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Congratulations to FEAR president
Brenda Grantland for another victory in United
States versus One Star
Class Sloop Named Flash II. On October 1, 2007, the U.S. District
Court
of Massachusetts ruled that her client’s Star Class sloop “Flash II”
(formerly owned by the late President John F. Kennedy) is not subject
to forfeiture at all.
Court
rules
sailboat formerly owned by the late President J. F. Kennedy is
not subject to forfeiture:
Government had no right to sell the
sloop, nor does it have any right to pocket proceeds from that sale.
by
Judy
Osburn
First the government obtained a forfeiture judgment against the Star
Class sloop “Flash II” without bothering to notify Dr. Kerry Lane, a
successful anesthesiologist and principle owner of the prized sailboat.
The Flash II was formerly owned by the young future president J.F.
Kennedy when he triumphed by an unprecedented four and a half minute
margin in the 1936 Atlantic Coast Championships.
Attorney Brenda Grantland achieved Dr. Lane’s first victory in this
case in August 2006, when the First Circuit Court of Appeals vacated
the default judgment
that had been obtained in Dr. Lane’s absence. The appeals court held
that due process requires the government to at least attempt to locate
innocent owners with an interest in seized property. The First
Circuit
remanded U.S.
v. One Star
Class Sloop Sailboat Built in 1930 Named Flash II
to the district court in Massachusetts for further proceedings in which
Dr. Lane had an opportunity to be heard. In the meantime,
however, the
government sold the boat at auction without a minimum reserve, causing
the boat to be sold at only about one tenth of it’s appraised
value.
At trial the government
conceded that Dr. Lane was totally innocent of
any wrongdoing or negligence. Nevertheless, the government argued that
Flash II was subject to forfeiture as proceeds traceable to drug money
pursuant to 18U.S.C. § 981(a)(1). Boat restorer Ole Anderson
had
organized the consortium of investors who provided funding to purchase
and restore the Flash II. The government attempted to support its
theory that drug money could be traced to the Flash II through its
cooperating witness, Gary Milo, who had pleaded guilty to trafficking
11,000 pounds of marijuana, for which he received a mere 18 days’
imprisonment due to his cooperation in building a forfeiture case
against the Flash II. Milo testified that during the
course of his lengthy illegal career he had hired Ole Anderson on a
couple of occasions and that he paid him $16,000.
Ms. Grantland argued that the government offered no more than mere
suspicion that any of the funds used by Ole Anderson to pay for
maintenance of the Flash II included any portion whatsoever of Gary
Milo’s $16,000 in tainted currency. If Gary Milo’s drug proceeds
became commingled with Ole Anderson’s untainted funds, “whether in a
bank account or in a tattered suitcase,” argued Grantland, “the
government's burden of showing that money in the account or an item
purchased with cash withdrawn therefrom is ‘traceable to’ illegal
activity will be difficult, if not impossible, to satisfy.”1 The
forfeiture statute’s term
“traceable to” means exactly what it says, Grantland continued in a
post-trial memorandum, and the government's theory of forfeitability
fades away without a trace once Gary Milo's drug money is transferred
to Ole Anderson.
On October 1, 2007, the district court ruled that, although the
government’s contention that some of the funds used to refurbish the
Flash II are traceable to the drug proceeds of the government’s
cooperating witness Gary Milo is “theoretically possible,” the
government failed to carry its burden of proof under the Civil Asset
Forfeiture Reform Act of 2000 (CAFRA).
Not only was Dr.
Lane a completely innocent owner, but no portion
whatsoever of the sailboat seized and sold by the government had been
subject to forfeiture. “Accordingly,” District Judge William G. Young
ruled, “the sloop was not forfeitable. Because the sloop was not
forfeitable, the government had no interest in the sloop and therefore
no right to dispose of the sloop.”
The district court’s Memorandum
of
Decision
held that some portion of the Flash II would have been forfeitable if
any funds from the government’s cooperating witness Gary Milo “were
actually put into refurbishing or maintaining the boat.” The
court
found that Lane and other investors in the Flash II, as well as the
government’s cooperating witness Gary Milo, all gave Ole Anderson
money, and that Ole Anderson “drew indiscriminately from these funds in
refurbishing the sloop.”
