SACK, Circuit Judge.
To resolve this appeal, we must determine whether a general creditor may intervene in a criminal forfeiture proceeding to assert its alleged rights to property subject to a criminal order of forfeiture or challenge the underlying validity of the forfeiture order, and if so, how.
On December 19, 2003, the defendant, Daniel L. Gordon, pled guilty in the United States District Court for the Southern District of New York (Gerard E. Lynch, Judge) to three counts of an information (the "Information") charging him with undertaking an elaborate scheme to defraud his employer, Merrill Lynch Capital Services, Inc., and Merrill Lynch & Co. (collectively "Merrill Lynch") of many millions of dollars. Count One charged him with wire fraud in violation of 18 U.S.C. § 1343. Count Two charged him with laundering the proceeds of the wire fraud in violation of 18 U.S.C. § 1956(a)(1)(B)(I). And Count Three charged him with conspiring to falsify Merrill Lynch's books and records in connection with the sale of its energy trading unit, Global Energy Markets ("GEM"), in violation of 18 U.S.C. § 371.
According to the Information, in or before 2000, Merrill Lynch entered into a $500 million long-term energy call agreement with the Williams Energy Marketing and Trading Company. Merrill Lynch sought insurance to hedge against that obligation. In response, Gordon used an entity he had created and operated, Falcon Energy Holdings, S.A. ("Falcon"), to negotiate a fraudulent energy insurance contract with Merrill Lynch. On or about August 25, 2000, Merrill Lynch entered into the purported 11-year energy insurance agreement with Falcon, transferring approximately $43 million, its only payment pursuant to that agreement, to Falcon's bank account, which Gordon had opened for it in Switzerland.
At about the same time, Gordon incorporated Ostrich Capital Partners, Inc. ("Ostrich"),
On or about November 14, 2000, Gordon used funds from Kings Holdings' New York bank account to purchase from the appellant DSI Associates LLC ("DSI") seventy percent of the outstanding shares of Daticon, Inc. ("Daticon"), a private document-management services company located in Connecticut. Kings Holdings acquired 7,923 of the 11,318 outstanding shares of Daticon from DSI for nearly $23 million in cash and an unsecured promissory note of $4 million. Gordon became chairman of Daticon's board of directors and received a salary and other income from the company from sometime in 2000 to sometime in 2002. DSI continued to hold thirty percent of Daticon's outstanding shares.
The Criminal Investigation and the Promissory Note
After learning of Gordon's scheme, representatives of the United States Attorney's office in Manhattan negotiated with representatives of DSI with a view toward finding a neutral third party to purchase all the shares of Daticon—those held by Kings Holdings and those held by DSI. The government intended to seize Kings Holdings' portion of the proceeds in a forfeiture proceeding as part of its planned criminal prosecution of Gordon.
On July 18, 2003, while negotiations with the government were proceeding, DSI filed suit against Kings Holdings and Gordon in Connecticut state court. DSI alleged that the two had defaulted on the unsecured promissory note that was a part of the consideration they paid to DSI for the Daticon stock. At the same time, DSI sought and received an ex parte prejudgment attachment on $5 million worth of Kings Holdings' assets.
On August 6, 2003, DSI and Kings Holdings settled their dispute and terminated the Connecticut proceedings. Under the settlement, the prejudgment attachment was vacated and in its place Kings Holdings executed a non-negotiable, unsecured demand promissory note for $2.5 million (the "Settlement Note" or the "Note"). The settlement agreement provided that the Settlement Note could be enforced by a claim against the proceeds of a sale of Daticon, except in the event that the government placed any such proceeds in an escrow account or initiated a forfeiture proceeding against Kings Holdings. The parties had received notice from the government, however, that it intended to initiate forfeiture proceedings that would include any Daticon sale proceeds. They therefore agreed that if DSI attempted to collect on the Settlement Note from the proceeds of the sale of Daticon after such a proceeding had been initiated, it would do so within the "context of" the criminal forfeiture proceeding unless the United States Attorney for the Southern District of New York "consented to any other means of collection." Letter Agreement dated Aug. 6, 2003, at 1.
