Kirschenbaum v. Nassau County District Attorney et al

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK Chapter 7
------------------------------------------------------------- x Case No. 808-73781-reg
In the Matter of ANTHONY J. VITTA,
Debtor.
------------------------------------------------------------- x
KENNETH KIRSCHENBAUM,
Chapter 7 Trustee for the Estate of
Anthony J. Vitta, Adv. Proc. No. 808-8192-reg
Plaintiff,
- against -
NASSAU COUNTY DISTRICT ATTORNEY and
COUNTY OF NASSAU,
Defendants.
------------------------------------------------------------- x
MEMORANDUM DECISION
Before the Court is a motion by the Nassau County District Attorney (“DA”) and the
County of Nassau (the “County”) (collectively, the “Defendants”) seeking reconsideration of the
Court’s Memorandum Decision (“Decision”) and Order dated March 2, 2009 denying the
Defendants’ motion for summary judgment in this adversary 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 in the Decision (“Motion”). For the reasons set forth below, the Motion is denied,
except to correct that the forfeiture action commenced by the D.A. against Anthony J. Vitta (the
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“Debtor”), who committed suicide after filing a petition for relief under Chapter 7 of the
Bankruptcy Code, was an action relating to post-conviction forfeiture crimes under section
1311[1](a) of the New York Civil Practice Law and Rules (“CPLR”), and not an action relating to
pre-conviction forfeiture crimes under section 1311[1](b) of the CPLR. This correction is critical
because it fundamentally alters how the Court reached its conclusion that the property at issue in
this adversary proceeding is property of the Debtor’s estate. Because the Defendants commenced
a post-conviction civil forfeiture proceeding and not a pre-conviction forfeiture proceeding, the
timely entry and existence of a conviction is a condition precedent to the success of the forfeiture
proceeding. As a result of the Debtor’s death, the entire criminal proceeding, including the plea
agreement entered into by the Debtor, was abated and vacated after the Decision was rendered but
before the hearing on the Motion. Since as a matter of law there is no conviction of the Debtor,
the post-conviction forfeiture action as set forth in the relevant statute must be dismissed and is of
no force an effect as to the Property. Therefore, the Property remains property of the Debtor’s
estate, and is not currently subject to any claim by the Defendants. To the extent the Defendants
seek a correction that the Debtor’s plea was the equivalent of a conviction, and to correct that the
Debtor’s property consisting of jewelry, watches and cash (the “Property”) was seized by the
Nassau County Police Department pre-petition pursuant to search warrants, and not pursuant to
the pre-petition order of attachment obtained by the Defendants, the Court finds that these
corrections will not result 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 consider whether the Debtor
ever had legal title to the Property, which was not raised by the Defendants at the time the
underlying motion was heard. The portion of the Decision which discusses whether the exception
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to the automatic stay under Bankruptcy Code § 362(b)(4) applies to any act by the Defendants to
take possession or title to the Property is vacated as the Defendants no longer have the right to
exercise control over the Property. To the extent that the Defendants seek to commence a
forfeiture action against the Property pursuant to the same forfeiture statute in state court, which
was alluded to in their papers and at the hearing on the Motion, such action will not be stayed by
virtue of Bankruptcy Code § 362(b)(4), and the Trustee shall have the right to assert any defenses
it has under the Bankruptcy Code including those granted under Bankruptcy Code § 544(a).
Background and Facts
Familiarity with the Decision is assumed. The Decision and Order, both of which were
entered on March 3, 2009, memorialized the Court’s decision in connection with the Defendants’
motion to dismiss the adversary proceeding commenced by the Kenneth Kirschenbaum, Esq., the
Chapter 7 trustee (the “Trustee”). In the adversary proceeding, the Trustee sought a determination
as to whether the Property, which was seized by the Nassau County Police Department from the
Debtor prepetition, and against which the DA had obtained an order of attachment 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 consent of the Trustee and the Defendant, had converted the
Defendants’ motion to dismiss the adversary proceeding into a motion for summary judgment.
