UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF NEW YORK
409 B.R. 6; 2009 Bankr. LEXIS 2233
July 23, 2009, Decided
PRIOR HISTORY: Kirschenbaum v. Nassau County Dist. Atty. (In re Vitta), 402 B.R.553, 2009 Bankr. LEXIS 601 (Bankr. E.D.N.Y., 2009)
COUNSEL: For Kenneth Kirschenbaum, Plaintiff (8-08-08192-reg): Steven BSheinwald, LEAD ATTORNEY, Kirschenbaum & Kirschenbaum, Garden City, NY.
For Nassau County District Attorney, County Of Nassau, Defendants(8-08-08192-reg): Marc Wieman, Rosanne M Harvey, Nassau County Attorney'sOffice, Mineola, NY.
For Anthony J Vitta, Debtor (8-08-73781-reg): Scott R Schneider, Hicksville, NY.
Trustee (8-08-73781-reg): Kenneth Kirschenbaum, Kirschenbaum & Kirschenbaum,P.C., Garden City, NY.
U.S. Trustee (8-08-73781-reg): Diana G. Adams, Office of the United StatesTrustee, Central Islip, NY.
JUDGES: Robert E. Grossman, United States Bankruptcy Judge.
OPINION BY: Robert E. Grossman
Before the Court is a motion by the Nassau County District Attorney ("DA")and the County of Nassau (the "County") (collectively, the "Defendants") seekingreconsideration of the Court's Memorandum Decision ("Decision") and Order datedMarch 2, 2009 denying the Defendants' motion for summary judgment in thisadversary proceeding. The Defendants move for relief pursuant to Fed. R. Civ. P.60(b)(1) ("Rule 60(b)(1)") due to alleged mistakes of fact and law contained inthe Decision ("Motion"). For the reasons set forth below, the Motion is denied,except to correct that the forfeiture action commenced by the D.A. againstAnthony J. Vitta (the "Debtor"), who committed suicide after filing a petitionfor relief under Chapter 7 of the Bankruptcy Code, was an action relating topost-conviction forfeiture crimes under section 1311(a) of the New York CivilPractice Law and Rules ("CPLR"), and not an action relating to pre-convictionforfeiture crimes under section 1311(b) of the CPLR. This correction iscritical because it fundamentally alters how the Court reached its conclusionthat the property at issue in this adversary proceeding is property of theDebtor's estate. Because the Defendants commenced a post-conviction civilforfeiture proceeding and not a pre-conviction forfeiture proceeding, the timelyentry and existence of a conviction is a condition precedent to the success ofthe forfeiture proceeding. As a result of the Debtor's death, the entirecriminal proceeding, including the plea agreement entered into by the Debtor,was abated and vacated after the Decision was rendered but before the hearing onthe Motion. Since as a matter of law there is no conviction of the Debtor, thepost-conviction forfeiture action as set forth in the relevant statute must bedismissed and is of no force an effect as to the Property. Therefore, theProperty remains property of the Debtor's estate, and is not currently subjectto any claim by the Defendants. To the extent the Defendants seek a correctionthat the Debtor's plea was the equivalent of a conviction, and to correct thatthe Debtor's property consisting of jewelry, watches and cash (the "Property")was seized by the Nassau County Police Department pre-petition pursuant tosearch warrants, and not pursuant to the pre-petition order of attachmentobtained by the Defendants, the Court finds that these corrections will notresult in a change in the Court's analysis or the outcome of the Decision.Furthermore, the Court did not make a mistake of fact by failing to considerwhether the Debtor ever had legal title to the Property, which was not raised bythe Defendants at the time the underlying motion was heard. The portion of theDecision which discusses whether the exception to the automatic stay underBankruptcy Code Ã‚Â§ 362(b)(4) applies to any act by the Defendants to takepossession or title to the Property is vacated as the Defendants no longer havethe right to exercise control over the Property. To the extent that theDefendants seek to commence a forfeiture action against the Property pursuant tothe same forfeiture statute in state court, which was alluded to in their papersand at the hearing on the Motion, such action will not be stayed by virtue ofBankruptcy Code Ã‚Â§ 362(b)(4), and the Trustee shall have the right to assert anydefenses it has under the Bankruptcy Code including those granted underBankruptcy Code Ã‚Â§ 544(a).
