Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

United States v. All Assets Listed in Attachment A

United States District Court, E.D. Virginia, Alexandria Division

February 27, 2015

United States of America, Plaintiff,
v.
ALL ASSETS LISTED IN ATTACHMENT A, AND ALL INTEREST, BENEFITS, AND ASSETS TRACEABLE THERETO, Defendants in rem

Page 814

[Copyrighted Material Omitted]

Page 815

[Copyrighted Material Omitted]

Page 816

For United States Of America, Plaintiff: Karen Ledbetter Taylor, LEAD ATTORNEY, United States Attorney's Office, Alexandria, VA; Allison Ickovic, Jay V Prabhu, U.S. Attorney's Office (Alexandria-NA), Alexandria, VA; G. Wingate Grant, United States Attorney's Office, Richmond, VA.

All Assets Listed In Attachment A, And All Interest, Benefits, And Assets Traceable Thereto, in Rem, Defendant, Pro se.

For Finn Batato, Bram Van Der Kolk, Mathias Ortmann, Kim Dotcom, Megaupload Limited, Megapay Limited, Vestor Limited, Megamedia Limited, Megastuff Limited, Mona Dotcom, Claimants: Craig Crandall Reilly, LEAD ATTORNEY, Law Office of Craig C. Reilly, Alexandria, VA.

For Julius Bencko, Sven Echtemach, Claimants: Craig Crandall Reilly, LEAD ATTORNEY, Law Office of Craig C. Reilly, Alexandria, VA; David Benjamin Smith, Smith & Zimmerman PLLC, Alexandria, VA.

Page 817

MEMORANDUM OPINION

Hon. Liam O'Grady, United States District Judge.

Before the Court is the government's motion to strike the claims of Finn Batato (" Batato" ); Julius Bencko (" Bencko" ); Kim Dotcom (" Dotcom" ); Sven Echtermach (" Echtemach" ); Bram van der Kolk (" van der Kolk" ); Mathias Ortmann (" Ortmann" ); and Megaupload Limited, Megapay Limited, Megamedia Limited, Megastuff Limited, and Vestor Limited (" the corporate claimants" ). See Mot. to Strike, 1. In this civil in rem action, the United States seeks forfeiture of the assets listed in Attachment A to the complaint. All of the assets identified in Attachment A are located either in Hong Kong or New Zealand.

The government filed a verified complaint for forfeiture in rem on July 29, 2014. (Dkt. No. 1). On August 28, 2014, claims to the assets were filed by Batato, Bencko, Dotcom, Echtemach, van der Kolk, Ortmann, and the corporate claimants. (Dkt. Nos. 3-9). On October 10, 2014, the claimants filed a motion to dismiss

Page 818

the forfeiture complaint or in the alternative stay the forfeiture action. (Dkt. No. 19). The government then filed a motion to set a briefing schedule, asking the court to consider the government's motion to strike before ruling on the motion to dismiss. (Dkt. No. 31). The court granted the government's request. (Dkt. No. 32). On November 18, 2014, the government moved to strike the claims of the claimants. (Dkt. No. 39).[1] The claimants opposed the motion and the government replied. (Dkt. Nos. 45, 46, 48, 66, 67).

I. BACKGROUND

On January 5, 2012, indictments were entered in this district against Batato, Bencko, Dotcom, Echtemach, van der Kolk, Ortmann, Megaupload Limited, and Vestor Limited.[2] See Complaint, ¶ 16. The indictment charged the defendants with multiple crimes, including conspiracy to commit racketeering in violation of 18 U.S.C. § 1962(d); criminal copyright infringement in violation of 17 U.S.C. § 506 and 18 U.S.C. § 2319; conspiracy to commit copyright infringement in violation of 18 U.S.C. § 371; aiding and abetting of copyright infringement in violation of 18 U.S.C. § 2; and conspiracy to commit money laundering in violation of 18 U.S.C. § 1956(h). On February 16, 2012, a superseding indictment was returned, adding wire fraud charges under 18 U.S.C. § 1343. See Superseding Indictment. In summary, the government alleges that the indicted defendants operated a scheme known as the " Mega Conspiracy," an international criminal conspiracy to profit from criminal copyright infringement and launder the proceeds. See Complaint, ¶ 2. The government asserts that the assets listed in Attachment A constitute proceeds of the conspiracy and are thus subject to forfeiture. Id. at ¶ 3.

On January 13, 2012, the New Zealand Ministry of Foreign Affairs and Trade received requests from the United States seeking the provisional arrest of the individual defendants in the criminal action for the purpose of extraditing them to the United States. See Affirmation of Bethany Ellen Madden, ¶ 2. On or about January 20, 2012, New Zealand authorities arrested Batato, Dotcom, Ortmann, and van der Kolk. See Declaration of FBI Special Agent Rodney J. Hays. They were released on conditions of bail. Bencko remains in Slovakia, his country of citizenship. Echtemach is also in his country of citizenship, Germany.

On April 18, 2012, the New Zealand High Court[3] registered in New Zealand two restraining orders issued by this court, subject to conditions including monthly living allowance payments for Dotcom, his

Page 819

wife, and van der Kolk. See Order for Registration of Foreign Restraining Orders. The restraining orders were to expire on April 18, 2014. The New Zealand Court of Appeal issued a ruling extending the registration of the U.S. restraining orders to April 18, 2015. The evidence before this Court indicates that New Zealand law does not provide for further extension of the restraining orders.

II. SUBJECT MATTER JURISDICTION

A. Legal Standard

The claimants assert that this court lacks subject matter jurisdiction over the civil forfeiture complaint because the government has failed to allege violations of federal statutes.[4] Rule 12(b) of the Federal Rules of Civil Procedure and Rule G of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions are applicable to this civil forfeiture in rem action. Rule G(8)(b) authorizes a claimant to move to dismiss a forfeiture complaint pursuant to Rule 12(b). A motion made pursuant to Fed.R.Civ.P. 12(b)(1) challenges the court's jurisdiction over the subject matter of the case. Generally, the plaintiff bears the burden to establish and preserve jurisdiction. See Kerns v. United States, 585 F.3d 187, 194 (4th Cir. 2009); see also Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991).