In September 2003, pursuant to an arrangement with the government, Kings Holdings and DSI sold their shares of
On October 15, 2003, after making a demand for payment in full of the Settlement Note, DSI filed another complaint in Connecticut state court based on the Note. DSI applied to the court for a second ex parte prejudgment attachment order against the sale proceeds that had been put into escrow funds in the amount of $2.5 million, plus interest. That day, the Connecticut court entered a prejudgment attachment for $2.5 million against the Separate Escrow Account.
Gordon's Guilty Plea, Forfeiture, and Ancillary Proceedings
Meanwhile, on December 19, 2003, Gordon pled guilty to all three charges contained in the Information. Pursuant to a written plea agreement, he agreed to forfeit the $43 million he initially received pursuant to the fraudulent scheme, as well as any interest in property derived from proceeds traceable to the wire fraud offense or involved in the money laundering offense. On February 20, 2004, as part of Gordon's sentence, the district court entered a Preliminary Order of Forfeiture requiring the defendant to forfeit $43 million and any right, title, and interest in specific property described in the Preliminary Order.
Title 21 U.S.C. §§ 853(n)(1) and (2) set forth the procedure for asserting, in an ancillary proceeding, a third-party claim with respect to property subject to a criminal order of forfeiture:
21 U.S.C. § 853(n)(1), (2).
Pursuant to section 853(n)(1), the government sent notice to counsel for Merrill Lynch, Allegheny Energy Supply Company LLP ("Allegheny"), and DSI, as "person[s] known to have alleged an interest in the property that is the order of forfeiture." 21 U.S.C. § 853(n)(1). Under the statute, the recipients of the notice had thirty days in which to "petition the court for a hearing to adjudicate the validity of his alleged interest in the property." Id. § 853(n)(2).
The substantive portion of section 853(n) provides:
Id. § 853(n)(6), (7).
Merrill Lynch and Allegheny filed timely petitions in response to the section 853(n) notice, asserting a prior superior interest in some of the forfeited property. See id. § 853(n)(6)(A). On June 10, 2005, the district court endorsed a Stipulation and Order of Settlement that provided for Merrill Lynch and Allegheny to split the final amount forfeited—except for $10 million to be kept by the government
DSI's Motion to Intervene
On September 29, 2004, more than five months after the thirty days in which to petition for relief under section 853(n) had elapsed, DSI moved to intervene in Gordon's criminal forfeiture proceeding pursuant to Rule 24 of the Federal Rules of Civil Procedure. DSI proffered two principal arguments in support of its motion: (1) the original $4 million promissory note used by Kings Holdings as consideration for the Daticon shares (subsequently reduced to the Settlement Note) was not tainted by the fraudulent scheme and therefore could not be forfeited because the district court did not have jurisdiction over the proceeds derived from, or traceable to, the equivalent proportion of Daticon stock;
The district court addressed the merits of the motion and denied it. First, it observed that despite the fact that Kings Holdings paid for the Daticon shares with approximately $23 million in cash that was traceable to the defendant's criminal conduct and a $4 million promissory note, DSI received all of the Daticon shares due to it and therefore retained "no legally[ ] cognizable interest in any portion of the [Daticon] shares," or the proceeds thereof, because it was, as it readily admitted, a general creditor with no specific claim on any of the forfeited property. United States v. Gordon, 2005 WL 2759845, at *2-*3, 2005 U.S. Dist. LEXIS 24897, at *7 (S.D.N.Y. Oct.13, 2005). As a general creditor, and as DSI and the government agreed, DSI did not have standing to initiate a section 853(n) proceeding to protect their interests.
Second, the district court pointed out that although the Fifth Amendment's Due
Third, the district court also denied DSI permissive intervention under Rule 24(b), concluding that such intervention would constitute an unwarranted interference in the "expeditious . . . adjustment of rights as between the defendant and the Government," which lies at the core of the criminal forfeiture provisions. Id. 2005 WL 2759845, at *3, 2005 U.S. Dist. LEXIS 24897, at *8-*9.
