Opinion
Criminal No. 18-426 (FAB)
08-07-2019
UNITED STATES of America, Plaintiff, v. Félix PEÑA-FERNÁNDEZ, Defendant, v. Doctor's Associates, LLC, Subway Realty, LLC, Third-Party Petitioners.
Seth Erbe, United States Attorneys Office District of Puerto Rico, San Juan, PR, for Plaintiff. Osvaldo Carlo-Linares, Carlo Law, LLC, Giovanni Jose Canino-Sanchez, San Juan, PR, for Defendant. Gregory J. Figueroa-Rosario, Jaime A. Torrens-Davila, Ferraiuoli LLC, Maria J. Marchand-Sanchez, San Juan, PR, for Third-Party Petitioners.
Seth Erbe, United States Attorneys Office District of Puerto Rico, San Juan, PR, for Plaintiff.
Osvaldo Carlo-Linares, Carlo Law, LLC, Giovanni Jose Canino-Sanchez, San Juan, PR, for Defendant.
Gregory J. Figueroa-Rosario, Jaime A. Torrens-Davila, Ferraiuoli LLC, Maria J. Marchand-Sanchez, San Juan, PR, for Third-Party Petitioners.
OPINION AND ORDER
BESOSA, District Judge.
The Court denied third-party petitioners Doctor's Associates, LLC ("Doctor's Associates") and Subway Realty, LLC ("Subway Realty") (collectively "Subway")'s request for relief from forfeiture. United States v. Peña-Fernández, 378 F. Supp. 3d 130 (D.P.R. 2019) (Besosa, J.). Subway moves for the Court to reconsider the forfeiture order. (Docket No. 92.) For the reasons set forth below, the Court DENIES Subway's motion for reconsideration.
I. Background
From November 2011 to June 2015, defendant Félix Peña-Fernández ("Peña") fraudulently obtained more than $3,500,000.00 from Banco Popular and other financial institutions. (Docket No. 14 at p. 12.) Peña entered into franchise agreements with Subway to operate "restaurants featuring sandwiches, pizza and salads" on April 20, 2015 and August 15, 2015. (Docket No. 34, Ex. 3 at p. 3.)
A grand jury charged Peña with committing bank fraud in violation of 18 U.S.C. § 1344(2) (counts one through thirteen), and money laundering in violation of 18 U.S.C. § 1957 (counts fourteen through eighteen). (Docket No. 3.) Peña pled guilty to thirteen counts of bank fraud on August 24, 2018. (Docket No. 13.) Subsequently, Subway terminated the franchise agreements because Peña committed bank fraud. Docket No. 71, Exs. 1 and 2; see Franchise Agreement (Subway may terminate the agreement if Peña is "convicted or plead[s] guilty or ‘nolo contendere’ to a felony") (Docket No. 34, Ex. 3 at p. 9.)
The United States agreed to dismiss the money laundering counts after sentencing. (Docket No. 14 at p. 6.) The sentencing hearing is scheduled for September 5, 2019. (Docket No. 90.)
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The Court issued a preliminary forfeiture order, authorizing the United States to seize:
a. All rights, title, interest in any Franchise Agreement and Sublease Agreement, and ongoing business assets for Subway Franchise Number 18256 and the Subway premises located at Plaza Río Hondo, Avenida Comerío Esquina Expreso de Diego, in Bayamón, Puerto Rico;
b. All rights, title, interest in any Franchise Agreement and Sublease Agreement, and ongoing business assets for Subway Franchise Number 21043 and the Subway premises located at Urb. San Agustín, 1174 Máximo Alomar Street, San Juan, Puerto Rico.
(Docket No. 24 at p. 1.) Subway moved for relief from forfeiture, contending that it possesses "superior rights and interests in the subject properties." (Docket No. 34 at p. 4.)
The Court denied Subway's motion for relief from forfeiture. Peña-Fernández, 378 F. Supp. 3d 130. Pursuant to 21 U.S.C. § 853 (" section 853"), the Court must amend a preliminary forfeiture order if:
the petitioner has a legal right, title, or interest in the property, and such right, title or interest renders the order of forfeiture invalid in whole or in part because the right, title or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of [the offense].