The Defendants raised the following arguments in support of their motion:
1) Under the theory of relation-back, the Property no longer constituted property 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 Settlement and Discontinuance
of Action dated September 2, 2008 (the “Stipulation”) was a ministerial act, despite the fact that
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as of the Petition Date, the Stipulation had not been signed by the Debtor or the Defendants, “so-
ordered” by the state court, or entered on the docket as of the Petition Date. The Debtor’s entry of
a guilty plea prior to the Petition Date resulted in forfeiture of the Property.
3) Pursuant to 11 U.S.C. § 362(b)(4), the automatic stay did not apply to any aspect of the
forfeiture action which took place post-petition.
In support of the underlying motion, the Defendants filed with the Court a copy of the
summons and complaint in the civil forfeiture action under Article 13-A of the CPLR, which
action was commenced on December 7, 2007, a copy of the transcript from the Debtor’s plea
hearing before Justice Tammy Robbins, in which she refers to the charges against the Debtor set
forth in an information filed with the criminal court, and a copy of the Stipulation. In the
Decision, this Court found that relation-back did not apply to civil forfeiture proceedings
commenced under Article 13-A of the CPLR pursuant to the statutory language and the relevant
case law interpreting this statute, that the execution and “so-ordering” of the Stipulation was not
exempt from the automatic stay as a ministerial act, and that the continuation of the forfeiture
action post-petition up to judgment against the Debtor was excepted from the automatic stay
under Bankruptcy Code § 362(b)(4), but any action by the DA to take possession of the Property
would be stayed.
On March 13, 2009, the Defendants filed the Motion. On April 15, 2009, the Trustee filed
opposition to the Motion, and alerted the Court that the Debtor’s criminal conviction had been
vacated on April 6, 2009. According to the Trustee, the Debtor’s criminal case continued to
appear on the criminal court calendar for sentencing after the Debtor had committed suicide, and
the DA requested adjournments of the sentencing seven times from October 14, 2008 to April 6,
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2009. At the adjourned hearing on April 6, 2009, the District Attorney was handed a copy of the
Debtor’s death certificate by an individual from the Trustee’s office. Upon receipt of the
Defendants’ death certificate, the State Court dismissed the criminal proceeding of record and the
criminal court docket reflects 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 only continued after his death because the DA
failed to provide the criminal court with a copy of the Debtor’s death certificate, and asked for
adjournments at each hearing after the Debtor’s death. On April 29, 2009, the Defendants filed a
reply to the Trustee’s opposition, and a hearing was held on May 6, 2009. Thereafter, the matter
was marked submitted.1
According to the Defendants, the Decision contained the following factual errors
warranting relief from the Court’s decision: 1) the Court incorrectly concluded that the forfeiture
action was a pre-conviction forfeiture action and not a post-conviction forfeiture action, 2) the
Decision incorrectly states that the Debtor was not convicted prior to the Petition Date, 3) the
Decision incorrectly states that the criminal proceedings were adjourned after the Debtor entered
his plea prepetition, 4) the Decision incorrectly states that the Property did not constitute proceeds
or substitute proceeds of the criminal enterprise relating to the criminal charges against the
Debtor, and 5) the Court failed to address the Defendants’ alternate legal argument that the Debtor
By letter dated June 8, 2009, the Defendants requested that the Court accept a letter1
briefing two recent decisions issued by a bankruptcy court outside of the Second Circuit
regarding applicability of Bankruptcy Code section 362(b)(4) and other issues not previously
raised in their moving papers. The Court advised the Defendants that no further briefing was
required, but the Court has reviewed the cases 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).
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never acquired a legally cognizable interest in the Property because it derived from the Debtor’s
criminal activities. According to the Defendants, these findings were incorrect and as a result,
they significantly affected the Court’s analysis of the Defendants’ arguments, and the Court is
required to correct these errors under Rule 60(b)(1). Lastly, the Defendants assert that the Court
committed an error of mixed fact and law when the Court found that the post-petition actions by
the DA, including any attempt to take control of the Property, did not constitute an exception to
the automatic stay under Bankruptcy Code § 362(b)(4).
