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No. 97-4578. UNITED STATES COURT OF
APPEALS FOR THE ELEVENTH CIRCUIT 244 F.3d 888;
2001 U.S. App. LEXIS 3986; 14 Fla. L. Weekly Fed. C 522 March 16, 2001,
Decided March 16, 2001, Filed SUBSEQUENT HISTORY: [*1]
Rehearing En Banc Denied July 24, 2001, Reported at: 273 F.3d 395 (TABLE, No.
97-4578-FF); 2001 U.S. App. LEXIS 29321. Distinguished by: U.S. v. Wade, 255 F.3d
833, 347 U.S.App.D.C. 105 (D.C.Cir. Jul. 3, 2001) (No. 00-3058) U.S. v. Ferrario-Pozzi, 368 F.3d 5 (1st Cir.(Puerto Rico) May 12, 2004)
(No. 03-1393, 03-2306) Denial of Post-Conviction Relief Affirmed by: Kramer v. U.S.,
139 Fed.Appx. 234 (11th Cir.(Fla.) Jul. 5, 2005) (No. 03-16506) U.S. v. Kramer, 942 F.Supp. 1438 (S.D.Fla. Oct. 17, 1996) (No.
87-879-CR-ROETTGER) U.S. v. Kramer, 957 F.Supp. 223 (S.D.Fla. Mar. 20, 1997) (No.
87-879-CR-ROETTGER) PRIOR HISTORY: Appeal from the
United States District Court for the Southern District of Florida. D.C. Docket No.
89-00879-CR-NCR. Judge: Norman C. Roettger, Jr. Related References: U.S. v. Kramer, 864 F.2d
99 (11th Cir.(Fla.) Dec. 20, 1988) (No. 88-5340, 88-5714) U.S. ex rel. Madonia v. Coral Springs Partnership, Ltd., 731 F.Supp. 1054,
5 IER Cases 816 (S.D.Fla. Feb. 1, 1990) (No. 87-879-CR-NCR) U.S. v. Kramer, 741 F.Supp. 893, 30 Fed. R. Evid. Serv. 757 (S.D.Fla. Apr.
16, 1990) (No. 87-879-CR-NCR) U.S. v. Kramer, 912 F.2d 1257, RICO Bus.Disp.Guide 7588 (11th Cir.(Fla.)
Sept. 7, 1990) (No. 90-5431) U.S. v. Kramer, 807 F.Supp. 707 (S.D.Fla. Jul 22, 1991) (No. 87-879-CR) Affirmed in Part, Reversed in Part by: U.S. v. Kramer,
73 F.3d 1067 (11th Cir.(Fla.) Jan. 16, 1996) (No. 90-5055, 90-5360, 90-5431,
90-5751, 91-5659, 93-4951) Certiorari Denied by: Kramer v. U.S., 519
U.S. 1011 (Dec. 2, 1996) (No. 96-607) DISPOSITION: AFFIRMED. COUNSEL: [**893] For United States of
America, Appellant: Madeleine R. Shirley, Asst. U.S. Attorney - So. District of
Florida, Miami, FL. For Michael Gilbert, Appellee: Michael S. Pasano, Zuckerman, Spaeder, et
al., Miami, FL. John F. Eyrich, Ross, Sacks & Glazier, LLP, Los Angeles,
CA, Bruce Rogow, BRUCE S. ROGOW, P.A., Fort Lauderdale, FL. Beverly A. Pohl,
Attorney at Law, Ft. Lauderdale, FL. JUDGES: Before TJOFLAT, EDMONDSON and
KRAVITCH, Circuit Judges. EDMONDSON, Circuit Judge, concurs in judgment only. OPINIONBY: TJOFLAT OPINION: TJOFLAT, Circuit Judge: This appeal represents the latest—and we hope
final—chapter in a protracted RICO prosecution which has already
commanded the attention of four panels of this court. n1 Following our 1996
mandate setting aside the criminal forfeiture of Michael Gilbert’s
interest in a California limited partnership, the Government moved the district
court to force Michael Gilbert and his family n2 to file third-party petitions
to reclaim their interests pursuant to 18 U.S.C. § 1963 (l), and to restrain the
Gilberts from the use and enjoyment of the previously forfeited property
pending the outcome of the section 1963(l) hearing. The Government
contends that although the judgment forfeiting Michael Gilbert’s
partnership interest has been set aside, the Gilberts should be forced to file
third-party petitions because Michael derived his partnership interest [*2] as a subsequent transferee of Benjamin
Kramer, one of his co-defendants whose silent interest in the limited
partnership remains forfeited to the United States. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n1 See United States v. Kramer, 864 F.2d 99 (11th Cir. 1988) (non-argument
calendar); United States v. Kramer, 912 F.2d 1257 (11th Cir. 1990); United States v.
Kramer, 73 F.3d 1067 (11th Cir. 1996); and the instant appeal. n2 We refer to Michael Gilbert, his wife Karen Gilbert, and the Michael
Gilbert Family Irrevocable Trust (the “Trust”) collectively
as the Gilberts. We refer to them by their first names or simply as the Trust
to designate them individually. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - We conclude that the district court did not abuse its discretion in denying
the Government’s request. The statutory scheme outlined in section
1963(l) does not permit the Government’s attempt to force the Gilberts
to file third-party petitions. Moreover, we note that even if section 1963(l) did allow such an
action by the Government, [*3] the
subsequent proceeding would be needless because the order of forfeiture upon
which the Government relies is invalid. Accordingly, we affirm the district
court’s denial of the Government’s motion to force the
Gilberts to file third-party petitions pursuant to 18 U.S.C.
§ 1963 (l) and to restrain the Gilberts from the use and enjoyment
of their property. I. A. The Bell Gardens Bicycle Club (the “Club”) was created on
December 5, 1983 n3 as a joint venture between two California partnerships:
LCP, a general partnership, n4 and Park Place Associates, a limited partnership
(“PPA”). n5 PPA had received [**894]
an exclusive license from the City of Bell Gardens to operate a card club in
1982, but was unable at that time to raise enough money to buy land and begin
construction. PPA thus entered into a joint venture agreement with LCP, which
offered to find the funds necessary to finance the Club’s
construction. For its part, PPA agreed to contribute its rights to property in
the City of Bell Gardens as well as the gaming license it had already obtained.
n6 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n3 The history of the case recited herein is a summary of the records from
both the criminal RICO proceedings, see supra n. 1, and the ancillary
proceedings that followed the criminal trial, in which the court adjudicated
third-party claims to the defendants’ forfeited property. See infra, Part I.E. [*4] n4 LCP was a general partnership from its creation on December 5, 1983
until its reorganization as a limited partnership, “LCP Associates,
Ltd.,” on November 15, 1984. For the sake of simplicity, we refer to
the limited partnership as “LCP, Ltd.” n5 The Club has been described as:the world’s largest card club.
It is located in a 100,000 square foot building on an 8.5 acre parcel in the
City of Bell Gardens, California. The Club does not generate revenue by
participating in the card games it houses. Instead, the Club rents space to
card players for an hourly fee, providing the assistance of expert dealers. The
Club is open 24 hours a day, 365 days a year, and employs more than 1800
persons. In 1990, it was generating after-tax profits of $ 23 million per year
and was estimated to be worth $ 150 million. Taxation of the Club is the
primary source of revenue for the City of Bell Gardens.Michael S. Pasano, The Saga of
the Bell Gardens Bicycle Club—Lessons and Nightmares, 1998 ABA Ctr. for
Continuing Legal Educ. Nat’l Inst. Sec. Crim. Just. hereinafter
“The Saga” . We note that the author, Mr. Pasano, is
co-counsel representing the Gilbert family interests in this appeal. In 1990, the Government took over the Club after a jury forfeited it to the
Government as proceeds of racketeering activity. The Government has faired
little better than the previous owners in purging the stain of corruption and
scandal surrounding the Club. See Sharon Walsh, Crime Alleged at Casino U.S. Partly
Owns, Wash. Post, Mar. 20, 1996, at D3; see also James Bornemeier, U.S. Owned Casino Overrun
by Crime, Security Chief Alleges, L.A. Times, Mar. 20, 1996, at B3. [*5] n6 The Joint Venture Agreement provided for the following profit
distribution: 70% to LCP and 30% to PPA until the Club’s loan was paid
off, and then the figures were to be 60% to LCP and 40% to PPA. Additionally,
there was a provision stating that when the Club’s profits reached six
million dollars, the split was to be 65/35 in favor of LCP. This six million
dollar threshold has been reached, but the record does not indicate when this
happened. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - Unbeknownst to PPA, one source of funding located by LCP was a large-scale
money laundering operation. n7 From 1982 to 1987, Benjamin Kramer and three of
his partners (Randy Lanier, George Brock, and Gene Fisher) were involved in an
intricate scheme to import large quantities of marijuana into the United
States. See United States v. Kramer, 73 F.3d 1067, 1070 (11th Cir. 1996); United
States v. Kramer, 807 F. Supp. 707, 710 (S.D. Fla. 1991); see also United
States v. Kramer, 955 F.2d 479 (7th Cir. 1992). The details of this bold undertaking and
the elaborate money laundering operation that followed are [*6] described in great detail in Kramer, 807 F. Supp. at
710-36. Of significance in the instant appeal is that approximately $ 12.6
million of the initial $ 22 million needed to build the Club came from proceeds
of Kramer’s marijuana smuggling operation. n8 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n7 PPA was unaware of the money laundering scheme and has been cleared of
any wrongdoing. See United States v. Kramer, 807 F. Supp. 707, 736 (S.D.
Fla. 1991). n8 The rest of the Club’s financing was obtained through
legitimate lending institutions. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - The level of complicity in the money laundering plan varied among the LCP
partners. The three original LCP partners—Dale Lyon, Julie Coyne, and
David Pierson—were brought together in 1983 by Michael
Gilbert’s father, Sam Gilbert. Sam, a wealthy Los Angeles businessman,
was the first Gilbert to establish ties with the Kramer family when he
befriended Benjamin Kramer’s father, Jack Kramer, in 1978. At that
time, Jack Kramer and Sam Gilbert came up with the idea of building [*7] a legal card club for the purposes of
laundering Benjamin Kramer’s dirty money. By 1983, Sam Gilbert was in
contact with David Pierson, who was himself thinking of building a card club
and was looking for legitimate investors. Pierson gave Sam Gilbert a
prospectus, Sam liked what he saw, and Sam agreed to arrange the financing for
the project in return for a sixty percent share of Pierson’s ownership
interest in the Club. Sam Gilbert went to work putting together a team to undertake the financing
side of the project. To that end, Sam Gilbert brought in Dale Lyon, a banker
and businessman, and Julie Coyne, who had an experienced background in
personnel. For some time, Lyon, Pierson, Coyne, and Sam [**895] Gilbert discussed the ownership
percentages of what would become the LCP general partnership. Then, for little
or no consideration, Sam Gilbert gave his entire sixty percent interest in LCP
to the newcomers Lyon and Coyne in equal shares. n9 At the end of the day, Lyon
and Coyne each owned a thirty percent interest in LCP and Pierson controlled
the other forty percent interest. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n9 When Sam Gilbert was not laundering drug money for Benjamin Kramer, Sam
owned and operated a construction company. The best explanation for why Sam
agreed so readily to give up his majority interest in what was to become LCP
was that Pierson, Lyon, and Coyne all agreed that Sam’s construction
company would build the Club and that Sam would receive a 10% fixed-fee
contract. According to testimony at trial, Sam thought the casino card club
business was too risky a venture and he was content simply making his money by
building the Club. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*8] While Sam Gilbert, Lyon, Coyne, and Pierson were negotiating their
respective interests in LCP, Coyne, Sam Gilbert, and Lyon set up CGL Investment
Company, Inc. (“CGL”). CGL was created to pose as a
legitimate mortgage broker that would fund and invest in real estate projects,
specifically, the Club. Shortly after Sam Gilbert had taken the necessary steps
to organize both LCP and CGL, he met with Jack Kramer to explain the money
laundering scheme, referring at that time to the new LCP partners and PPA as
“your straw people. The lily-white people who will be approved by the
Gambling Commission.” Kramer, 807 F. Supp. at 712-13. Approximately $ 12.6 million of Benjamin Kramer and his three
associates’ drug money was sent to CGL from a sham lending firm named
Troon Mortgage Investment company (“Troon”), located in
Tortola, which is part of the British Virgin Islands. Troon received the drug
money from a trust called the BRT trust, located in Liechtenstein. n10 Sam
Gilbert arranged for the money to be sent from Troon to CGL in the form of a
loan. CGL then forwarded the money to the Club, once again in the form of a
loan. In appreciation for the loan, Sam Gilbert promised [*9] Benjamin and Jack Kramer that they would
retain their lender’s rights of repayment of principal at a fifteen
percent rate of interest (payable over fifteen years). In addition, Troon was
to receive a fifteen percent income participation “kicker”
payable over the life of the project. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n10 Following the criminal RICO trial, the district court held ancillary
proceedings to determine issues of ownership in the property forfeited to the
Government. See infra Part I.E. According to the district court’s findings following
the ancillary proceedings, the three letters that form the BRT name stand for
Ben, Randy, and Tom—the first names of the drug smuggling partners:
Ben Kramer, Randy Lanier, and George Brock (who was also known as Tom). See Kramer, 807 F. Supp. at 736.
The district court also found that the first flow of money from Liechtenstein
to Troon was on January 29, 1984, which coincides with the time construction on
the club began. See id. at 713. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - With the necessary [*10] funds
in hand, construction on the Club began in January 1984. By the fall of the
same year, however, it became obvious that an additional $ 10 million would be
needed to finish the project. To this aim, the LCP general partners asked Sam
Gilbert to personally guarantee a $ 5 million loan that LCP had negotiated from
a legitimate lending institution. Sam Gilbert refused to provide this guarantee
but indicated that his son, Michael Gilbert, might be interested. n11 Sam
Gilbert told Michael of LCP’s need for additional financing and
informed him that a twenty percent interest in LCP was available for $ 200,000.
Michael Gilbert, in turn, discussed this opportunity with his siblings, Robert
and Margaret. In November [**896]
1984, after some negotiations with the LCP partners, Michael, Robert, and
Margaret bought a twenty percent interest in LCP in exchange for $ 200,000 and
an agreement to guarantee a $ 5.5 million loan to help finish construction of
the Club. Coyne and Pierson each gave up ten percent of their interest in LCP
to carve out the twenty percent share. n12 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n11 Michael Gilbert was involved with the Club even before he was
approached by the LCP partners. As the president of his father’s
construction company, he supervised the Club’s construction. [*11] n12 According to both Coyne’s and Pierson’s testimony
during the ancillary hearing following the criminal trial, they each gave up
ten percent of their ownership interest in LCP because it made sense to give up
a little and see the Club open, rather than have a larger ownership interest in
an unfinished construction project. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - Gilbert and his siblings obtained a $ 200,000 loan from the Olympic National
Bank to purchase the twenty percent interest in LCP. By agreement of the
parties, LCP, rather than Michael Gilbert or his siblings, made the interest
payments on the loan, and the loan principal was paid directly out of Michael
Gilbert’s and his siblings’ profit distributions. As a result
of Michael, Robert, and Margaret buying this twenty percent ownership interest,
LCP, which had from its inception been organized as a general partnership, was
reorganized into a limited partnership (“LCP, Ltd.”) on
November 15, 1984. n13 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n13 The Limited Partnership Agreement, which was not introduced into
evidence at trial, provides that “the General Partners shall cause to
be executed and shall execute an amendment to the JOINT VENTURE AGREEMENT
reflecting the conversion of LCP into a Limited Partnership.” In a
letter submitted to this court at our request, however, the Government informs
us that it was “unable to locate or identify any documentary or
testimonial evidence presented in either the criminal trial or the ancillary
forfeiture proceeding … showing that the December 5, 1983 Joint
Venture Agreement between LCP Associates and Park Place Associates was ever
formally amended to substitute LCP Associates Ltd. (the limited partnership)
for LCP Associates (the general partnership).” Thus, we question
whether there was ever a novation in the Joint Venture Agreement whereby LCP,
Ltd. assumed the rights and/or obligations of the LCP general partnership as a
member of the Bell Gardens Bicycle Club Joint Venture. See Restatement (Second)
of Contracts § 280 (1979) (explaining that a novation
substitutes a new party and discharges one of the original parties to a
contract by agreement of all three parties; a new contract is created with the
same terms as the original one, but the parties are changed). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*12] The newly acquired twenty percent interest in LCP, Ltd. was divided among
the members of the Gilbert family as follows: Michael and Robert each received
one-third (or 6.67% each) and the remaining one-third was divided equally among
Margaret, Michael’s three children, and Robert’s four
children. Both Michael and Robert placed their children’s shares in
trust by creating, respectively, the Michael Gilbert Family Irrevocable Trust
(the “Trust”) and the Robert Gilbert Family Irrevocable
Trust. In total, Michael Gilbert and the Trust owned approximately a ten
percent interest (9.1675%) in LCP, Ltd. The Club opened for business on November 30, 1984. Although the Club was
not immediately successful, it started turning a substantial profit within six
months. In 1989, the Club’s after-tax profits were approximately $ 23
million. Starting in December 1984, the Club made regular mortgage payments on
the CGL loan. LCP, Ltd. also paid CGL its fifteen percent profit participation
on a monthly basis. In turn, CGL forwarded the mortgage payments and the kicker
to Troon. n14 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n14 By mid-1985, CGL had apparently sent Troon $ 860,000 in repayment on
the loan. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*13] In 1986, the net quickly closed in on Benjamin Kramer’s money
laundering operation. Benjamin Kramer’s contact in Tortola who ran
Troon was arrested by British police. Shortly after the arrest, the Drug
Enforcement Administration (“DEA”) obtained Troon’s
records and launched a joint investigation with the Internal Revenue Service
into the Club’s financing. In November 1986, DEA agents interviewed
Sam Gilbert, Michael Gilbert, and others as part of an investigation into the
possible use of drug proceeds to build the Club. [**897] Compounding Benjamin Kramer’s woes was
the fact that the Club was now turning a substantial profit and, as Jack Kramer
testified during the ancillary hearing following the criminal trial,
“the Devil raised his head” and Sam Gilbert decided to make
the Kramer interest in the Club disappear. Kramer, 807 F. Supp. at 731.
