United States District Court, D. Minnesota
MEMORANDUM OPINION AND ORDER
RICHARD H. KYLE UNITED STATES DISTRICT JUDGE
matter is before the Court on the Third-Party Petition of
Michelle Harrold (Doc. No. 506), who asserts an interest in
certain real property-specifically, 712 Northeast 71st
Street, Boca Raton, Florida (the “Boca Raton
Property”)-that the Court previously ordered forfeited.
The Government now moves to dismiss her Petition and for a
Final Order of Forfeiture. For the reasons that follow, the
Court will grant the Government's Motions.
April 20, 2011, Defendant David Harrold was indicted on
securities-fraud charges in connection with investments his
companies made in the Thomas Petters Ponzi scheme. Defendant
pleaded guilty the following day and, as part of his plea,
acknowledged that he earned more than $58 million from 2003
through 2008 as a result of the investments. (See
Plea Agreement ¶ 2.) On November 19, 2013, the Court
entered an Order forfeiting to the Government “all
property, real or personal, which constitutes or is derived
from proceeds traceable to the violations charged” in
the Indictment and ordering Defendant to pay a $58 million
personal money judgment. (Doc. No. 320.)
January 16, 2015, the Government filed a Motion for a
Preliminary Order of Forfeiture seeking to forfeit the Boca
Raton Property (Doc. No. 401) and, on August 31, 2016, it
filed a Motion for a Preliminary Order of Forfeiture seeking
to forfeit $523, 323.61 held in SunTrust bank account number
1000169512000 (the “SunTrust Account”) (Doc. No.
480). In support, it submitted the Declaration of FBI Special
Agent Jared Kary, who traced the fees Defendant earned from
his fraud to the purchase of a home in Delray Beach, Florida
(the “Delray Beach Property”). After pleading
guilty, Defendant transferred his interest in the Delray
Beach Property to his wife, Petitioner Michelle Harrold, who
subsequently sold it. She used a portion of the sale proceeds
to purchase the Boca Raton Property and deposited the
remainder in the SunTrust Account. (Doc. No. 402,
¶¶ 18-21; Doc. No. 481, ¶ 17.)
determined there existed a nexus between Defendant's
crimes and the property the Government sought to forfeit, on
January 20, 2015, and September 1, 2016, the Court entered
Preliminary Orders of Forfeiture as to the Boca Raton
Property and the SunTrust Account, respectively. (Doc. Nos.
403, 482.) Then, on February 27, 2017, Harrold filed the
instant Third-Party Petition, asserting an interest in the
Boca Raton Property and arguing it is not subject to
forfeiture. (Doc. No. 506.) In response, the
Government moved to dismiss the Petition and for a Final
Order of Forfeiture. (Doc. No. 508.) The Motions are ripe for
law “articulates procedures by which third parties may
assert their interest[s] in forfeited property.”
United States v. Timley, 507 F.3d 1125, 1129 (8th
Cir. 2007); accord, e.g., United States v.
Puig, 419 F.3d 700, 703 (8th Cir. 2005). Specifically,
21 U.S.C. § 853(n)(2) provides, in pertinent part, that
“any person, other than the defendant, asserting a
legal interest in property which has been ordered forfeited
to the United States may . . . petition the court . . . to
adjudicate the validity of [her] alleged interest in the
property.” Such an “ancillary proceeding”
is governed by Federal Rule of Criminal Procedure 32.2(c),
see Timley, 507 F.3d at 1129, and “closely
resembles a civil action, ” Pacheco v.
Serendensky, 393 F.3d 348, 352 (2d Cir. 2004);
accord Fed. R. Crim. P. 32.2 advisory
committee's note to subdivision (c).
As in a
civil action, the Government may move to dismiss a
third-party petition “for lack of standing, for failure
to state a claim, or for any other lawful reason.” Fed.
R. Crim. P. 32.2(c)(1)(A). Such a motion is analyzed similar
to a motion under Federal Rule of Civil Procedure 12(b). In
particular, the Court must accept the allegations in the
petition as true, see Fed. R. Crim. P.
32.2(c)(1)(A); United States v. White, 675 F.3d
1073, 1077 (8th Cir. 2012), and dismiss the petition if the
Government shows that the claimant is not entitled to relief
as a matter of law, that is, if the petition fails to
“contain sufficient factual matter . . . to state a
claim to relief that is plausible on its face, ”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). See
also United States v. Salti, 579 F.3d 656, 667 (6th Cir.
2009); United States v. Marion, 562 F.3d 1330, 1342
(11th Cir. 2009) (per curiam); Pacheco, 393
F.3d at 352.
ancillary proceeding, Harrold may prevail in one of two ways:
she may demonstrate that (i) she held an interest in the Boca
Raton Property “superior to any . . .interest of the
[D]efendant at the time of the” fraud giving rise to
forfeiture (i.e., priority of ownership), or (ii)
she was a “bona fide purchaser for value . . . and was
at the time of purchase reasonably without cause to believe
that the property was subject to forfeiture.” 21 U.S.C.
§ 853(n)(6)(A), (B). The Government contends she has
shown neither. The Court agrees.
Section 853(n)(6)(A)-the priority-of-ownership
ground-embodies the relation-back doctrine. Under the
relation-back doctrine, title to the forfeited property vests
in the United States at the time of the [D]efendant's
criminal act. Nevertheless, [Harrold may] prevail in the
ancillary proceeding on the ground that [she] had an interest
in the property before the [G]overnment's interest
Timley, 507 F.3d at 1131 (citing United States
v. Nava, 404 F.3d 1119, 1129 (9th Cir. 2005)).
Harrold asserts that she held a prior vested interest in the
Boca Raton Property. However, tracing the proceeds of
Defendant's fraud shows this is simply not the case. The
Court has already determined that Defendant used fraud
proceeds to buy the Delray Beach Property and, hence, the
Government's title to that property vested immediately.
Id. (quoting United States v. Hooper, 229
F.3d 818, 821-22 (9th Cir. 2000) (“[T]he proceeds of an
offense do not exist before the offense is committed, and
when they come in to existence, the [G]overnment's
interest under the relation-back doctrine immediately
vests.”)). Defendant then transferred the property to
Harrold, who sold it and used a portion of the proceeds to
purchase the Boca Raton Property. When Harrold purchased the
Boca Raton Property with the proceeds of Defendant's
fraud, the Government's title to it vested immediately.
She acquired no prior vested interest. E.g.,