Legal Standard
The applicable statue governing the Motion is Rule 60(b)(1), made applicable to this
matter pursuant to Fed. R. Bankr. P. 9024. Rule 60(b)(1) states as follows:
(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 more appropriate.
Ivor B. Clark Co. v. Hogan, 296 F. Supp. 407, 410 (S.D.N.Y. 1969) (citing Hines v. Seaboard
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Airline R. Co., 341 F.2d 229, 231 (2d Cir. 1965); and Wagner v. United States, 316 F.2d 871, 872
(2d Cir. 1963)). Furthermore, a Rule 60(b) motion is “properly granted only upon a showing of
exceptional circumstances.” 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 made to correct a court’s own
mistake of law or fact so long as such motion is made before the time for appeal expires. In re
310 Assocs., 346 F.3d 31, 34 (2d Cir. 2003), citing Schildaus v. Moe, 335 F.2d 529, 531 (2d Cir.
1964) (other citations 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 has overlooked an argument or facts which were put
before the court in the underlying 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 which changed 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 WL 459805, at *4 (S.D.N.Y. June 29, 1999)).
Legal Analysis
The Court will consider each of the issues raised by the Defendants in the order of their
significance to the Decision.
1) Whether the Court’s conclusion that the DA commenced a pre-conviction civil forfeiture
action and not a post-conviction forfeiture action constitutes a factual error subject to correction
under Rule 60(b)(1)
The Decision includes a discussion of pre-conviction civil forfeitures and post-conviction
civil forfeitures, and a conclusion by the Court that the DA had commenced a pre-conviction civil
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forfeiture action against the Debtor. The record was barren as to any mention of either type of
forfeiture action. During oral argument, the only reference made by counsel to the Defendants
was to a pre-conviction civil forfeiture. At the hearing on the Motion on January 12, 2009, the
following reference to a pre-conviction forfeiture action was made by counsel to the Defendants in
response to a question by the Court regarding the effect the Debtor’s death would have on the
forfeiture action:
Your Honor, if I may, we had the similar case, Dillon v.
Vorbeck, several years ago where the defendant
committed suicide before he was even convicted. However, the
state forfeiture law permits us to bring a forfeiture action in
a drug case, which this particular - this present case is even
without a conviction, even without an arrest, which is known
as a preconviction forfeiture in New York State forfeiture parlance.
We continued the forfeiture and we obtained an
$800,000 dollar settlement of the forfeiture. Death of the
defendant, while it abates the criminal action and the appeal,
for example, would be voided. The criminal case is not necessary;
the commission is not necessary for the continuation. In the present
case, we went even further. We had a conviction. He had pled. Now, there
was not a judgment of conviction since there was no sentence but all
that forfeiture law would require, even if it was not a drug case, would be
have been a conviction and that was had - -
Transcript of January 12, 2009 hearing at p. 9.
Based on these representations, the Court concluded that the Defendants had commenced a
pre-conviction civil forfeiture action, which does not require a conviction prior to forfeiture. The
Defendants now clarify that they actually commenced a post-conviction forfeiture action under
Article 13-A of the CPLR. As this Court noted in the Decision, a fundamental difference between
these two forfeiture actions is the quantum of proof necessary to obtain an order of forfeiture. In
the case of a pre-conviction civil forfeiture action, there is no statutory requirement of a
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conviction. In a post-conviction civil forfeiture action, there can be no order of forfeiture without
a conviction.
