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United States v. $4

United States District Court, N.D. Texas, Dallas Division

April 26, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
$4, 480, 466.16 IN FUNDS SEIZED FROM BANK OF AMERICA ACCOUNT ENDING IN 2653, et al., Defendants in rem.

          MEMORANDUM OPINION AND ORDER

          SIDNEY A. FITZWATER UNITED STATES DISTRICT JUDGE.

         In this civil forfeiture action, claimants Retail Ready Career Center, Inc. (“RRCC”), Jonathan Davis (“Davis”), Melissa Richey (“Richey”), Lake Forrest Drive Properties, Inc. (“Lake Forrest”), Clear Conscience, LLC (“Clear Conscience”), and Trades United Inc. (“Trades United”) (collectively, “claimants”) move to dismiss the first amended complaint (“amended complaint”) and for a more definite statement.[1] Claimants have also filed two motions to unseal court records. The government moves under 18 U.S.C. § 981(g)(1) to stay this proceeding during the pendency of a related, ongoing criminal investigation, and it moves under Fed.R.Civ.P. 12(b)(6) to dismiss RRCC's counterclaims. For the following reasons, the court denies the government's motion to stay; grants the government's motion to dismiss RRCC's counterclaims; denies as moot claimants' motions to dismiss plaintiff's complaint; grants claimants' motions to dismiss plaintiff's amended complaint; denies claimants' motions to unseal court records; and grants the government leave to file a second amended complaint in order to comply with Supp. R. G(2)(f).

         I

         In September and October 2017, the government seized certain property (collectively, the “defendant property”) as derived from proceeds traceable to a violation, violations, or conspiracy to violate federal law.[2] On October 30, 2017 the government filed the instant in rem action, alleging, inter alia, that the defendant property

is subject to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(c), 18 U.S.C. § 981(a)(1)(D), and 18 U.S.C. § 982(a)(3) because it is derived from proceeds traceable to a violation, violations, or conspiracy to violate 18 U.S.C. § 1031, 18 U.S.C. §§ 286 and 371, 18 U.S.C. § 641, 18 U.S.C. § 1001, 18 U.S.C. § 1341, and 18 U.S.C. § 1343 [as] is shown by the Verification Affidavit in Support of the United States' Complaint for Forfeiture of Special Agent Miguel Coias, filed under seal, and incorporated as Plaintiff's Exhibit 1, in the Appendix filed in support of this Complaint.

Compl. ¶ 6.[3]

         After receiving notice of the action, claimants filed verified claims to the defendant property. They then moved, in three separate motions, to dismiss the complaint and for a more definite statement. They also moved to unseal court records. On December 14, 2017 the government filed the amended complaint and moved to dismiss the constitutional counterclaims of claimant RRCC. Claimants, again in three separate motions filed on December 29, 2017, moved to dismiss the amended complaint and for a more definite statement. They also filed a second motion to unseal court records. On January 18, 2018 the government filed a motion to stay, pursuant to 18 U.S.C. § 981(g)(1), on the ground that a stay is necessary to protect the ongoing criminal investigation from expansive civil discovery. The court now addresses these motions.[4]

         II

         The court turns first to the government's motion to stay.

         A

         The government seeks a stay of this civil forfeiture action against the defendant properties pursuant to 18 U.S.C. § 981(g)(1), which provides, in pertinent part: “[u]pon the motion of the United States, the court shall stay the civil forfeiture proceeding if the court determines that civil discovery will adversely affect the ability of the Government to conduct a related criminal investigation or the prosecution of a related criminal case.” 18 U.S.C. § 981(g)(1). In deciding whether to grant such a stay, “the court must determine, first, whether a related criminal investigation or prosecution exists and, second, whether civil discovery will ‘adversely affect' the ability of the government to conduct that criminal investigation or prosecution were the civil forfeiture case allowed to proceed.” United States v. All Funds ($357, 311.68) Contained in N. Tr. Bank of Fla. Account No. 7240001868, 2004 WL 1834589, at *2 (N.D. Tex. 2004) (Fish, C.J.) (“All Funds”).