Finally, the district court observed that DSI's motion to intervene was not its only recourse in pursuing satisfaction of the Settlement Note. Section 853(i) confers broad discretion on the Attorney General to take any action "to protect the rights of innocent persons which is in the interest of justice." Id. 2005 WL 2759845, at *3, 2005 U.S. Dist. LEXIS 24897, at *10 (quoting 21 U.S.C. § 853(i)(1)) (emphasis and internal quotation marks deleted). The district court further noted that the government had specifically invited DSI to pursue such discretionary relief. Id. 2005 WL 2759845, at *3, 2005 U.S. Dist. LEXIS 24897, at *10.
On appeal DSI argues that it has standing to intervene under Rule 24 of the Federal Rules of Civil Procedure. It contends that the district court exceeded its statutory forfeiture authority by including the untainted portion of the proceeds of the Daticon stock sale in the forfeited property. It further argues that to the extent that section 853(n) ancillary proceedings provide the exclusive means of pursuing its interest in the proceeds of the Daticon stock sale, the statute violates the Due Process Clause of the Fifth Amendment of the Constitution.
I. Standard of Review
We review the denial of a motion to intervene under Rule 24 of the Federal
II. DSI's Motion to Intervene under Rule 24
A. Title 21 U.S.C. § 853
1. Section 853 is the Exclusive Means for Third Parties to Intervene in Forfeiture Proceedings.
It is well established that third parties may not intervene during criminal forfeiture proceedings to assert their interests in the property being forfeited. See 21 U.S.C. § 853(k);
It is similarly well settled that section 853(n) provides the exclusive means by which a third party may lay claim to forfeited assets — after the preliminary forfeiture order has been entered. We have recognized that
De Almeida v. United States, 459 F.3d 377, 381 (2d Cir.2006) (quoting 21 U.S.C. § 853(k)) (alterations and emphasis in original); see also Libretti v. United States, 516 U.S. 29, 44, 116 S.Ct. 356, 133 L.Ed.2d 271 (1995) ("Once the government
2. DSI Lacks Standing Under 21 U.S.C. § 853(n).
As the district court pointed out, "[w]hile DSI's claim derives from the purchase of the shares [of Daticon], as a matter of law, having failed to retain a security interest in the shares, DSI is simply a general creditor of Kings [Holdings], and its claim to any specific property Kings [Holdings] may possess is no greater than that of any other such creditor." Gordon, 2005 WL 2759845, at *3, 2005 U.S. Dist. LEXIS 24897, at *7. DSI does not assert otherwise. As a general creditor of Kings Holdings and Gordon, DSI does not possess a "legal right, title, or interest in the property" that was forfeited as required for standing under section 853(n)(6)(A), nor can it show that it was a bona fide purchaser for value of any such right, title or interest, as required for standing under section 853(b)(6)(B). See Ribadeneira, 105 F.3d at 836. Without possessing such an interest "in" a "particular, specific asset" that is, or is part of, the forfeited property, DSI does not meet the statutory requirements for initiating an ancillary proceeding under section 853(n). Id. at 835-37; see also United States v. Schwimmer, 968 F.2d 1570, 1580-81 (2d Cir.1992) (holding that general creditors lack standing under 18 U.S.C. § 1963(l)(6)).
3. Rule 24 Does Not Provide an Alternative Means to Intervene.
DSI asserts, however, that it is not attempting to employ a section 853(n) petition here. It is not looking to "recover an alleged interest in forfeited property," Ribadeneira, 105 F.3d at 834, i.e., its alleged interest in the funds traceable to untainted shares of Daticon, for which section 853(n) would provide the proper mechanism. Instead, DSI contends, its motion to intervene seeks to challenge the validity of the forfeiture order as it was applied to those funds.
DSI cannot prevail, however, by reframing its argument as one challenging the underlying validity of the forfeiture order rather than the district court's denial of its
B. Due Process
DSI contends that if, as we have here and elsewhere concluded, section 853(n) provides the exclusive means by which a third party can challenge a forfeiture order in court, yet DSI does not have standing to intervene under that section, DSI has been deprived of a property interest without a meaningful opportunity to be heard in violation of the Fifth Amendment's Due Process Clause; in other words, that the failure of section 853 to provide general creditors with such an opportunity to be heard renders the statutory scheme unconstitutional.
