UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NORTH CAROLINA
Case No. 5:14-CV-476-FL
UNITED STATES OF AMERICA, Plaintiff, - against -
FUNDS CONTAINED IN THE BETTER BUSINESS CHECKING ACCOUNT NUMBERED 802070987 AND THE BETTER BUSINESS SWEEP ACCOUNT NUMBERED 802121715 AT CAPITAL BANK, UP TO $359,557.25, IN THE NAME OF MARLA BEDNAR D/B/A MARLA ENTERPRISES,
CLAIMANTS’ RESPONSE TO THE UNITED STATES’ MOTION FOR VOLUNTARY DISMISSAL
Months after the Government seized two bank accounts belonging to Claimants Tom and Marla Bednar, and at 4:56 p.m. on the day the Government’s discovery requests were due (after being granted a two-day extension), the Government moved to voluntarily dismiss this case under Rule 41(a)(2). The Bednars agree that the case ought to be dismissed and urge the Court to dismiss it with prejudice. See Fed. R. Civ. P. 41(a)(2) (providing that, once an answer has been filed and absent a stipulation by parties, “an action may be dismissed at the plaintiff’s request only by court order, on terms that the court considers proper”). The Bednars have “substantially prevailed” in this proceeding within the meaning of the Civil Asset Forfeiture Reform Act (“CAFRA”), and they are thus entitled to the same costs and fees awarded to every claimant who substantially prevails in a civil forfeiture action: an award of reasonable attorney’s fees and litigation costs, and pre-judgment and post-judgment interest on the seized funds. See
28 U.S.C. § 2465(b)(1). The Government cannot be permitted to avoid this obligation by seeking voluntarily dismissal once it realizes that it will not prevail on the merits. See, e.g., United States v. Certain Real Prop., 543 F. Supp. 2d 1291, 1294 (N.D. Ala. 2008) (“If the court were to side with the government and dismiss this case without prejudice and deny the claimants request for attorneys’ fees under CAFRA it would render the fee-shifting provisions of CAFRA essentially meaningless.”). To avoid any doubt about the Bednars’ entitlement to a CAFRA award, the Court should enter an order dismissing the case with prejudice. 1
Tom and Marla Bednar live in Raleigh, North Carolina, and until last fall, Marla owned and operated a small business that her husband, Tom, helped run as his health permitted. That business—Marla Enterprises—bought large quantities of gold and other precious metals from wholesale brokers and sold it to refineries. Given the relatively large quantities involved in the Bednars’ transactions and the expectation in the industry that buyers would pay in cash, the business required the Bednars to make frequent withdrawals of thousands of dollars in cash from their business bank account.2
The Bednars lost their business on September 25, 2014, when the Government seized their account without notice, without the bank ever reporting any suspicious activity, and without ever charging the Bednars with any crime. The Complaint alleged that the Bednars had violated the anti-money laundering provision in 31 U.S.C. § 5324(a)(3) by “structuring” their cash withdrawals “for the purpose of evading the reporting requirements of section 5313(a),” which
The Bednars should be entitled to recover fees, costs, and interest even if the case is dismissed without prejudice, and they preserve their right to seek such an award. But unnecessary potential litigation over the availability of such an award under those circumstances can be avoided with an order dismissing the case with prejudice.
The small-business account the Bednars opened with their bank included a primary account and a separate sweep account, both of which were seized by the Government.
require banks to report cash transactions in excess of $10,000 to the Government. See ECF No. 1, ¶ 1. The declaration from Secret Service agent Terry Tate that was submitted in support of the initial warrant, ECF No. 1-1, alleged that the Bednars had structured twenty-eight transactions over the course of five months, citing cash withdrawals ranging from $3,000 to $9,950. See id. at 3–4. The declaration failed to note that, during the same time period, the Bednars engaged in multiple cash transactions that exceeded $10,000.