Background and Facts
Familiarity with the Decision is assumed. The Decision and Order, both ofwhich were entered on March 3, 2009, memorialized the Court's decision inconnection with the Defendants' motion to dismiss the adversary proceedingcommenced by the Kenneth Kirschenbaum, Esq., the Chapter 7 trustee (the"Trustee"). In the adversary proceeding, the Trustee sought a determination asto whether the Property, which was seized by the Nassau County Police Departmentfrom the Debtor prepetition, and against which the DA had obtained an order ofattachment prepetition, was property of the Debtor's estate as of July 15, 2008,the date the petition was filed ("Petition Date"). The Court, with the consentof the Trustee and the Defendant, had converted the Defendants' motion todismiss the adversary proceeding into a motion for summary judgment. TheDefendants raised the following arguments in support of their motion:
1) Under the theory of relation-back, the Property no longer constitutedproperty of the Debtor's estate as of the date of the Debtor's illegal acts,which allegedly occurred on May 18, 2007.
2) The post-petition "so-ordering" of the Stipulation and Order of Settlementand Discontinuance of Action dated September 2, 2008 (the "Stipulation") was aministerial act, despite the fact that as of the Petition Date, the Stipulationhad not been signed by the Debtor or the Defendants, "so-ordered" by the statecourt, or entered on the docket as of the Petition Date. The Debtor's entry of aguilty plea prior to the Petition Date resulted in forfeiture of the Property.
3) Pursuant to 11 U.S.C. Ã‚Â§ 362(b)(4), the automatic stay did not apply to anyaspect of the forfeiture action which took place post-petition.
In support of the underlying motion, the Defendants filed with the Court acopy of the summons and complaint in the civil forfeiture action under Article13-A of the CPLR, which action was commenced on December 7, 2007, a copy of thetranscript from the Debtor's plea hearing before Justice Tammy Robbins, in whichshe refers to the charges against the Debtor set forth in an information filedwith the criminal court, and a copy of the Stipulation. In the Decision, thisCourt found that relation-back did not apply to civil forfeiture proceedingscommenced under Article 13-A of the CPLR pursuant to the statutory language andthe relevant case law interpreting this statute, that the execution and"so-ordering" of the Stipulation was not exempt from the automatic stay as aministerial act, and that the continuation of the forfeiture actionpost-petition up to judgment against the Debtor was excepted from the automaticstay under Bankruptcy Code Ã‚Â§ 362(b)(4), but any action by the DA to takepossession of the Property would be stayed.
On March 13, 2009, the Defendants filed the Motion. On April 15, 2009, theTrustee filed opposition to the Motion, and alerted the Court that the Debtor'scriminal conviction had been vacated on April 6, 2009. According to the Trustee,the Debtor's criminal case continued to appear on the criminal court calendarfor sentencing after the Debtor had committed suicide, and the DA requestedadjournments of the sentencing seven times from October 14, 2008 to April 6,2009. At the adjourned hearing on April 6, 2009, the District Attorney washanded a copy of the Debtor's death certificate by an individual from theTrustee's office. Upon receipt of the Defendants' death certificate, the StateCourt dismissed the criminal proceeding of record and the criminal court docketreflects that the criminal charges against the Debtor were abated on April 7,2009. See Exhibit to Affirmation of the Trustee in opposition to the Motion.Thus, it appears that the criminal action pending against the Debtor onlycontinued after his death because the DA failed to provide the criminal courtwith a copy of the Debtor's death certificate, and asked for adjournments ateach hearing after the Debtor's death. On April 29, 2009, the Defendants filed areply to the Trustee's opposition, and a hearing was held on May 6, 2009.Thereafter, the matter was marked submitted. 1
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -1 By letterdated June 8, 2009, the Defendants requested that the Court accept a letterbriefing two recent decisions issued by a bankruptcy court outside of the SecondCircuit regarding applicability of Bankruptcy Code section 362(b)(4) and otherissues not previously raised in their moving papers. The Court advised theDefendants that no further briefing was required, but the Court has reviewed thecases in question, In re Winpar Hospitality Chattanoga, LLC, 401 B.R. 289(Bankr. E.D. Tenn. 2009) and In re Winpar Hospitality Chattanooga, LLC, 404 B.R.291 (Bankr. E.D. Tenn. 2009).- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
According to the Defendants, the Decision contained the following factualerrors warranting relief from the Court's decision: 1) the Court incorrectlyconcluded that the forfeiture action was a pre-conviction forfeiture action andnot a post-conviction forfeiture action, 2) the Decision incorrectly states thatthe Debtor was not convicted prior to the Petition Date, 3) the Decisionincorrectly states that the criminal proceedings were adjourned after the Debtorentered his plea prepetition, 4) the Decision incorrectly states that theProperty did not constitute proceeds or substitute proceeds of the criminalenterprise relating to the criminal charges against the Debtor, and 5) the Courtfailed to address the Defendants' alternate legal argument that the Debtor neveracquired a legally cognizable interest in the Property because it derived fromthe Debtor's criminal activities. According to the Defendants, these findingswere incorrect and as a result, they significantly affected the Court's analysisof the Defendants' arguments, and the Court is required to correct these errorsunder Rule 60(b)(1). Lastly, the Defendants assert that the Court committed anerror of mixed fact and law when the Court found that the post-petition actionsby the DA, including any attempt to take control of the Property, did notconstitute an exception to the automatic stay under Bankruptcy Code Ã‚Â§ 362(b)(4).