Sam Gilbert swiftly forced Benjamin Kramer out by reneging on the fifteen
percent kicker and then refinancing the balance due on the $ 12.6 million
mortgage loan at a more favorable interest rate through a legitimate lending
institution. Forcing Benjamin Kramer out was easily accomplished, since his name
had been intentionally left [*14]
off of all Club documents to hide his illegitimate ownership interest. At the
same time the $ 12.6 million loan was being refinanced, Michael Gilbert and
Lyon, at a CGL Board of Directors’ meeting, n15 authorized the
transfer of $ 9.5 million in the form of a cashier’s check as
repayment of CGL’s obligation to Troon. n16 The Government later
traced the $ 9.5 million transfer to a Bank account in Luxembourg. n17 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n15 Michael Gilbert became involved with CGL when he accepted a position as
Vice-President in June or July 1985. n16 The $ 9.5 million was apparently transferred to Lyon’s bank,
The Bank of Beverly Hills, converted to a cashier’s check, deposited
into a Swiss bank account and later transferred to Luxembourg. n17 Although the Government put on no evidence to explain what happened to
this $ 9.5 million, Jack Kramer testified during the ancillary hearing
following the criminal proceeding that the money was divided among Benjamin
Kramer and his drug smuggling partners. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - B. On November 24, 1987, a [*15]
Southern District of Florida grand jury returned an indictment charging
Benjamin Kramer, Jack Kramer, Michael Gilbert, and Melvin Kessler (an attorney
who is of no consequence to this appeal), with various violations of the RICO
statute, n18 the Travel Act, n19 and conspiracy to defraud the Internal Revenue
Service. n20 Specifically, the RICO count alleged that the defendants had been
engaged in a scheme to launder money generated from trafficking marijuana. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n18 RICO is an acronym for the Racketeer Influenced and Corrupt
Organizations Act. See 18 U.S.C. §§ 1961-68 (1994).
The “prohibited activities” section of RICO states: (a) It shall be unlawful for any person who has received any income
derived, directly or indirectly, from a pattern of racketeering activity or
through collection of an unlawful debt in which such person has participated as
a principal within the meaning of section 2, title 18, United States Code, to
use or invest, directly or indirectly, any part of such income, or the proceeds
of such income, in acquisition of any interest in, or the establishment or
operation of, any enterprise which is engaged in, or the activities which
affect, interstate or foreign commerce… (b) It shall be unlawful for any person through a pattern of racketeering
activity or though collection of an unlawful debt to acquire or maintain,
directly or indirectly, any interest in or control of any enterprise which is
engaged in, or the activities of which affect, interstate or foreign commerce. (c) It shall be unlawful for any person employed by or associated with any
enterprise engaged in, or the activities of which affect, interstate or foreign
commerce, to conduct or participate, directly or indirectly, in the conduct of
such enterprise’s affairs through a pattern of racketeering activity
or collection of unlawful debt. (d) It shall be unlawful for any person to conspire to violate any of the
provisions of subsection (a), (b), or (c) of this section.18 U.S.C.
§ 1962. [*16] n19 The Travel Act prohibits interstate travel or transportation in
furtherance of a racketeering enterprise. 18 U.S.C. § 1952
(1994). n20 On December 13, 1988, a superseding indictment was returned. Sam
Gilbert was named in the original indictment but died in November 1987, and the
indictment against him was dismissed. Kramer, 807 F. Supp. at 709. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - The indictment also included a RICO forfeiture count in which the
Government alleged that all four of the defendants had [**898] “property constituting, and
derived from, proceeds which they obtained, directly or indirectly, from
racketeering activity … thereby making such property and the entire
interest of the defendants, therein or an amount of cash equivalent thereto
including but not limited to the amount of $ 50,000,000.00, forfeitable to the
United States pursuant to Title 18, United States Code, Section 1963 (a)(3).”
Next, the forfeiture count explained that “the said $ 50,000,000.00
constituting, and derived from, such proceeds includes but is not limited to
the property [*17] described
as” the Club. A legal description of the Club as set forth in the
title document followed. n21 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n21 Specifically, this portion of the indictment reads in relevant part:
“THE BELL GARDENS BICYCLE CLUB, 7301 Eastern Avenue, Bell Gardens,
California, a card club casino, consisting of a commercial building and three
parcels of real property located within the city of Bell Gardens, California,
of the following legal description….” The legal description
of the three parcels followed. Nowhere in the indictment is mention made of the
Club’s contents, the Club’s profit distributions or current
valuation, the Club’s owners and their respective ownership interests,
LCP, Ltd., PPA, or CGL, or whether the $ 50 million mentioned in the indictment
was intended as a substitute for forfeiting the Club. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - C. On March 28, 1990, following a three month trial, the jury found Benjamin
Kramer and Jack Kramer guilty of, inter alia, conspiring to racketeer under 18 U.S.C.
§ 1962 (d) and of committing [*18]
substantive racketeering acts under 18 U.S.C. § 1962 (c).
After having some difficulty arriving at a unanimous decision, the jury, two
days later, found Michael Gilbert guilty of three counts of violating the
Travel Act, 18 U.S.C. § 1952, and one count of racketeering
under 18 U.S.C. § 1962 (c). n22 Kramer, 73 F.3d at 1070. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n22 We take this opportunity to correct a misprint in our 1996 opinion
which states that Michael Gilbert was convicted of “one count of
violating the RICO statute, 18 U.S.C. § 1962 (d).” Kramer, 73 F.3d at 1070.
Michael Gilbert, in fact, was acquitted of the conspiracy charge under section
1962(d) but found guilty of the substantive RICO violation under section
1962(c). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - D. Following these convictions, on April 2, 1990, the same jury considered the
forfeiture issue in a separate proceeding. At the outset of the forfeiture
phase, the Government called one witness, [*19]
the Club’s chief financial officer, through whom it introduced charts
illustrating the origins of the various monies that went into building the Club
as well as the Club’s profit distributions. A slice taking up slightly
more than half of one pie chart reflected the infusion of mortgage money
originating from Troon and passing through CGL. The Government rested and
closing arguments ensued. Michael Gilbert was the only defendant who argued against forfeiture of the
Club. Benjamin Kramer and Jack Kramer, through their counsel, informed the jury
in their respective closing arguments that they did not have, and for that
matter never had, an ownership interest in the Club. In fact, to stress this
point, Benjamin Kramer’s attorney openly invited the Government to
enter into a stipulation whereby it could have whatever interest Benjamin
Kramer had in the Club. n23 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n23 Shortly before this trial in Florida, a jury in the Southern District
of Illinois found Benjamin Kramer guilty of conspiring to distribute marijuana
and of participating in a continuing criminal enterprise. The district court
sentenced him to life in prison without the possibility of parole and a
separate, concurrent forty-year term of imprisonment. In addition, the Illinois
jury returned a $ 60 million forfeiture verdict against Benjamin Kramer. See
generally United States v. Kramer, 955 F.2d 479, 481-82 (7th Cir. 1992) (affirming
his convictions and sentences). Given Benjamin Kramer’s future
prospects in the federal penitentiary and the rather large outstanding
forfeiture judgment against him in Illinois, one can appreciate why the federal
prosecutor in Florida elected to go after a piece of real property in
California rather than settle for yet another large (but sure to be symbolic)
money judgment. Randy Lanier and Gene Fisher, two of Benjamin Kramer’s
drug smuggling associates, were defendants in the Illinois trial and were also
found guilty and sentenced to life imprisonment without the possibility of
parole. George Brock (a/k/a Tom) was also indicted in Illinois but did not
stand trial because he became a fugitive from justice. Kramer, 955 F.2d at 483 n.2. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*20] [**899] In its closing argument on the forfeiture issue,
the Government advanced its theory that “the Club was built from the
first shovel of dirt being taken out of the ground with drug money that came
from Ben Kramer’s marijuana smuggling. It was forfeitable from that
very point forward.” The Government further argued that forfeiture of
the entire Club was proper and that the jury “ought not be concerned
with … the innocent people here … because those individuals
could later petition the court to get back any interest that they
have” in the Club. In addition to the Club, the Government sought
forfeiture of $ 9.5 million representing the amount wired from LCP, Ltd. to
Troon in 1986. n24 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n24 The Government also asked the jury to forfeit $ 280,000, which
represented monies that passed through Mel Kessler’s trust account.
The jury held the Kramers and Kessler jointly and severally liable for $
280,000. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - Following closing arguments on the forfeiture issue, the court instructed
the jury that “the term [*21]
‘forfeiture’ means to be divested or deprived of the
ownership of something as penalty for the commission of a crime.” The
court then explained that “to be entitled to such forfeiture, the
Government must have proved beyond a reasonable doubt … that the
proceeds or property forfeited was obtained, directly or indirectly, by the
Defendant, as charged; and … that such proceeds or property were
obtained by the specified Defendant … from … racketeering
activity.” Before it sent the jury out to deliberate, the court gave
the jury special verdict of forfeiture forms to complete for each defendant. The special verdict of forfeiture forms asked the jury whether the Club
“constituted or was derived from any proceeds which the named
defendant obtained directly or indirectly from racketeering activity.”
If the jury answered “yes” to that question, it then had to
“indicate whether the Club is subject to Forfeiture.” The
jury answered “yes” to both questions on the verdict forms
pertaining to Benjamin and Jack Kramer. In addition, the jury forfeited the $
9.5 million that LCP, Ltd. sent to Troon in 1986, and held Benjamin and Jack
Kramer jointly and severally liable for [*22]
that amount. n25 With respect to Michael Gilbert, the jury struggled to come to
a consensus on its forfeiture verdict pertaining to the Club. n26 The following
day, the jury ultimately answered “yes” to both questions.
n27 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n25 The special verdict of forfeiture form pertaining to the $ 9.5 million
read: “Doyou find beyond a reasonable doubt that the Nine and one Half
(9.5) million dollars, or any portion thereof, is subject to forfeiture as to
the named defendant ? If the answer above is yes, how much was so proved?” n26 The jury did not mark a simple “yes” or
“no” on Michael Gilbert’s verdict form. The jury
found that the Club was proceeds of racketeering but that, with respect to
Michael Gilbert, the Club was only forfeitable “as to the portion
attributable to the CGL loans and Michael Gilbert sic ownership in the Club via
CGL Investments.” The court, sua sponte, expressed concern that the
jury’s answer was unclear; the Government and Michael
Gilbert’s attorney disagreed as to the significance of the
jury’s qualification. The court sent the jury back to deliberate
further. After a short while, the jury sent the court the following note:
“Yes, subject to forfeiture as to any and all interest in the Club
which Michael Gilbert obtained from his ownership in CGL Investments, and Club
profit participation in CGL Investments.” This response, too, was
deemed unacceptable, so the court sent the jury home for the night and summoned
them to return in the morning. The next morning, the jury continued its
deliberation and shortly thereafter came back with a simple
“yes” to the second question on the verdict form. Over a
defense objection, the court accepted the verdict and excused the jury. [*23] n27 In 1993, Michael Gilbert was tried and convicted in the Southern
District of Florida for money laundering as well as obstruction of justice and
perjury based on his testimony in the 1990 RICO criminal trial, Kramer, 73 F.3d
at 1070, and he was sentenced on August 27, 1993 to twenty-three years in
prison. In January 1996, we reversed Gilbert’s money laundering
conviction. Id. at 1072-73. According to Michael Gilbert’s attorney, after having
served approximately sixty-three months in jail, Michael Gilbert was released
in February 1996. See The Saga, supra note 5. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [**900] Notably, the jury was never asked to delineate the
extent of Michael Gilbert’s, Benjamin Kramer’s, or Jack
Kramer’s ownership interest in the Club. For that matter, the jury was
never asked to decide whether the Kramers even had an ownership interest
in the Club. Over objection, the court disregarded Michael Gilbert’s
proposed special verdict forms and instructions that addressed both of these
concerns. E. On April 3, 1990, at an impromptu hearing convened by the district court a
[*24] few hours after the jury
agreed to forfeit Michael Gilbert’s interest in the Club, the
prosecutor handed the court and those non-defendant parties interested in the
Club who were then present a “motion for order of forfeiture and for
order of seizure, entry of restraining orders and appointment of interim
trustee.” The interested parties—persons asserting legitimate
ownership interests in the now-forfeited Club—hurriedly entered
objections, but “the district court entered the government’s
proposed order for forfeiture, and also seized the Club in its entirety,
appointed an interim trustee, and prevented the Club or its owners from
distributing profits or transferring their interests.” Kramer, 912 F.2d at 1259.
n28 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n28 The power to arrive at this rather dramatic result is found in 18
U.S.C. § 1963 (e). At the time of the trial and ancillary
proceedings, this provision read:Upon conviction of a person under this
section, the court shall enter a judgment of forfeiture of the property to the
United States and shall also authorize the Attorney General to seize all
property ordered forfeited upon such terms and conditions as the court shall
deem proper. Following an entry of an order declaring the property forfeited,
the court may, upon application of the United States, enter such appropriate
restraining orders or injunctions, require the execution of satisfactory
performance bonds, appoint receivers, conservators, appraisers, accountants, or
trustees, or take any other action to protect the interest of the United States
in the property ordered forfeited. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*25] On or about April 27, the interested parties petitioned the district court
n29 for an ancillary hearing pursuant to 18 U.S.C. § 1963 (l)(2), which states
that “any person, other than the defendant, asserting a legal interest
in property which has been ordered forfeited to the United States pursuant to
this section may … petition the court for a hearing to adjudicate the
validity of his alleged interest in the property.” n30 The parties
also asked the court for relief from or stay of the restraining orders
previously placed on the Club. [**901]
Kramer, 912 F.2d at 1259.