Subject matter jurisdiction over civil asset forfeiture actions is governed by 28 U.S.C. § 1345[5] and 28 U.S.C. § 1355(a). Section 1355(a) provides that " [t]he district courts shall have original jurisdiction...of any action or proceeding for the recovery or enforcement of any fine, penalty, or forfeiture, pecuniary or otherwise, incurred under any Act of Congress." 28 U.S.C. § 1355(a) (emphasis added); United States v. Wilson, 699 F.3d 789, 795 (4th Cir. 2012), cert. denied, 133 S.Ct. 2401, 185 L.Ed.2d 1112 (2013) (holding that a procedural deadline for filing a civil forfeiture complaint in the Civil Asset Forfeiture Reform Act of 2000 is non-jurisdictional).

In United States v. $6,190 in U.S. Currency, 581 F.3d 881 (9th Cir. 2009), the Ninth

Circuit considered a challenge to subject matter jurisdiction in a civil forfeiture case:

Jurisdiction over civil forfeiture actions brought under 28 U.S.C. § 1355 is not premised on a federal indictment, but rather on a violation of an Act of Congress. See 28 U.S.C. § 1355(a); see also United States v. One Assortment of 89 Firearms, 465 U.S. 354, 361-63, 104 S.Ct. 1099, 79 L.Ed.2d 361 (1984) (holding that a claimant's assets were subject to forfeiture even though claimant was acquitted on federal criminal charges). To bring a civil forfeiture proceeding under § 1355, the government is required only to show probable cause that

Page 820

the assets in question are traceable to a violation of an Act of Congress. See [ United States v. $493,850.00 in U.S. Currency, 518 F.3d [1159], [] 1167-69 (holding that the Civil Asset Forfeiture Reform Act of 2000 did not alter the probable cause requirement).

$6,190 in U.S. Currency, 581 F.3d at 885 (emphasis added). Courts within the Fourth Circuit have used a synonymous " reasonable belief" pleading requirement in examining motions to dismiss forfeiture complaints pursuant to Fed.R.Civ.P. 12(b)(6). A motion to dismiss pursuant to this rule tests the sufficiency of a complaint. See, e.g., United States v. $15,860 in U.S. Currency, 962 F.Supp.2d 835, 838 (D. Md. 2013) (" For the government to meet the pleading requirements [of Fed.R.Civ.P. 12(b)(6)], it must state sufficient facts to support a reasonable belief based on the totality of the circumstances that the defendant property is linked to drug trafficking and, thus, subject to forfeiture" ) (citing United States v. Mondragon, 313 F.3d 862, 866-67 (4th Cir. 2002)). The $15,860 court noted that its analysis would not change if it were to use the " probable cause" standard applied by the Ninth Circuit. Id. at 840 n.6.

B. Subject Matter Jurisdiction is Satisfied

The forfeiture complaint alleges that the named assets are subject to forfeiture pursuant to 18 U.S.C. § 981 and 18 U.S.C. § 2323, because the assets are traceable to copyright infringement, conspiracy to commit copyright infringement, and money laundering offenses.[6] 18 U.S.C. § 981(a)(1)(A) provides for forfeiture of property traceable to violations of 18 U.S.C. § § 1956 and 1957. Section 1956(a)(1) prohibits the use of the proceeds of an unlawful activity where a person knows the illegal nature of the proceeds and conducts or attempts to conduct a financial transaction with the intent to promote carrying out a " specified unlawful activity" or with the knowledge that the transaction is " designed in whole or in part" to conceal the " nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity." 18 U.S.C. § 1956(a)(1). Section 1956(a)(2) prohibits the transmission of such illegal funds into or out of the United States. 18 U.S.C. § 1957(a) prohibits engaging in a " monetary transaction in criminally derived property of a value greater than $10,000." 18 U.S.C. § 1957(a).

Section 1956(h) provides criminal liability for conspiracy to commit offenses described in § § 1956 or 1957. Section 981 subjects to forfeiture any property traceable to " any offense constituting 'specified unlawful activity' (as defined in section 1956(c)(7) of this title), or a conspiracy to commit such offense." 18 U.S.C. § 981(a)(1)(C). Section 1956(c)(7)(D) lists a number of offenses that constitute " specified unlawful activity," including offenses relating to copyright infringement under 18 U.S.C. § 2319. 18 U.S.C. § 1956(c)(7)(D).

Section 2319 sets forth the penalties for a violation of 17 U.S.C. § 506(a)(1), which criminalizes infringement of a copyright (A) for commercial advantage or private financial gain; (B) by reproducing or distributing infringing copies of copyrighted works with a value of over $1,000 in any 180-day period; or (C) by distributing a work being prepared for commercial distribution if the person knew or should have

Page 821

known that the work was intended for commercial distribution. 17 U.S.C. § 506(a)(1). Section 506(b) provides that forfeiture under the statute shall be governed by 18 U.S.C. § 2323. 17 U.S.C. § 506(b). Section 2323(a)(1) subjects to forfeiture any property used or intended to be used to commit an offense under § 506 or any proceeds obtained " directly or indirectly" from an offense prohibited by § 506. 18 U.S.C. § 2323 (a)(1).

The claimants argue that the government has not properly alleged a violation of any federal statute to support jurisdiction under § 1355. Specifically, they argue that the government has not adequately alleged criminal copyright infringement because the complaint only references acts of " secondary" infringement, rather than direct infringement. This argument refers to the government's allegations concerning the Mega business model, which involved the claimants' alleged encouragement and facilitation of infringement by others. See, e.g., Complaint, ¶ 20. The claimants argue that they cannot possibly be held criminally liable for acts that contributed to or facilitated infringement. Even assuming, arguendo, that only acts of contributory infringement are alleged in the forfeiture complaint, this argument ignores the complaint's allegations that the claimants engaged in a conspiracy to commit copyright infringement. Section 981(a)(1)(C) authorizes civil forfeiture of property traceable to, among numerous other offenses, copyright infringement or conspiracy to commit copyright infringement.

