R. CIV. P. SUPP. R. G(2)(f) (requiring civil forfeiture complaints to "state sufficiently detailed facts to support a reasonable belief that the government will be able to meet its burden of proof at trial").
Assuming, arguendo, Supplemental Rule G(2)(f) applies in reviewing pretrial property restraints outside the motion-to-dismiss context, we conclude the district court used the right standard. The district court asked whether the Government's complaint "demonstrated with sufficient particularity for the current stage of the proceedings that Defendants intentionally commingled tainted funds with untainted funds for the purpose of facilitating the alleged money laundering." The district court also explained why the Government's complaint "set[ ] forth specific facts to show how each of the items of real or personal property identified in the Claimants' Motions is connected to the alleged criminal activity."
These statements show that the district court required the Government to go beyond the basic pleading standards for ordinary civil complaints and, as explained further below, to plead enough facts to support "a reasonable belief" that it will meet its trial burden as to forfeiture based on money laundering.
Cf.
Bell Atl. Corp. v. Twombly
,
2. Connection of Untainted Funds to Money Laundering
Claimants argue the Government has restrained "untainted" property without probable cause to think "the property at issue has the requisite connection" to money laundering.
5
Kaley
,
Any property "involved in" money laundering, or property traceable to such property, is subject to forfeiture.
See
Here, the Government alleged in its verified complaint that the defendant Claimants commingled tainted and untainted funds in the UBS accounts to conceal or disguise the tainted funds. Some commingled funds allegedly also secured a loan that financed the alleged spice scheme and which was repaid with criminal proceeds. Consistent with these allegations, the grand jury's indictment charged the defendant Claimants with conspiracy to commit money laundering, including by transferring criminal proceeds to various UBS accounts and commingling criminal proceeds with legitimately earned assets.
Considering these allegations alongside "all of the circumstances" alleged and taking a "common sense view to the realities of normal life," there is "a fair probability" that the defendant Claimants' alleged commingling was designed to conceal or disguise criminal proceeds.
See
Melrose
,
There is therefore enough in the Government's complaint to show probable cause and, assuming Supplemental Rule G(f)(2) applies, to also support "a reasonable belief" that it can meet its burden at trial as to whether the disputed untainted property was involved with money laundering.
See
Melrose
,
Claimants also argue the district court erred by not requiring the Government to show probable cause to think there is "a substantial connection" between untainted funds in the UBS accounts and money laundering as required by
3. "Purpose-not merely effect" of Commingling
Claimants further argue the district court erred by not requiring the Government to show probable cause to think Claimants' commingling had "the purpose-not merely effect" of hiding criminal proceeds, as required by
Here, the Government alleged that Claimants commingled tainted and untainted funds, used commingled funds as collateral, and moved funds through multiple accounts. Based on Willey , these facts are sufficient to support a reasonable belief that the Government will be able to prove that Claimants' commingling had "the purpose-not merely effect" of hiding criminal proceeds.
B. Forfeiture Based on Mail and Wire Fraud
Claimants argue the district court erred in finding probable cause for forfeiture based on the charge for conspiracy to distribute controlled substance analogues. We need not decide that issue, however, because we agree with the district court that probable cause for forfeiture exists based on the charge for conspiracy to commit mail and wire fraud. Claimants argue the Government has alleged only an "incidental" use of the mail and wires, which they contend is not enough. But Claimants' view is plainly at odds with the case law.
The grand jury indicted Claimants on one count of conspiracy to commit mail and wire fraud under
Here, the grand jury's indictment undoubtedly alleges that the defendant Claimants' use of the mail and wires was "incident to an essential part of the scheme" or "a step in [the] plot."
Strong
,
Namely, the defendant Claimants allegedly represented that spice products were "incense," "potpourri," or "aromatherapy," and "lab certified" and "100% synthetic cannabinoid free," when in fact the products contained synthetic cannabinoids. Causing spice products or ingredients to be mailed, and using wire and electronic communications to discuss the scheme, allegedly advanced and was intended to advance the alleged fraud. The indictment therefore establishes probable cause to think Claimants committed mail and wire fraud.
See
Kaley
,
The cases Claimants cite do not hold otherwise. In
Kann v. United States
, defendants allegedly caused their corporation to issue checks payable to them, which they cashed at local banks; the banks in turn mailed the checks to the drawee banks for collection.
See
Similarly, in
United States v. Maze
, the defendant allegedly stole his roommate's credit card and used it to pay for motels knowing that the motels would have to mail an invoice to the credit card's issuing bank, which would in turn mail a bill to the card's owner.
See
AFFIRMED.
We will refer to the "defendant Claimants" when discussing the Claimants charged in the indictment, which includes Shults, Herrig, Gas Pipe Inc., Amy Lynn, Inc., Ridglea Complex Management, Inc., and Rapids Camp Lodge, Inc. All the defendant Claimants were charged on the counts relevant to this appeal except Ridglea Complex Management, Inc. and Rapids Camp Lodge, Inc., which were charged with only the money laundering conspiracy count.
Although
Floyd
and
Melrose
involved pretrial restraining orders and this appeal challenges an order denying a challenge to the seizure of property by warrant, the practical effect of seizure warrants is as severe as that of restraining orders, if not more so.
See
Melrose
,
Other circuit courts have likewise held that appeals arguing for release of frozen assets are reviewable under § 1292(a)(1).
See, e.g.
,
United States v. Kaley
,
That the Florida law at issue in
Beefy King
allowed courts to "control and discharge [a] notice of lis pendens as [courts] may grant and dissolve injunctions" could not have grounded our jurisdictional conclusions in that case, as state law does not create federal court jurisdiction.
See
Beefy King
,
The purportedly untainted property consists of funds that predate the alleged spice scheme and property allegedly purchased with or otherwise traceable to such funds.
Supplemental Rule G(2) superseded Supplemental Rule E(2) effective Dec. 1, 2006. The Advisory Committee's Note explains that Supplemental Rule G(2)(f) codifies the standard developed by courts in interpreting Supplemental Rule E(2). See Fed. R. Civ. P. Supp. R. G advisory committee's note to 2006 amendment.
We nonetheless "may affirm on any grounds supported by the record, even if those grounds were not relied upon by the lower courts."
In re Plunk
,
Although
Willey
predates
Regalado Cuellar
, we have relied on
Willey
in analyzing
Regalado Cuellar
's "purpose, not merely effect" standard.
See
United States v. Valdez
,
Reference
- Full Case Name
- UNITED STATES of America, Plaintiff-Appellee v. REAL PROPERTY LOCATED AT 1407 NORTH COLLINS STREET, ARLINGTON, TEXAS; Real Property Located at 4418 Maple Avenue, Dallas, Texas; Real Property Located at 701 East 5th Street, Austin, Texas; Real Property Located at 9515 Skillman Street, Dallas, Texas; Real Property Located at 5800 Maple Avenue, Dallas, Texas; Et Al.; Defendants v. Gerald Shults; Gas Pipe, Incorporated; Amy Lynn, Incorporated; Ridglea Complex Management, Incorporated; Rapids Camp Lodge, Incorporated ; Amy Lynn Herrig; Dan Christopher Herrig, Claimants-Appellants United States of America, Plaintiff-Appellee v. Gas Pipe, Incorporated; Amy Lynn, Incorporated; Gerald Shults, Also Known as Jerry; Amy Herrig; Rapids Camp Lodge, Incorporated ; Ridglea Complex Management, Incorporated, Defendants-Appellants
- Cited By
- 2 cases
- Status
- Published