Without addressing the merits of the third-parties’ ownership claims,
the district court “maintained the restraining order, pending final
resolution of the scope of the forfeiture of the Club in a hearing required
under 18 U.S.C. § 1963 (l).” Id. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n29 Michael Gilbert was among the parties who filed verified petitions. n30 To defeat the government’s entitlement to the forfeited
property, a third-party must establish by a preponderance of the evidence
that:(A) the petitioner has a legal right, title, or interest in the property,
and such right, title, or interest renders the order of forfeiture invalid in
whole or in part because 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; or (B) the petitioner is a bona fide purchaser for value of the right, title,
or interest in the property and was at the time of purchase reasonably without
cause to believe that the property was subject to forfeiture under this
section; the court shall amend the order of forfeiture in accordance with its
determination.18 U.S.C. § 1963 (l)(6). If the
third-party successfully establishes one of these two grounds, the forfeiture
order must be amended to reflect the third-party’s legitimate
ownership interest in the property. 18 U.S.C. § 1963 (l)(6). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*26] Despite the requirement that “the hearing on the petition shall,
to the extent practicable and consistent with the interests of justice, be held
within thirty days of the filing of the petition,” 18 U.S.C.
§ 1963 (l)(4) (emphasis added), the district court’s
promise of an ancillary hearing went unfulfilled for the next four months.
Kramer, 912 F.2d at 1257, 1259. In light of the district court’s
failure to comply with the statutory mandate, the LCP, Ltd. partners who
claimed a legal interest in the Club n31 appealed on an expedited basis to this
court for relief. n32 See Kramer, 912 F.2d at 1258. PPA did not join in the
appeal, presumably because “the government quickly relinquished any
opposition to PPA’s claim because of its non-involvement in money
laundering.” Kramer, 807 F. Supp. at 710. n33 On September 7, 1990,
this court concluded that the district court had “erred by not holding
a hearing required by § 1963(l) within the statutory
thirty day period after the filing of the claimants’ petitions or a
reasonable time thereafter,” Kramer, 912 F.2d at 1260, and
directed the [*27] district court
to commence ancillary hearings within thirty days. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n31 In a footnote, this court set out those claiming an interest in the
Club by virtue of their ownership in LCP, Ltd. The court also set out their
respective LCP, Ltd. ownership interests. Those claiming an interest were:a) M.
Dale Lyon—28% owner and general partner of LCP. b) The Lyon Children Trust—2% owner and limited partner of LCP. c) David C. Pierson—30% owner and general partner of LCP. d) Lois J. Pierson—former spouse of David Pierson and owns
one-half of his interest in LCP under California community property law. e) Julieann Coyne Wasson—20% owner and limited partner of LCP. f) Christopher Wasson—spouse of Julieann Coyne Wasson and owns
one-half of her interest in LCP under California community property law. g) Michael Gilbert—only member of appellants that was a defendant
at trial; 6.67% owner and limited partner of LCP. h) Karen Gilbert—spouse of Michael Gilbert and owns one-half of
his interest in LCP under California community property law. i) Robert Gilbert—6.67% owner and limited partner of LCP. j) Margaret Gilbert—.8325% owner and limited partner of LCP. k) The Michael Gilbert Family Irrevocable Trust—2.4975% owner and
limited partner of LCP. l) The Robert Gilbert Family Irrevocable Trust—3.33% owner and
limited partner of LCP.Kramer, 912 F.2d at 1258 n.2. [*28] n32 Michael Gilbert joined the appeal “as a means of preserving
his rights in the event the district court granted his pending motion to set
aside the forfeiture verdict against him.” n33 On May 23, 1990, the district court, in accordance with the
Government’s stipulation with PPA, permitted the PPA partners to
receive their monthly profit distributions. On September 13, 1990, the court accepted
a stipulated release of PPA’s 35% ownership interest in the Club on
the ground that PPA was an innocent owner under 18 U.S.C.
§ 1963 (l). On July 9, 1990, the Government entered a stipulation
with Sanwa Bank, one of the Club’s legitimate mortgage lenders,
whereby it agreed that “Sanwa has a valid and legitimate interest in
the real and personal property of the Club, is an innocent person within the
meaning of 18 U.S.C. § 1963, is a bona fide purchaser for
value of its interest … and was at the time of purchase reasonably
without cause to believe that the Club … was subject to forfeiture
under 18 U.S.C. § 1963. “ - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*29] The ancillary hearings began on September 10, 1990. Michael Gilbert,
through his attorney, argued that he should be allowed to participate in the
proceedings and show that he was a bona fide purchaser of his interest in the
Club. The Government opposed the motion, pointing out that section 1963(l(2) states that only persons “other than
the defendant … may … petition the court for a hearing to adjudicate
the validity of his alleged interest in the property.” 18 U.S.C.
§ 1963 (l)(2) [**902]
(emphasis added). The court agreed, and summarily barred Michael Gilbert from
participating in the ancillary proceedings. On September 28, 1990, the district court continued the ancillary
proceeding to allow the Government and the third-parties to engage in
settlement discussions. Both Coyne and Pierson, among others, settled with the
Government. n34 As a result, Lyon was the only founding LCP partner to
participate in the ancillary proceeding through its conclusion. Joining him
were the Lyon Family Trust, Karen Gilbert, and the Trust. n35 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n34 Pierson, Pierson’s wife, Lyon’s wife, Coyne,
Coyne’s husband, Robert Gilbert, Margaret Gilbert, and the Robert
Gilbert Family Irrevocable Trust settled with the Government. The terms of the
settlement were not disclosed to the district court before the ancillary
hearing for fear that they might influence the court’s decision.
[*30] n35 Christine Kramer, the former wife of Benjamin Kramer, also tried to
establish that she was the legitimate owner of one-half of her
ex-husband’s interest in the Club. The court denied her petition in
its entirety. Kramer, 807 F. Supp. at 742-43. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - In a lengthy Amended Final Order of Forfeiture dated July 22, 1991, the
district court found that the “real owners” of the Club at
its inception were Benjamin Kramer and his three drug smuggling associates
(Randy Lanier, George Brock, and Brock’s half-partner, Gene
Fisher)—Benjamin Kramer was not the sole owner since he only
contributed approximately $ 4 million (or 1/3) of the initial $ 12.6 million
mortgage proceeds used to build the Club. Kramer, 807 F. Supp. at 736.
In making this finding, the district court leaned heavily on the fact that
“from the evidence the Club is adequately capitalized if Ben Kramer
and partners are the real owners, but not so if Ben’s money was found
to be only a loan.” Id. at 725. In light of the Club’s negative asset
structure (if the drug proceeds are ignored), [*31]
the district court found that the LCP, Ltd. and PPA partners n36 were merely
straw persons whose purpose was to obtain the requisite licenses for a card
club and make the Club look legitimate, id. at 736, and that the three
original LCP general partners were nominees n37 for the investments of Benjamin
Kramer and his three drug-smuggling associates. Id. at 739. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n36 The district court concluded that PPA as well as Robert and Margaret
Gilbert were unaware of the money laundering scheme “but the others
(LCP and Michael Gilbert) were involved heavily, or knew or should have known
of the illicit nature of the operation. Julie Coyne and possibly David Pierson,
too, may well fall into the latter category; whether they fit into any of the
categories or were duped by Sam, et al., are questions this court does not have
to decide.” Kramer, 807 F. Supp. at 736. n37 The term nominee refers to someone “designated to act for
another as his representative in a rather limited sense.” Schuh
Trading Co. v. Comm’r, 95 F.2d 404, 411 (7th Cir. 1938). “Nominee in
its commonly accepted meaning connotes the delegation of authority to the
nominee in a representative or nominal capacity only, and does not connote the
transfer or assignment to the nominee of any property in or ownership of the
rights of the person nominating him.” Ott v. Home Sav.
& Loan Ass’n, 265 F.2d 643, 647 (9th Cir. 1958) (quoting Cisco v. Van
Lew,
60 Cal. App. 2d 575, 141 P.2d 433, 438 (Cal. App. 2d 1943)). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*32] Faced with trying to delineate the extent of third-party Lyon’s
ownership interest in the Club, the court concluded that “whatever
interest Ben Kramer had at the time he and his three drug-smuggling associates
loaned approximately $ 12 million to LCP precludes Lyon, under the relation
back doctrine, from asserting either that title was vested in him rather than
the Defendant Ben Kramer or that he was a title holder superior to Ben
Kramer’s interest.” Id. n38 Because forfeiture [**903] under RICO reaches only the
ownership interest held by the defendant (and Benjamin Kramer’s three
drug-smuggling associates had not been indicted), the district court denied
“Lyon’s petition in the amount of one-third (1/3) of his
current holdings in LCP” since Benjamin Kramer’s share of the
invested drug proceeds was approximately $ 4 million of the total $ 12.6 million
investment, or one-third. Id. The district court also concluded that Lyon was not a
bona fide purchaser of that portion of his interest. 807 F. Supp. at 740. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n38 The district court correctly determined that whatever interest the
Government held in Benjamin Kramer’s forfeited property dated back to
the time of the act that made the Club subject to forfeiture; that is, when
Benjamin Kramer first invested his drug proceeds in the Club. Kramer, 807 F. Supp. at 738.
This means that any subsequent transfer of part or all of a
defendant’s tainted property does not automatically extinguish the
government’s superior entitlement to the property. See United
States v. Bissell, 866 F.2d 1343 (11th Cir. 1989). This is known as the
relation back doctrine. It was codified in the RICO statute, 18 U.S.C.
§ 1963 (c) (reprinted infra note 43), as part of the 1984
amendments to “close a potential loophole in current law whereby the
criminal forfeiture sanction could be avoided by transfers that were not ‘arms’
length.’ ” See S.Rep. No. 98-225, 200-01 (1984), reprinted in 1984 U.S.C.C.A.N. at
3383-84. Congress reasoned that “absent application of this principle
a defendant could attempt to avoid criminal forfeiture by transferring his
property to another person prior to conviction.” Id. at 200, reprinted in 1984 U.S.C.C.A.N. at 3383.
A third-party whose property has been made part of a forfeiture order must file
a petition in the ancillary hearing in order to contest the forfeiture. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*33] Michael Gilbert’s wife, Karen, also participated in the ancillary
hearings. She claimed an interest in the Club by virtue of the fact that, as
Michael Gilbert’s wife, California community property laws entitled
her to half of her husband’s interest in the Club at the time Michael
Gilbert bought into LCP. The court denied her petition in its entirety,
reasoning that she was not a bona fide purchaser because she “knew, or
at least should have known of the tainted nature of her husband’s
interest.” Id. The court also denied the claim of the Trust. 807 F.
Supp. at 742. Following the ancillary hearings, Karen Gilbert and the Trust appealed the
district court’s decision denying them any interest in the Club. n39
These appeals were consolidated with the appeal of Benjamin Kramer’s
and Michael Gilbert’s convictions. n40 Both Benjamin Kramer and
Michael Gilbert appealed their RICO and Travel Act convictions; Michael, alone,
contested the forfeiture judgment. See Kramer, 73 F.3d at 1070. n41 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n39 Lyon and the Lyon Trust also filed timely notices of appeal from the
judgment in the ancillary hearing. Both subsequently dismissed their appeals in
connection with Dale Lyon’s guilty plea in the United States District
Court for the Southern District of Florida, in which he admitted obstructing
justice and committing perjury in the ancillary hearing. As a result, the
Government acquired their remaining two-thirds interest in LCP, Ltd. and Lyon
was sentenced to three months’ imprisonment and a $ 20,000 fine. United
States v. Lyon, No. 91-06192 (S.D. Fla. June 30, 1993). [*34]
n40 For simplicity, we refer to these consolidated appeals as “the
1996 appeal.” n41 Benjamin Kramer was sentenced on August 29, 1990 to a forty-five year
jail term and ordered to pay a fine of $ 460,000. Jack Kramer was sentenced on
August 29, 1990 to nineteen years in prison and ordered to pay a $ 200,000
fine. Michael Gilbert was sentenced on August 28, 1990 to four years in prison
and was ordered to pay a $ 350,000 fine. None of the three defendants was
ordered, as part of his sentence, to forfeit any property to the Government. We
discuss in Part IV. D., infra, the ramifications of the district
court’s failure to order forfeiture as part of the final judgment. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - F. On appeal, we affirmed Benjamin Kramer’s convictions. Kramer, 73 F.3d at 1070 n.1.
As for Michael Gilbert, we affirmed his RICO and Travel Act convictions,
reversed his money laundering conviction, id. at 1072-73, and set
aside the forfeiture order against him. Id. at 1075-76. With respect to
the order forfeiting Michael Gilbert’s interest in the Club, we
reasoned that: [*35] Property forfeitable in a RICO proceeding is limited to that which the
defendant obtains directly or indirectly as a result of the racketeering
activity. See 18 U.S.C. § 1963 (a)(3). The only acts of racketeering
which were both charged by the government and found by the jury to have been
committed by Gilbert [**904]
occurred after he had obtained his interest in the Club . Property acquired before
a defendant commits an act of racketeering cannot be said to have been derived
from it. As such, the forfeiture of Michael Gilbert’s interest in the
Club must be set aside.Id. at 1076. Consequently, we concluded further in a
footnote that:Because we hold that Michael Gilbert’s interest in the
Club is not subject to forfeiture, neither are the interests of Karen Gilbert
and the Trust . And, orders restraining Michael Gilbert, Karen Gilbert or the
Trust from the use and enjoyment of their interest in the Club, including
profits, are to be, for them, set aside also. Because the government, as we understand it, still does have some interest
in the Club due to other forfeitures, we anticipate the district court, [*36] will, in the light of the differing
ownership interests, need to hold a hearing or hearings and to issue additional
orders about the Club ’s future operations upon the district
court’s receiving of the mandate from this court.Id. at 1076 n.23. After we handed down our decision on January 16, 1996, the Government
sought rehearing and modification on the issue of resentencing, arguing that
the district court should be allowed to resentence Michael Gilbert since a
valuable property interest was returned to him. n42 Rehearing was denied in
July, and our mandate issued on July 18, 1996. The mandate stated, “it
is now hereby ordered and adjudged by this Court that the judgments and
convictions of the District Court in these causes be and the same hereby
AFFIRMED except as to Gilbert’s conviction for money laundering and
the forfeiture judgment which are REVERSED.” - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n42 The Government took its cue from a footnote in the district
court’s Amended Final Order of Forfeiture following the ancillary
hearing in which the court stated that, in light of the evidence presented at
the hearing (which never surfaced during the criminal trial), it would welcome
an opportunity to increase Michael Gilbert’s sentence. See Kramer, 807 F. Supp. at 741
n.30. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*37] Back in the district court, the Gilberts moved for an Order on the Mandate.
Not to be outdone, the Government moved the district court to enter a
protective order “maintaining the status quo of the Gilberts’
alleged interests in the Club .” The Government’s motion
requested that the district court “enter an order directing that the
defendant Michael S. Gilbert be required to file a petition pursuant to 18
U.S.C. § 1963 (l).” In other words, the Government wanted
Michael Gilbert to claim a third-party interest in Kramer’s forfeited
property, just as the other non-defendants had done in the ancillary
proceedings. In support of its motion, the Government argued that Michael
Gilbert “should be viewed … in the same way as other alleged ‘owners’
of an interest in the Club,” for example, Pierson and Coyne, who
settled with the Government prior to the ancillary hearing, or Lyon, who
participated in the ancillary hearing and was denied one-third of his LCP, Ltd.
interest. The Government further argued that “to permit defendant
Michael S. Gilbert to forgo having to do that which Lyon, Coyne and Pierson
were required to do would be to permit Gilbert to forgo [*38] having to establish his alleged
legitimate ownership interest, despite being the only LCP partner to be a
convicted RICO defendant.” Under the Government’s reading of our 1996 decision setting aside
Michael Gilbert’s forfeiture verdict, we resolved only that Michael
Gilbert’s interest in the Club was improperly forfeited because it was
not derived, directly or indirectly, from his racketeering
activity. The Government notes in its brief that our “opinion did not
address the issue of whether the Gilberts are entitled to their interest in the
Club pursuant to 18 U.S.C. § 1963 (l) as either superior
title holders … or bona fide purchasers for value without reasonable
[**905] cause to believe the
property was subject to forfeiture.” Thus, the Government maintains
that since Michael Gilbert’s interest in LCP, Ltd. was acquired after
the violations that gave rise to Benjamin Kramer’s forfeiture, and
since our 1996 decision left intact the verdict of forfeiture reaching Benjamin
Kramer’s interest in the Club, the Gilberts were subsequent transferees
under 18 U.S.C. § 1963 (c). n43 As such, the Government
contends that the Gilberts [*39]
should be required to show that they acquired their interests without cause to
believe that it was subject to forfeiture. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n43 Section 1963(c) reads:All right, title, and interest in property
described in the RICO statute vests in the United States upon the commission of
the act giving rise to forfeiture under this section. Any such property that is
subsequently transferred to a person other than the defendant may be the
subject of a special verdict of forfeiture and thereafter shall be ordered
forfeited to the United States, unless the transferee establishes in a hearing
pursuant to subsection (l) that he is a bona fide purchaser for value of such
property who at the time of purchase was reasonably without cause to believe
that the property was subject to forfeiture under this section.18 U.S.C.