The Bednars filed claims and answers on November 4, 2014. See ECF Nos. 12–15. Pursuant to this Court’s original Case Management Order, discovery in this matter was set to close on April 6, 2015. See ECF No. 19. On March 16, 2014, and the days following, the undersigned counsel appeared for the first time on behalf of the Bednars. See ECF Nos. 25–30. The Bednars thereafter sought to extend the discovery deadline, with the Government’s consent, to July 6, 2015, see ECF No. 31, which this Court granted on March 27, 2015, see ECF No. 32. On March 30, 2015, the Bednars served a second set of discovery requests on the Government which supplemented and superseded in part an earlier set of discovery requests. See Exhibit 1.3
The Government’s responses to the Bednars’ discovery requests were due on April 29, 2015. That morning, the Bednars received an e-mail from the Government that included a settlement offer, but which alternatively requested a two-day extension on the Government’s discovery responses. See Exhibit 2. The Bednars agreed to give the Government two additional days to complete its discovery responses and fully responded to the e-mail on April 30, 2015. See Exhibit 3. That letter set forth the Bednars’ position that they are entitled not only to the return of their seized funds but also to fees, costs, and interest:
Since August 2014, this unwarranted civil-forfeiture proceeding has inflicted untold harm on our clients and their family, and damaged their business and their
reputation. The Bednars can never be made whole. But at the very least they expect the government to return the full amount of the funds it unjustly seized and anticipate recovering prejudgment interest, as well as their attorney’s fees and litigation costs, upon prevailing in this case.
Id. at 1–2 (emphasis added).
The next day, the Government did not serve its discovery responses. Instead, at 4:56 p.m., the Government filed its motion for voluntary dismissal. See ECF No. 33.
This Court should dismiss the case with prejudice to avoid further harm to the Bednars. Courts have broad discretion under Civil Rule 41(a)(2) to dismiss a case with or without prejudice and, in making their determination, should consider “whether the parties will be unfairly prejudiced.” Golden v. N. Carolina, No. 1:14CV129, 2015 WL 457941, at *1 (M.D.N.C. Feb. 3, 2015); see also Davis v. USX Corp., 819 F.2d 1270, 1273 (4th Cir. 1987) (“Rule 41(a)(2) requires a court order as a prerequisite to dismissal and permits the district court to impose conditions on voluntary dismissal to obviate any prejudice to the defendants which may otherwise result from dismissal without prejudice. In considering a motion for voluntary dismissal, the district court must focus primarily on protecting the interests of the defendant.”). The Bednars would be prejudiced if the case were dismissed without prejudice both because they would be denied the finality that a dismissal with prejudice provides and because the Government would likely argue that the Bednars are not entitled to fees, costs, and interest under the Civil Asset Forfeiture Reform Act (“CAFRA”). The Court should not allow for that possibility, which “would be contrary to the stated intent of CAFRA ‘to give owners innocent of any wrongdoing the means to recover their property and make themselves whole after wrongful government seizures.’” Certain Real Prop., 543 F. Supp. 2d at 1294 (quoting H.R.Rep. No. 106–192, at 11 (1999)).
I. DISMISSAL WITH PREJUDICE IS PROPER TO AVOID UNDUE PREJUDICE TO THE BEDNARS.
The Court has discretion to dismiss the case “on terms that the court considers proper”, Fed. R. Civ. P. 41(a)(2), and that includes dismissal with prejudice. See, e.g., Choice Hotels Int’l, Inc. v. Goodwin & Boone, 11 F.3d 469, 471 (4th Cir. 1993) (“It is implicit in th[e] language [of Rule 41(a)(2)] that the district court may dismiss the plaintiff’s action either without prejudice or, by so specifying, with prejudice.”); Melvin v. Astrue, No. 5:10-CV-347-D, 2011 WL 6299219, at *7 (E.D.N.C. Oct. 14, 2011) (“Rule 41(a)(2) of the Federal Rules of Civil Procedure authorizes this Court to dismiss Plaintiff's claims with prejudice.”), report and recommendation adopted, No. 5:10-CV-347-D, 2011 WL 6310462 (E.D.N.C. Dec. 16, 2011). Here, the case should be dismissed with prejudice to avoid any further prejudice to the Bednars.