The applicable statue governing the Motion is Rule 60(b)(1), made applicableto this matter pursuant to Fed. R. Bankr. P. 9024. Rule 60(b)(1) states asfollows:
(b) Grounds for Relief From a Final Judgment, Order or Proceeding.
On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect.
Fed. R. Civ. P. 60(b)(1).
As stated by the Court of Appeals for the Second Circuit:
Rule 60(b) sets forth the grounds on which a court, in its discretion, can rescind or amend a final judgment or order.... Properly applied, Rule 60(b) strikes a balance between serving the ends of justice and preserving the finality of judgments.... In other words it should be broadly construed to do 'substantial justice,' ..., yet final judgments should not 'be lightly reopened.'
Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir.1986) (citations omitted).
Rule 60(b) cannot be used as a remedy for which an appeal would be a moreappropriate. Ivor B. Clark Co. v. Hogan, 296 F. Supp. 407, 410 (S.D.N.Y. 1969)(citing Hines v. Seaboard Airline R. Co., 341 F.2d 229, 231 (2d Cir. 1965); andWagner v. United States, 316 F.2d 871, 872 (2d Cir. 1963)). Furthermore, a Rule60(b) motion is "properly granted only upon a showing of exceptionalcircumstances." Marrero Pichardo v. Ashcroft, 374 F.3d 46, 55 (2d Cir. 2004) (quoting United States v. International Broth. of Teamsters, 247 F.3d 370, 391(2d Cir. 2001)). Under Second Circuit authority, a Rule 60(b) motion may be madeto correct a court's own mistake of law or fact so long as such motion is madebefore the time for appeal expires. In re 310 Assocs., 346 F.3d 31, 34 (2d Cir.2003), citing Schildhaus v. Moe, 335 F.2d 529, 531 (2d Cir. 1964) (othercitations omitted); and International Controls Corp. v. Vesco, 556 F.2d 665, 670(2d Cir. 1977), cert denied, 434 U.S. 1014, 98 S. Ct. 730, 54 L. Ed. 2d 758(1978). Relief under Rule 60(b) (1) is also appropriate where a court hasoverlooked an argument or facts which were put before the court in theunderlying motion. Rumsey v. New York State Dep't of Corr. Servs., 580 F. Supp.1052, 1055-56 (N.D.N.Y. 1984). The mistake at issue must be material whichchanged the outcome of the court's judgment. Matura v. U.S., 189 F.R.D. 86, 90(1999) (citing Fetik v. New York Law School, 97 Civ. 7746, 1999 U.S. Dist. LEXIS9755, 1999 WL 459805, at *4 (S.D.N.Y. June 29, 1999)).
The Court will consider each of the issues raised by the Defendants in theorder of their significance to the Decision.
1) Whether the Court's conclusion that the DA commenced a pre-convictioncivil forfeiture action and not a post-conviction forfeiture action constitutesa factual error subject to correction under Rule 60(b)(1)
The Decision includes a discussion of pre-conviction civil forfeitures andpost-conviction civil forfeitures, and a conclusion by the Court that the DA hadcommenced a pre-conviction civil forfeiture action against the Debtor. Therecord was barren as to any mention of either type of forfeiture action. Duringoral argument, the only reference made by counsel to the Defendants was to apre-conviction civil forfeiture. At the hearing on the Motion on January 12,2009, the following reference to a pre-conviction forfeiture action was made bycounsel to the Defendants in response to a question by the Court regarding theeffect the Debtor's death would have on the forfeiture action:
Your Honor, if I may, we had the similar case, Dillon v. Vorbeck, severalyears ago where the defendant committed suicide before he was even convicted.However, the state forfeiture law permits us to bring a forfeiture action in adrug case, which this particular - this present case is even without aconviction, even without an arrest, which is known as a preconviction forfeiturein New York State forfeiture parlance. We continued the forfeiture and weobtained an $ 800,000 dollar settlement of the forfeiture. Death of thedefendant, while it abates the criminal action and the appeal, for example,would be voided. The criminal case is not necessary; the commission is notnecessary for the continuation. In the present case, we went even further. Wehad a conviction. He had pled. Now, there was not a judgment of conviction sincethere was no sentence but all that forfeiture law would require, even if it wasnot a drug case, would be have been a conviction and that was had - - Transcriptof January 12, 2009 hearing at p. 9.