§ 1963 (c); see also supra note 38. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - Following a hearing, the district court denied the Government’s
request for a protective order and contemporaneously entered an [*40] order on the mandate. The district court
reasoned that the Government’s argument, “however sound and
well-reasoned it might be … could have been pursued much earlier in
these proceedings. The government could have raised this during the ancillary
proceedings, the appeal and the petition for rehearing or have sought
certiorari in the Supreme Court, but did not. As such, the government has
waived this issue. United States v. Thompson, 710 F.2d 1500 (11th Cir.
1983). “ The Government filed a motion for reconsideration, which the
district court denied on March 10, 1997. The Government then took this appeal.
n44 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n44 During the pendency of this appeal, the district court authorized the
United States to dispose of its interest in the Club. Julie Coyne, who had
settled with the Government rather than take part in the ancillary proceedings,
opposed the sale, claiming that she was entitled to acquire the
Government’s interest in LCP (which at that time represented a 10%
general partnership interest and a 36.45% limited partnership interest) under a
right of first refusal written into the LCP general partnership agreement. The
district court denied her claim, finding that since she had acted in concert
with Benjamin Kramer, she was statutorily barred from purchasing the
Government’s interest. See United States v. Kramer, 957 F. Supp. 223, 228 (S.D.
Fla. 1997) (“Section (f) of 18 U.S.C. § 1963 does
not require that Julie Coyne be indicted and found guilty before she can be
barred from purchasing the government’s interest. The statute requires
that she have ‘acted in concert with’ defendants. That Julie
Coyne did….”). Coyne appealed that decision to this court
(Case Nos. 97-4475, 97-5173, 97-5174) and we heard oral argument on October 8,
1998. While a decision in Coyne’s case was still pending, Coyne
consented to the Government selling its LCP interest to a different buyer. The
Government and Coyne then agreed that the right of first refusal issue was
moot. In their Joint Motion to Dismiss Appeal, the Government conceded that
“the United States no longer owns any interest in LCP or the Bell
Garden’s Bicycle Club.” We granted dismissal in that case,
thus raising the possibility that the present case was subsequently rendered
moot by the Government’s total divestiture. Upon request by this
court, the Government assuaged our concern—the Government had
curiously agreed “as part of the sale of its forfeited interest
… to sell the Michael Gilbert, Karen Gilbert, and Trust, interests if
and when those interests are finally forfeited to and owned by the United
States.” (We say “curiously” in light of the fact
that the Government informs us that the Gilbert family limited partnership
interests are currently valued at over ten million dollars. The legal card club
business in California must indeed be a profitable business for a buyer to
agree to a sale that might prove $ 10 million short.) - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*41] II. A. As a threshold matter, we must address the Gilberts’ challenge
that we lack jurisdiction to hear this appeal. The Government maintains that
[**906] 28 U.S.C.
§ 1291 n45 is a proper basis for our jurisdiction because the
district court’s denial of the Government’s request for a
protective order conclusively resolves conflicting ownership interests in the
Club. As such, the Government posits that its appeal is from a final judgment.
The Gilberts, on the other hand, contend that section 1291 is not a proper
basis for the Government’s appeal because section 1291 does not
authorize the United States to appeal final orders in criminal cases. See United
States v. Horak, 833 F.2d 1235, 1247 n.10 (7th Cir. 1987). The Government side-steps the
fact that section 1291 is inapplicable to government appeals from criminal
cases by asserting that the Government is “appealing the district court’s
ruling in the ancillary forfeiture proceeding, and not the criminal proceeding
against Gilbert himself.” The Government’s brief also
emphasizes that its appeal relates to the district court’s order
denying the Government’s request “to require the Gilberts and
the [*42] Trust to file third-party
petitions in the ancillary proceeding relating to the criminal forfeiture of
Benjamin Kramer’s interest” in the Club. In other words, the
Government seeks to use the 1990-91 ancillary proceeding regarding Benjamin
Kramer’s forfeited property as the basis for its requested protective
order. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n45 28 U.S.C. § 1291 provides us with jurisdiction over
“appeals from all final decisions of the district courts of the United
States.” A final decision is one that “ ‘ends the
litigation on the merits and leaves nothing for the court to do but execute the
judgment.’ ” Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365, 1368 (11th
Cir. 1983) (quoting Catlin v. United States, 324 U.S. 229, 233, 65 S. Ct.
631, 633, 89 L. Ed. 911 (1945)). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - 1. The question which confronts us at this stage is whether a third-party
proceeding ancillary to a criminal forfeiture prosecution is a criminal or
civil proceeding for the purposes of a government appeal. [*43] If a section 1963(l) ancillary proceeding
is civil in nature, as the Government contends, then our jurisdiction over the
appeal would be proper; but if the ancillary proceeding is criminal in nature,
the Government would lack statutory authorization to bring this appeal under
section 1291. See Horak, 833 F.2d at 1247 n.10 (“Nothing in
section 1291 grants the executive the power to appeal all (or for that matter
any) final orders in criminal cases.”). Surprisingly, no other circuit
has addressed this question directly. n46 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n46 uage:
FR'>But cf. United States v. Douglas, 55 F.3d 584, 588 (11th Cir.
1995) (holding that a third-party claim in a proceeding ancillary to criminal
forfeiture is to be considered a civil action for purposes of permitting an
award of attorney’s fees under the Equal Access to Justice Act); United
States v. Alcaraz-Garcia, 79 F.3d 769, 772 n.4 (9th Cir. 1996) (stating that an
appeal from the denial of a third-party petition under 21 U.S.C.
§ 853 (n) is civil in nature for purposes of determining the
timeliness of filing the appeal under Fed. R.App. P. 4.); United States v.
Lavin, 942 F.2d 177, 181-82 (3d Cir. 1991) (same); but see United
States v. BCCI Holdings, 980 F. Supp. 529, 533-534 (D.D.C. 1997) (holding that
for the purposes of a Kastigar hearing, “RICO third-party criminal
forfeiture proceedings under § 1963(l) are ‘criminal
cases’ within the meaning of 18 U.S.C.
§ 6002”). We note in passing that our independent
research uncovered only one case where the government appealed an adverse
ruling in an ancillary hearing. The Fourth Circuit Court, unfortunately, did
not address the basis for its appellate jurisdiction. See United States v. Reckmeyer,
836 F.2d 200 (4th Cir. 1987). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*44] In United States v. Douglas, 55 F.3d 584 (11th Cir. 1995), we held that an
ancillary proceeding pursuant to 21 U.S.C. § 853 (n) n47 was
“a civil action” for the purpose [**907] of allowing a third party to recover
attorneys’ fee awards against the United States under the Equal Access
to Justice Act. Douglas involved a third-party claimant who filed a
petition opposing criminal forfeiture of certain property under a provision of
the statute identical to section 1963(l). Id. at 586 & n.9.
After prevailing on a summary judgment motion and thereby successfully
establishing his claim to the forfeited property, the third-party moved for
attorney’s fees pursuant to the EAJA. Id. at 586. Finding that
“the government apparently made no investigation into factual
background prior to seeking forfeiture,” the district court awarded
the third-party approximately $ 21,000 in attorney’s fees. Id. (internal quotation
omitted). - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n47 21 U.S.C. § 853 deals with criminal forfeiture in
narcotics cases brought under the Continuing Criminal Enterprise statute, 21
U.S.C. § 848 et seq. (1994). Section 853(n) is
“substantially identical” to section 1963(l). United
States v. Ripinsky, 20 F.3d 359, 362 n.3 (9th Cir. 1994). Cases applying
one of these analogous statutes have used section 853(n) and section 1963(l) cases
interchangeably. See, e.g., United States v. Bissell, 866 F.2d 1343, 1348
n.3 (11th Cir.1989). The legislative history of RICO has been used to interpret
congressional intent in section 853(n) cases because Congress adopted section
1963(l)’s language when it crafted section 853(n). See Douglas, 55 F.3d at 586 n.9; United
States v. Lavin, 942 F.2d 177, 185 n.9 (3d Cir. 1991). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*45] On appeal, the government argued that a third-party proceeding ancillary to
a criminal forfeiture prosecution was not a civil case and therefore the
assessment of fees against the government was in error. The Douglas court’s
section 853(n) analysis applies just as easily to section 1963(l). See United
States v. Bissell, 866 F.2d 1343, 1348 n.3 (11th Cir. 1989) (“Our
discussion and holdings apply equally to the forfeiture provisions in 21 U.S.C.
§ 853 as to those found in 18 U.S.C. § 1963.”).
The Douglas court first looked at the nature of a section 853(n) proceeding and noted
that “once a criminal forfeiture prosecution has been filed, third
parties are expressly barred by 21 U.S.C. § 853 (k)(2) from
‘commencing an action at law or equity against the United States
concerning the validity of their interest in the property’ except ‘as provided
in section 853(n).’ ” Douglas, 55 F.3d at 586 (alterations
and emphasis in original); see also 18 U.S.C. § 1963 (i)(2)
(containing language analogous to § 853(k)(2)). From this
provision, the [*46] Douglas court gleaned that a
section 853(n) suit was meant to operate as a “substitute for separate
civil litigation against
the government.” Id. (emphasis in original). In a footnote, the court further
buttressed its conclusion that “Congress considered this ancillary
proceeding to be essentially civil” by turning to the legislative
history of section 1963(l). Id. at n. 9. There the court found that Congress intended
that third-party petitions ancillary to a criminal forfeiture take the place of
civil cases, and that such a procedure would enable innocent parties to
adjudicate their property interests swiftly instead of having to file separate
civil suits. n48 Id. We find that the Douglas court’s analysis
applies beyond the mere confines of determining whether ancillary proceedings
are “civil actions” within the meaning of the EAJA. For the
same reasons expressed in Douglas, we conclude that a third-party petition filed
under section 1963(l) is civil in nature even though it is ancillary to a
criminal forfeiture trial. Accordingly, we believe that the Government can
properly appeal the district court’s denial of its motion for a
protective order relating [*47] to
the Government’s interest in Benjamin Kramer’s forfeited
property. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n48 [O]nce the indictment or information is filed, a third party is not to commence a
civil suit against the United States; instead the third party should avail
himself of the ancillary hearing procedure… This provision assures a
more orderly disposition of both the criminal case and third party claims.
Indeed, it is anticipated that the new hearing procedure should provide for more
expedited consideration of third party claims than would the filing of separate
civil suits.H.R.Rep. No. 98-1030, at 206-07 (1984), reprinted in 1984 U.S.C.C.A.N.
3182, 3389-90. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - 2. While we agree with the Government that section 1963(l) ancillary
proceedings should be considered civil proceedings for the purposes of
appellate review, we disagree that section 1291 is a proper basis for our
jurisdiction in the [**908]
instant appeal. The Government’s motion for a “protective
order” requested that the district court: (1) “enter an order
directing [*48] that the defendant
Michael S. Gilbert be required to file a petition pursuant to 18 U.S.C.
§ 1963 (l) within thirty (30) days” and (2)
“enter a Protective Order maintaining the status quo of the
Gilberts’ alleged interests in the Club until” the district
court resolved the issue in (1) above. While the Government’s motion
is couched as request for a protective order, this designation is nothing more
than smoke and mirrors. In effect, the Government has taken a request for an injunction—ordering
Michael Gilbert to file a third-party petition pursuant to section 1963(l)—and cleverly
dressed it up to look like a request for a protective order. n49 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n49 An injunction ordering a party to “take action,” such
as file a third-party claim, is properly labeled a mandatory injunction. See Meghrig
v. KFC Western, Inc., 516 U.S. 479, 484 116 S. Ct. 1251, 1254, 134 L. Ed. 2d
121 (1996); see also Tom Doherty Assoc. v. Saban Entm’t, Inc., 60 F.3d 27, 34 (2d
Cir.1995) (“A mandatory injunction, in contrast to a prohibitory
injunction, is said to alter the status quo by commanding some positive
act.”). The most common type of injunctions
“restrain” a party from doing something and such injunctions
are properly labeled prohibitory injunction. Id. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*49] It is clear from the language of the Government’s motion that the
“status quo” of the Gilberts’ property stands or
falls upon the district court’s decision to grant (or deny) the
injunction. We conclude, therefore, that the Government’s motion
should be properly treated as a request for an injunction. Cf. Chatman
v. Spillers, 44 F.3d 923, 924 (11th Cir. 1995) (finding jurisdiction under 28 U.S.C. § 1292
(a)(1) because plaintiffs’ request for an order directing the
defendants to call special elections could be characterized appropriately as an
injunction). Because we believe that the district court’s refusal to grant
the Government’s request is more appropriately labeled a denial of an
injunction, we find that 28 U.S.C. § 1292 (a)(1) n50 is the
appropriate jurisdictional basis for our review in this case. The
Government’s misidentification of the proper jurisdictional basis,
however, is not fatal to its appeal. Spartacus, Inc. v. Borough of McKees
Rocks, 694 F.2d 947, 949 n.4 (3d Cir. 1982) (reviewing the merits of the action
even though both the appellant and appellee incorrectly relied on section 1291
[*50] for appellate jurisdiction
when in fact section 1292(a)(1) was proper). Having assured ourselves that this
appeal is properly before us, we now proceed to the merits of the
Government’s argument. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n50 Section 1292(a)(1) authorizes appellate jurisdiction of
“interlocutory orders of the district courts of the United States
… granting, continuing, modifying, refusing or dissolving injunctions.”
28 U.S.C. § 1292 (a)(1) (1994). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - B. A mixed standard of review applies when a district court grants or denies
an injunction. We review the district court’s decision to grant or
deny an injunction for clear abuse of discretion, United States v. Bd.
of Educ. of Greene County, Mississippi, 332 F.2d 40, 45-46 (5th Cir.
1964), but underlying questions of law are reviewed de novo. United
States v. Pruitt, 174 F.3d 1215, 1219 (11th Cir. 1999) (“ ‘A district
court by definition abuses its discretion when it makes an error of
law.’ “) (quoting Koon v. United States, 518 U.S. 81, 100,
116 S. Ct. 2035, 2047, 135 L. Ed. 2d 392 (1996)). [*51] The Government’s position assumes that the
district court has the power to enter an injunction requiring the Gilberts and
the Trust to file third-party petitions in the ancillary proceeding relating to
Kramer’s forfeited property. Since this assumption is a purely legal
one, we review it de novo. III. A. The Government must demonstrate a substantive or procedural right before it
[**909] may obtain an injunctive
remedy. Thus, we must look to RICO’s statutory forfeiture scheme to
determine whether it grants the Government a right to force third-parties to
file petitions in a section 1963(l) ancillary proceeding. n51 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n51 The Government’s request is apparently an unprecedented move;
our independent research has uncovered no case in which the Government has
attempted to obtain such an injunction. The Gilberts and the Trust completely
fail to question the propriety of the Government’s motion, arguing
instead that the Government’s request is barred by the law of the case
doctrine or, alternatively, that we lack jurisdiction to hear the
Government’s appeal (see supra Part II. A.). The law of the case doctrine dictates that “both the district
court and the court of appeals generally are bound by findings of fact and
conclusions of law made by the court of appeals in a prior appeal of the same
case.” United States v. Robinson, 690 F.2d 869, 872 (11th Cir.
1982). The law of the case doctrine does not apply in this case because the
issue in the 1996 appeal was whether Michael Gilbert’s interest in the
Club was properly forfeited under the Government’s theory at trial,
i.e., that his interest was derived from his own racketeering activity. The
issue in this appeal, however, is whether the Government can force a
third-party subsequent transferee, as defined in 18 U.S.C.