21 U.S.C. § 853(n) (emphasis added). "Because the property subject to forfeiture and Subway's property are distinct," the Court held that "amendment of the preliminary forfeiture order is unwarranted." Peña-Fernández, 378 F. Supp. 3d at 136. Subway argues that "there can be no forfeiture of agreements that no longer exist." (Docket No. 92 at p. 5) (emphasis omitted).
II. Legal Standard
The Federal Rules of Criminal Procedure do not explicitly provide for motions for reconsideration. See United States v. Ortiz, 741 F.3d 288, 292 n.2 (1st Cir. 2014) (citation omitted) ("[M]otions for reconsideration in criminal cases are not specifically authorized either by statute or by rule."). The First Circuit Court of Appeals, however, applies Federal Rule of Civil Procedure 59(e) (" Rule 59(e)") to motions for reconsideration arising in the criminal context. See, e.g., United States v. Allen, 573 F.3d 42, 53 (1st Cir. 2009) (applying Rule 59(e) to a motion for reconsideration in a criminal case).
Pursuant to Rule 59(e), a district court will alter its original order only if it "evidenced a manifest error of law, if there is newly discovered evidence, or in certain other narrow situations." Biltcliffe v. CitiMortgage, Inc., 772 F.3d 925, 930 (1st Cir. 2014) (citation omitted). A motion for reconsideration does "not provide a vehicle for a party to undo its own procedural failures [or] allow a party [to] advance arguments that could and should have been presented to the district court prior to judgment." Iverson v. City of Bos., 452 F.3d 94, 104 (1st Cir. 2006) (citation omitted). " Rule 59(e) does not exist to allow parties a second chance to prevail on the merits ... [and] is not an avenue for litigants to reassert arguments and theories that were previously rejected by the Court." Johnson & Johnson Int'l v. P.R. Hosp. Supply, Inc., 322 F.R.D. 439, 441 (D.P.R. 2017) (Besosa, J.) (citations omitted). "Stated another way, a motion for reconsideration is not properly grounded in a request for a district court to rethink a decision it has already made, rightly or wrongly." Morán Vega v. Rivera Hernández, 381 F. Supp. 2d 31, 36 (D.P.R. 2005) (Domínguez, J.).
In deciding a motion for reconsideration, the reviewing court has considerable discretion. Venegas-Hernández v. Sonolux Records, 370 F.3d 183, 190 (1st Cir. 2004). "As a general rule, motions for reconsideration should only be exceptionally granted." Villanueva-Méndez v. Nieves Vázquez, 360 F. Supp. 2d 320, 323 (D.P.R. 2005) (Domínguez, J.). " Rule 59(e) relief is granted sparingly." Biltcliffe, 772 F.3d at 930.
III. Discussion
Subway's motion for reconsideration is unavailing for two reasons. First, Subway relies on irrelevant facts. Second, Subway misconstrues the property subject to forfeiture.
Subway terminated the franchise agreements after Peña pled guilty to bank fraud. (Docket No. 13; Docket No. 71, Exs. 1 and 2.) According to Subway, "no forfeiture can ensue over something that no longer exists." (Docket No. 92 at p. 3.) The "relation back doctrine" in section 853 provides, however, that "[a]ll rights, title, and interest in property [subject to forfeiture] vests in the United States upon the commission of the act giving rise to forfeiture." 21 U.S.C. § 853(c). Peña committed bank fraud from November 2011 to June 2015. (Docket No. 14 at p. 12.) Accordingly, the United States' interest in the forfeited property vested in 2011. See United States v. Cátala, 870 F.3d 6, 10 (1st Cir. 2017) ("Since the proceeds from a crime do not precede the commission of the crime, the government's interest in proceeds forfeited pursuant to section 853(a)(1) will almost always pre-date that of a third party.") (internal citation and quotation omitted); United States v. White, 779 F. Supp. 2d 984, 990 (D. Minn. 2011) (denying motion to amend forfeiture order because "[u]nder the relation-back doctrine, the Government's interest in [tainted] proceeds vested immediately upon the commission of the underlying fraud, and that interest continued even after the fraudulently obtained funds were used to purchase the ZINK stock.") (citation omitted). The relevant timeframe is the date that Peña's interests vested in the United States. That Subway terminated the franchise agreements after Peña's change of plea hearing is immaterial to the Court's analysis.