The Court’s conclusion was in error, and it is necessary to correct the record 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 the outset, the Trustee raised the issue of the abatement of the
criminal proceedings in their opposition to the Motion. The Defendants responded to this issue in
their reply papers by stating that the abatement of the criminal proceedings has no effect
whatsoever on the civil forfeiture action, including the validity of the Stipulation. The effect of
the Debtor’s death on the civil forfeiture action was also raised by the Court at the hearing on the
underlying motion for summary judgment. The Court had questioned whether the death of the
Debtor would void the criminal proceedings altogether and whether the forfeiture action would
abate as well. Counsel to the Defendants replied that the criminal case would ultimately be abated
upon receipt of the Debtor’s death certificate. Counsel failed to answer the direct question asked
by the Court regarding the effect of the Debtor’s death on the forfeiture action. Whether counsel’s
failure to answer this question was purposeful is not clear, but it raises questions to the Court
regarding counsel’s intent, especially in light of the DA’s continued adjournment of the criminal
action months after the Debtor died. To the extent the issue does not fall within the parameters of
Rule 60(b)(1), the Court finds that it is appropriate to consider the effect of the abatement of the
criminal proceeding under Rule 60(b)(5), which permits the Court to reconsider its judgment 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, which changes the
Court’s analysis in the Decision. A post-conviction forfeiture action may be commenced against a
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“criminal defendant” who is defined as a person that has been convicted of any felony found in
the Penal Law or any other chapter of the consolidated laws of the State. CPLR § 1310[5]. In
order for the claiming authority to obtain forfeiture in a post-conviction forfeiture action, the
criminal defendant must be convicted. CPLR § 1311[1](a); Holtzman v. Samuel, 130 Misc.2d
976, 979, 495 N.Y.S.2d 583 (N.Y. Sup. 1985). As a result, a post-conviction civil forfeiture
action is dependent upon and related to the criminal proceedings brought against the criminal
defendant. In re Wolfson, 261 B.R. 369, 377 (Bankr. E.D.N.Y. 2001). If there is no criminal
conviction, there can be no in personam judgment or forfeiture of personal assets under this
statute. 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 “must be dismissed at any time after
sixty days of the commencement of the [civil forfeiture] action unless the conviction upon which
the action is grounded has occurred, or an indictment or information upon which the asserted
conviction is to be based is pending in a superior court.” CPLR § 1311[1](a). In this case, the
Defendants assert that the criminal conviction was encompassed in the Debtor’s guilty plea before
Justice Tammy Robbins. People v. Hardin, 67 A.D.2d 12, 16, 414 N.Y.S.2d 320, 322 (1 Dep’tst
1979). The plea, along with the entire criminal 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
defendant dies during direct appeal, his death abates the appeal and the criminal proceedings from
their inception). “Abatement” has been defined under common law to 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.
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2A Carmody-Wait 2d, N.Y. Prac. § 11.1. The practical effect of the abatement of the criminal
action is to render the Stipulation, which is based on the plea entered in the criminal action, a
nullity. First, there is no information or indictment pending against the Debtor and there is no
conviction, so the forfeiture action must be dismissed pursuant to CPLR 1311[1](a). Second, the
Stipulation provides that it shall remain in full force and effect “regardless of the ultimate
disposition of any potential criminal charges” giving rise to the forfeiture action, but does not state
that it shall remain in full force and effect if the criminal action is abated. (Ex. 3 to Rebecca
Winer Affidavit). Since abatement of the criminal action forecloses any disposition of the
criminal charges, this provision cannot serve to preserve the forfeiture granted under the
Stipulation. The language of the forfeiture statute also requires a finding that the forfeiture action
be treated as a nullity, because it requires dismissal of a post-conviction forfeiture action if there is
no conviction within sixty days of commencement of the action, or if there is no information or
indictment in the pending criminal action. Because of the abatement of the criminal action,
neither the indictment nor the information remain of record and as a result, there can be no post-
conviction forfeiture action. In sum, it is axiomatic that a post-conviction forfeiture action
requires a conviction, which conviction can never occur as a result of the Debtor’s untimely death.
Based on these findings, the Property remains part of the Debtor’s estate. The Defendants have no
right to retain the Property because they do not have title to the Property, and they no longer have
a valid order of attachment against the Property.
While the Defendants assert that the fact that they commenced a post-conviction forfeiture
action is significant, they argue that the abatement of the Debtor’s conviction has no impact on the
forfeiture action because it is a civil, remedial proceeding and survives the death of the Debtor.