§ 1963 (c), to file a section 1963(l) petition. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*52] 1. The RICO statute, introduced into law by the Organized Crime Control Act of
1970, “was intended to provide new weapons of unprecedented scope for
an assault upon organized crime and its economic roots” by providing
“enhanced sanctions and new remedies to deal with the unlawful
activities of those engaged in organized crime.” Russello v. United
States, 464 U.S. 16, 26-27, 104 S. Ct. 296, 78 L. Ed. 2d 17 (1983) (citing Pub.L.
No. 91-452, 84 Stat. 922, 923 (1970)) (quotations omitted).One such weapon in
the RICO arsenal was the forfeiture scheme, which sought to strike at the heart
of an illegal enterprise by confiscating tainted property and proceeds in hopes
of putting the criminal enterprise out of business. See United States v.
Angiulo, 897 F.2d 1169, 1213 (1st Cir. 1990). This weapon, however, has often left
third-party property holders feeling particularly vulnerable when, for
instance, “their property appears to be the defendant’s and
the defendant is ordered to forfeit that property to the Government.” See United
States v. Schwimmer, 968 F.2d 1570, 1573 (2d Cir. 1992). Surprisingly, from RICO’s enactment in 1970 until [*53] 1984, RICO’s forfeiture
provisions contained no procedure by which a third-party property holder could
adjudicate his claim to forfeited property. Instead, an innocent third-party
who claimed an interest in forfeited property could only petition the Attorney
General, who had been exclusively charged with making “due provision for
the rights of innocent persons.” 18 U.S.C. § 1963
(c) (1984), amended by Pub.L. 98-473 (1984). Compounding the problem,
third-parties who were dissatisfied with the Attorney General’s final
decision regarding their ownership claim were unable to obtain judicial review
of the Attorney General’s decision. See S.Rep. No. 98-225, at
209 (1990), reprinted in 1984 U.S.C.C.A.N. 3182, 3392. Fourteen years after
RICO’s enactment, Congress recognized the inequity inherent in such a
procedure and amended the statute by enacting the Comprehensive Crime Control
Act, Pub.L. No. 98-473, 98 Stat. 1837. See id. at 3390-91. The amendment set
up an orderly procedure whereby third-parties whose property interests had been
criminally forfeited could challenge the validity of the forfeiture order and
establish their legitimate ownership [*54]
interests in the district court. Under current RICO forfeiture provisions, third-parties must wait for a
final order of forfeiture in the criminal trial before they can “hale
the government into court” to adjudicate their interests in forfeited
property. United States v. Kramer, 912 F.2d 1257, 1261 (11th Cir. 1990); see also 18 U.S.C.
§ 1963 (i). The order of forfeiture is a required element of
sentencing for criminal RICO violations [**910]
and is entered as part of the final judgment. 18 U.S.C.
§ 3554; 18 U.S.C. § 1963 (e); Fed.R.Crim.P.
32(d)(2); United States v. L’Hoste, 609 F.2d 796, 809-13 (5th
Cir. 1980) n52 (holding that forfeiture is a mandatory element of sentencing
for a violation of 18 U.S.C. § 1962); United States v.
Derman, 211 F.3d 175, 182 n.9 (1st Cir. 2000) (“The forfeiture order
entered at sentencing is called ‘final order of forfeiture’
and … is appealable.”). Once an order of forfeiture has been
handed down (as part of the final judgment), the court, pursuant to
Fed.R.Crim.P. 32(d)(2), may authorize the Attorney [*55] General to “seize the property
subject to forfeiture” and begin carrying out “statutory
requirements pertaining to ancillary hearings and the rights of third
parties.” Fed.R.Crim.P. 32(d)(2) (1996). n53 One such statutory
requirement is that the government “publish notice of the order and
… to the extent practicable, provide direct written notice to any
person known to have alleged an interest in the property.” 18 U.S.C.
§ 1963 (l)(1). The government’s obligation to give
constructive notice to all potential third-parties, and preferably direct
notice to known third parties with an interest in the forfeited property, is a
vital requirement of RICO’s forfeiture provisions since the property
rights of third-parties who do not file petitions in the ancillary proceeding
are automatically extinguished. See 18 U.S.C. § 1963 (l)(7). - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n52 In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc),
this court adopted as binding precedent all decisions of the former Fifth
Circuit handed down prior to October 1, 1981. [*56]
n53 Before its amendment in 1996, the relevant provision of Rule 32
read:(2) Criminal Forfeiture. When a verdict contains a finding of property subject to
a criminal forfeiture, the judgment of criminal forfeiture shall authorize the
Attorney General to seize the interest or property subject to forfeiture,
fixing such terms and conditions as the court shall deem proper.Fed.R.Crim.P.
32(b)(2) (1990) (current version at Fed.R.Crim.P. 32(d)(2)). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - Next, the statute defines the class of people who are entitled to challenge
the order of forfeiture and sets forth the time limits applicable to such
challenges: Any person other than the defendant, asserting a legal interest in property
which has been ordered forfeited to the United States pursuant to this section may,
within thirty days of the final publication of notice or his receipt of notice
under paragraph (1), whichever is earlier, petition the court for a hearing to
adjudicate the validity of his alleged interest in the property. The hearing
shall be held before the court alone, without a jury.18 U.S.C.
§ 1963 [*57] (l)(2). The filing of
third-party claims, therefore, is reserved to persons other than the defendant
n54 who claim to have a “legal interest” in the forfeited
property. Additionally, third-parties must file their petitions within thirty
days from receipt or final publication of notice, or lose the right to
establish their interest in the forfeited property. By specifically barring
third-parties from intervening in the criminal trial, 18 U.S.C.
§ 1963 (k), it is clear that Congress intended [**911] section 1963(l) proceedings to
provide the exclusive means for third-parties to assert their claims to
forfeited property. Cf. United States v. Phillips, 185 F.3d 183, 186 (4th Cir.
1999) (applying analogous provisions of 21 U.S.C. § 853 (n)). - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n54 Michael Gilbert contends that he cannot be made to file a third-party
petition because the statute applies to “any person other than the
defendant.” 18 U.S.C. § 1963 (l)(2). He argues that
since he was a defendant in the underlying RICO prosecution, he is statutorily
barred from filing a third-party petition. By including this provision in
§ 1963(l)(2), Congress undoubtedly sought to prevent the
defendant whose property had been forfeited from circumventing the
forfeiture order and litigating anew his entitlement to the property. With
respect to Benjamin Kramer’s forfeited property, Michael Gilbert is
properly viewed as a third-party subsequent transferee under
§ 1963(c), rather than a defendant as the term is used in the
statute. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*58] Section 1963(l) also limits the
grounds upon which a third-party petitioner may rely to establish his interest
in the property. To establish his legitimate entitlement to the forfeited
property, the petitioner must show that (1) title to the property was vested in
him rather than the defendant at the time of the act which made the property
subject to forfeiture; (2) his title to the property was superior to the title
held by the defendant at the time of the act which made the property subject to
forfeiture; or (3) that he purchased his interest without reasonable cause to
know that the property was subject to forfeiture. See 18 U.S.C.
§ 1963 (l)(6)(A)—(B) (reprinted in full supra, n. 30). By
successfully establishing one of these three grounds, the petitioner defeats
the government’s entitlement under the forfeiture order. See 18 U.S.C.
§ 1963 (l)(6) (“The court shall amend the order of
forfeiture in accordance with its determination.”) (emphasis added).
Not to be overlooked, however, is that the third-party petitioner, and not the
government, bears the burden of proving one of these limited grounds by a
preponderance [*59] of the
evidence. Congress chose to place the burden of proof on the third-party during
the ancillary proceeding, since the government would necessarily have carried
its burden of proving that the defendant’s interest in the property
was subject to forfeiture during the criminal trial. See S.Rep. No. 98-225, at
209 (1990), reprinted in 1984 U.S.C.C.A.N. 3182, 3392. Finally, section 1963(l) declares that
“following the court’s disposition of all petitions filed
under this subsection, or if no such petitions are filed following the
expiration of the period provided in paragraph (2) for the filing of such
petitions, the United States shall have clear title to property that is the
subject of the order of forfeiture and may warrant good title to any subsequent
purchaser or transferee.” 18 U.S.C. § 1963 (l)(7). As the foregoing reveals, a section 1963(l) ancillary proceeding
is essentially a quiet title proceeding. First, the jury’s special
verdict of forfeiture establishes the extent of the defendant’s
interest in a certain forfeitable asset. Next, the forfeiture order, in effect,
puts the government in the defendant’s shoes and the government [*60] succeeds to whatever interest, if any,
that defendant had in the property. The section 1963(l) ancillary proceeding
then enables certain third-parties to file claims in order to establish their
interest in the defendant’s (now the government’s) property.
If one or more of the third-party claims is successful, the court releases
those interests and amends its order of forfeiture accordingly. See 18 U.S.C.
§ 1963(l)(6). The language of the statute makes clear that if a third-party does not file
a petition in the ancillary proceeding within thirty days of receipt or
publication of notice, his rights in the defendant’s forfeited
property are automatically extinguished and the government obtains
“clear title to property that is the subject of the order of
forfeiture and may warrant good title to any subsequent purchaser or
transferee.” 18 U.S.C. § 1963 (l)(7). By virtue of its
forfeiture judgment and the fact that the time for filing ancillary petitions
has run or such proceedings have been concluded, the government succeeds as
against the world to the defendant’s property. In other words, the
government has effectively quieted its title to the defendant’s [*61] property and owns it outright. 2. Applying the section 1963(l) model to the instant case, we note initially that the
condition precedent to an ancillary proceeding—the entry of a final
order of forfeiture—has apparently not been met. In sentencing
Benjamin Kramer on August 29, 1990, the district court failed to enter a
judgment of forfeiture as required by [**912]
18 U.S.C. § 3554, n55 18 U.S.C. § 1963 (e),
n56 and Rule 32(b) n57 of the Federal Rules of Criminal Procedure. The order of
forfeiture upon which the parties rely—entered immediately following
the jury verdicts on April 3, 1990—was not part of Kramer’s
sentence, and therefore could have done nothing more than temporarily restrain the property
pending sentencing. That order was superseded by the court’s final
judgment on August 29, which made no mention of forfeiture. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n55 18 U.S.C. § 3554 provides that: The court, in imposing a sentence on a defendant who has been found guilty
of an offense described in section 1962 of this title … shall order,
in addition to the sentence that is imposed pursuant to the provisions of
section 3551, that the defendant forfeit property to the United States in
accordance with the provisions of section 1963 of this title… [*62] n56 18 U.S.C. § 1963 (e) states, in pertinent part:
“Upon conviction of a person under this section, the court shall enter
a judgment of forfeiture of the property to the United States and shall also authorize
the Attorney General to seize all property ordered forfeited upon such terms
and conditions as the court shall deem proper….” n57 At the time of trial, Fed.R.Crim.P. 32(b) read:(b) Judgment. (1) In General. A judgment of conviction shall set forth the plea, the
verdict or findings, and the adjudication and sentence…. (2) Criminal Forfeiture. When a verdict contains a finding of property
subject to a criminal forfeiture, the judgment of criminal forfeiture shall
authorize the Attorney General to seize the interest or property subject to
forfeiture, fixing such terms and conditions as the court shall deem
proper.Fed.R.Crim.P. 32(b) (1990) (current version at Fed.R.Crim.P. 32(d)). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - As noted supra in Part III. A.1., third-parties cannot petition the court to
adjudicate their interests in forfeited property until a final order [*63] of forfeiture has been entered in the
criminal case. If such an order was ever entered against Benjamin Kramer, we
are unable to locate it in the record. Rather, the final judgment in the
criminal case only sentenced Kramer to prison confinement and a fine. This fact
alone is sufficient to affirm the denial of the Government’s request, because
third-parties such as the Gilberts are not permitted to file section 1963(l) petitions in the
absence of a final order of forfeiture. Given the convoluted nature of this
case, however, and the fact that the parties have long relied on the existence
of a final order of forfeiture, we shall defer our consideration of the issue.
n58 For the moment, we will assume that a final order of forfeiture was
entered, and turn to 18 U.S.C. § 1963 (l) to determine whether
the Government can force the Gilberts to file petitions claiming an interest in
Kramer’s forfeited property. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n58 Because the omission of a final order of forfeiture has severe
ramifications in any criminal forfeiture proceeding, we discuss the omission in
further detail in Part IV. D., infra. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*64] 3. “In determining whether to infer a private cause of action from a
federal statute, our focal point is Congress’ intent in enacting the
statute.” Thompson v. Thompson, 484 U.S. 174, 179, 108 S.
Ct. 513, 516, 98 L. Ed. 2d 512 (1988). In Cort v. Ash, 422 U.S. 66, 78, 95
S. Ct. 2080, 2088, 45 L. Ed. 2d 26 (1975), the Supreme Court set out four
factors as guides to discerning that intent: (1) whether the plaintiff is one
of the class for whose benefit the statute was enacted; (2) whether there is any
indication of legislative intent, explicit or implicit, either to create or to
deny a private remedy; (3) whether implying a private right of action is
consistent with the underlying purposes of the legislative scheme; and (4)
whether the cause of action is one traditionally relegated to state law, such
that it would be inappropriate for the court to infer a cause of action based
solely on federal law. n59 “The intent of Congress remains [**913] the ultimate issue…
‘Unless this congressional intent can be inferred from the language of
the statute, the statutory structure, or some other source, the essential
predicate for implication of a private remedy [*65]
simply does not exist.’ ” Thompson, 484 U.S. at 179, 108
S. Ct. at 516 (quoting Northwest Airlines, Inc. v. Transport Workers, 451 U.S. 77, 94, 101
S. Ct. 1571, 1582, 67 L. Ed. 2d 750 (1981)). - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n59 Since its decision in Cort, the Supreme Court has become more restrained in its
willingness to find an implied private right of action. See Touche Ross
& Co. v. Redington, 442 U.S. 560, 578, 99 S. Ct. 2479, 2490, 61 L. Ed. 2d
82 (1979) (adopting a “stricter standard” of
“congressional intent”). Today, the Court requires some
affirmative evidence of congressional intent, in “the language and
focus of the statute, its legislative history, and its purpose.” Touche Ross, 442 U.S. at 575-76,
99 S. Ct. at 2489. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - We need not consider all four factors of the Cort analysis, as our
consideration of the first two factors is dispositive. See Florida v.
Seminole Tribe of Florida, 181 F.3d 1237, 1247 (11th Cir. 1999) (“When an
examination [*66] of one or more of
the Cort factors ‘unequivocally reveals congressional intent, there is no
need for us to trudge through all four of the factors.’ “)
(quoting Liberty Nat’l Ins. Holding Co. v. Charter Co., 734 F.2d 545, 558
(11th Cir. 1984)) (alteration in original)). Under Cort ’s first
factor, the language and legislative history of section 1963(l) demonstrate that the
statute was designed to protect only the property rights of innocent
third-parties, not those of the government. Accordingly, it appears under the
second factor of the Cort analysis that Congress did not intend to create the
injunctive remedy sought by the Government in this case. Indeed, there is no
need for a proceeding in which the government may assert its claim to forfeited
property, as the statutory scheme outlined in section 1963(l) is self-executing.
That is, aside from providing the required notice, the government need not take
any affirmative action if
third-parties neglect to file claims to forfeited property. Even if a petition
is filed, section 1963(l) places the burdens of production and persuasion on the
petitioner. 18 U.S.C. § 1963 [*67]
(l)(6). After the
ancillary proceedings have ended, or the time for filing petitions has run, the
government automatically succeeds to the remaining forfeited property by
operation of law. n60 The government need not force third-party owners to
appear in court so that their interests may be extinguished; those who have
notice but do not appear lose their interests by default. At the end of the
ancillary proceedings, the court must amend its order of forfeiture to reflect
any successful third-party claims. 18 U.S.C. § 1963 (l)(6). If none of the
third-party claims was successful, or if no petitions were filed during the
statutory time period, the court need not amend its order. The government may,
however, request an order from the court declaring that the government has met
all of the statutory notice requirements, that no meritorious third-party
claims were filed, and that the government has clear title to the forfeited
property. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n60 The “remaining forfeited property” will be that
interest or property which was forfeited in the court’s initial order
of forfeiture and not successfully claimed by a third-party owner. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*68] The structure of RICO’s criminal
forfeiture scheme clearly indicates that Congress did not expect the government
to play an active role under section 1963(l). It is well settled
that, absent compelling countervailing considerations or an absurd result, we
may not disregard the clear, mandatory statutory scheme erected by Congress. Rubin v.