In order to establish a conspiracy under 18 U.S.C. § 371, the government must show " (1) an agreement between two or more people to commit a crime, and (2) an overt act in furtherance of the conspiracy." United States v. Jackson, No. 13-cr-129, *11, 2013 WL 3197069 (E.D. Va. June 20, 2013) (citing United States v. Ellis, 121 F.3d 908, 922 (4th Cir. 1997). The forfeiture complaint has alleged that each of the individual claimants participated in a conspiracy to commit copyright infringement in the Eastern District of Virginia and elsewhere. Numerous alleged communications of the claimants have been presented, indicating that they had an agreement to engage in a business involving the Mega websites.

According to the complaint, every time an Internet user uploaded an infringing file to the Megaupload website, Mega reproduced the file on at least one computer server it controlled and provided the uploading user with a uniform resource locator (" URL" ) link allowing anyone with the link to download the file. See Complaint, ¶ 18. The conspirators also allegedly provided monetary payments to the top uploaders of infringing content in order to encourage Internet users to upload infringing files onto the Mega sites. Id. at 20. In furtherance of the conspiracy, the claimants allegedly developed software to identify the most popular files uploaded to their sites, almost all of which were infringing, and to automatically reproduce those files to Mega's faster servers operated by Cogent Communications in Washington, D.C. Id. at ¶ 23. The government has alleged that the conspirators knew that these files were infringing copyrights, as evidenced by their exclusion of infringing files from the " Top 100" list. The " Top 100" list purported to list the most frequently downloaded files on Megaupload. Id. at ¶ 32. According to the government, an accurate list would have consisted almost entirely of infringing content, so the claimants " carefully curated" the list to make the site look more legitimate. Id. Additionally, the claimants regularly told copyright holders, including many U.S.-based organizations, that they would remove infringing content, when in actuality

Page 822

they only removed particular links to the files. Id. at 26-29. The actual infringing files remained on the Mega-controlled servers and could be accessed from other links. The indictment alleges that some of the communications to copyright holders were sent from computer servers located in the Eastern District of Virginia. See Superseding Indictment, ¶ 73.

Thus, the factual allegations in the complaint and the superseding indictment show that there was an agreement among the claimants to engage in the alleged Mega Conspiracy, and at least some overt acts in furtherance of the conspiracy occurred within this judicial district. The complaint states that the assets in question are largely traceable to funds received by a PayPal, Inc. account that was used by the Mega Conspiracy to receive subscription payments from users who viewed the infringing videos on the Mega websites. See Complaint, ¶ ¶ 40-45. This court is therefore satisfied that there are sufficient factual allegations to support either probable cause or a reasonable belief that the assets listed in Attachment A are traceable to a conspiracy to commit copyright infringement. Accordingly, this court has subject matter jurisdiction over the civil forfeiture complaint.[7]

III. IN REM JURISDICTION

A. Legal Standard

The claimants argue that in rem jurisdiction is lacking because the property is located in foreign countries. As the government notes, 28 U.S.C. § 1355(b)(2) provides that " [w]henever property subject to forfeiture under the laws of the United States is located in a foreign country, or has been detained or seized pursuant to legal process or competent authority of a foreign government, an action or proceeding for forfeiture may be brought" in the district where any of the acts or omissions giving rise to the forfeiture occurred. 28 U.S.C. § 1355(b)(2).

Several federal appellate courts have held that § 1355(b)(2) provides for in rem jurisdiction over property subject to forfeiture that is located in another country. See United States v. Approximately 1. 67 Million in Cash, 513 F.3d 991, 998 (9th Cir. 2008) (" The plain language and legislative history of the 1992 amendments makes clear that Congress intended § 1355 to lodge jurisdiction in the district courts without reference to constructive or actual control of the res" ); Contents of Account Number 03001288 v. United States, 344 F.3d 399, 403-405 (3d Cir. 2003) (holding that the district court had jurisdiction " solely based on § 1355(b)(2)" to order the forfeiture of assets located in the United Arab Emirates); United States v. All Funds in Account Nos. 147.034/278, 747.009/278, & 747.714/278, 295 F.3d 23, 27, 353 U.S.App.D.C. 23 (D.C. Cir. 2002) (" Congress intended the District Court for the District of Columbia, among others, to have jurisdiction to order the forfeiture of property located in foreign countries," unless the " Constitution commands otherwise" ). The reasoning of these circuits is persuasive.[8]

Page 823

B. The Jurisdictional Requirements of § 1355(b) are Satisfied

All of the property listed in Attachment A is located either in Hong Kong or New Zealand. The assets have been restrained pursuant to the legal processes of those countries at the request of the United States government. This forfeiture action thus concerns property located in foreign countries and detained pursuant to the legal processes of those countries. The forfeiture complaint and superseding indictment contain allegations that the conspiracy utilized over 525 servers located within the Eastern District of Virginia,[9] and received payments from within this district and elsewhere to a PayPal account. See Superseding Indictment, ¶ ¶ 39, 42. The claimants allegedly reproduced and stored infringing files on these servers and caused communications to be sent from servers in Virginia indicating that infringing files had been removed. See Superseding Indictment, ¶ 73. Therefore, the court finds that alleged acts in furtherance of the conspiracy to commit copyright infringement occurred within this judicial district. The alleged acts in furtherance of the conspiracy constitute acts giving rise to the forfeiture claim. Accordingly, there are minimum contacts between this jurisdiction and the defendant assets,[10] and this court has in rem jurisdiction over the assets listed in Attachment A pursuant to § 1355(b).

IV. THE FUGITIVE DISENTITLEMENT DOCTRINE

A. Statutory Prerequisites of § 2466

The fugitive disentitlement doctrine developed under the common law as a method to dismiss direct appeals from criminal defendants who were fugitives at the time of their appeal. See, e.g., United States v. Al-Kurdi, 332 F.App'x 151, 152 (4th Cir. 2009) (invoking common law fugitive disentitlement doctrine to dismiss appeal of criminal defendant who was a fugitive during the pendency of his appeal). See also Collazos v. United States, 368 F.3d 190, 197 (2d. Cir. 2004) (discussing cases invoking the common law fugitive disentitlement doctrine). In Degen v. United States, 517 U.S. 820, 116 S.Ct. 1777, 135 L.Ed.2d 102 (1996), the Supreme Court declined to extend

Page 824

the common law doctrine to allow courts to disentitle fugitive claimants in civil forfeiture actions.