Based on these representations, the Court concluded that the Defendants hadcommenced a pre-conviction civil forfeiture action, which does not require aconviction prior to forfeiture. The Defendants now clarify that they actuallycommenced a post-conviction forfeiture action under Article 13-A of the CPLR. Asthis Court noted in the Decision, a fundamental difference between these twoforfeiture actions is the quantum of proof necessary to obtain an order offorfeiture. In the ease of a pre-conviction civil forfeiture action, there is nostatutory requirement of a conviction. In a post-conviction civil forfeitureaction, there can be no order of forfeiture without a conviction.
The Court's conclusion was in error, and it is necessary to correct therecord given the subsequent abatement of the criminal action in this case.Although the Defendants did not raise this in their Rule 60(b) pleadings at theoutset, the Trustee raised the issue of the abatement of the criminalproceedings in their opposition to the Motion. The Defendants responded to thisissue in their reply papers by stating that the abatement of the criminalproceedings has no effect whatsoever on the civil forfeiture action, includingthe validity of the Stipulation. The effect of the Debtor's death on the civilforfeiture action was also raised by the Court at the hearing on the underlyingmotion for summary judgment. The Court had questioned whether the death of theDebtor would void the criminal proceedings altogether and whether the forfeitureaction would abate as well. Counsel to the Defendants replied that the criminalcase would ultimately be abated upon receipt of the Debtor's death certificate.Counsel failed to answer the direct question asked by the Court regarding theeffect of the Debtor's death on the forfeiture action. Whether counsel's failureto answer this question was purposeful is not clear, but it raises questions tothe Court regarding counsel's intent, especially in light of the DA's continuedadjournment of the criminal action months after the Debtor died. To the extentthe issue does not fall within the parameters of Rule 60(b)(1), the Court findsthat it is appropriate to consider the effect of the abatement of the criminalproceeding under Rule 60(b)(5), which permits the Court to reconsider itsjudgment if it is based on a prior judgment which has been vacated.
The Court must now apply the applicable law to the facts as corrected, whichchanges the Court's analysis in the Decision. A post-conviction forfeitureaction may be commenced against a "criminal defendant" who is defined as aperson that has been convicted of any felony found in the Penal Law or any otherchapter of the consolidated laws of the State. CPLR Ã‚Â§ 1310. In order for theclaiming authority to obtain forfeiture in a post-conviction forfeiture action,the criminal defendant must be convicted. CPLR Ã‚Â§ 1311(a); Holtzman v. Samuel,130 Misc.2d 976, 979, 495 N.Y.S.2d 583 (N.Y. Sup. 1985). As a result, apost-conviction civil forfeiture action is dependent upon and related to thecriminal proceedings brought against the criminal defendant. In re Wolfson, 261B.R. 369, 377 (Bankr. E.D.N.Y. 2001). If there is no criminal conviction, therecan be no in personam judgment or forfeiture of personal assets under thisstatute. Morgenthau v. Citisource, Inc., 68 N.Y.2d 211, 213-14, 500 N.E.2d 850,508 N.Y.S.2d 152 (1986). In addition, a post-conviction forfeiture action "mustbe dismissed at any time after sixty days of the commencement of the [civilforfeiture] action unless the conviction upon which the action is grounded hasoccurred, or an indictment or information upon which the asserted conviction isto be based is pending in a superior court." CPLR Ã‚Â§ 1311(a). In this case,the Defendants assert that the criminal conviction was encompassed in theDebtor's guilty plea before Justice Tammy Robbins. People v. Hardin, 67 A.D.2d12, 16, 414 N.Y.S.2d 320, 322 (1st Dep't 1979). The plea, along with the entirecriminal case against the Debtor, including the information, have been abated.See U.S. v. Wright, 160 F.3d 905, 908 (2d Cir. 1998) (when a convicted defendantdies during direct appeal, his death abates the appeal and the criminalproceedings from their inception). "Abatement" has been defined under common lawto mean:
the entire overthrow or destruction of the action, which results when the defendant pleads a matter that defeats the action, either for the time being or permanently. An action which has been abated is dead, and any further enforcement of the cause of action, requires the bringing of a new, action, provided that a cause of action remains.
2A Carmody-Wait 2d, N.Y. Prac. Ã‚Â§ 11.1. The practical effect of the abatementof the criminal action is to render the Stipulation, which is based on the pleaentered in the criminal action, a nullity. First, there is no information orindictment pending against the Debtor and there is no conviction, so theforfeiture action must be dismissed pursuant to CPLR 1311(a). Second, theStipulation provides that it shall remain in full force and effect "regardlessof the ultimate disposition of any potential criminal charges" giving rise tothe forfeiture action, but does not state that it shall remain in full force andeffect if the criminal action is abated. (Ex. 3 to Rebecca Winer Affidavit).Since abatement of the criminal action forecloses any disposition of thecriminal charges, this provision cannot serve to preserve the forfeiture grantedunder the Stipulation. The language of the forfeiture statute also requires afinding that the forfeiture action be treated as a nullity, because it requiresdismissal of a post-conviction forfeiture action if there is no convictionwithin sixty days of commencement of the action, or if there is no informationor indictment in the pending criminal action. Because of the abatement of thecriminal action, neither the indictment nor the information remain of record andas a result, there can be no post-conviction forfeiture action. In sum, it isaxiomatic that a post-conviction forfeiture action requires a conviction, whichconviction can never occur as a result of the Debtor's untimely death. Based onthese findings, the Property remains part of the Debtor's estate. The Defendantshave no right to retain the Property because they do not have title to theProperty, and they no longer have a valid order of attachment against theProperty.