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Aside from ignoring the statutory requirements that a conviction is a necessary component of a
post-conviction forfeiture action and the post-conviction civil forfeiture action must be dismissed
under the facts of this case, the Defendants’ argument is not supported by applicable case law. To
bolster their argument that the civil forfeiture action survives the death of the Debtor, the
Defendants cite to various sections of the New York Estates, Powers and Trusts Law which
permits a representative of a decedent’s estate to be substituted in a civil action. The fact that a
representative of the Debtor’s estate could be substituted for the Debtor in a civil action has no
bearing on whether the Stipulation retains validity after abatement of the criminal proceeding.
The Defendants also cite to People v. Mintz, 20 N.Y.2d 753, 229 N.E.2d 712, 283 N.Y.S.2d 120
(1967), and U.S. v. Land, Winston County, 221 F.3d 1194 (11 Cir. 2000). However, the Mintzth
case merely stands for the proposition that upon the death of a criminal defendant during an
appeal, the entire criminal prosecution is abated. As a result, the holding of the Mintz case does
nothing to support the Defendants’ position. U.S. v. Land, Winston County is distinguishable
because it concerns whether the death of a property owner during a civil forfeiture action abates
an in rem forfeiture action. The Eleventh Circuit was not called on to determine whether
abatement of a criminal conviction had any effect on an in personam civil forfeiture action similar
to the forfeiture action commenced by the DA against the Debtor.
The Court of Appeals for the Second Circuit has not ruled on whether the abatement of a
criminal action should apply to a related order of forfeiture or restitution. U.S. v. Wright, 160 F.3d
at 908. However, the Second Circuit has noted that the relevant issue for determining whether
abatement applies to an order of forfeiture or restitution is whether the order of forfeiture or
restitution is punitive and intended to punish the criminal defendant or whether the purpose of the
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action is to compensate the victims of a crime. Id. Although by its own terms, an Article 13-A
forfeiture action is “civil, remedial and in personam in nature and shall not be deemed to be a
penalty or criminal forfeiture for any purpose,” it is remedial only in the sense that one of the
purposes of this forfeiture statute is to deter others from committing such crimes. In re Wolfson,
261 B.R. at 377. There are no victims to be compensated in this forfeiture action, and to view the
forfeiture action as either purely compensatory or purely penal is incorrect. It is a civil action
dependent upon a criminal conviction. In re Wolfson, 261 B.R. at 377. Its twin purposes are to
deter 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 resulting forfeiture does exact a penalty on the defendant and does not
compensate any specific victim.
This understanding of the true nature of the forfeiture action comports with the Supreme
Court’s analysis of civil forfeitures under 21 U.S.C. § 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 while forfeiture statutes may have remedial goals, they historically
served to punish as well. According to the Supreme Court, this is particularly true where the
forfeiture statute seeks to punish the party guilty of the wrongdoing, and not an innocent owner of
the property to be forfeited. Austin v. U.S., 509 U.S. at 619, 113 S. Ct. at 2810, 2811. While
post-conviction forfeitures under Article 13-A of the CPLR are not identical to the forfeiture
statute analyzed by the Supreme Court, both statutes require that the criminal defendant be
culpable of a criminal offense prior to forfeiture. The Court finds the Supreme Court’s reasoning
in Austin v. U.S. is equally applicable and supports this Court’s conclusion that forfeiture under
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Article 13-A of the CPLR has an unmistakable punitive element.
Even if the Court were to adopt the Defendants’ argument that the Stipulation remains
valid regardless of the abatement of the criminal proceedings against the Debtor, the Defendants
cannot point to any authority which permits a Chapter 7 debtor to enter into a post-petition
agreement to transfer property of the estate to a third party without the consent of the trustee.
This is because a debtor 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 action and is viewed merely as an
agreement by the Debtor to transfer the Property to the Defendants, it would be unenforceable.
Any such transfer of property of the estate would also be subject to recovery by the Trustee under
Bankruptcy Code § 549(a). Standing alone, the Stipulation cannot be honored because once the
petition was filed, only the Trustee had the authority to use, sell or lease property of the estate
pursuant to Bankruptcy Code § 363. Furthermore, Bankruptcy Code § 363 requires prior notice
and a hearing before any use or sale of property of the estate outside the ordinary course of
business can be approved. An agreement by a debtor to transfer property of the estate without
prior notice and a hearing is void and of no force and effect. In re Koneta, 357 B.R. 540, 543
(Bankr. D Ariz. 2006).