In 2000, Congress comprehensively overhauled the civil asset forfeiture laws and specifically granted federal courts the authority to order disentitlement in civil forfeiture cases in the Civil Asset Forfeiture Reform Act (" CAFRA" ). See 28 U.S.C. § 2466. That statute was designed to prevent the unseemly " spectacle" recognized in Degen of a " criminal defendant who, facing both incarceration and forfeiture for his misdeeds, attempts to invoke from a safe distance only so much of a United States court's jurisdiction as might secure him the return of alleged criminal proceeds while carefully shielding himself from the possibility of a penal sanction." United States v. Technodyne, 753 F.3d 368, 377 (2d Cir. 2014) (quoting Collazos, 368 F.3d at 200).

Section 2466 provides:

(a) A judicial officer may disallow a person from using the resources of the courts of the United States in furtherance of a claim in any related civil forfeiture action or a claim in third party proceedings in any related criminal forfeiture action upon a finding that such person
(1) after notice or knowledge of the fact that a warrant or process has been issued for his apprehension, in order to avoid criminal prosecution--
(A) purposely leaves the jurisdiction of the United States;
(B) declines to enter or reenter the United States to submit to its jurisdiction; or
(C) otherwise evades the jurisdiction of the court in which a criminal case is pending against the person; and
(2) is not confined or held in custody in any other jurisdiction for commission of criminal conduct in that jurisdiction.
(b) Subsection (a) may be applied to a claim filed by a corporation if any majority shareholder, or individual filing the claim on behalf of the corporation is a person to whom subsection (a) applies.

At common law, courts generally did not consider as " fugitives" persons who had never previously entered the United States. See Collazos, 368 F.3d at 198-201. Subpart A obviously applies to traditional common law fugitives, persons who allegedly committed crimes while in the United States and who, upon learning that their arrest was sought, purposely fled the country. § 2466(a)(1)(A). Similarly, the " reenter" provision of subpart B extends disentitlement authority over another class of persons traditionally recognized as fugitives, persons who allegedly committed crimes while in the United States, but who were outside the country when they learned that their arrests were sought and who then refused to return to the United States in order to avoid prosecution. § 2466(a)(1)(B). However, subpart B also applies to persons who decline to " enter" the United States. Id. The plain meaning of this language is that a person who has never entered the United States but who declines to enter in order to avoid criminal prosecution may be a fugitive pursuant to § 2466. See Collazos, 368 F.3d at 198-201; United States v. $6,100,000 on Deposit, No. 07-cv-4430, 2009 WL 1809992, *4 (S.D.N.Y. 2009) (disentitling a claimant who had never been to the United States pursuant to § 2466).

Further, subpart C applies to persons who " otherwise evade[]" the jurisdiction of a United States court in which a criminal case is pending against them. 28 U.S.C. § 2466(a)(1)(C). " Evasion is an expansive

Page 825

concept" not limited to the deliberate flight referenced in § 2466(a)(1)(A) or the refusal to enter or reenter identified in § 2466(a)(1)(B). Collazos, 368 F.3d at 200 (internal quotation marks omitted). " Nothing in subpart (C) indicates that a person must have been within the jurisdiction of the court at the time the crime was committed in order thereafter to evade jurisdiction." Id.

Claimants argue that the government cannot raise the fugitive disentitlement doctrine on a motion to strike. Numerous courts, however, have granted motions to strike the claims of a person determined to be a fugitive.[11] The Court is persuaded by their reasoning and finds that fugitive disentitlement can be ordered where the government has moved to strike the claim of an alleged fugitive. See United States v. $6,976,934.65 Plus Interest, 478 F.Supp.2d 30, 38 (D.D.C. 2007) (holding that a motion pursuant to § 2466 is " properly treated as one to dismiss the claim, on which the Court may consider matters outside the pleadings" ).[12]

B. Intent

The Fourth Circuit has not yet considered fugitive disentitlement pursuant to § 2466. Circuits that have weighed in have held that the statute's plain language identifies five prerequisites that must be met before a court may exercise its discretion to disentitle a claimant:

(1) a warrant or similar process must have been issued in a criminal case for the claimant's apprehension; (2) the claimant must have had notice or knowledge of the warrant; (3) the criminal case must be related to the forfeiture action; (4) the claimant must not be confined or otherwise held in custody in another jurisdiction; and (5) the claimant must have deliberately avoided prosecution by (A) purposefully leaving the United States, (B) declining to enter or reenter the United States, or (C) otherwise evading the jurisdiction of a court in the United States in which a criminal case is pending against the claimant.

Collazos, 368 F.3d at 198. See also Technodyne, 753 F.3d at 378 (2d Cir. 2014);

Page 826

United States v. $671,160 in U.S. Currency, 730 F.3d 1051,1055-1056 (9th Cir. 2013); United States v. $6,976,934.65, Plus Interest, 554 F.3d 123, 128 (D.C. Cir. 2009); United States v. $6,190 in U.S. Currency, 581 F.3d 881, 886 (9th Cir. 2009); United States v. Salti, 579 F.3d 656, 663 (6th Cir. 2009).

The parties primarily dispute the intent element, so the court will focus on that element first. Section 2466 does not specify the requisite showing of intent necessary to satisfy the fifth element of the test identified by the circuit courts. The statute provides that the alleged fugitive must have acted " in order to avoid criminal prosecution." § 2466(a)(1). Some courts have held that " [m]ere notice or knowledge of an outstanding warrant, coupled with a refusal to enter the United States, does not satisfy the statute." United States v. Bohn, No. 02-20165, 2011 WL 4708799, *9 (W.D. Tenn. June 27, 2011) (finding insufficient evidence of intent where claimant was in Vanuatu long before he was charged and no other evidence showed that he remained there in order to avoid prosecution in the United States) (quoting United States v. $6,976,934.65, Plus Interest, 554 F.3d at 132); [13] see also United States v. Salti, 579 F.3d at 664. Other courts have emphasized that the intent of the alleged fugitive may be analyzed under the " totality of the circumstances." Technodyne, 753 F.3d at 378; Collazos, 368 F.3d at 201 (finding that the totality of the circumstances indicated that the claimant made a conscious choice not to " enter or reenter the United States" to face criminal prosecution).