While the Defendants assert that the fact that they commenced apost-conviction forfeiture action is significant, they argue that the abatementof the Debtor's conviction has no impact on the forfeiture action because it isa civil, remedial proceeding and survives the death of the Debtor. Aside fromignoring the statutory requirements that a conviction is a necessary componentof a post-conviction forfeiture action and the post-conviction civil forfeitureaction must be dismissed under the facts of this case, the Defendants' argumentis not supported by applicable case law. To bolster their argument that thecivil forfeiture action survives the death of the Debtor, the Defendants cite tovarious sections of the New York Estates, Powers and Trusts Law which permits arepresentative of a decedent's estate to be substituted in a civil action. Thefact that a representative of the Debtor's estate could be substituted for theDebtor in a civil action has no bearing on whether the Stipulation retainsvalidity after abatement of the criminal proceeding. The Defendants also cite toPeople v. Mintz, 20 N.Y.2d 753, 229 N.E.2d 712, 283 N.Y.S.2d 120 (1967), andU.S. v. Land, Winston County, 221 F.3d 1194 (11th Cir. 2000). However, the Mintzcase merely stands for the proposition that upon the death of a criminaldefendant during an appeal, the entire criminal prosecution is abated. As aresult, the holding of the Mintz case does nothing to support the Defendants'position. U.S. v. Land, Winston County is distinguishable because it concernswhether the death of a property owner during a civil forfeiture action abates anin rem forfeiture action. The Eleventh Circuit was not called on to determinewhether abatement of a criminal conviction had any effect on an in personamcivil forfeiture action similar to the forfeiture action commenced by the DAagainst the Debtor.
The Court of Appeals for the Second Circuit has not ruled on whether theabatement of a criminal action should apply to a related order of forfeiture orrestitution. U.S. v. Wright, 160 F.3d at 908. However, the Second Circuit hasnoted that the relevant issue for determining whether abatement applies to anorder of forfeiture or restitution is whether the order of forfeiture orrestitution is punitive and intended to punish the criminal defendant or whetherthe purpose of the action is to compensate the victims of a crime. Id. Althoughby its own terms, an Article 13-A forfeiture action is "civil, remedial and inpersonam in nature and shall not be deemed to be a penalty or criminalforfeiture for any purpose," it is remedial only in the sense that one of thepurposes of this forfeiture statute is to deter others from committing suchcrimes. In re Wolfson, 261 B.R. at 377. There are no victims to be compensatedin this forfeiture action, and to view the forfeiture action as either purelycompensatory or purely penal is incorrect. It is a civil action dependent upon acriminal conviction. In re Wolfson, 261 B.R. at 377. Its twin purposes are todeter others from committing crimes and to take the profit out of crime.Morgenthau v. Citisource, Inc., 508 N.Y.S.2d at 154-55. It is apparent that,regardless of the stated purpose of this forfeiture statute, the resultingforfeiture does exact a penalty on the defendant and does not compensate anyspecific victim.
This understanding of the true nature of the forfeiture action comports withthe Supreme Court's analysis of civil forfeitures under 21 U.S.C. Ã‚Â§ 881(a)(4)and (7) pertaining to drug offenses. In Austin v. United States, 509 U.S. 602,113 S. Ct. 2801, 125 L.Ed.2d 488 (1993), the Supreme Court held that whileforfeiture statutes may have remedial goals, they historically served to punishas well. According to the Supreme Court, this is particularly true where theforfeiture statute seeks to punish the party guilty of the wrongdoing, and notan innocent owner of the property to be forfeited. Austin v. U.S., 509 U.S. at619, 113 S. Ct. at 2810, 2811. While post-conviction forfeitures under Article13-A of the CPLR are not identical to the forfeiture statute analyzed by theSupreme Court, both statutes require that the criminal defendant be culpable ofa criminal offense prior to forfeiture. The Court finds the Supreme Court'sreasoning in Austin v. U.S. is equally applicable and supports this Court'sconclusion that forfeiture under Article 13-A of the CPLR has an unmistakablepunitive element.