United States, 449 U.S. 424, 430, 101 S. Ct. 698, 701, 66 L. Ed. 2d 633 (1981). Section
1963(l) was enacted to allow innocent third-party owners to assert claims to
forfeited property, not to assist the Government in forcing those third-parties
to do so. Implying such a private cause of action in favor of the Government
would directly contravene RICO’s statutory forfeiture scheme, and the
Government has presented us with no compelling countervailing consideration that
would justify such a decision. Thus, we hold that the Government’s
requested injunction is not statutorily authorized by section 1963(l). [**914] B. 1. As a general matter, our conclusion that section 1963(l) proceedings are
self-executing greatly benefits the Government. For instance, if a house, a
car, or shares of stock were forfeited to the Government [*69] because the defendant purchased them with
drug proceeds, the Government would automatically obtain clear title to any of
those assets if no third-party petitions were filed before the statutory
deadline. If there were any question about the propriety of the
Government’s title, the Government could simply move the court for an
order declaring the status of its interest based on the final order of
forfeiture and the disposition of third-party petitions. The question then
arises: why would the Government ask a court to force third-parties to file
section 1963(l) petitions when, as a result of the third-parties’ failure to
file, the Government would obtain clear title to the property automatically? 2. As a result of our 1996 opinion setting aside the order of forfeiture
against Michael Gilbert, n61 the Government is left with only that interest in
property which belonged to Benjamin Kramer at the time it became subject to
forfeiture. The problem, however, is that the exact nature of that interest is
undetermined. In an attempt to correct fundamental errors made during the
criminal trial, the district court modified the forfeiture verdict (returned on
April 2) and initial order of [*70]
forfeiture (entered on April 3) after it heard evidence in the ancillary
proceedings. n62 The resulting Amended Final Order purported to forfeit Kramer’s
interest in LCP, Ltd., rather than the entire Bell Gardens Bicycle Club. The
court made this change despite the fact that LCP, Ltd. was not named in the
indictment, verdict, or initial order of forfeiture. The Government, believing
that the court’s post-trial amendment was valid, now claims title to
Kramer’s interest in LCP, Ltd., rather than the Club. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n61 We set aside the forfeiture verdict against Michael Gilbert because,
under a logical reading of section 1963(a)(3), Michael Gilbert could not have
obtained his LCP, Ltd. interest as a result of his racketeering activity since
the jury found him guilty of racketeering acts occurring only after he acquired
his interest. Kramer, 73 F.3d at 1076. n62 For instance, the trial court presumably realized during the ancillary
proceedings that a Joint Venture, rather than any defendant in the case, owned
the Bell Gardens Bicycle Club. See infra, Part IV. B. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*71] The dilemma presented by this purported change is that the Government does
not know the extent of Kramer’s interest—and, therefore, the
extent of its own interest—in LCP, Ltd. Because the jury was never instructed to
determine Kramer’s interest in the partnership, his interest could
conceivably range anywhere from .01 to 100 percent. Thus, what the Government
has, at best, is an unspecified interest in LCP, Ltd. The question now becomes:
what can the Government do with that unspecified interest? What the Government presumably wants to do is sell its interest in
LCP, Ltd. This would not normally be a problem, as the time for filing
third-party petitions has long passed and title to the interest has vested in
the Government by operation of law. See 18 U.S.C.
§ 1963 (l)(7). n63 In any other case, the Government would simply
present the final order of forfeiture to the general partners of LCP, Ltd. and
have the LCP, Ltd. Partnership Agreement amended to reflect the
Government’s ownership [**915]
interest. n64 Of course, if the partnership agreement were not amended, a
percentage of LCP, Ltd. would remain in the Gilberts’ names. A
prospective purchaser, [*72] aware
of the 1996 decision in which we held that those ownership interests did not
derive from Michael Gilbert’s racketeering activity, would be unsure
about the source of the interests and would quickly conclude that he was buying
a lawsuit. Thus, the Government’s interest in LCP, Ltd. is of little,
if any, value until the Government obtains clear title to it. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n63 Section 1963(l)(7) states:Following the court’s disposition of
all petitions filed under section 1963(l), or if no such petitions are
filed following the expiration of the period provided in section 1963(l)(2) for the filing of
such petitions, the United States shall have clear title to property that is
the subject of the order of forfeiture and may warrant good title to any
subsequent purchaser or transferee.18 U.S.C. § 1963 (l)(7) (1994). n64 The certificate of limited partnership would be properly amended by a
general partner filing a certificate of amendment in the office of, and on a
form prescribed by, the California Secretary of State. Cal. Corp.
§ 15622(a) (2000). If a general partner required to execute
the certificate of amendment fails to do so within a reasonable time, or
refuses to do so, or if there is any dispute concerning the filing of the
certificate of amendment, any partner may petition the superior court to direct
the execution of the certificate. If the court determines that the certificate
should be filed, it shall order a party to file a certificate on the
appropriate form prescribed by the Secretary of State. Cal.Code
§ 15625(b) (2000). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*73] The Government’s problem in this case is that the LCP, Ltd.
Partnership Agreement cannot be amended to reflect the Government’s
ownership interest because the Government has no evidence to establish what
percentage of the partnership it owns. It is hardly sufficient for the
Government to allege that it owns “some” of LCP, Ltd. The
initial order of forfeiture contains no useful information, as it does not even
mention LCP, Ltd. Moreover, the name “Kramer” is nowhere to
be found on the LCP, Ltd. partnership documents, for the Kramers were either
silent partners in LCP, Ltd., or simply two of the Club’s illegitimate
creditors. The jury was never asked to make sense of the crucial partner/creditor
distinction, or to delineate the extent of Kramer’s ownership interest
in LCP, Ltd. Instead, the court waited until the ancillary proceedings
following the trial to address the difficult factual questions of ownership and
apportionment. At the conclusion of those proceedings, the district court found
that “the real owners of the Bicycle Club were Ben Kramer, Randy
Lanier, Tom, known as George Brock, and … Gene Fisher… The
LCP partners and Gilberts, as well as PPA were just ’straw [*74] persons’ for purposes of the
licenses.” Kramer, 807 F. Supp. at 736. It further found that
“Ben Kramer held a one-third (1/3) ownership interest in LCP at the
time of the commission of the acts giving rise to the forfeitability of the
property.” n65 Id. at 739. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n65 With respect to Jack Kramer’s interest in the Club, the
district court concluded that “clearly Jack was not a partner in
ownership.” Kramer, 807 F. Supp. at 729. This determination only
serves to underscore the inadequacy of the special verdict forms, as it impugns
the jury’s finding that Jack Kramer did, in fact, own a forfeitable
interest in the Club. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - The district court’s post-trial findings, however, cannot
retroactively amend the jury’s verdict. Federal Rule of Criminal
Procedure 31(e) gives a defendant a statutory right n66 to have the amount of
property subject to forfeiture determined by a jury. n67 Fed.R.Crim.P. 31(e); see also [**916] Libretti v. United
States, 516 U.S. 29, 48-49, 116 S. Ct. 356, 367-68, 133 L. Ed. 2d 271 (1995);
[*75] United States v.
Candelaria-Silva, 166 F.3d 19, 43 (1st Cir. 1999). Had the Government targeted LCP, Ltd.
from the outset, Rule 31(e) would have required that the jury be instructed to
identify (1) the interest, if any, each defendant held in LCP, Ltd., and (2)
how much of each defendant’s interest was subject to forfeiture. n68
Instead, the court created its own “simplified special verdict
forms,” which, like the indictment and jury instructions, focused on
the Bell Gardens Bicycle Club. The verdict forms merely asked whether the Club
“constituted or was derived from any proceeds which the defendant
obtained directly or indirectly from racketeering activity,” and if
so, “whether The Bell Gardens Bicycle Club was subject to
forfeiture.” n69 Since the verdict forms did not even suggest that
LCP, Ltd. was an item of forfeitable property, the jury never had occasion to
consider the extent of any defendant’s interest in the partnership. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n66 “ ‘The Federal Rules of Criminal Procedure have the
force and effect of law. Just as a statute, the requirements promulgated in
these Rules must be obeyed.’ ” United States v.
Cowan, 524 F.2d 504, 505 (5th Cir.1975) (quoting Dupoint v. United
States, 388 F.2d 39, 44 (5th Cir. 1967)). [*76]
n67 Rule 31(e) of the Federal Rules of Criminal Procedure provides that
“if the indictment or the information alleges that an interest or
property is subject to criminal forfeiture, a special verdict shall be returned
as to the extent of the interest or property subject to forfeiture, if
any.” Fed.R.Crim.P. 31(e); see also Fed.R.Crim.P. 7(c)(2)
(“No judgment of forfeiture may be entered in a criminal proceeding
unless the indictment or the information shall allege the extent of the interest
or property subject to forfeiture.”). The Government in this case
surely knew about this requirement; the RICO manual for federal prosecutors
instructs that “special verdict forms must be prepared so that the
jury can make specific findings as to the extent of the forfeiture. The special
verdict form must clearly and precisely describe the interests whose
forfeitability the jury is considering.” Department of
Justice, Criminal Division, Racketeer Influenced and Corrupt Organizations
(RICO): A Manual for Federal Prosecutors 113-14 (3d rev.ed., Sep.
1990) (footnote omitted). n68 We note that this specificity requirement protects not only defendants,
but also third-parties with interests in the defendant’s forfeited
property. If the verdict and subsequent order of forfeiture are vague, they
greatly expand the universe of third-parties whose interests are in jeopardy
and who therefore require notice. The specificity requirement also fosters
judicial economy, as those who are unsure whether their interests are
implicated may file petitions out of an abundance of caution and burden the
courts with unnecessary litigation. [*77]
n69 The forms also asked whether the $ 280,000 deposited into defendant
Melvyn Kessler’s Operating and Trust Accounts, or any portion thereof,
was subject to forfeiture. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - Because the court’s “simplified” forms did not
ask the jury to identify any defendant’s interest in LCP, Ltd. or to
determine whether that interest was subject to forfeiture, those questions must
remain unanswered. Absent a waiver by defendants of their Rule 31(e) right to a
jury determination of forfeiture, the court has no authority to amend the
jury’s verdict. See United States v. Bornfield, 145 F.3d 1123,
1138-39 (10th Cir. 1998) (holding that where a jury verdict was invalid because
it erroneously forfeited defendant’s business, rather than personal,
bank account, the trial court’s forfeiture order could not stand
absent a waiver of a jury trial on the issue of forfeiture). In short, then,
the Government cannot know what percentage of LCP, Ltd. it holds, because the
jury never made that determination. 3. Let us assume, arguendo, that the district court could retroactively correct
the forfeiture [*78] judgment
against Benjamin Kramer, thereby giving the Government title to a fixed
percentage of LCP, Ltd. In such a case, the Government might simply seek an
order from the court declaring the status of its title, rather than a section
1963(l) proceeding. To fashion such an order, the court would most likely look to
the findings it made during the ancillary proceedings to determine whether the
Gilberts’ interests were derived from Benjamin Kramer. If it found
that they were, the court would then decide, based on the same evidence,
whether Michael Gilbert et al. were nominee holders of Kramer’s
interest, or whether their ownership interests were otherwise tainted under
section 1963(l)(6) because they were knowingly derived from Kramer’s
racketeering proceeds. n70 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n70 Neither the Gilberts nor the Trust asserted an interest in
Kramer’s forfeited property during the ancillary proceedings. This was
presumably because no one had yet alleged that they were subsequent transferees
of his interest. Additionally, because Michael Gilbert was still a defendant in
the case during those proceedings, he was precluded from claiming an interest
in his own forfeited property. See 18 U.S.C. § 1963 (l)(2). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*79] [**917] One problem with this approach, however, is that
the district court’s prior findings on the issue of ownership are in
direct conflict. While the court found that “of the defendants, only
Ben Kramer and Michael Gilbert actually owned a forfeitable interest in the
Club,” 807 F. Supp. at 738 n.22 (emphasis added), it also found that
“the real owners of the Bicycle Club were Ben Kramer, Randy Lanier,
… George Brock, and … Gene Fisher,” and that
“the LCP partners and Gilberts … were just ’straw
persons’ for purposes of the licenses,” id. at 736 (emphasis
added). As the trial court accurately noted, however, a person cannot
“have a vested interest in property if he is found to be acting as a
nominee for persons whose property is subject to forfeiture.” n71 Id. at 738. Which is it,
then? Did Michael Gilbert own a forfeitable interest in the Club, or was he a
nominee, or “straw man,” holding Kramer’s LCP, Ltd.
interest? Because these questions have never been answered, it is unclear whether
even the district court knows the origin of the Gilbert interests. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n71 Nominee “connotes the delegation of authority to the nominee
in a representative or nominal capacity only, and does not connote the transfer
or assignment to the nominee of any property in, or ownership of, the rights of
the person nominating him.” Braxton v. United States, 858 F.2d 650,
653 n.6 (11th Cir. 1988). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*80] The Government, therefore, seeks to use the section 1963(l) ancillary proceeding
as a quiet title suit, in which the Gilberts and the Trust would bear the
burden of proving the origin and legitimate ownership of their interests in LCP,
Ltd. 18 U.S.C. § 1963 (l)(6) (stating that the
petitioner must establish legitimate ownership by a preponderance of the
evidence). The district court foreshadowed the result of such a proceeding in
its Amended Final Order, in which it stated that Michael Gilbert was
“involved heavily, or knew or should have known of the illicit nature
of the operation,” Kramer, 807 F. Supp. at 736, and that Mrs. Gilbert
“knew, or at least should have known, of the tainted nature of her
husband’s interest,” id. at 741. Moreover, it found
that “even if the trust was a bona fide purchaser for value,
… the co-trustee … obviously had strong cause to believe the
Club was funded, at least in part, by laundered drug money and was thus
forfeitable.” Id. at 742. Since most of the heavy lifting has already been
done, the hardest part of the Government’s case is haling the Gilberts
[*81] and the Trust into court.
But, as we have established, this it cannot do. 4. In sum, the circumstances make clear why the Government would like the
Gilberts to file section 1963(l) petitions in this case. Waiting out the clock could
only finalize the Government’s title to an unspecified interest in LCP,
Ltd., an interest which has practically no market value. The Government now
seeks to institute proceedings that it believes will guarantee a judgment for a
specified amount of LCP,
Ltd.—a judgment it can “take to the bank.”
Additionally, a section 1963(l) proceeding would determine the origin of the Gilbert
interests and finally allow the Government to clear the chain of title and sell
its interest. While the Government’s approach is an innovative one, it cannot
succeed. For the reasons stated supra, Part III. A., section 1963(l) does not provide the
Government an implied cause of action to force the Gilberts to file section
1963(l) petitions. Thus, the Government’s only recourse in its attempt
to recapture those interests that the Gilberts and the Trust may have derived
from Benjamin Kramer is to institute a separate quiet title action in
California. [*82] n72 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n72 A quiet title action is usually defined as a “proceeding to
establish the plaintiff’s title to land by bringing into
court an adverse claimant and there compelling him either to establish his
claim or be forever estopped from asserting it.” Black’s Law
Dictionary 1249 (6th ed.1990) (emphasis added). Under current California law,
however, “title to both real and personal property may be litigated in
a quiet title action.” Lopes v. Lopes, 152 Cal. App. 3d 302, 199
Cal. Rptr. 425, 429 (Cal. App. 1984); see also Cal.Civ.Proc.Code
§ 760.020 (stating that “an action may be brought
under the quiet title chapter to establish title against adverse claims to real
or personal property or any interest therein”). California law holds
that “a partner’s interest in partnership property of
whatever character (realty or personalty) is an interest in personalty for all
purposes.” Tinseltown Video, Inc. v. Transportation Ins. Co., 61 Cal. App. 4th
184, 71 Cal. Rptr. 2d 371, 373 (Cal. App. 1998). Notably, the Government will bear the burden in the quiet title proceeding
of proving that it has a superior claim to the property at issue. See Cal.Code
§ 637 (“The things which a person possesses are
presumed to be owned by him.”); Davis v. Crump 162 Cal. 513, 123 P. 294,
296-97 (Cal. 1912) (“Proof of possession makes a prima facie case of
ownership as against one not shown to have had any title or
possession.”). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*83] [**918] IV. Even if section 1963(l) could be interpreted to provide an implied cause of
action in favor of the Government, the court could not grant the requested
injunction in this case because the Government holds nothing for the Gilberts
to claim. The Government’s argument on appeal is based entirely on the
assumption that it holds a valid order of forfeiture against Benjamin Kramer.