At least two circuits have explicitly held that a desire to avoid prosecution need not be the sole reason for the claimant's refusal to enter the United States. See Technodyne, 753 F.3d at 383-384 (2d Cir. 2014) (finding that the government was required to prove that the claimants remained outside of the United States with the " specific intent to avoid criminal prosecution," but refusing to " equate specific intent with sole, principal, or dominant intent" ); $671,160 in U.S. Currency, 730 F.3d at 1056 n.2 (9th Cir. 2013) (" [Claimant's] desire to evade criminal prosecution need not be the sole motivating factor causing him to remain abroad, to the exclusion of all others" ). Accordingly, the court finds that while the government must show that the claimants possess a specific intent to avoid criminal prosecution, that intent need not be the sole reason the claimants declined to enter the United States.

None of the claimants dispute that they are aware of their indictments in this district. It is also beyond dispute that the criminal case is related to the forfeiture action. The assets sought in the civil forfeiture action are alleged to be proceeds of and property traceable to offenses charged in the superseding indictment. Further, the assets are subject to restraining orders issued by this court and registered in foreign courts in connection with the criminal action. None of the claimants are confined or otherwise held in custody in another jurisdiction. The claimants in this action dispute only the intent element. In short, they argue that the evidence before the

Page 827

court does not establish that they deliberately sought to avoid prosecution. For the reasons discussed below, the court finds that each claimant has deliberately declined to enter the United States in order to avoid criminal prosecution in this country. Kim Dotcom[14]

Dotcom is a dual citizen of Germany and Finland, and he has never lived in or visited the United States. He is currently residing in New Zealand. Dotcom stated in his declaration that he learned of the indictment on January 20, 2012, when he was arrested in New Zealand pursuant to a request by United States authorities. See Decl. of Kim Dotcom, ¶ 3. The evidence before this court indicates that he has been released on bail since February, 2012. See Reserved Judgment of J. Dawson (granting bail to Dotcom). Dotcom has stated that he is not permitted to leave New Zealand, but it is apparent that he is only being held pursuant to the United States government's request for his extradition. See Dotcom's Response to Special Interrogatory No. 7. He cannot dispute that he is free at any time to submit to U.S. jurisdiction. See 479 Tamarind Drive, No. 98-cv-2279, 2005 WL 2649001 at *3 (S.D.N.Y. Oct. 14, 2005) (disentitling claimant who argued that he was bound by conditions of bond not to leave Canada where the evidence showed that he was arrested in Canada pursuant to an extradition request); $1,231,349.68 in Funds, 227 F.Supp.2d at 130, 133 (D.D.C. 2002) (finding that claimant's arrest in Spain pursuant to extradition request was not custody or confinement for purposes of § 2466(a)(2)).

The record presents significant evidence that Dotcom has declined to enter the United States in order to avoid criminal prosecution. Dotcom stated that since his arrest, he has been " actively contesting the legal basis on which the United States has issued the indictment and [has] sought to enforce" his rights. See Decl. of Kim Dotcom, ¶ 5. On July 10, 2012, Dotcom sent a public message from his Twitter account stating, " Hey DOJ, we will go to the U.S. No need for extradition. We want bail, funds unfrozen for lawyers & living expenses." See Govt. Ex. B to Attach. 1. An article dated July 11, 2012 stated that Dotcom " said he would willingly go to the U.S. [sic] if he and his co-defendants were given a guarantee of a fair trial, money to pay for a defence [sic] and funds to support themselves and their families." See Govt. Ex. E to Attach. 1. In the article, Dotcom is quoted as saying that the government would not agree " because they can't win this case and they know that already." Id. (internal quotation marks omitted).

On June 5, 2014, Dotcom posted a Twitter message offering five million U.S. dollars to anyone with " anything to leak about the Megaupload case" that could result in his victory. See Govt. Ex. B to Attach. 1. Three days later, he posted a link to an article about his offer. Articles about Dotcom's offer reported that he was looking for information regarding unlawful or corrupt conduct by the United States government, the New Zealand government, spy agencies, law enforcement, and the motion picture industry in connection to his case. See Govt. Exhibits C, D to Attach. 1.

Dotcom has not disputed that he has sought favorable conditions in connection with submitting to the jurisdiction of the United States. Indeed, in his response to the government's special interrogatories,

Page 828

Dotcom stated that his attorneys conveyed to the government that he would be willing to voluntarily come to the United States to stand trial, provided that the government agreed that he would be free on bail and have a portion of his seized assets released to fund living expenses and defense attorneys. See Dotcom's Response to Special Interrogatory No. 6. He indicated that it was his understanding that the government had rejected his offer. Thus, he has corroborated the evidence presented by the government.

Dotcom's response to the government's argument that he is deliberately avoiding prosecution is that he has never been to the United States. He asserts that he remains in New Zealand because that has been his place of residence since before he learned of the indictment, his family owns a home in that country and rents a neighboring home, and he intends to continue to live and work there. See Decl. of Kim Dotcom, ¶ 10. His work in New Zealand includes Internet entrepreneurship and founding a political party.

As demonstrated, Dotcom need not have previously visited the United States in order to meet the prerequisites of § 2466. The statute is satisfied where the government shows that the claimant is on notice of the criminal charges against him and refuses to " enter or reenter" the country with the intent to avoid criminal prosecution. Because the court assesses intent under the totality of the circumstances, it is certainly relevant that Dotcom has never been to the United States and that he has lived in New Zealand since 2011, where he resides with his family. This tends to show that he has other reasons for remaining in New Zealand besides avoiding criminal prosecution. However, the existence of other motivations does not preclude a finding that he also has a specific intent to avoid criminal prosecution. Dotcom's statements, made publicly and conveyed by his attorneys to the government, indicate that he is only willing to face prosecution in this country on his own terms. See Technodyne, 753 F.3d at 386 (2d Cir. 2014) (" The district court was easily entitled to view those [requests for bail], evincing the [claimants'] desire to face prosecution only on their own terms, as a hallmark indicator that at least one reason the [claimants] declined to return in the absence of an opportunity for bail was to avoid prosecution" ). Dotcom has indicated through his statements that he wishes to defend against the government's criminal charges and litigate his rights in the forfeiture action. If it is truly his intent to do so, then he may submit to the jurisdiction of the United States. See 1,231,349.68 in Funds, 227 F.Supp.2d at 133 (stating that if the claimant truly intended to fight the charges as he stated, then he had a clear option to return to the United States).

