United States District Court, E.D. Virginia, Alexandria Division
For USA, Plaintiff: James Philip Gillis, United States Attorney's Office, Alexandria, VA; Julia Martinez, U.S. Attorney's Office (Alexandria-NA), Alexandria, VA.
Liam O'Grady, United States District Judge.
This matter comes before the Court on the government's Motion for Preliminary Order of Forfeiture. Dkt. No. 166. The motion has been extensively briefed by the parties. Dkt. Nos. 177, 192, 200, 201, 202. On November 12, 2014, the Court held an evidentiary hearing and heard argument from counsel. For the reasons set forth below, the motion is granted in part and denied in part.
I. Procedural Background
On November 21, 2013, a federal grand jury returned a twenty-five count superseding indictment charging Defendant Lorene Chittenden and others with conspiracy to commit bank and/or mail fraud (Count I) and twenty-three counts of bank fraud (Counts III-XXV) related to their fraudulent mortgage loan scheme. Included in the indictment was a forfeiture notice advising Defendant that if she were to be convicted of any of these offenses, she would forfeit to the United States any property constituting or derived from proceeds obtained directly or indirectly as the result of, or traceable to, the counts of conviction, or as substitute assets for those proceeds pursuant to 18 U.S.C. § 982(a)(1) and (a)(2), 28 U.S.C. § 2461, and 21 U.S.C. § 853. The notice further alleged that the forfeitable property includes a sum of money equal to $7,376,000, representing the proceeds of the above offenses.
On May 7, 2014, the jury returned a verdict finding Defendant guilty of conspiracy to commit bank fraud and ten counts of bank fraud. The jury acquitted her of four bank fraud counts. On the evening before the sentencing hearing, the government filed its motion for a preliminary order of forfeiture. Dkt. No. 166. Due to the tardiness of the government's motion, the Court gave Defendant the opportunity to file written objections to the motion within seven days of sentencing. The Court also granted the government the opportunity to respond to the objections. On October 3, 2014, the Court sentenced Defendant to 42 months imprisonment, two years supervised release with special conditions, $1,100 in special assessments, and to pay restitution in an amount to be determined. Having established a
briefing schedule, the Court took the forfeiture issue under advisement, and stated in the judgment order " Forfeiture--to be determined." J. Order, Dkt. No. 168.
On October 5, 2014, the government filed a motion to amend or correct the sentence to include its proposed preliminary order of forfeiture, and noticed it to be heard on October 10, 2014. Dkt. Nos. 170, 171. At the hearing, defense counsel argued that Defendant's due process rights were violated when the government failed to comply with the requirements of Federal Rule of Criminal Procedure 32.2. Specifically, defense counsel argued that she was not afforded an evidentiary hearing in which to object to the amount and content of the forfeiture as well as to whether the government had " established the requisite nexus between the property and the offense." See Fed. R. Crim. Pro. 32.2(b)(1)(B). After hearing argument from both parties, the Court issued an Order amending its judgment order to clarify that it was only a partial judgment order, as it did not include the mandatory forfeiture order. The Court also ordered the parties to schedule the required evidentiary hearing on the forfeiture issue.
On November 12, 2014, the Court heard evidence from the government's witness, FBI Special Agent Spencer Brooks regarding the extent of the proceeds of the fraudulent loan conspiracy in which Defendant held a major role as the loan originator. Defense counsel stipulated to the government's ability to prove, by a preponderance of the evidence, the contents of government exhibit 3--detailing the loss amount for the fraudulent loan transactions discussed at trial--as well as the amounts in government exhibit 4 for certain transactions not discussed at trial. 11/12/14 Hr'g Tr. at 11, 21. At the conclusion of the hearing, the Court established a supplemental briefing schedule and took the motion under advisement. Upon review of the government's consolidated memorandum in support of its forfeiture motion, Defendant's response, and the other pleadings, the Court finds that the motion is ripe for disposition.
II. Legal Standard
Section 982(a)(2) provides that a court " shall order" a defendant convicted of a bank fraud offense to forfeit " any property constituting, or derived from, proceeds the person obtained, directly or indirectly, as the result of such violation." 18 U.S.C. § 982(a)(2). The plain language of the statute makes clear that such forfeiture is mandatory. Id. ; United States v. Monsanto, 491 U.S. 600, 607, 109 S.Ct. 2657, 105 L.Ed.2d 512 (1989) (" Congress could not have chosen stronger words to express its intent that forfeiture be mandatory in cases where the statute applied." (citing identical language in 21 U.S.C. § 853(a))). Although § 982 does not itself set forth the procedures for forfeiture, it expressly incorporates the provisions in 21 U.S.C. § 853. 18 U.S.C. § 982(b)(1). In addition to providing guidance as to the proper means by which forfeitable property should be seized and disposed of, § 853 defines, more fully than § 982, the property subject to forfeiture.