Even if the Court were to adopt the Defendants' argument that the Stipulationremains valid regardless of the abatement of the criminal proceedings againstthe Debtor, the Defendants cannot point to any authority which permits a Chapter7 debtor to enter into a post-petition agreement to transfer property of theestate to a third party without the consent of the trustee. This is because adebtor has no power to transfer property of the estate once a petition is filed.In re Atravasada Land and Cattle Inc., 388 B.R. 255, 269 (Bankr. S.D. Tex. 2008). If the Stipulation is stripped of any reference to the abated criminal actionand is viewed merely as an agreement by the Debtor to transfer the Property tothe Defendants, it would be unenforceable. Any such transfer of property of theestate would also be subject to recovery by the Trustee under Bankruptcy Code Ã‚Â§549(a). Standing alone, the Stipulation cannot be honored because once thepetition was filed, only the Trustee had the authority to use, sell or leaseproperty of the estate pursuant to Bankruptcy Code Ã‚Â§ 363. Furthermore,Bankruptcy Code Ã‚Â§ 363 requires prior notice and a hearing before any use or saleof property of the estate outside the ordinary course of business can beapproved. An agreement by a debtor to transfer property of the estate withoutprior notice and a hearing is void and of no force and effect. In re Koneta, 357B.R. 540, 543 (Bankr. D Ariz. 2006).
2. Whether the Court's conclusion that the Property did not represents theproceeds of the crimes committed by the Debtor constitutes a factual errorsubject to correction under Rule 60(b)(1)
The Property consists of U.S. currency in the amount of $ 37,694.90, andassorted watches and jewelry of an undetermined value. Except for a small amountof the cash, the Nassau County Police Property Bureau has continuously held theProperty. According to the Defendants, the affidavits and exhibits submitted bythe Defendants in support of their summary judgment motion do not establish "oreven suggest" that the Property does not represent the proceeds of crimes. TheDefendants further argue that this mistake of fact affected the Court's analysisof its legal arguments in the underlying motion. In support of their motion forsummary judgment, the Defendants submitted a copy of the summons and complaintin this adversary proceeding, the summons and verified complaint in the civilforfeiture action, a copy of the transcript of the plea hearing before JusticeTammy Robbins, and a copy of the Stipulation. The Defendants also submitted aone-page affidavit by Marc E. Weiman, Esq., Deputy County Attorney for theCounty of Nassau, in which he states that his office did not participate in theSection 341 meeting held August 21, 2008 because his office did not receivenotice of the Debtor's bankruptcy, and that the Debtor committed suicide onOctober 2, 2008. In addition, the Defendants submitted an Affidavit of RebeccaWiner, an Assistant District Attorney for Nassau County. The Stipulationcontains a reference to the Property as proceeds, substitute proceeds and/orinstrumentalities of the Debtor's criminal conduct, as does the Affidavit ofRebecca Winer. These references track the language of Article 13-A of the CPLR,and do nothing more than support a finding that the Defendants were relying onthis forfeiture statute as the basis for seeking forfeiture of the Property. Thestatute itself uses the same language, stating that a civil action may becommenced against a criminal defendant "to recover the property whichconstitutes the proceeds of a crime, the substituted proceeds of a crime, aninstrumentality of a crime or the real property instrumentality of a crime or torecover a money judgment in an amount equivalent in value to the property whichconstitutes the proceeds of a crime, the substituted proceeds of a crime, aninstrumentality of crime, or the real property instrumentality of a crime." CPLRÃ‚Â§ 1311. 2 Case law is clear that this particular forfeiture statute does notrequire that the assets subject to the provisional order of attachment betraceable to the alleged crimes. They can include any assets of the criminaldefendant which could be used to satisfy a potential judgment in the forfeitureaction. Morgenthau v. Citisource, Inc., 68 N.Y.2d at 220. The Defendantsrecognized this in the civil forfeiture complaint, pursuant to which theDefendants sought either forfeiture of the proceeds or substitute proceeds ofthe criminal acts or a monetary judgment equivalent to the value of such items.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -2 "Proceedsof a crime" means "any property obtained through the commission of a felony ...and includes any appreciation in value of such property." CPLR Ã‚Â§ 1310."Substituted proceeds" "means any property obtained by the sale or exchange ofproceeds of a crime, and any gain realized by such sale or exchange." CPLR Ã‚Â§1310.- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