The Corporate Claimants

Subsection b of § 2466 provides that a corporate claimant may be disentitled " if any majority shareholder, or individual filing the claim on behalf of the corporation is a person" for whom the statutory prerequisites are met. 28 U.S.C. § 2466(b). Kim Dotcom is the individual who filed the claims on behalf of Megaupload Limited, Megamedia Limited, Megapay Limited, Megastuff Limited, and Vestor Limited. See Verified Claim of Kim Dotcom on Behalf of the Corporate Claimants. There is also evidence that Dotcom is a majority shareholder of the corporate claimants. Because the statutory prerequisites have been satisfied with respect to Dotcom, the corporate claimants are also subject to disentitlement pursuant to § 2466(b).

Finn Batato and Mathias Ortmann

Finn Batato and Mathias Ortmann stated in their declarations that they

Page 829

learned of the indictments against them when they were arrested on January 20,2012 at Kim Dotcom's home. See Decl. of Finn Batato at ¶ 3; Decl. of Mathias Ortmann, ¶ 3. Batato and Ortmann remain in New Zealand subject to conditions of bail related to ongoing extradition proceedings. Both Batato and Ortmann are citizens of Germany. Neither has been a permanent resident of the United States. Batato stated in his declaration that since learning of the indictment, he has " been actively contesting the legal basis on which the United States has issued the indictment and [has] sought to enforce [his] legal rights." See Decl. of Finn Batato, ¶ 5. Ortmann made the same statement in his declaration. See Decl. of Mathias Ortmann, ¶ 5. Batato and Ortmann have each indicated that they plan to continue to live and work in New Zealand, where they are opposing extradition.[15] Their statements indicate that they wish to avoid prosecution in the United States by remaining in New Zealand. Batato and Ortmann are thus attempting to avoid criminal prosecution in the United States, while at the same time asserting their rights to litigate the criminal and civil forfeiture actions. It is apparent from the totality of the circumstances that Batato and Ortmann are refusing to enter the United States in order to avoid criminal prosecution.

Bram van der Kolk

Bram van der Kolk stated in his declaration that he became aware of the indictment when he was arrested at his home on January 2 0 ,2012.[16] See Decl. of Bram van der Kolk, ¶ 3. Since learning of the indictment, he has " been actively contesting the legal basis on which the United States has issued the indictment and [has] sought to enforce [his] legal rights." Id. at ¶ 5. He is a citizen of the Netherlands, and he stated that he has never resided in the United States. He has previously visited the United States for about five days in October 2009. Id. at ¶ 8. Van der Kolk is obviously opposing extradition, and he has admitted that he intends to remain in New Zealand while he contests the government's criminal action and civil actions. Like Batato and Ortmann, he is thus avoiding criminal prosecution in the United States while attempting to litigate the civil forfeiture action. It is apparent from the totality of the circumstances that van der Kolk is refusing to enter the United States in order to avoid criminal prosecution.

Sven Echtemach

Sven Echtemach is a citizen and resident of Germany. He has remained in Germany since late January 2012. Echtemach has never been a permanent resident of the United States. On or about January 22, 2012, German authorities notified the United States government that Echtemach had arrived in Germany from Manila, Philippines via the Frankfurt airport. See Declaration of FBI Special Agent Rodney J. Hays, ¶ 28. The United States government submitted a request to interview Echtemach in Germany about his involvement in activities relating to the Megaupload business.[17] Echtemach indicated that he would exercise his right not to give evidence if summoned for an interview.

Page 830

On March 16, 2012, Echtemach stated in a conversation with a third party that he hoped to talk to a lawyer soon in order to understand his defense strategy. Id. at ¶ 29. On May 17, 2013, Echtemach stated that he was still not traveling, but he hoped that he would be able to travel again in a few months. According to the government, he has expressed hope in other conversations that the charges in the United States would be dismissed pursuant to motions of his counsel. Id.

Echtemach has also stated that his counsel in Germany advised him that he must remain in that country to participate in the investigations occurring there. See Decl. of Echtemach, ¶ 6. His Germany-licensed attorney, Klaus G. Walter, submitted an affidavit stating that he believed it was " more than likely that, should Mr. Echtemach travel to the United States at the moment, he would be arrested and not be allowed to leave the United States and return to Germany in a timely manner." See Decl. of Klaus G. Walter, ¶ 5. Walter stated that Echtemach is under investigation for three different proceedings, two of which result directly from requests of United States authorities and one of which results " indirectly" from the U.S. investigations. Id. at ¶ 3-4. However, Echtemach's own declaration stated only that he is " subject to criminal investigations in Germany based on the same allegations that have been made by the United States government in the criminal case and this civil forfeiture case." See Decl. of Sven Echtemach, ¶ 6. He stated further that he has been advised not to travel to the United States so that he will be available to participate in the " proceedings in Germany that were instituted at the request of the United States government." Id. Walter opined that if Echtemach were unavailable to participate in the German investigative proceedings, his absence could lead to " additional disadvantages" and could " even result in a German arrest warrant." See Decl. of Klaus G. Walter, ¶ 8. Alternatively, Echtemach could apparently face a default judgment in the German proceedings.

These allegations fall short of supporting an argument that Echtemach is in custody or confinement in Germany. In United States v. All Funds on Deposit at...Account No. 600-00338, 617 F.Supp.2d 103, 124-125 (E.D.N.Y. 2007), the court held that the claimant was not in custody such that he could not return to the United States to face the criminal charges against him, where he was free on bond in Namibia pending resolution of an extradition proceeding. Similarly, in $1,231,349.68 in Funds, 227 F.Supp.2d at 133 (D.D.C. 2002), the court held that the claimant's arrest in Spain did not constitute custody where he was arrested for conduct that related " specifically to the alleged criminal conduct for which he was indicted" in the United States. See also Collazos, 368 F.3d at 201 (holding that " nothing in the record indicate[d] that Ms. Collazos was ever confined, incarcerated, or otherwise unable to travel to the United States of her own volition in the months before the district court ordered disentitlement" ). Although Echtemach is not subject to extradition, the investigations occurring in Germany are evidently related to requests made by the United States government. Echtemach is not incarcerated in Germany or subject to any court-ordered travel restrictions, nor is there any evidence other than Walter's opinion that he may not leave the country.