This assumption, however, is wrong for several reasons. First, the jury’s
verdict and the district court’s subsequent order of forfeiture
constituted an improper attempt to effect an in rem, rather than an in personam, forfeiture. The
former type of forfeiture is a remedial action against property, whereas the
latter is a punitive action against a defendant. Second, the evidence at trial
conclusively established that Benjamin Kramer did not own what the jury
attempted to forfeit by its verdict—the Bell Gardens Bicycle Club.
Kramer actually stood once removed from the real estate—owning only an
interest
in a limited partnership (LCP, Ltd.) that owned part of the Club through its
joint venture agreement with PPA. Third, even if the jury’s verdict
were construed to have forfeited Kramer’s [*84] interest in LCP, Ltd. rather than the
Club itself, the verdict was deficient insofar as it failed to specify the
percentage of Kramer’s ownership interest in LCP, Ltd. Without a
judgment for a specified interest, the Government cannot establish how much of
the defendant’s property was forfeited. Fourth, even if the forfeiture
verdict had been in flawless form—targeting Kramer’s interest
in LCP, Ltd. and specifying his percentage of ownership—the district
court neither entered the verdict nor ordered forfeiture as part of
Kramer’s sentence. In other words, the district court allowed the
forfeiture verdict to vanish, without any force or effect. As a result, the
event triggering ancillary proceedings and seizure of the property never
occurred. Thus, the district court properly denied the Government’s
request for a mandatory injunction. The Gilberts cannot be forced to claim an interest
in property the Government does not have, or be forced to file petitions in a
proceeding not authorized by law. A. 1. The distinction between in rem forfeiture (civil) and in personam forfeiture (criminal)
is of great import in this case, and has an illustrative history: The law [*85] of forfeiture
dates back to the Old Testament. According to Exodus 21:28 (King James),
“If an ox gore a man or a woman, and they die: then the ox shall be
surely stoned, and his flesh shall not be eaten.” A suggested basis
for the text is that if the ox offended the heirarchical sic order, appeasement
of God, the sovereign, required reparation which could only be attained by the
ox forfeiting its life. See Finkelstein, The Goring Ox: Some Historical
Perspectives on Deodands, Forfeitures, Wrongful Death and the Western Notion of
Sovereignty, 46 TEMP. L.Q. 169, 180 (1973). The forfeiture doctrine continued into the
common law of England where the Crown became the sovereign [**919] to be appeased. Thus, if an object
such as a cart, tree, or well took the life of a King’s subject, the
object became the Crown’s in order to redress the loss of human life
and provide revenue. See Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 681,
94 S. Ct. 2080, 2090, 40 L. Ed. 2d 452 (1974) (citing O. Holmes, The Common
Law,
c 1 (1881)). Forfeiture survived the journey into American law, although not without
criticism. Cf. Calero-Toledo, 416 U.S. at 689, n. 27, 94 S. Ct. at 2095, n. 27;
[*86] United States v.
U.S. Coin and Currency, 401 U.S. 715, 719-20, 91 S. Ct. 1041, 1043-44, 28 L.
Ed. 2d 434 (1971); United States v. One 1976 Mercedes Benz 280S, 618 F.2d 453,
461 (7th Cir. 1980) (forfeiture in present law constitutes vestiges of
“old, forgotten, far-off things and battles long
ago”)… The classical distinction between civil and criminal forfeiture was founded
upon whether the penalty assessed was against the person or against the thing.
Forfeiture against the person operated in personam and required a conviction
before the property could be wrested from the defendant. See Calero-Toledo, 416 U.S. at 682, 94
S. Ct. at 2091; One 1958 Plymouth Sedan v. Pennsylvania, 380 U.S. 693, 700,
85 S. Ct. 1246, 1250, 14 L. Ed. 2d 170 (1965). Such forfeitures were regarded
as criminal in nature because they were penal; they primarily sought to punish.
Forfeiture against the thing was in rem and the forfeiture was based upon the unlawful
use of the res, irrespective of its owner’s culpability. These forfeitures were
regarded as civil; their purpose was remedial. Calero-Toledo, 416 U.S. at 680-81,
94 S. Ct. at 2090; [*87] U.S. Coin
& Currency, 401 U.S. at 719, 91 S. Ct. at 1043. United States v.
Seifuddin, 820 F.2d 1074, 1076-77 (9th Cir. 1987). Criminal forfeiture under RICO is in personam. United States v. Bissell, 866 F.2d 1343, 1348
n.3 (11th Cir. 1989). In other words, it is a form of punishment imposed by the
jury to divest the criminal defendant of the profits of the illegal activity
for which he has been convicted. Id.; United States v. Conner, 752 F.2d 566, 576 (11th Cir.
1985); see also 18 U.S.C. § 1963 (e); Fed.R.Crim.P. 32(d)(2).
RICO’s forfeiture penalty works to strip a convicted racketeer of all
the fruits and tools of his racketeering in an effort to strike at the heart of
the illegal enterprise. By providing a method by which to confiscate tainted
property and proceeds, Congress aimed to put criminal enterprises out of
business. Russello v. United States, 464 U.S. 16, 26-27, 104 S. Ct. 296, 302, 78 L.
Ed. 2d 17 (1983). Forfeiture is imposed as punishment in addition to any term
of imprisonment and/or fine the convicted racketeer may receive. See 18 U.S.C.
§§ 3554, [*88]
1963(a); Libretti v. United States, 516 U.S. 29, 38-39, 116 S. Ct. 356, 363, 133 L.
Ed. 2d 271 (1995) (“Forfeiture is an element of the sentence imposed following conviction or
… a plea of guilty….”). Because it seeks to penalize the defendant for his illegal activities, in personam forfeiture reaches
only that property, or portion thereof, owned by the defendant. United
States v. Peters, 777 F.2d 1294, 1296 (7th Cir. 1985) (“An examination of the
forfeiture provision reveals that Congress clearly intended that the government
acquire only that interest which the criminal defendant held in the
property.”); S.Rep. No. 98-225, at 207-08, reprinted in 1984
U.S.C.C.A.N. 3182, 3391 (“Criminal forfeiture is an in personam proceeding. Thus, an
order of forfeiture may reach only property of the defendant, save in those
instances where a transfer to a third party is voidable.”). Stated
another way, the property itself is not forfeited; rather, the
defendant’s interest in the property is forfeited. If criminal forfeiture
reached beyond that portion of the property that was owned by a defendant, such
a form of forfeiture would be [*89]
in
rem,
against the property, rather than in personam, against the defendant. See [**920] United States v.
Kennedy, 201 F.3d 1324, 1329 (11th Cir. 2000). That criminal forfeiture can only reach a defendant’s interest in
the subject property makes sense. In the case of criminal forfeiture, the
district court has “jurisdiction to enter orders … without
regard to the location of any property which may be subject to forfeiture
… or which has been ordered forfeited.” 18 U.S.C.
§ 1963 (j). The district court’s power to enter
orders relating to property outside the court’s jurisdiction derives
from its personal jurisdiction over the defendant. Because the defendant is
before the court, the court has the power to adjudicate his ownership interest in
property, by virtue of the criminal charges against him. Forfeiture of the
convicted defendant’s interest in illicitly obtained property
appropriately punishes the defendant by separating him from his racketeering
gains while leaving undisturbed the interests of innocent third parties who are
beyond the court’s jurisdiction. For this jurisdictional reason, an
order of forfeiture imposed upon a [*90]
defendant as a penalty for his wrongdoing “determines the
government’s title in property only as against the named defendants,
while civil forfeiture actions which are brought in the jurisdiction where the res is located are in rem and determine the
government’s title in property as against the whole world.” United
States v. Tit’s Cocktail Lounge, 873 F.2d 141, 143 (7th Cir.
1989). 2. The Government in this case sought forfeiture of the Club under 18 U.S.C. § 1963
(a)(3) as “property constituting, or derived from … proceeds
which the convicted racketeers obtained, directly or indirectly, from
racketeering activity.” Specifically, the Government argued to the
jury in its closing argument that “as soon as they started to build
the Bell Gardens Bicycle Club, under Federal law, that property became
forfeitable to the United States… The reason for this … is
because what was used to build the Club, that twelve and a half million
dollars, came from proceeds of marijuana trafficking, and from that point
forward, that property was subject to forfeiture.” Section 1963(a)(3) and the principle of in personam forfeiture, [*91] however, dictate that the jury could
forfeit only that portion of the Club owned by the convicted racketeers. The
district court acknowledged as much in its Amended Final Order following the
ancillary proceedings, in which it stated that “if the forfeiture were
in
rem,
then the verdict would reach the entire property. However, the only property
forfeitable at this time is that which belonged to the criminal defendants in
this case whose interest in the Bell Gardens Bicycle Club … the jury
forfeited under section 1963(a)(3).” Kramer, 807 F. Supp. at 737.
Forfeiture of the entire Club, then, would have been appropriate only if
the jury found that one or more defendants were the exclusive owners of the
Club. Cf. United States v. Busher, 817 F.2d 1409, 1413 n.7 (9th Cir. 1987)
(“The problem of forfeiture of an entire enterprise is essentially
limited to the situation where the convicted defendant owns substantially all
of the stock of a corporation, or where the enterprise is a sole
proprietorship. This is so because under section 1963 only the defendant’s
interest in the enterprise is forfeitable, not the enterprise itself…
[*92] Thus, only where the culpable
person owns the entire enterprise will it be subject to complete forfeiture for
violation of RICO.”). The jury knew that the three defendants were not the exclusive owners
of the Club; they had seen ample evidence showing that PPA—an innocent
party—held an interest in the Club. They were reminded of that fact by
the Government during its closing argument, when it attempted to assuage the
jury’s fears about forfeiting property belonging, in part, to innocent
owners: [**921] Now, during your deliberations, you ought not to
be concerned with, well, what about the innocent people here? What about Park
Place Associates? What about Sanwa Bank, where there is a legitimate loan.
Those individuals can petition the court to get back any interest that they
have, or to preserve and protect any interest that they have in the Club, or
any loans that are outstanding.Thus, the jury clearly understood that it was
being asked to forfeit property beyond that owned by the defendants. Despite the evidence showing that the defendants were not the exclusive
owners of the Club, the jury was never asked whether only part of the Club was
subject to [*93] forfeiture.
Rather, the jury was limited to an all-or-nothing decision. n73 In accordance
with the Government’s request, the forfeiture verdicts returned
against Benjamin Kramer, Jack Kramer, and Michael Gilbert purported to forfeit
the entire Club—”the ongoing business, premises and building,
together with fixtures.” - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n73 The special verdict forms asked whether the Club “constituted
or was derived from any proceeds which the defendant obtained directly or
indirectly from racketeering activity.” If the jury answered in the
affirmative, the only remaining question regarding the Club was whether
“the Bell Gardens Bicycle Club was subject to forfeiture.” - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - The jury, however, could not legally order the forfeiture of the entire
Club. While the defendants’ tainted interests in the business were
subject to forfeiture, the poorly drafted verdict forms did not give the jury
the opportunity to limit the forfeiture to those interests. The end result was
a verdict of forfeiture that purported to forfeit [*94] the Club in its entirety, even though the evidence
clearly established that the three defendants did not own the entire Club. As a result of the jury’s overbroad pronouncement, the Bell
Gardens Bicycle Club—a business with an approximate value of $ 150
million in 1990—became the centerpiece of an order of forfeiture
entered by the district court on April 3, 1990, immediately after the jury
returned the last forfeiture verdict. In accordance with the verdict, the court
ordered that “the ongoing business, premises and building, together
with fixtures, … known as the Bell Gardens Bicycle Club be and hereby
are forfeited to the United States of America for its full use and benefit,
pursuant to 18 U.S.C. § 1963 (a)(3),” and further
ordered that the United States “immediately seize the physical
premises of the Club.” Despite the in personam limitations of criminal forfeiture proceedings,
the district court’s order erroneously conflated the concepts of in personam and in rem forfeiture by
professing to give the Government a piece of real estate and an ongoing
business in California, as opposed to the defendants’ limited
ownership interest in the [*95]
business. At least one commentator was puzzled by this result, and admitted
being unable to “explain how the jury could find that the entire Club
was subject to forfeiture as racketeering proceeds under section 1963(a)(3)
when only a part of the financing of the Club came from drug money.” 2
David B. Smith, Prosecution and Defense of Forfeiture Cases P 14.08 n. 37 (2000).
n74 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n74 During the ancillary proceedings, counsel for Julie Coyne, Richard
Kirschner, advanced an illustrative hypothetical:If you take the
Government’s reasoning to its logical conclusion … you can
have a convicted felon who bought a hundred shares of General Motors, and he
used drug proceeds, and you have a hundred thousand other shareholders in
General Motors, all of the shareholders ‘, including the drug
dealer’s money, are used to develop General Motors . If you follow the
Government’s reasoning and theory, all of General Motors is forfeited
to the Government, all of the dividends are suspended, and it’s up to
the other 99,000 shareholders to prove their interest in an ancillary hearing,
because the money got commingled, and it was used to develop General Motors.
Just not the law. Just doesn’t happen. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*96] [**922] The trial court sought to correct its mistake in
its Amended Final Order following the ancillary proceedings, in which it
described the jury verdict as “forfeiting the interests of Ben Kramer, Jack
Kramer and Michael Gilbert in the Bicycle Club,” and stating that
“only the interests of the three convicted
defendants in the Bicycle Club were forfeited.” Kramer, 807 F. Supp. at
709-10 (emphasis added). This complete re-characterization of the court’s
initial in rem order of forfeiture, however, came too late. Since the jury’s
verdict reached beyond those assets that were legally forfeitable under the
applicable statute, the verdict was invalid. Without a valid verdict of forfeiture, the
district court cannot properly enter an order of forfeiture unless the
defendant waives his right to a jury trial on that issue. See United States v.