The Defendants also filed additional exhibits in support of their Motion,which were not part of the record during the underlying proceedings, including adeclaration by Rebecca Winer explaining that the Property was initially seizedfrom the Debtor's residence and business address pursuant to search warrantsissued pursuant to two orders signed by Justice Frank A. Gulotta on November 9,2007, after a lengthy investigation of the Debtor's drug sale activities. TheDefendants also submitted a copy of the Debtor's confession, and an affidavit byThomas Kelly, a member of the Nassau County Police Department, which wassubmitted in support of the motion for the order of attachment issued inconnection with the civil forfeiture proceedings. These additional exhibits arepart of the criminal action, which has been abated. There is no allegation thatthey are newly discovered evidence, and there is no allegation that they werenot in the Defendants' possession at the time of the hearing on the motion forsummary judgment. In fact, at the close of the hearing during the underlyingproceedings, the Court gave the Defendants an opportunity to supplement theirmotion with any additional documents they wished to submit, and the Defendantsdeclined to do so. The Defendants' decision to refrain from submitting theseother documents which they now rely on does not warrant granting of relief undersubsection (1) of Rule 60(b). Where the mistake complained of is substantiallydue to the party's own neglect or choice of conduct, the party is not entitledto relief from the judgment. See Paddington Partners v. Bouchard, 34 F.3d 1132,1147 (2d Cir. 1994) (failure to marshal all known facts in connection with amotion for summary judgment does not constitute grounds for relief under Rule60(b)); Moolenaar v. Government of Virgin Islands, 822 F.2d 1342, 1347 (3dCir.1987) (district court abused its discretion by granting plaintiff's reliefunder Rule 60(b) where plaintiff was partly responsible for not presenting thenew evidence prior to the original judgment); Kahle v. Amtorg Trading Corp., 13F.R.D. 107, 108-09 (D.N.J.1952) (court denied plaintiffs' Rule 60(b) motion whenthey sought to introduce documents that they recently discovered in theirfiles).
Even if the Court were to permit these additional documents into the recordin support of the Defendants' argument, a finding that the Property didconstitute proceeds of the Debtor's criminal enterprise would not change theCourt's analysis of whether the Property was property of the Debtor's estate asof the Petition Date. First, the Debtor's conviction and the entire criminalproceeding have been abated, which calls into question whether the Property canever be the proceeds or substitute proceeds of a crime which no longer exists.Second, the argument actually advanced by the Defendants was that under thetheory of relation-back, title to the Property vested with the Defendants as ofthe date that the criminal acts were committed, not after the Stipulation wasso-ordered. However, the statute under which the DA sought forfeiture has noapplicable relation-back provision. Kuriansky v. Bed-Stuy Health Care Corp..,135 A.D.2d 160, 175, 525 N.Y.S.2d 225 (N.Y. App. Div. 1988). Therefore, definingthe nature of the Property is not the critical issue under this particularstatute. Article 13-A of the CPLR permits attachment of property whether or notit constitutes proceeds of a criminal enterprise.
The cases cited by the Defendants in support of their argument did notconcern general theories regarding the nature of property and whether certainproperty could ever be property of a debtor's estate. Rather, the cases involvedforfeiture statutes with relation-back provisions. In In re Chapman, 264 B.R.565 (B.A.P. 9th Cir. 2001), the federal government had commenced a forfeitureaction pursuant to 21 U.S.C. Ã‚Â§ 881, which specifically provides in subsection(h) that "[a]ll right, title, and interest in property [forfeited] shall vest inthe United States upon commission of the act giving rise to forfeiture underthis section." In U.S. v. Kramer, 2006 U.S. Dist. LEXIS 89034, 2006 WL 3545026(E.D.N.Y. December 8, 2006), the forfeiture action in question involved afederal criminal forfeiture statute which also specifically included arelation-back provision. There is no similar provision in Article 13-A of theCPLR. It is clear that title does not vest in the claiming authority until aftera valid order of forfeiture has been entered, and there is no relation-backprovision in this statute.
According to the Defendants, they raised two arguments which the Courtoverlooked in the underlying motion for summary judgment which concern thenature of the Property; 1) the Property never became property of the Debtorunder Bankruptcy Code Ã‚Â§ 541 because a debtor cannot have a legally cognizableinterest in property that constitutes criminal proceeds, and 2) to the extentthe Debtor had any legally cognizable interest in the Property as of thePetition Date, he did not have an equitable right to possess, use or direct theuse of the Property because the Property had been seized prepetition. As aresult of the limitations imposed by the order of attachment, the Property didnot constitute property of the Debtor's estate under Bankruptcy Code Ã‚Â§ 541. TheDefendants are correct that pursuant to a Rule 60(b)(1) motion, the Court canconsider whether it overlooked an argument previously raised by a party.However, there is no evidence from the record before the Court that thesearguments were briefed, argued, or even raised. The Defendants' sole argument insupport of their assertion that the Property was not part of the Debtor'sbankruptcy estate was based on the theory of relation-back. The Defendants neverraised or cited to any case law regarding whether the Property was excluded fromthe Debtor's estate based on any other legal theory. The Defendants cannotutilize Rule 60(b)(1) to advance new legal arguments they wish they had made attime the original motion was filed. Paddington Partners v. Bouchard, 34 F.3d at1147 (citing Nemaizer v. Baker, 793 F.2d at 62). It is not a mistake of fact orlaw if the Court does not consider a legal argument which was never raised forthe Court to consider. Therefore, the request to reconsider whether the Propertyconstituted proceeds of a crime is denied.