Echtemach has emphasized that by remaining in Germany, he is choosing to live in his home country. That the claimant returned to his country of citizenship from the Philippines does not preclude a finding of disentitlement. See United States v. $671,160 in U.S. Currency, 730 F.3d 1051, 1056 (9th Cir. 2013) (affirming disentitlement

Page 831

of a claimant who returned to his home country). Echtemach's reliance on his lawyer's advice evinces his intent to avoid prosecution in this country. Walter has all but admitted that his advice is predicated on his desire, as a criminal defense attorney, to keep his client from traveling to a country where he will be arrested. Echtemach and Walter have thus conceded that at least one of Echtemach's reasons for refusing to enter the United States is a desire to avoid criminal prosecution here in favor of participating in the investigations occurring in Germany. Echtemach's statements in 2013 regarding his hope that he would be able to travel again in a few months further support the conclusion that he has remained in Germany in order to avoid extradition to the United States. Under these circumstances, the court finds that Echtemach is declining to enter the United States in order avoid criminal prosecution.

Julius Bencko

Julius Bencko is a citizen and resident of Slovakia.[18] He has never been a citizen or permanent resident of the United States. In his declaration, Bencko stated that after learning of his indictment while traveling in Portugal, he " returned to the Slovak Republic, where [he has] remained." See Decl. of Julius Bencko, ¶ 4. In January of 2012, Bencko was traveling through Spain and/or Portugal with a Portuguese national identified in the record as J.G. J.G. told Portuguese authorities that he drove Bencko across Europe and dropped him off at a train station in Bratislava, Slovakia. See Declaration of FBI Special Agent Rodney J. Hays, ¶ 20. J.G. stated that Bencko's intent was to take the train from Bratislava to the Slovakian town where he was born. Id.

There is no evidence that Bencko was subject to custody or confinement in Slovakia or otherwise unable to leave that country. In a March 2, 2012 conversation, Bencko told a third party that he was " stuck here in this post commie state.. .the sooner the USA will do some steps the soner [sic] they will let me go." Id. at ¶ 23. The most likely meaning to be inferred from his statement that he was " stuck" in Slovakia is that he was unable to travel without risking extradition to the United States.

On or about March 28, 2012, he told a third party that he would be able to come to Bratislava if needed, but that he would rather not travel. Id. at ¶ 25. In the same conversation, he indicated that he was facing a 55-year sentence in America. On or about April 5, 2012, Bencko told a third party that he could get his brother and another individual to pick the third party up from Vienna, but he " cannot (better not) cross the border" himself. Id. at ¶ 26. The third party responded that he or she did not want Bencko to " cross border and risk [sic]," and Bencko replied that he would not. Id. Viewing the totality of the circumstances, it appears that Bencko is deliberately refusing to travel outside of Slovakia in order to avoid the risk of extradition to the United States. He is thus declining to enter the United States in order to avoid criminal prosecution, while simultaneously attempting to assert a civil claim in the forfeiture action.

V. DISCRETIONARY ANALYSIS

Although the statutory prerequisites of 28 U.S.C. § 2466 have been met for each of the claimants, the court should also consider whether there are reasons not to exercise its discretion to disentitle a fugitive.[19] Section 2466 does not enumerate

Page 832

any factors for courts to consider in analyzing whether to exercise their discretion. Courts that have engaged in a discretionary analysis have generally found that disentitlement should be applied. See, e.g., United States v. $6,100,000 on Deposit, No. 07-cv-4430, 2009 WL 1809992, *5 (S.D.N.Y. June 24, 2009) (finding that appellate proceedings of claimant's co-defendant and the fact that the claimant's ex-wife had also filed a claim to the restrained assets did not weigh against application of fugitive disentitlement); United States v. $1,474,770 in U.S. Currency, 538 F.Supp.2d 1298,1302 (S.D. Cal. 2008); United States v. All Funds on Deposit at...Account No. 600-00338, 617 F.Supp.2d 103, 125-128 (E.D.N.Y. 2007); United States v. One 1988 Chevrolet Cheyenne Half-Ton Pickup Truck, 357 F.Supp.2d 1321, 1328-1333 (S.D. Ala. 2005).

The instant case presents facts of first impression. The government seeks the disentitlement of five corporate claimants and six individuals. Further, all of the assets identified in the forfeiture complaint are located in New Zealand and Hong Kong.[20] The government has argued that it will suffer significant prejudice if the claimants are not disentitled, due to dissipation of the assets occurring in these countries. In New Zealand, Dotcom and van der Kolk have been able to successfully apply for release of funds from the restrained assets for living expenses and attorneys fees. The government represents that millions of dollars have been dissipated in Hong Kong and New Zealand pursuant to court orders in both countries. The court understands the government's concern, however, the assets at issue are located within the jurisdiction and control of courts in New Zealand and Hong Kong, and release of the assets has occurred pursuant to the legal processes of those nations.

Treaties

The claimants argue that application of § 2466 would violate the Supremacy Clause of the United States Constitution, due to the existence of treaties that were enacted after § 2466.[21] The two treaties they point to are the United Nations Convention Against Transnational Organized Crime (" UNCTOC" ), a multi-nation treaty to which the United States and New Zealand are parties; and the Mutual Legal Assistance Treaty (" MLAT" ) between the United States and Germany.

UNCTOC Article 16, ¶ 13 provides that:

Page 833

Any person regarding whom [extradition] proceedings are being carried out in connection with any of the offences to which this article applies shall be guaranteed fair treatment at all stages of the proceedings, including enjoyment of all the rights and guarantees provided by the domestic law of the State Party in the territory of which that person is present.

United Nations Convention Against Transnational Organized Crime, art. 16, ¶ 13, Dec. 12, 2000, 2255 U.N.T.S. 209. According to the claimants, this provision means that the claimants currently residing in New Zealand (Dotcom, Batato, Ortmann, and van der Kolk) are entitled to take advantage of New Zealand laws that guarantee a domestic right to challenge property seizures. As support for this domestic property right, the claimants point to a law review article discussing litigation in the New Zealand courts regarding the legality of the search of Dotcom's home and the disclosure of evidence in the extradition proceedings.