         B

         The government contends that a stay is necessary to protect an ongoing criminal investigation from the expansive scope of civil discovery; that the criminal investigation and the civil forfeiture case arise from the same facts and circumstances, as set forth in a sealed affidavit filed with the amended complaint; that discovery in this civil forfeiture case could compromise the investigation by permitting depositions of individuals who may be called to testify at a criminal trial, including the defendants (who have a Fifth Amendment right to remain silent), law enforcement agents, and individuals involved in the scheme under investigation; and that civil discovery could compromise confidential law enforcement information, as well as provide improper opportunities for the defendants to ascertain prematurely the details of the ongoing criminal investigation by earlier and broader civil discovery than is permissible in criminal proceedings.[5]

         Claimants respond that the government has failed to meet its burden to show that discovery will adversely affect a related criminal investigation. They contend that the government has shown only a hypothetical possibility that discovery “could” have a harmful effect on a related criminal investigation, which is insufficient to establish that a criminal investigation “will” be adversely affected; that the government has failed to identify any discovery request or discovery abuse, or identify any particular types of information for which discovery should not be permitted (such as, for example, confidential informants or witnesses whose identities must be protected); that civil discovery will not harm the criminal investigation because this case can be resolved without discovery-the only reason claimants have not filed a motion for summary judgment “packed with evidence proving [their] innocence” is because the government refuses to disclose the allegations that claimants need to disprove, Claimants' Br. 6; and that the government's inability or unwillingness to submit evidence in support of its motion to stay is indicative of the fact that the motion lacks merit. Claimants also posit that, even if the government could meet its burden to show that civil discovery will adversely affect a related criminal investigation, a stay would nonetheless be inappropriate because a protective order, rather than a stay, would protect the government's interest without unfairly limiting claimants' ability to pursue the civil case.

         The government replies that, if it is required to disclose all of the people who have relevant knowledge about the case, this will have a negative impact on the government's related, ongoing criminal investigation, and that a protective order would be inadequate because “if the case were to continue, information would necessarily be disclosed to people who are both claimants [in] this case and subjects of the related criminal investigation, obviating a protective order's efficacy.” Gov't Reply 7.

         C

         Claimants do not challenge the existence of a related, ongoing criminal investigation. Instead, they contend that the government has failed to meet its burden to show how discovery will adversely affect that investigation. This court has previously explained that § 981(g)(1) requires “that the Government actually show that civil discovery will adversely affect its ability to conduct the criminal investigation.” All Funds, 2004 WL 1834589, at *2 (emphasis omitted). “There is no presumption that civil discovery, in itself, automatically creates an adverse affect on the government's related criminal proceeding. On the contrary, the Government must make an actual showing regarding the anticipated adverse affect.” Id. (citing cases); see also United States v. $3, 592.00 United States Currency, 2016 WL 5402703, at *2 (W.D.N.Y. Sept. 28, 2016) (“But to grant a stay on this record, without any specific showing and when no lesser alternatives (such as a protective order, or preliminarily limiting discovery to certain areas or types) have even been attempted, in this Court's view would be inconsistent with the standard articulated by the statute.”); cf. United States v. 1, 730, 010.00 in U.S. Currency More or Less, 2007 WL 1164104, at *3 (W.D. Tex. Apr. 16, 2007) (granting stay where government “specifically establishe[d], ” through a sealed affidavit, that “civil discovery will adversely affect the ability of the Government to conduct a related criminal investigation.”). The government has failed to do so in its present motion.

         The government contends that “[d]iscovery in this case could compromise the investigation by permitting depositions of individuals who may be called at a criminal trial, including the defendants (who have a Fifth Amendment right to remain silent), law enforcement agents, and individuals involved in the scheme under investigation, ” Gov't Br. 5, and that civil discovery “also could compromise confidential law enforcement information, as well as provide improper opportunities for the defendant to ascertain prematurely the details of the ongoing criminal investigation by earlier and broader civil discovery than is permissible in criminal proceedings, ” id. at 6. The government cites as an example claimants' Rule 26 initial disclosure requests, which the government contends will

forc[e] the government to disclose the identity of all witnesses with discoverable information and all documents gathered in the course of the investigation [which] would prejudice the criminal prosecution by subjecting the government's criminal investigation to broader discovery than would otherwise be available to the subject of an investigation at this stage.

Id. The government's arguments, however, “do nothing more than speculate about how civil discovery will adversely affect its criminal investigation.” All Funds, 2004 WL 1834589, at *2.

         As Chief Judge Fish explained in All Funds, under the government's theories, “every civil forfeiture case with a related criminal investigation is entitled to a stay. Such speculative and conclusory theories undercut the requirement of section 981(g) that the Government actually show that civil discovery will adversely affect its ability to conduct the criminal investigation.” Id. As in All Funds, the government has failed here to point to any specific discovery request or abuse that has taken place, and it makes no legitimate argument about the prospective ability of any of the claimants to engage in discovery that could compromise its related criminal investigation.[6] Id. (citations omitted). The government has not shown that civil discovery will compromise the identity of confidential informants or cooperating witnesses. Id. (citing cases). Nor has the government shown how the claimants might abuse the discovery process with overbroad discovery requests. Id. (citing cases).

         In sum, the government has not carried its burden of showing that discovery in this civil forfeiture action will adversely affect its criminal investigation of any claimant. See 18 U.S.C. ยง 981(g)(1). Accordingly, the ...


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