To start, dismissal without prejudice would deprive the Bednars of the finality to which they are entitled. This case has already exacted a heavy toll on them and their family. The seizure of the Bednars’ business accounts, together with the negative publicity that they have been subjected to, has destroyed their business—the only business they have ever had—and their very livelihood. The Government’s motion for voluntary dismissal has already prejudiced the Bednars by depriving them of the opportunity to complete discovery and to prove conclusively that the Government’s allegations are baseless. But that prejudice would be multiplied many times over if the Bendars were forced to continue living under the cloud of legal uncertainty and the threat of potential future proceedings that a dismissal without prejudice could bring.
To make matters worse, there is a meaningful chance that the Government would point to a dismissal without prejudice as a ground for denying the Bendars an award of fees, costs, and interest under CAFRA. The Bednars have aggressively and successfully defended this case to the point where the Government is seeking dismissal. They have thus “substantially prevailed”
within the meaning of CAFRA and are thus entitled to an award of reasonable attorney’s fees and litigation costs, and pre-judgment and post-judgment interest on the seized funds. See 28 U.S.C. § 2465(b)(1). That result should obtain whether or not the case is dismissed with prejudice, but there is a realistic possibility that the Government would argue that the Bednars have not substantially prevailed if the Court dismisses the case without prejudice, as some courts have held. See, e.g., United States v. 2007 BMW 335i Convertible, 648 F. Supp. 2d 944, 949–51 (N.D. Ohio 2009). As other courts have recognized, however, allowing the Government to avoid its obligations under CAFRA by seeking voluntary dismissal when its case falls apart “would render the fee-shifting provisions of CAFRA essentially meaningless.” Certain Real Prop., 543 F. Supp. 2d at 1294 (granting Government’s motion for voluntary dismissal in civil forfeiture proceeding with prejudice rather than without prejudice). This Court can and should avoid having to decide this legal issue by dismissing with prejudice, regardless of how it chooses to rule on Defendants’ upcoming motion for fees, costs, and interest under CAFRA.
As explained below, there is no good reason to dismiss the case without prejudice, and the Court should therefore dismiss with prejudice in order to avoid undue and unfair prejudice to the Bednars both from the denial of finality and from the possibility that the Government would deny their status as substantially prevailing parties.
II. THERE IS NO JUSTIFICATION FOR DISMISSAL WITHOUT PREJUDICE.
Nothing in this case cuts against the prejudice to the Bednars that could result from a dismissal without prejudice. The Government’s own motion states that “the plaintiff declines to proceed further in litigation in light of the U.S. Department of Justice Policy Directive 15-3, effective March 31, 2015, under which a forfeiture action like this, where there is no probable cause that the funds structured were generated from unlawful activity, would not be commenced.” Mot. at 2 (emphasis added). Thus, even if this Court is inclined to believe the
Government’s proffered reason for dismissing the case, the Government cannot complain about a dismissal with prejudice since, by its own admission, this case will not be re-commenced under the new DOJ policy.
To the extent it matters, however, the Court should not accept the Government’s claim that its motion represents merely an exercise of prosecutorial discretion—as opposed to a recognition that its case lacks merit and that the Bednars are therefore entitled to a CAFRA award. There are multiple reasons why the Government’s characterization of its motion should not be accepted:
First, as the Government itself makes clear, the new DOJ policy “is not retroactive and, therefore, [is] inapplicable to the present case.” Mot. at 2–3. There is thus no basis for the Government to contend that its request for voluntary dismissal is based solely upon the application of the new policy.