2. Whether the Court’s conclusion that the Property did not represents the proceeds of the crimes
committed by the Debtor constitutes a factual error subject to correction under Rule 60(b)(1)
The Property consists of U.S. currency in the amount of $37,694.90, and assorted watches
and jewelry of an undetermined value. Except for a small amount of the cash, the Nassau County
Police Property Bureau has continuously held the Property. According to the Defendants, the
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affidavits and exhibits submitted by the Defendants in support of their summary judgment motion
do not establish “or even suggest” that the Property does not represent the proceeds of crimes.
The Defendants further argue that this mistake of fact affected the Court’s analysis of its legal
arguments in the underlying motion. In support of their motion for summary judgment, the
Defendants submitted a copy of the summons and complaint in this adversary proceeding, the
summons and verified complaint in the civil forfeiture action, a copy of the transcript of the plea
hearing before Justice Tammy Robbins, and a copy of the Stipulation. The Defendants also
submitted a one-page affidavit by Marc E. Weiman, Esq., Deputy County Attorney for the County
of Nassau, in which he states that his office did not participate in the Section 341 meeting held on
August 21, 2008 because his office did not receive notice of the Debtor’s bankruptcy, and that the
Debtor committed suicide on October 2, 2008. In addition, the Defendants submitted an Affidavit
of Rebecca Winer, an Assistant District Attorney for Nassau County. The Stipulation contains a
reference to the Property as proceeds, substitute proceeds and/or instrumentalities of the Debtor’s
criminal conduct, as does the Affidavit of Rebecca 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 on this forfeiture statute as the basis for seeking forfeiture of the Property. The statute
itself uses the same language, stating that a civil action may be commenced against a criminal
defendant “to recover the property which constitutes the proceeds of a crime, the substituted
proceeds of a crime, an instrumentality of a crime or the real property instrumentality of a crime
or to recover a money judgment in an amount equivalent in value to the property which
constitutes the proceeds of a crime, the substituted proceeds of a crime, an instrumentality of
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crime, or the real property instrumentality of a crime.” CPLR § 1311[1]. Case law is clear that2
this particular forfeiture statute does not require that the assets subject to the provisional order of
attachment be traceable to the alleged crimes. They can include any assets of the criminal
defendant which could be used to satisfy a potential judgment in the forfeiture action.
Morgenthau v. Citisource, Inc., 68 N.Y.2d at 220. The Defendants recognized this in the civil
forfeiture complaint, pursuant to which the Defendants sought either forfeiture of the proceeds or
substitute proceeds of the criminal acts or a monetary judgment equivalent to the value of such
items.
The Defendants also filed additional exhibits in support of their Motion, which were not
part of the record during the underlying proceedings, including a declaration by Rebecca Winer
explaining that the Property was initially seized from the Debtor’s residence and business address
pursuant to search warrants issued 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. The
Defendants also submitted a copy of the Debtor’s confession, and an affidavit by Thomas Kelly, a
member of the Nassau County Police Department, which was submitted in support of the motion
for the order of attachment issued in connection with the civil forfeiture proceedings. These
additional exhibits are part of the criminal action, which has been abated. There is no allegation
that they are newly discovered evidence, and there is no allegation that they were not in the
Defendants’ possession at the time of the hearing on the motion for summary judgment. In fact, at
"Proceeds of a crime" means "any property obtained through the commission of a felony2
... and includes any appreciation in value of such property." CPLR § 1310[2]. "Substituted
proceeds" "means any property obtained by the sale or exchange of proceeds of a crime, and any
gain realized by such sale or exchange." CPLR § 1310[3].