The claimants may be entitled to litigate in New Zealand while they remain in that country, but nothing in this provision states that disentitlement cannot be ordered separately against a claimant who evades the jurisdiction of the United States. That the exercise of their rights in New Zealand may cause disadvantages for the claimants with respect to litigation occurring in America does not mean that they are being treated unfairly or that they are denied their enjoyment of rights in New Zealand. The court cannot conclude on the record before it that application of § 2466 would be unconstitutional. The court does not find a conflict between the statute and the treaty, and the Supremacy Clause is therefore not offended. See Whitney v. Robertson, 124 U.S. 190, 194, 8 S.Ct. 456, 31 L.Ed. 386 (1888) (stating that when a treaty and a statute " relate to the same subject, the courts will always endeavor to construe them so as to give effect to both, if that can be done without violating the language of either" ).

Echtemach argues that the Mutual Legal Assistance Treaty (" MLAT" ) between the United States and Germany trumps the disentitlement statute and therefore he cannot constitutionally be disentitled. Specifically, he references Article 4, ¶ 4 of the MLAT, which provides that:

A person who is not a national or resident of the [country requesting extradition] and who does not answer a summons to appear in the [country requesting extradition] served pursuant to a request shall not by reason thereof be liable to any penalty or be subjected to any coercive measures.

Mutual Legal Assistance Treaty, art. 4, ¶ 4, U.S.-Ger., Oct. 13, 2003, T.I.A.S. 09-1018. The court entertains serious doubts that this treaty bars application of the fugitive disentitlement statute against all individuals who are not nationals or residents of the United States and who maintain fugitive status in Germany. Moreover, fugitive disentitlement is not necessarily a penalty or coercive measure. In analyzing whether § 2466 violates due process, the Collazos court found that disentitlement pursuant to § 2466 is not a punitive deprivation of the right to be heard. Instead, the statute:

establishes a presumption that a person who refuses to produce himself in connection with criminal charges relating to the civil forfeiture has no meritorious defense against the latter action. Because a person can defeat that presumption by appearing in the criminal case, a deliberate choice not to do so constitutes a knowing waiver of the hearing otherwise available by law.

Page 834

Collazos v. United States, 368 F.3d at 205-206. Following the reasoning of Collazos, the court finds that disentitlement is not a penalty or coercive measure such that it would conflict with the MLAT in the event the treaty is applicable to the present action.

Judicial Oversight of the Assets

The claimants urge the court to consider in its discretionary analysis the fact that New Zealand courts continue to litigate important issues related to forfeiture of the assets. The court certainly considers as relevant the significant oversight by the New Zealand courts over the assets located in that country. Although the restraining order related to the criminal charges will expire in April, the parties indicated during oral argument that there are multiple civil actions being litigated in New Zealand against the claimants by various members of the motion picture industry. It is the court's understanding that the New Zealand assets restrained in connection with the criminal action will remain under restraints pursuant to orders issued in those civil actions. It appears therefore that the assets held in New Zealand are subject to significant oversight by the New Zealand courts due to the civil litigation occurring there.

This court accords great respect to courts in New Zealand and Hong Kong and does not wish to interfere with litigation occurring in either country. Importantly, the court does not believe that an order of disentitlement will unduly interfere with the litigation in New Zealand. After the claimants are disentitled, the government may seek a default judgment in this action. If this court grants a default judgment and orders forfeiture, that would not be the end of the matter. Because the assets are located in New Zealand, the government would have to present that order to the New Zealand courts, which may or may not choose to register an order of forfeiture issued by this court. The New Zealand Criminal Proceeds (Recovery) Act of 2009 (" CPRA" ) provides the procedure for registration of foreign forfeiture orders in New Zealand. Section 148 of that Act provides that:

A person who claims an interest in property sought to be forfeited under a foreign forfeiture order registered in New Zealand may, before the date that is 6 months from the date on which the foreign forfeiture order is registered, apply to the High Court for an order if the person is a person to whom section 143(2)(a), (b), or (c) applies.

CPRA 2009 (NZ).

Section 143(2) provides that Section 148 is applicable if a person:

(a)in a case where the foreign forfeiture order was made without a hearing in a court in the foreign country where it was made, was given no opportunity to make representations to the person or body that made the foreign forfeiture order;
(b)in a case where the foreign forfeiture order was made at a hearing of a court in the foreign country where it was made, was not served with any notice of, and did not appear at, the hearing held in the court;
(c)in any other case, obtains the leave of the court to make the application.

CPRA 2009 (NZ).

If this court after disentitling the claimants were to ultimately order a default judgment of forfeiture, the New Zealand courts may continue to litigate the issue of whether the assets will be forfeited. Thus, this court believes that disentitlement of the claimants in the United States will not

Page 835

unduly interfere with litigation occurring in New Zealand.

There is some evidence that the Hong Kong courts are also adjudicating issues concerning the restraint of the assets, primarily bank accounts located in Hong Kong. However, there is no evidence before this court that civil actions have been filed in Hong Kong against the claimants such that the Hong Kong courts are exercising jurisdiction over the assets to a comparable extent to the New Zealand courts. On this record, the court cannot conclude that disentitlement of the claimants would interfere with litigation occurring in Hong Kong.

VI. CONCLUSION

For the foregoing reasons, the court hereby ORDERS that the government's motion to strike (Dkt. No. 39) is GRANTED and all claimants are disentitled from litigating the civil forfeiture complaint pursuant to 28 U.S.C. § 2466. Accordingly, the court hereby strikes and dismisses the claims of Finn Batato; Julius Bencko; Kim Dotcom; Sven Echtemach; Bram van der Kolk; Mathias Ortmann; and Megaupload Limited, Megapay Limited, Megamedia Limited, Megastuff Limited, and Vestor Limited. (Dkt. Nos. 3-9). Because the court has disentitled the claimants, the court also strikes and denies their motion to dismiss the forfeiture complaint or in the alternative stay the forfeiture action. (Dkt. No. 19).[22]


Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.