Therefore, wrote Judge Young, this case “is analogous to cases
concerning withdrawals from bank accounts that commingle drug proceeds
and clean money” as in the Second Circuit case Untied States v. Banco
Cafetero Panama2:
For example, if a depositor placed a
$175 check from his automobile insurer in payment of a damage claim
into an account that contained $100 from a drug sale and the next day
paid a $175 bill for car repairs, a fact-finder would be entitled to
conclude that the $175 withdrawal did not contain “traceable proceeds”
of the drug transaction but solely the “traceable proceeds” of the
insurance payment, with the tainted deposit remaining in the account.
Obviously, few cases will present facts that neatly match untainted
deposits with withdrawals, and the real question therefore becomes
which side bears the risk of the inevitable uncertainty that will arise
in most cases.
3
Judge Young also used a example from Grantland’s post-trial memorandum,
stating that his “conclusion is bolstered by United States v. Voigt,”4 a case where the
government bore the
burden of proving by a fair preponderance of the evidence that jewelry
was “traceable to” the proceeds of money laundering activity:
While we can envision a situation where
$500,000 is added to an account containing only $500, such that one
might argue that the probability of seizing "tainted" funds is far
greater than the government's preponderance burden (50.1%), such an
approach is ultimately unworkable. … [T]he presence of one illegal
dollar in an account does not taint the rest–as if the dollar obtained
from money laundering activity were like a drop of ink falling into a
glass of water.
5
The court ruled that in
light of numerous intervening bank deposits and withdrawals, it could
not “say that, more probably than not, the jewelry [was] ‘traceable to’
money laundering activity.”
6
“What now?” asked Judge Young:
Simply ruling that the vessel is not
forfeitable puts no money in Lane’s pockets. …
It is deeply troubling indeed, and perhaps unconstitutional, for the
government to seize real and personal property with multiple owners
upon probable cause, sell and property, and finally, when the sale is
adjudicated improper, to say to an innocent claimant, “Prove the extent
of you interest and we’ll give that proportion back,” and for the
government to pocket the difference. This is topping it very high
indeed.”
The simple fact is this: the government had no right to sell the sloop.
Nor does it have any right to the proceeds.
The court found that the government had no right to sell the sloop, nor
any right to the proceeds of that sale. It also found that Dr. Lane is
at least a part owner of the proceeds of the government’s auction. “As
between the two, Lane has the superior claim.” Thus, a claimant may
obtain the return of defendant property in a forfeiture proceeding by
demonstrating that it was wrongfully seized.7
When the government has sold that defendant property in
the interim, the proceeds from the sale constitute the substitute
property that is returned to the claimant. “It is not often that a
claimant overcomes an initial default and has the chance to contest the
forfeiture proceeding after the [defendant property] has long since
been sold,” Judge Young wrote for the district court.
However, Judge Young let the government off the hook for violating its
own policies in auctioning the sailboat with no minimum reserve over
Dr. Lane’s objections. The court ruled that “the price that the sloop
sold for
at auction reflected its fair market value at the time of its seizure”
(rather than its $800,000 to one million dollar value appraised just
prior to the government's auction).
Therefore, concluded the court, Lane is
entitled
to recover from the government the $100,000 received at auction, less
the sum paid by the government to another co-owner in a previous
settlement agreement “should the government successfully prove” that
its previous settlement amount was no larger than that co-owner’s
proportional share of ownership interest. Accordingly, a “prompt
evidentiary hearing will be scheduled at which
the government shall bear the burden of justifying” a deduction from
the return of Lane’s $100,000 of whichever is lesser of: 1) the sum
already paid pursuant to the settlement agreement with the other
co-owner; or 2) the amount of the other co-owner’s share of the
$100,000 government auction sale.
Just a few months before the auction Guernsey’s Auction House owner,
Arlan Ettinger, performed an appraisal
for the U.S. Government.
He
appraised Flash II at $800,000 - $1 million. The government
and the
auction house spent $1,000 insuring the sailboat for the few days that
Flash II
was in Guernsey’s hands. The insurance contract valued the
sailboat at
$800,000.