Section 853(n) may be DSI's exclusive path to challenge the forfeiture order before the judicial entity which entered the order, but it is not DSI's only course of action available under the statute within which it may assert its interest in the forfeited property. Under section 853(i), the Attorney General maintains discretion to "take any . . . action to protect the rights of innocent persons which is in the interest of justice and which is not inconsistent with the provisions of this section." 21 U.S.C. § 853(i)(1). This non-judicial remedy confers upon the Attorney General the authority to rectify precisely the situation presented here: A third party that possesses an interest in forfeited property yet does not meet the standing requirements of section 853(n) may petition the Attorney General for redress in the "interest of justice." As the Third Circuit explained:
United States v. Lavin, 942 F.2d 177, 185 (3rd Cir.1991) (citing 21 U.S.C. § 853(i)) (emphasis in original); see also United States v. BCCI Holdings (Luxembourg), S.A., 46 F.3d 1185, 1192 (D.C.Cir.), cert. denied sub nom. Chawla v. United States, 515 U.S. 1160, 115 S.Ct. 2613, 132 L.Ed.2d 856 (1995) (concluding that the statutory scheme for RICO forfeiture proceedings "directs parties without an interest in specific property to seek relief from the Attorney General, not the court adjudging the forfeiture"). Indeed, the District of Columbia Circuit has similarly noted that while section 853 was intended to
As the district court rightly noted, DSI has not demonstrated that any such a request would be futile. Indeed, the government, which received $10 million from the forfeiture, specifically invited DSI to pursue this avenue of relief.
Perhaps at some future time DSI will be able to establish that it has exhausted all possible avenues for relief. If so, it might be able to argue persuasively that the availability of a remedy through the executive branch under section 853(i), and whatever other avenues it might pursue,
We conclude that the district court acted within its discretion in denying DSI's motion to intervene, and that the denial did not violate the Fifth Amendment's Due Process Clause. The order of the district court is therefore affirmed.
21 U.S.C. § 853(k).
And while the issue was not briefed to us, we further note that DSI has not demonstrated that there was a procedural bar preventing it from converting its inchoate interest in the form of a state court prejudgment attachment into a "legal interest" under section 853(n) by "obtain[ing] some judgment and secur[ing] . . . those funds." United States v. Schwimmer, 968 F.2d 1570, 1581 (2d Cir.1992). Under Connecticut law, it appears that DSI might perfect the prejudgment attachment by obtaining a judgment lien on the property in which it claims to have an interest. See Hartford Provision Co. v. United States, 579 F.2d 7, 10 n. 3 (2d Cir.1978) (noting that Connecticut follows "ancient and well-accepted principles" relating to attachments on personal property, such that levying an attachment creates a lien of an inchoate nature which "awaits the judgment of the court for its consummation.") (quoting Pratt v. Law, 13 U.S. [456, 497] (1815)). If it did so, DSI would "no longer [be] merely a general creditor." Schwimmer, 968 F.2d at 1581. It might then have a security interest that would confer upon it standing to make a claim under section 853(n). See also Reckmeyer, 836 F.2d at 205 ("Unsecured creditors may reduce their claims to judgment and thereby acquire a lien on all of the debtor's assets. This enforcement mechanism provides for the judicial enforcement of a legally cognizable right."). Upon successful completion of perfecting a judgment in state court, DSI might then file a Rule 60(b) motion to reopen the ancillary forfeiture proceeding in the district court and litigate its claim as to its property interest within the statutory scheme created by Congress. See United States v. Puig, 419 F.3d 700, 702 (8th Cir.2005) (citing Fed.R.Crim.P. 32.2(c) Advisory Committee Notes) (noting that a third-party claimant may file a Rule 60(b) motion to reopen the ancillary proceeding allowed by 21 U.S.C. § 853(n)).