Bornfield, 145 F.3d 1123, 1138-39 (10th Cir. 1998). No such waiver was made in this
case. Thus, the Government actually holds nothing by virtue of the forfeiture
order against Benjamin Kramer. B. In addition to its vagueness and overbreadth, the verdict of forfeiture
against Benjamin Kramer was [*97]
improper on a more fundamental level. Benjamin Kramer never owned any part of
the Club. The Club itself was a joint venture between two partnerships: PPA and
LCP. Thus, the Joint Venture was the club’s true owner. See Barr
Lumber Co., Inc. v. Old Ivy Homebuilders, Inc., 34 Cal. App. 4th Supp. 1, 40
Cal. Rptr. 2d 717, 720 (Cal. Ct. App. 1995) (holding that an individual partner
is not deemed the owner of specific partnership assets by virtue of his status
as partner; property of the partnership belongs to the partnership, not the
partner). The fact that the Joint Venture, and not Benjamin Kramer, owned the Club
was conclusively established at trial. The jury saw the Joint Venture Agreement
between PPA and the LCP general partnership, which stated clearly that PPA and
LCP had associated to form the Joint Venture known as the Bell Gardens Bicycle
Club. Further, the purpose of the Joint Venture set forth in the agreement was
“to organize, own, and operate the Bell Gardens Bicycle Club … and
to … own the real property on which said card club is to be
operated” (emphasis added). The jury also saw the loan agreement
between CGL and the Club, in which the Bell [*98]
Gardens Bicycle Club was described as “a Joint Venture consisting of
PPA, a California Limited Partnership … and LCP, a California General
Partnership” and was referred to as “Owner”
throughout. Finally, the jury saw the Deed of Trust executed by the Bell
Gardens Bicycle Club in favor of CGL, wherein the Club was named as the owner
of the parcels of land on which the card club was built. At most, then, what Benjamin Kramer owned was a silent partnership interest
in LCP general partnership, which later became LCP, Ltd. Thus, it was Benjamin
Kramer’s silent interest in LCP, Ltd. that should have been targeted
for forfeiture in the indictment, jury instructions, and special verdict forms,
not the Bell Gardens Bicycle Club. n75 Unfortunately for the Government, this
was only made clear during the ancillary proceedings. Because the
jury—and the district court, by its initial order of
forfeiture—forfeited property that Kramer did not own, the Government
[**923] holds nothing by virtue
of the order of forfeiture against Benjamin Kramer. n76 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n75 As an alternative to forfeiting Benjamin Kramer’s silent
partnership interest in LCP, Ltd., the Government could have sought forfeiture
of, as proceeds of racketeering, Benjamin Kramer’s share of the
tainted money used to build the Club, his share of the fifteen percent interest
rate paid by the Joint Venture in the CGL mortgage, and his share of the
fifteen percent income participation kicker. Of course, under any of these
bases of forfeiture, the Government’s recovery would have been limited
to Benjamin Kramer’s share of the drug proceeds since the Government
elected not to indict Benjamin Kramer’s drug-trafficking partners. In
any event, it is beyond doubt that Kramer had no ownership interest in the Club
for the jury to forfeit. [*99] n76 In the district court’s Amended Final Order following the
ancillary proceedings, the court attempted to shift the focus of forfeiture
from the Club to LCP, Ltd. The court could not have ordered forfeiture of LCP,
Ltd. at any time during the proceedings, however, because Federal Rule of
Criminal Procedure 7(c)(2) provides that “no judgment of forfeiture
may be entered in a criminal proceeding unless the indictment or the information
shall allege the extent of the interest or property subject to
forfeiture.” The grand jury’s indictment alleged that the Club, rather than LCP,
Ltd., was subject to forfeiture in the instant case. Despite the flaws inherent
in such an allegation, the court was prohibited by Rule 7(c)(2) from correcting
the grand jury’s mistakes on its own initiative. Rather, the court
could only order forfeiture of that interest or property named in the
indictment, to wit: the Bell Gardens Bicycle Club. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - C. Even if the forfeiture proceedings had properly targeted Kramer’s
interest in LCP, Ltd., rather than the Club, the jury’s verdict would
remain fatally deficient. “Rule [*100]
31(e) of the Federal Rules of Criminal Procedure provides for the procedural
implementation of the RICO criminal forfeiture provision … and
requires a special verdict.” United States v. Amend, 791 F.2d 1120, 1128
(4th Cir. 1986). By its terms, Rule 31(e) calls for the special verdict to set
forth “the extent of the interest or property subject to forfeiture,
if any.” Fed.R.Crim.P. 31(e). Quite simply, there was nothing special about the special verdict of
forfeiture forms submitted to the jury. The forms, essentially identical as to
each defendant, merely asked whether the Club “constituted or was
derived from any proceeds which Benjamin Kramer obtained directly or indirectly
from racketeering activity.” If the jury answered in the affirmative,
the only remaining question regarding the Club was whether “the Bell
Gardens Bicycle Club was subject to forfeiture.” During the ancillary proceedings, petitioner Julie Coyne’s
counsel, Richard Kirschner, pointed out that “only a convicted
defendant’s interest in a club is forfeited or an asset is forfeited,
not every other interest in the world. And that’s the problem. This
jury didn’t come back and say what interest [*101] the Kramers held in the club.”
The court replied that “they didn’t have any evidence on
that. They weren’t asked to do that.” Indeed, the verdict
forms asked neither what percentage of ownership each defendant held in the
subject property nor how much of that interest was subject to forfeiture. As
discussed supra, Part III. B., the effect of this deficiency, when read in the light most
favorable to the Government, was to assign the Government an unspecified, and
therefore worthless, interest in LCP, Ltd. n77 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n77 Coyne’s counsel stated at the outset of the ancillary
proceedings that “The Government said, Fellas, we own the Bicycle
Club. Our response to them has been, Fellas, you may own the Kramer interest in
the Bicycle Club, and you may own Michael Gilbert’s interest in the
Bicycle Club, but you sure as heck don’t own the whole Bicycle Club,
because the jury did not come back with an indication of what percentage the Kramers
or Michael Gilbert owned. You say you own a hundred percent of it, we say you
own zero.” - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*102] D. Finally, even if the special verdict of forfeiture had been in proper form,
title to Kramer’s property never vested in the Government. On August
29, 1990, the district court sentenced Benjamin Kramer to a “TOTAL
sentence” of “FORTY FIVE years confinement… Commited
sic fines of $ 460,000.00 … and a $ 1,000.00 assessment.” The
court made no mention of forfeiture, apparently relying on its April 3 order
n78 as the final disposition of [**924]
that issue. The court could not have ordered forfeiture of Kramer’s
property on April 3, however, because criminal forfeiture “may not
take place until a judgment of conviction is entered and sentence
imposed.” United States v. Alexander, 772 F. Supp. 440, 440 (D.
Minn. 1990). Because the court failed to properly enter an order of forfeiture,
the Government never obtained the right to seize Kramer’s property.
Additionally, the condition precedent to the start of ancillary proceedings
under 1963(l)—an “order of forfeiture”—never
occurred. Thus, the district court properly denied the Government’s
request for a mandatory injunction. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n78 On April 3, 1990, immediately after the final forfeiture verdict was
returned, the court “entered the government’s proposed order
for forfeiture, and also seized the Club in its entirety, appointed an interim
trustee, and prevented the Club or its owners from distributing profits or
transferring their interests.” Kramer, 912 F.2d at 1259. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*103] 1. It is beyond doubt that criminal forfeiture is part of a
defendant’s sentence. 18 U.S.C. §§ 1963
(a), 3554; United States v. Bissell, 866 F.2d 1343, 1349 n.3 (11th Cir. 1989)
(“Criminal forfeiture operates in personam against the defendant,
serving as a penalty upon conviction.”); United States v.
Derman, 211 F.3d 175, 182 (1st Cir. 2000) (“The forfeiture order
… is a part of the sentence, and becomes final for purposes of appeal
when the court issues its judgment.”) (citation omitted). In fact,
forfeiture is a mandatory element of sentencing for a violation of 18
U.S.C. § 1962. United States v. L’Hoste, 609 F.2d 796, 809-13
(5th Cir. 1980). As such, it must be ordered at a hearing that affords the
defendant his right of allocution. n79 In the instant case, however, the court
entered the order of forfeiture at an “impromptu hearing”
immediately following the verdicts. Kramer, 912 F.2d at 1259. Indeed,
neither Benjamin Kramer nor his attorney were even present in the courtroom
when the order was entered. As such, the court could not, as required by
Federal [*104] Rule of Criminal
Procedure 32(a)(1),(A) determine that the defendant and defendant’s
counsel have had the opportunity to read and discuss the presentence
investigation report ; (B) afford counsel for the defendant an opportunity to speak on behalf of
the defendant; and (C) address the defendant personally and determine if the defendant wishes
to make a statement and to present any information in mitigation of the
sentence.Fed.R.Crim.P. 32(a)(1)(A)-(C) (1990) (current version at Fed.R.Crim.P.
32(c)(3)(A)-(E)). As Kramer was not afforded an opportunity to allocute on
April 3, the purported order of forfeiture entered on that date could not have
been part of his sentence. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n79 Black’s Law Dictionary defines “allocution”
as:1. A trial judge’s formal address to a convicted defendant, asking
him or her to speak in mitigation of the sentence to be imposed. This address
is required under Fed.R.Crim.P. 32(c)(3)(C). 2. An unsworn statement from a convicted defendant to the sentencing judge
or jury in which the defendant can ask for mercy, explain his or her conduct,
apologize for the crime, or say anything else in an effort to lessen the
impending sentence. This statement is not subject to cross-examination.Black’s
Law Dictionary 75 (7th ed.1999). - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*105] Moreover, it is clear that the trial court did not intend the impromptu
gathering to function as a sentencing hearing. Counsel for David
Pierson—a third party claimant—called the court’s
attention to the fact that “the Government seeks a final judgment of
forfeiture, notwithstanding the fact that Rule 32(b) provides that forfeiture orders
don’t occur until sentencing. We are not at sentencing today. We are
not anywhere close; yet they’re seeking a final order of
forfeiture.” Indeed, the most the court could have done on April 3 was
issue temporary restraints to maintain the status quo of the property. See 18 U.S.C.
§ 1963 (d). n80 The prosecution erroneously [**925] replied, however, that the court
need not wait until sentencing to enter the order of forfeiture, for 18 U.S.C.
§ 1963 (e) mandates that an order of forfeiture be entered
“upon conviction,” and all of the defendants in the case had
been “convicted” within the meaning of the statute. While
referring the district court to our opinion in L’Hoste for the proposition
that forfeiture is mandatory, the prosecution failed to point out that L’Hoste also held that
forfeiture [*106] should be ordered
as
part of a defendant’s sentence. L’Hoste, 609 F.2d at 812-13.
Unfortunately, the court adopted the prosecution’s argument and
entered the forfeiture order on April 3. In so doing, the court implicitly
agreed that the order of forfeiture need not be—and was
not—part of Kramer’s sentence. n81 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n80 18 U.S.C. § 1963 (d)(1) (1994) provides: Upon application of the United States, the court may enter a restraining
order or injunction, require the execution of a satisfactory performance bond,
or take any other action to preserve the availability of property described in
subsection (a) for forfeiture under this section— (A) upon the filing of an indictment or information charging a violation of
section 1962 of this chapter and alleging that the property with respect to
which the order is sought would, in the event of a conviction, be subject to
forfeiture under this section.The court’s judgment on August
29—containing no order of forfeiture—superseded the April 3
order, terminated any temporary restraints on the property, and ended the case.
See
United States v. Gelb, 826 F.2d 1175, 1176 (2d Cir. 1987) (“Congress
appears to have provided no durational limitation to post-indictment
restraining orders … short of the termination of the related criminal
prosecution.”). [*107] n81 Because forfeiture is a mandatory element of any sentence under 18
U.S.C. § 1963 (a), L’Hoste, 609 F.2d at 809-13,
Kramer’s sentence “was imposed in violation of law.”
18 U.S.C. § 3742 (b)(1). The Government’s remedy was
an appeal to this court within 30 days from the entry of judgment or notice of
appeal by any defendant. Fed. R.App. P. 4(b) (1990) (current version at Fed.
R.App. P. 4(b)(1)(B)). The Government took no such appeal. Thus, although the
court clearly erred, the Government has waived the error and the sentence is
final. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - 2. Because the April 3 order was not part of Kramer’s sentence, it
did not forfeit his property to the Government. The premature order was merely
an invalid attempt to bypass the procedurally required method of criminal
forfeiture set forth in Federal Rule of Criminal Procedure 32(b). n82 Until its
amendment in 1996, Rule 32(b) read as follows:(b) Judgment. (1) In General. A judgment of conviction shall set forth the plea, the
verdict or findings, and the adjudication and sentence…. [*108] (2) Criminal Forfeiture. When a verdict contains a finding of property
subject to a criminal forfeiture, the judgment of criminal forfeiture shall authorize the
Attorney General to seize the interest or property subject to
forfeiture….Fed.R.Crim.P. 32(b) (1990) (emphasis added) (current
version at Fed.R.Crim.P. 32(d) (1994)). n83 While subsection (b)(2) includes
the terms “verdict” and “judgment,” [**926] it states that only a “judgment “of
criminal forfeiture shall authorize the Attorney General to seize the
defendant’s property. Subsection (b)(1) requires that a
“judgment … set forth the … sentence.” Because it
must set forth the terms of the defendant’s sentence, the
“judgment” in subsection (b)(2) authorizing the Attorney
General to seize the defendant’s property could not be entered at any
time prior to sentencing. See United States v. Ripinsky, 20 F.3d 359, 362 (9th Cir.
1994) (holding that until a judgment of conviction was entered at sentencing,
the sole legal basis for continuing to restrain forfeitable assets was a
pretrial restraining order); Alexander, 772 F. Supp. at 441 (stating that Rule 32(b)
“contemplates [*109] an
order of forfeiture at the time of sentencing”). n84 Thus, the trial
court’s order of forfeiture entered on April 3—nearly five
months before Kramer’s sentencing—was not a
“judgment” authorizing the Government to seize
Kramer’s property. n85 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n82 Rule 32(b) was promulgated “to provide procedural
implementation of the … criminal forfeiture provisions of …
§ 1963.” Fed.R.Crim.P. 32(b) advisory committee
notes on 1972 amendments. Specifically, Rule 32(b) was intended to be read in
conjunction with 18 U.S.C. § 1963 (c) (amended before the
time of trial to section 1963(e)), which provided for seizure and disposition
of criminally forfeited property. Id. At the time of trial, section 1963(e) stated that
“upon conviction of a person under this section, the court shall
authorize the Attorney General to seize all property or other interest declared
forfeited under this section upon such terms and conditions as the court shall
deem proper.” 18 U.S.C. § 1963 (e) (1990). n83 Rule 32(b) was amended in 1996 to allow the court to issue a
“preliminary order of forfeiture” before sentencing. The
purpose of the order is merely to protect the forfeitable property between
verdict and sentencing, much like a pre-1996 restraining order. The preliminary
order, however, is not final as to the defendant and thus not appealable.
“Both before and after the 1996 amendments the key moment for
determining finality for the purpose of appeal is sentencing.” United
States v. Derman, 211 F.3d 175, 182 n.9 (1st Cir. 2000). [*110]
n84 The court also noted in Alexander that “review of RICO convictions
reveals the general practice is, in fact, imposition of forfeiture at the time
of sentencing.” 772 F. Supp. at 442 (collecting cases). n85 The law of the case doctrine, see supra note 51, is no impediment to
our statement that there was no valid judgment of forfeiture against Benjamin
Kramer. The 1990 expedited appeal generated a memorandum opinion, in which the
court stated that “because no hearing has been conducted, the facts
recited by the court are taken from the briefs and do not represent opinions of
the court.” Kramer, 912 F.2d at 1258. Thus, the panel’s
characterization of the April 3 order as an order of forfeiture is merely a
misrepresentation by the parties in their briefs. As for the 1996 opinion, the
panel did not consider the forfeiture issue as to Kramer because Kramer did not
challenge the forfeiture verdict the jury returned against him. Kramer, 73 F.3d at 1070. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - Similarly, the court’s April 3 order was not the “order
of forfeiture” required to begin ancillary proceedings [*111] under 18 U.S.C. § 1963
(l)(1). Although one may
argue that the “order” required by 1963(l) may precede the
“judgment” entered at sentencing under Rule 32(b)(2), such an
argument would be wholly unpersuasive. First, the terms
“judgment” and “order” appear to be used
interchangeably throughout section 1963. Subsection (a), for instance, provides
that “the court, in imposing sentence … shall order “
forfeiture, while subsection (e) states that “upon conviction
… the court shall enter a judgment of forfeiture.” Both
subsections anticipate that forfeiture will occur at sentencing. Moreover, section 1963(l) ancillary proceedings are held so that innocent
third-party owners can get their interests back from the government.
This presupposes that the government has something for third-parties to claim.
In other words, ancillary proceedings—which are activated under 1963(l) by an order of
forfeiture—could not take place without the government’s
seizure of the property, which is authorized under 1963(e) and Rule 32(b)(2) by
a judgment of forfeiture. See United States v. Ginsburg, 773 F.2d 798, 801 (7th Cir.
1985) [*112] (“The
government’s interest in property subject to criminal forfeiture does
not attach until the defendant is convicted of the crime for which the
forfeiture is imposed.”). Thus, even if the terms have different
meanings, it is clear from the forfeiture scheme that the judgment, rather than
the order, must come first. As noted above, the judgment may not be entered
until sentencing. Since it cannot logically precede the judgment, the
“order of forfeiture” required by section 1963(l) also may not be
entered until sentencing. Therefore, the order of forfeiture entered by the
court on April 3—nearly five months before sentencing—was not
sufficient to trigger the start of ancillary proceedings pursuant to 1963(l). Because the
district court could not order the Gilberts to file petitions in a nonexistent
proceeding, it properly denied the Government’s request for a
mandatory injunction. [**927] V. For the reasons herein stated, the judgment of the district court is AFFIRMED. CONCURBY: EDMONDSON CONCUR: EDMONDSON, Circuit Judge,
concurs in judgment only. |