Second, the Government continued to litigate this case aggressively even after the new DOJ became effective on March 31, 2015. For example, on April 4, 2015, the Government sent an email to the Bednars’s counsel asserting that “Mr. Bednar holds the keys to resolution of this matter”—despite the fact that it was the Government which seized the Bednars’ property—and expressing, in reference to an earlier statement by Mr. Bednar’s doctor, that it was “not too sympathetic to claims of anxiety or depression when [Mr. Bednar] has made no effort to resolve the matter.” Exhibit 4. While the Bednars’ counsel noted in response that “the DOJ has just announced a scaling back of enforcement of the civil forfeiture statute, precisely to abuses like the type that occurred here,” the Government gave no indication that it intended to drop this case in light of the new policy. Id. Indeed, even weeks later, on April 29, 2015, when the Government sought additional time to serve its discovery responses and to negotiate a forfeiture
of less than all of the Bednars’ property, there was no indication that the Government thought that the new DOJ policy warranted voluntary dismissal. It was only after the Bednars sent their response the next day and set forth their entitlement to an award of fees, costs, and interest, see Exhibit 3 at 1–2, that the Government sought dismissal and invoked the new DOJ policy.
Third, the Government continues to pursue other civil forfeiture proceedings—including other proceedings in the Eastern District brought by the same counsel—against individuals who would otherwise qualify for retro-active application of the new DOJ policy. See, e.g., Shaila Dewan, Rules Change on I.R.S. Seizures, Too Late for Some, N.Y. TIMES (N.Y. ed.), May 1, 2015, at A22 (discussing a civil forfeiture proceeding brought against Lyndon McLellan of Fairmont, North Carolina).4 Indeed, the Government filed an amended complaint in that case on April 30, 2015, setting forth new allegations, none of which would put that case outside the scope of the new DOJ policy. See Amended Complaint at ¶¶ 7–10, United States v. $107,702.66 in U.S. Currency Seized from Lumbee Guaranty Bank Account Number 82002495, No. 7:14-CV-295-F (E.D.N.C.) (ECF No. 15). The Government’s suggestion that it has moved for voluntary dismissal based on the new DOJ policy is thus flatly inconsistent with its decision to continue to pursue similar cases.
Finally, the fact that the Government’s motion for voluntary dismissal came on the same day that the Government’s discovery responses were due—mere minutes before the close of business—further suggests that Government was motivated by its view of the merits of its case, not by the retroactive application of the new DOJ policy.
The Government’s suggestion that it is seeking dismissal based on its discretionary application of the new DOJ policy therefore does not counsel in favor of dismissing the case
Online version available at http://www.nytimes.com/2015/05/01/us/politics/rules-change-on-irs-seizures-too-late-for-some.html (dated April 30, 2015).
without prejudice. In particular, where Congress has specifically acted “‘to make federal civil forfeiture procedures fair to property owners,’” United States v. Certain Real Prop., Located at 317 Nick Fitchard Rd., N.W., Huntsville, AL, 579 F.3d 1315, 1323 (11th Cir. 2009) (quoting H.R.Rep. No. 106–192, at 11), the Government should not be permitted to use procedural gamesmanship to evade the procedural protections that Congress adopted. The Court should therefore dismiss the case with prejudice and, when the time comes, award the Bednars the fees, costs, and interests that they are entitled to under CAFRA.
For the foregoing reasons, the Court should dismiss the case with prejudice.
Dated: May 5, 2015 /s/ John S. Moran
John S. Moran
John S. Moran, DCBA #1014598 KIRKLAND & ELLIS LLP
655 Fifteenth Street, N.W. Washington, D.C. 20005-5793 Phone: 202-879-5000
Email: firstname.lastname@example.org Danielle R. Sassoon, NYSB #5178892 Sara K. Winik, NYSB #5312244 KIRKLAND & ELLIS LLP
601 Lexington Avenue New York, New York 10022 Phone: 212-446-4800 Fax: 212-446-4460 Email: email@example.com firstname.lastname@example.org /s/ Mark R. Sigmon Mark R. Sigmon Mark R. Sigmon, NCSB #37762 GRAEBE HANNA & SULLIVAN, PLLC 4350 Lassiter at North Hills Ave., Ste. 375 Raleigh, NC 27609
Phone: 919-863-9094 Fax: 919-863-9095
Email: email@example.com L.R. 83.1 Counsel
CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing Response to the United States’ Motion to Dismiss was provided to the below listed counsel electronically via ECF:
Stephen A. West
Assistant United States Attorney 310 New Bern Avenue
Raleigh, NC 27601
Dated: May 5, 2015 /s/ John S. Moran