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the close of the hearing during the underlying proceedings, the Court gave the Defendants an
opportunity to supplement their motion with any additional documents they wished to submit, and
the Defendants declined to do so. The Defendants’ decision to refrain from submitting these other
documents which they now rely on does not warrant granting of relief under subsection (1) of
Rule 60(b). Where the mistake complained of is substantially due to the party’s own neglect or
choice of conduct, the party is not entitled to 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 a motion for summary judgment does not constitute grounds for relief under Rule 60(b));
Moolenaar v. Government of Virgin Islands, 822 F.2d 1342, 1347 (3d Cir.1987) (district court
abused its discretion by granting plaintiff's relief under Rule 60(b) where plaintiff was partly
responsible for not presenting the new evidence prior to the original judgment); Kahle v. Amtorg
Trading Corp., 13 F.R.D. 107, 108-09 (D.N.J.1952) (court denied plaintiffs' Rule 60(b) motion
when they sought to introduce documents that they recently discovered in their files).
Even if the Court were to permit these additional documents into the record in support of
the Defendants’ argument, a finding that the Property did constitute proceeds of the Debtor’s
criminal enterprise would not change the Court’s analysis of whether the Property was property of
the Debtor’s estate as of the Petition Date. First, the Debtor’s conviction and the entire criminal
proceeding have been abated, which calls into question whether the Property can ever be the
proceeds or substitute proceeds of a crime which no longer exists. Second, the argument actually
advanced by the Defendants was that under the theory of relation-back, title to the Property vested
with the Defendants as of the date that the criminal acts were committed, not after the Stipulation
was so-ordered. However, the statute under which the DA sought forfeiture has no applicable
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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, defining the nature of the Property is not the
critical issue under this particular statute. Article 13-A of the CPLR permits attachment of
property whether or not it constitutes proceeds of a criminal enterprise.
The cases cited by the Defendants in support of their argument did not concern general
theories regarding the nature of property and whether certain property could ever be property of a
debtor’s estate. Rather, the cases involved forfeiture 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
forfeiture action pursuant to 21 U.S.C. § 881, which specifically provides in subsection (h) that
“[a]ll right, title, and interest in property [forfeited] shall vest in the United States upon
commission of the act giving rise to forfeiture under this section.” In U.S. v. Kramer, 2006 WL
3545026 (E.D.N.Y. December 8, 2006), the forfeiture action in question involved a federal
criminal forfeiture statute which also specifically included a relation-back provision. There is no
similar provision in Article 13-A of the CPLR. It is clear that title does not vest in the claiming
authority until after a valid order of forfeiture has been entered, and there is no relation-back
provision in this statute.
According to the Defendants, they raised two arguments which the Court overlooked in
the underlying motion for summary judgment which concern the nature of the Property; 1) the
Property never became property of the Debtor under Bankruptcy Code § 541 because a debtor
cannot have a legally cognizable interest in property that constitutes criminal proceeds, and 2) to
the extent the Debtor had any legally cognizable interest in the Property as of the Petition Date, he
did not have an equitable right to possess, use or direct the use of the Property because the
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Property had been seized prepetition. As a result of the limitations imposed by the order of
attachment, the Property did not constitute property of the Debtor’s estate under Bankruptcy Code
§ 541. The Defendants are correct that pursuant to a Rule 60(b)(1) motion, the Court can consider
whether it overlooked an argument previously raised by a party. However, there is no evidence
from the record before the Court that these arguments were briefed, argued, or even raised. The
Defendants’ sole argument in support of their assertion that the Property was not part of the
Debtor’s bankruptcy estate was based on the theory of relation-back. The Defendants never
raised or cited to any case law regarding whether the Property was excluded from the Debtor’s
estate based on any other legal theory. The Defendants cannot utilize Rule 60(b)(1) to advance
new legal arguments they wish they had made at time the original motion was filed. Paddington
Partners v. Bouchard, 34 F.3d at 1147 (citing Nemaizer v. Baker, 793 F.2d at 62). It is not a
mistake of fact or law if the Court does not consider a legal argument which was never raised for
the Court to consider. Therefore, the request to reconsider whether the Property constituted
proceeds of a crime is denied.