Subway's claim that Peña's rights do not exist is suspect. Subway filed an arbitration claim four months after requesting relief from forfeiture. (Docket No. 34; Docket No. 92, Ex. 1.) The arbitration claim requests a "declaratory award that the franchisees have breached their Subway® franchise agreements," an "award of all money owed to" Subway, and "termination of the franchise agreements," (Docket No. 91, Ex. 1 at p. 6.) Subway is inconsistent: the franchise agreements require termination by an arbitrator on the one hand, but are nonexistent for purposes of forfeiture on the other. Any proceeds that Peña may receive in arbitration are subject to forfeiture. Subway purports that the Court disregarded the "superior legal, title or interest standard" set forth in section 853. (Docket No. 92 at p. 7; see Cátala, 870 F.3d at 10 ("To prevail on the merits under section 853(n)(6)(A), a third party must prove that ... the right to property to be forfeited was either vested in him rather than the defendant or that his interest in it was superior to the defendant's interest.") (citation omitted). The franchise agreements, Subway argues, assigned inferior rights to Peña. (Docket No. 92 at p. 8.)
Subway's contention that it "had the upper hand against Mr. Peña" suggests that the franchise rights are hierarchical and pertain to the same property. The Court is cognizant that Subway reserved the option to terminate the franchise agreements in the event that Peña committed a criminal offense. (Docket No. 34, Ex. 3.) No party disputes that Subway owns a "proprietary system for establishing and operating restaurants featuring sandwiches, pizza and salads" (hereinafter, the "system"). (Docket No. 34, Ex. 3 at p. 3.) Peña's rights to access the system are, however, distinct rather than inferior. The contractual rights set forth in the franchise agreements concern discrete obligations and privileges. Peña did not acquire ownership of Subway's proprietary system.
The rights conferred to Peña pursuant to the franchise agreements constitute property subject to forfeiture, regardless of the contractual rights reserved by Subway. See United States v. Dicter, 198 F.3d 1284, 1290 (11th Cir. 1999) (affirming the forfeiture of defendant's medical license despite Georgia law mandating "certain procedures for the revocation of a medical license by the state medical licensing board.") (citing 21 U.S.C. § 853(a) ). Indeed, Courts have ordered the forfeiture of franchise rights pursuant to section 853. See United States v. Patterson, Case No. 13-193, Docket No. 196 (E.D. Wis. Dec. 10, 2014) (ordering the forfeiture of "all right, title and interest in the net proceeds of Fast Eddy's LLC's sale of its franchise rights, equipment, and leasehold improvements of the McDonald's restaurants"); United States v. Ralph, Case No. 96-497, Docket No. 302 (S.D. Cal. May 7, 2007) (ordering the forfeiture of "[a]ll interest and rights held by or in the control of the defendant in the Indian Motorcycle Franchise").
Subway failed to demonstrate manifest error of law, and did not present newly discovered evidence. See Biltcliffe, 772 F.3d at 930. The Court AFFIRMS its Opinion and Order denying Subway's request for relief from forfeiture. Peña-Fernández, 378 F. Supp. 3d 130. Accordingly, Subway's motion for reconsideration is DENIED . (Docket No. 92.)
The Court held that the "Final Forfeiture Order pertains solely to Peña's rights, title and interests pursuant to his agreement with Subway." Peña-Fernández, 378 F. Supp. 3d at 136. The preliminary forfeiture order provides that the United States is "entitled to possess both [Subway] properties, free and clear." (Docket No. 24 at p. 2.) The property subject to forfeiture is limited, however, to the interests possessed by Peña pursuant to the franchise and sublease agreements. See United States v. Huntington Nat'l Bank, 682 F.3d 429, 433 (6th Cir. 2012) (holding that section 853 permits the United States to step into the defendant's shoes, "acquiring only the rights [he possessed] at the time of the criminal acts, and nothing more"). The United States shall submit a proposed final forfeiture order consistent with this Opinion and Order no later than August 20, 2019 .
IV. Conclusion
For the reasons set forth above, Subway's motion for reconsideration is DENIED . (Docket No. 92.) The United States shall submit a proposed final forfeiture order consistent with this Opinion and Order no later than August 20, 2019 .