In ruling that
market value of the Flash II did not exceed the
auction proceeds of $100,000, the court completely avoided any decision
on the
complex and extensively briefed issues surrounding the government’s
liability for allegedly auctioning the boat at a fraction of its value
prior to a final judgment of forfeiture.
Upon the First Circuit’s remand of the case to provide Dr. Lane
an
opportunity to be heard, the government moved for a partial summary
judgment. After reading Ms. Grantland’s response to that summary
judgment motion the prosecutor feared the government might be held
liable under CAFRA for the difference between the $800,000 appraised
value of the sailboat and the $100,000 received by the government at
auction.8
“Fearing this result,” Judge Young wrote for the court, “the government
then began to cast out anchors to windward … to foreclose such
recovery,” by raising an argument of sovereign immunity in its reply
brief for partial summary judgment. Later at oral argument the
government raised for the first time its further argument that it could
hide behind its “discretionary function” exception to CAFRA’s waiver of
sovereign immunity regarding loss of value of seized property held in
government custody.
This prompted further waves of pleadings involving claimants’ right to
compensation for loss of the value of property held in government
custody under CAFRA, sovereign immunity and exemptions to exemptions
thereof, plus government negligence under the Federal Torts Claim
Act--all of which Judge Young converted to “the spillage of a great
deal of ink” by ruling the Flash II was worth no more than the $100,000
that it sold for at auction.
Among other violations of federal statutes as well as the government’s
own policies for auctioning property pending litigation over the
opposing party’s objections, the government falsely warranted that it
had title free and clear of all liens and claims–despite the fact that
it was involved in pending litigation over title to the sailboat. The
government backed up these warranties of clear title by a hold harmless
agreement in which the it agreed to indemnify Guernsey’s Auction
House
and/or the
buyer, including attorneys fees, if they had to undergo litigation over
title to the sailboat. Amazingly, the government also warranted
that the sailboat was “not ‘confiscated property’ within the meaning of
any United States federal or state laws.” After the government
needed to avoid liability for its actions by arguing a value of not
more than $100,000, Guernsey's owner Arlan Ettinger testified in a
deposition that he now estimated the value of the Flash II to be
$100,000, rather than his previous government contracted appraisal of
at
least $800,000.
Why the government targeted this asset and abused its forfeiture powers
to take Flash II away from an innocent citizen remains an unsolved
mystery. We will explore the astounding depth of corruption by a
cynical Department of Justice turned thief, fencing stolen property,
and laundering the proceeds to prevent Dr. Lane from undoing the sale
in a forthcoming article,. “One brief shining moment and innocence
lost: a cynical corrupt government shatters the great myth of American
decency and hope.”
In the meantime, members of FEAR’s
Brief Bank can get a preview of the
full story of Dr. Lane’s fight for justice, rule of law and government
accountability. FEAR's
Brief Bank II already contains 15 pleadings and
orders from United States v. One
Star Class Sloop Named “Flash II”
–even before we add the post-trial pleadings later this week.
Endnotes:
1. Citing United States v. Voigt,
89 F.3d 1050, 1087-1088 (3d Cir. 1996).
2. 797.2d 1154 (1986).
3. One
Star Class Sloop Named “Flash II,” Memorandum of Decision,
quoting Untied States v. Banco
Cafetero Panama, 797.2d 1154 (2nd Cir., 1986) (emphasis added by
Flash II Court).
4. 89 F.3d 1050 (3rd Cir. 1996).
5. Id. at 1087 (brackets and citation
omitted).
6. Id. at 1088.
7. 28 U.S.C. §
2465(a)(1).
8. CAFRA amended the Federal Tort Claims Act, 28
U.S.C.
§2680(c), to allow successful forfeiture claimants to sue the
government and obtain money damages for injury or loss to property
while held by the government pending forfeiture.
August
2006:
First Circuit vacates forfeiture of owner's interest in sailing vessel "FLASH II," once owned by the late John
F. Kennedy: In U.S.
v. One Star Class Sloop Sailboat Built
in 1930 Named Flash II, the federal appeals
court limited the extent to which the government can seize and forfeit property without endeavoring to find all of the owners and give them actual notice and the opportunity to be heard in the forfeiture case.