3) Whether the Court’s conclusion that the now abated conviction occurred post-petition upon
entry of the Stipulation, not prepetition upon entry of the Debtor’s plea constitutes an error of fact
which must be corrected under Rule 60(b)
Based on the intervening abatement of the criminal proceeding including abatement of the
plea, this issue is relevant only in that the plea was abated along with the entire criminal
proceeding. To the extent the plea constitutes the conviction in this case, the Court shall correct
the record. However, altering the Decision to reflect that the conviction occurred as of the entry of
the plea does not change the Court’s analysis regarding whether the Debtor was divested of the
Property prepetition. The essential issue was whether the acts which took place prepetition, or
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even post-petition, sufficed to divest the Debtor of an interest in the Property as of the Petition
Date. The Court found that divestment did not occur prepetition as the Stipulation had not yet
been so-ordered. In fact, the Defendants concede in their Reply Memorandum that as of the
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 withdraw his plea and challenge the civil forfeiture.”
Defendants’ Reply Memorandum dated April 29, 2009, note 7. Recognizing that the Debtor’s
plea constituted his conviction does not affect the Court’s finding that the Debtor retained an
interest in the Property as of the Petition Date. In any event, the plea has been abated along with
the criminal conviction and no longer stands.
4) Whether the Court made an error of law in its analysis of whether the post-petition actions of
the Defendants in the forfeiture proceeding constituted an exception to the automatic stay pursuant
to Bankruptcy Code § 364(b)(4)
In the Decision, the Court found that the issue of whether the actions taken by the
Defendants post-petition were exempt under Bankruptcy Code § 362(b)(4) was not germane to the
issues raised in the adversary proceeding. However, the Court found that nothing regarding
applicability of the automatic stay would change the Court’s finding that as of the Petition Date,
the Property belonged to the Debtor. Contrary to the Defendants’ assertions, this Court did not
find that commencement or continuation of actions by the government in furtherance of its police
or regulatory powers are not exempt from the stay. Rather, this Court found that any action to
seize the Property would not fall within the exception to the automatic stay set forth in
Bankruptcy Code § 362(b)(4). Given that the Stipulation, is now a nullity, there is no reason for
the Court to decide whether any acts by the Defendants to take possession of the Property would
be stayed. This issue is not properly before the Court because, for the reasons set forth above, the
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Defendants do not currently have any right to take possession or ownership of the Property.
Therefore, the portion of the Decision regarding the applicability of the automatic stay to any
action to take possession of the Property is vacated. Based on the Court’s rulings in the Decision
which are unaffected, the Defendants are not stayed from commencing a forfeiture action so long
as the action falls within the exception to the automatic stay set forth in Bankruptcy Code §
362(b)(4). Because the Court has no information regarding what exactly the Defendants may do,
the Court will not comment any further, except to state that the Trustee will be permitted to
participate in any such action, armed with the powers conferred upon the Trustee under
Bankruptcy Code § 544(a) and any other applicable statute.
Conclusion
For the reasons set forth above, the Motion is denied, except to correct that the forfeiture
action against the Debtor was an action based on post-conviction forfeiture crimes, not pre-
conviction forfeiture crimes. Because the conviction of the Debtor, along with the entire criminal
proceeding, was abated after the Court rendered the Decision, the post-conviction forfeiture action
as set forth in Article 13-A of the CPLR is of no force and effect. The Stipulation is of no force
and effect as well, and the Defendants have no valid lien against or title to the Property. As a
result, the Court vacates the portion of the Decision which finds that any attempt to seize the
Property pursuant to the post-conviction forfeiture action violates the automatic stay, because
there is no valid post-conviction forfeiture proceeding pending. To the extent that the Defendants
seek to commence a forfeiture action against the Property, such action will not be stayed so long
as the action falls within the exception to the stay set forth in Bankruptcy Code § 362(b)(4). The
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Trustee shall have the right to assert any defenses it has under the Bankruptcy Code including
those granted under Bankruptcy Code § 544(a). An order consistent with this Memorandum
Decision shall be entered forthwith.
Dated: Central Islip, New York
July 23, 2009 By: /s/ Robert E. Grossman
Robert E. Grossman
United States Bankruptcy Judge
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