3) Whether the Court's conclusion that the now abated conviction occurredpost-petition upon entry of the Stipulation, not prepetition upon entry of theDebtor's plea constitutes an error of fact which must be corrected under Rule60(b)
Based on the intervening abatement of the criminal proceeding includingabatement of the plea, this issue is relevant only in that the plea was abatedalong with the entire criminal proceeding. To the extent the plea constitutesthe conviction in this case, the Court shall correct the record. However,altering the Decision to reflect that the conviction occurred as of the entry ofthe plea does not change the Court's analysis regarding whether the Debtor wasdivested of the Property prepetition. The essential issue was whether the actswhich took place prepetition, or even post-petition, sufficed to divest theDebtor of an interest in the Property as of the Petition Date. The Court foundthat divestment did not occur prepetition as the Stipulation had not yet beenso-ordered. In fact, the Defendants concede in their Reply Memorandum that as ofthe Petition Date, the Debtor had not yet signed the Stipulation, and state that"at the time the Debtor filed his petition, he still had the right to withdrawhis plea and challenge the civil forfeiture." Defendants' Reply Memorandum datedApril 29, 2009, note 7. Recognizing that the Debtor's plea constituted hisconviction does not affect the Court's finding that the Debtor retained aninterest in the Property as of the Petition Date. In any event, the plea hasbeen abated along with the criminal conviction and no longer stands.
4) Whether the Court made an error of law in its analysis of whether thepost-petition actions of the Defendants in the forfeiture proceeding constitutedan exception to the automatic stay pursuant to Bankruptcy Code Ã‚Â§ 364(b)(4)
In the Decision, the Court found that the issue of whether the actions takenby the Defendants post-petition were exempt under Bankruptcy Code Ã‚Â§ 362(b)(4)was not germane to the issues raised in the adversary proceeding. However, theCourt found that nothing regarding applicability of the automatic stay wouldchange the Court's finding that as of the Petition Date, the Property belongedto the Debtor. Contrary to the Defendants' assertions, this Court did not findthat commencement or continuation of actions by the government in furtherance ofits police or regulatory powers are not exempt from the stay. Rather, this Courtfound that any action to seize the Property would not fall within the exceptionto the automatic stay set forth in Bankruptcy Code Ã‚Â§ 362(b)(4). Given that theStipulation, is now a nullity, there is no reason for the Court to decidewhether any acts by the Defendants to take possession of the Property would bestayed. This issue is not properly before the Court because, for the reasons setforth above, the Defendants do not currently have any right to take possessionor ownership of the Property. Therefore, the portion of the Decision regardingthe applicability of the automatic stay to any action to take possession of theProperty is vacated. Based on the Court's rulings in the Decision which areunaffected, the Defendants are not stayed from commencing a forfeiture action solong as the action falls within the exception to the automatic stay set forth inBankruptcy Code Ã‚Â§ 362(b)(4). Because the Court has no information regarding whatexactly the Defendants may do, the Court will not comment any further, except tostate that the Trustee will be permitted to participate in any such action,armed with the powers conferred upon the Trustee under Bankruptcy Code Ã‚Â§ 544(a)and any other applicable statute.
For the reasons set forth above, the Motion is denied, except to correct thatthe forfeiture action against the Debtor was an action based on post-convictionforfeiture crimes, not pre-conviction forfeiture crimes. Because the convictionof the Debtor, along with the entire criminal proceeding, was abated after theCourt rendered the Decision, the post-conviction forfeiture action as set forthin Article 13-A of the CPLR is of no force and effect. The Stipulation is of noforce and effect as well, and the Defendants have no valid lien against or titleto the Property. As a result, the Court vacates the portion of the Decisionwhich finds that any attempt to seize the Property pursuant to thepost-conviction forfeiture action violates the automatic stay, because there isno valid post-conviction forfeiture proceeding pending. To the extent that theDefendants seek to commence a forfeiture action against the Property, suchaction will not be stayed so long as the action falls within the exception tothe stay set forth in Bankruptcy Code Ã‚Â§ 362(b)(4). The Trustee shall have theright to assert any defenses it has under the Bankruptcy Code including thosegranted under Bankruptcy Code Ã‚Â§ 544(a). An order consistent with this MemorandumDecision shall be entered forthwith.
Dated: Central Islip, New York
July 23, 2009
By: /s/ Robert E. Grossman
Robert E. Grossman
United States Bankruptcy Judge