When the
federal government obtained a judgment
of forfeiture against a prized sailboat
once owned by the late John F.
Kennedy without bothering
to notify the
vessel owners of the forfeiture proceeding, the
U.S.
District Court
of Massachusetts obliterated the
shared ownership interest of Kerry Lane M.D. The forfeiture judgment
was obtained from the district court
by default judgments against
some of the co-owners of the
boat, but other
co-owners, including Dr
Lane, were never served with
process.
The judgment
was entered by default based on published notice, and without the
court inquiring into what
efforts, if any, the government
took to locate
the other co-owners
and notify them of the
forfeiture proceedings. Therefore Dr. Kerry had not
responded in time to obtain
an opportunity to
show the district
court that
he was an innocent owner. When he found out about
the proceedings being conducted in his absence, he immediately tried
to intervene, but
the court had already entered
default judgment (only 8 days earlier) and didn't want
to disturb it
“[b]ecause claimant admittedly
knew of the seizure and
deliberately declined to disclose his interest” prior to
the government’s initiation of the
forfeiture action.
Brenda Grantland
appealed the forfeiture of Dr.
Lane’s ownership interest in the
sailboat.
On Wednesday, August
16, 2006, the First Circuit
Court of Appeals vacated the
forfeiture order—a mere two weeks after
hearing oral arguments. The appellate court
held that the
district court
abused its discretion by denying the
Rule 60(b) motion to vacate
the default judgment
because it had not adequately
considered whether the government
provided constitutionally
sufficient notice of the
forfeiture proceedings to Dr.
Lane.
In vacating
the default judgment
against Dr. Lane’s ownership interest,
the First Circuit
explained that in a case such as this where the
government does not know the
name of a potential claimant,
even though “it need not
take heroic measures to identify
him, …when the claimant’s identity may be easily ascertained through
minimal effort, the government
cannot eschew these efforts.” If “the
government has easy access to a lead that it
knows (or reasonably should know) is potentially fruitful,
it has some duty to
elicit the available information and take
reasonable action in
response to it.”
The appellate
court remanded the case for proceedings to determine
whether the government’s
attempt to
find all of the owners and
give them actual notice
and the opportunity
to be heard in the forfeiture
case was sufficient under the Due Process Clause of the Constitution. The First
Circuit noted that the
district court
had made no inquiries or findings with
respect to what
the government knew about
the names of the various co-owners,
nor
“what
(if any) efforts it undertook
to identify or locate
potential owners of the
FLASH II….The court’s order denying the
motion to vacate
the default judgment
appears to have relied
exclusively on Lane’s cognizance of the
sailboat’s seizure and his
decision to go to ground at
that
juncture. But
these facts alone will not
suffice to defeat his insufficiency-of-notice
challenge if the government, knowing of the
existence of an unnamed investor and having ready access to easily explored leads to that investor’s
identity, simply buried its
head in the sand.”
The appeals court
listed two examples of ways the government
could have easily ascertained
potential co-owners
through minimal effort: either
by simply asking one of the
co-owners with whom they
were in contact, or by inquiring at the
marina where the sloop was stored and Dr.
Lane and his association with the
sailboat were well-known.
“Given the
fact-specific
nature of the question
and the opacity of the
record,” the appeals court vacated
the order denying Dr. Lane’s Rule 60(b) motion and remanded for further proceedings “to
determine whether plainly indicated
and easily accomplished efforts,
undertaken with reasonable diligence during the relevant
time frame, would have led the government
directly to Lane.”
The appeals court further instructed that if the
district court
“finds that Lane had no notice
in fact of the forfeiture
action, that
the government’s efforts
to identify him were nonexistent
or otherwise insufficient under the
circumstances, and that
Lane has satisfied the other
prerequisites for Rule 60(b)
relief, Lane’s motion would
have to be granted and the
forfeiture judgment, as it
pertains to his interest in the
FLASH II, would have to be
set aside.
Click here for links to news articles
published during the seizure of the Kennedy sailboat, "Flash II"