The procedure for forfeiture of assets in a criminal case is further governed by Federal Rule of Criminal Procedure 32.2. For a court to order forfeiture following a finding of guilt, the government must first have notified the defendant, either through the indictment or the information, of its intent to seek forfeiture as part of any sentence. Fed. R. Crim Pro. 32.2(a). If the notice requirement is satisfied, the government may then pursue a forfeiture order by demanding a money judgment, specific property, or substitute property. Fed. R. Crim Pro. 32.2(b)(1)(A) & (b)(2)(A); United States v. Candelaria-Silva,
166 F.3d 19, 42 (1st Cir. 1999); United States v. Davis, 177 F.Supp.2d 470, 484 (E.D. Va. 2001) (citing Candelaria with approval). In cases where the government seeks specific property, " the court must determine whether the government has established the requisite nexus between the property and the offense." Fed. R. Crim Pro. 32.2(b)(1)(A). The government may alternatively seek a money judgment, which is " especially appropriate where physical assets derived from the conspiracy are no longer traceable or available." United States v. Blackman, 746 F.3d 137, 145 (4th Cir. 2014).
If the government is unable to recover the " property constituting, or derived from, proceeds the person obtained directly or indirectly" as the result of a bank fraud offense, it may also seek forfeiture of substitute property. 21 U.S.C. § 853(a), (p); United States v. Wingerter, 369 F.Supp.2d 799, 805 (E.D. Va. 2005) (finding that property forfeitable under § 982 includes, by incorporation pursuant to § 982(b)(1), substitute property described in § 853(p)). Section 853(p) applies if, " as a result of any act or omission of the defendant," the proceeds traceable to the offense either: (1) " cannot be located upon the exercise of due diligence" ; (2) " has been transferred or sold to, or deposited with, a third party" ; (3) " has been placed beyond the jurisdiction of the court" ; (4) " has been substantially diminished in value" ; or (5) " has been commingled with other property which cannot be divided without difficulty." 21 U.S.C. § 853(p)(1). If any of these conditions is met, a court must order a defendant to forfeit substitute property up to the value of the tainted property. Id. § 853(p)(2); United States v. Alamoudi, 452 F.3d 310, 314 (4th Cir. 2006) (" Section 853(p) is not discretionary; rather, the statute mandates forfeiture of substitute assets 'when the tainted property has been placed beyond the reach of a forfeiture.'" (citing United States v. McHan, 345 F.3d 262, 271 (4th Cir. 2003)). As is the case under § 982, the government must prove its entitlement to forfeiture of substitute property by a preponderance of the evidence. See United States v. Tanner, 61 F.3d 231, 234 (4th Cir. 1995).
Furthermore, a defendant is jointly and severally liable for all reasonably foreseeable proceeds of the conspiracy, as this property was " derived indirectly [by the defendant] from those who acted in concert with him in furthering the criminal enterprise." E.g., McHan, 101 F.3d at 1043 (emphasis added); United States v. Bollin, 264 F.3d 391, 419 (4th Cir. 2001) (" [A]lthough [the defendant] received only about $30,000, he is liable in a forfeiture judgment for the foreseeable conduct of his co-conspirators." ). The imposition of vicarious liability in forfeiture proceedings " resonates with established criminal law principles [under which) conspirators are substantively liable for the foreseeable criminal conduct of a conspiracy's other members," including at sentencing. McHan, 101 F.3d at 1043 (citing Pinkerton v. United States, 328 U.S. 640, 66 S.Ct. 1180, 90 L.Ed. 1489 (1946)). With these principles in mind, the Court turns to the instant motion.
The government seeks a money judgment against Defendant in an amount equal to the gross proceeds of the conspiracy. It submits that a conservative estimate of such proceeds in this case is $1,684,266.09. To satisfy the money judgment, the government does not seek to forfeit specific property traceable to the offense, but rather only substitute property. Defendant raises two principal objections to the government's motion: the first as to the amount of the money judgment and the second as to the specific assets
that will be subject to forfeiture. The Court will address each in turn.
A. The Amount of the Money Judgment
Defendant concedes that the government may seek a money judgment and that the record supports an entry of forfeiture against her in the amount of $1,075,453.02. She disputes, however, the government's ability to forfeit an additional $608,813.07 in proceeds of the conspiracy.
The forfeiture amount sought by the government derives from three sources: (1) the loan origination fees received by Defendant from the fraudulent loans; (2) the real estate commissions on those loans received by her co-conspirators; and (3) the cash-out proceeds from the fraudulent refinancing of certain loans by co-defendant Rosita Vilchez and another conspirator. Dkt. No. 200 at 2. At the evidentiary hearing, the government submitted government exhibits 3 and 4 (" GEX 3", " GEX 4" ) to establish that the underlying transactions were fraudulent and therefore the proceeds are forfeitable. Defense counsel stipulated to the accuracy of GEX 3 and, subject to their prior objections, that the government could prove by a preponderance of the evidence that the amounts reflected in it were proceeds of the fraud proven at trial. ...