Opinion
1:98CV00011
May 17, 2002
MEMORANDUM OPINION
This is a civil forfeiture action concerning real property located at 3714 Cancun Loop, Webb County, Laredo, Texas. Plaintiff, the United States (hereinafter "the Government"), seeks forfeiture of the defendant property pursuant to 21 U.S.C. § 881 (a)(6), alleging that the property represents proceeds of illegal drug trafficking. Claimant Jose Antonio Lozano, the owner of the property, is proceeding pro se in this matter.
This case is currently pending on cross-motions for summary judgment. For the reasons set forth herein, Claimant's motion will be denied, and the Government's motion will be granted.
Claimant's Application for Witness Subpoena [92], Motion in Limine [90], and Motion and Affidavit in Support of Request to Proceed In Forma Pauperis [93] will be denied as moot.
I. FACTUAL BACKGROUND
On April 30, 1993, Claimant entered into a Contract for Deed with developer Hill Top Farms, Ltd. ("Hill Top") for the defendant property, a residential lot in the "Los Presidentes VI" subdivision of Laredo, Texas. Claimant made a down payment of $500 and agreed to pay the balance of the $22,000 purchase price plus interest in monthly installments of $260.35.
Claimant began building a house on the lot at 3714 Cancun Loop in mid-1993, doing most of the labor himself. Various family members and friends of Claimant assisted in the building project. In mid-1995, when the house was approximately half completed, Claimant moved his family into their new home. Claimant finished constructing the house in 1997.
The total dollar figure invested in improvements to the property is unknown. Claimant attests that he purchased the building materials for the house himself, and that some of the materials were bought in Mexico at a discounted price. However, Claimant has provided no evidence, documented or otherwise, of the cost of his building materials. Claimant admits paying two subcontractors a total of $6,700 to work on the house but has provided no evidence of amounts paid (if any) to others who assisted him.
With respect to the lot itself, the record is more illuminating. Claimant had paid a total of $17,193.38 to Hill Top by June 1997, when he stopped making payments, leaving a remaining balance of $18,760.78 on the contract. By June 20, 1998, when Hill Top responded to discovery, Claimant owed a total of $23,940.14, including property taxes paid by Hill Top and late payment charges.
The tax value of the property grew as construction on Claimant's residence progressed. From 1994 to 1996, the tax value of the lot was $16,880. In 1996, the improvements on the lot were valued at $52,610. In 1997, when the house was completed, the tax value of the improvements was $106,720 and the value of the lot had increased to $21,630, for a total tax value of $128,350. A photograph of the completed home is attached hereto as Exhibit A.
Claimant's income during the period of the house's construction has not been clearly established. Claimant states that in 1993 he was using space in his brother Francisco's auto shop to perform auto body and paint work. Claimant allegedly continued working in that capacity until the end of 1995, when he opened his own business, "Fiesta Tire," in Laredo. Fiesta Tire was primarily a tire sales shop but also offered auto body paint and car wash services. Claimant registered Fiesta Tire as a partnership with the Webb County (Texas) Clerk's Office on February 28, 1996, naming a Mr. John Paulette as his partner. On April 1, 1996, Claimant and Mr. Paulette incorporated their business under the name Fiesta Tire, Inc. According to tax and accounting records produced in discovery, Fiesta Tire suffered a net loss for 1996 of approximately $48,000. Claimant did not receive wages from Fiesta Tire.
Claimant has offered no documentation of his income-producing activities other than his tax returns. Claimant's tax return for 1993 reported $8,000 in unspecified commissions as his sole source of income. Claimant's 1994 and 1995 tax returns reported commissions income of $24,000 and $36,000, respectively. These figures were identified as gross receipts on Schedule C of Claimant's Form 1040 tax returns, and were not offset by any business-related expenses. No other source of income is reflected on either the 1994 or 1995 tax return. Claimant did not file any tax returns after 1995.
In May 1996, Claimant's activities came under scrutiny by state and federal law enforcement officials investigating a drug smuggling/money laundering scheme stretching from Texas to Albemarle, North Carolina. The investigation revealed that from June 1995 to May 1996, Claimant and Mr. Paulette, his business partner, had transported over 700 pounds of marijuana from Texas to North Carolina, where Mr. Paulette's son, Harold, and son-in-law, Leonard Bessone, assisted in distributing the marijuana. Claimant received payment for the drugs either in cash, delivered to Laredo by John Paulette, or by wire transfers. These wire transfers were directed to Claimant, Claimant's wife, and to Fiesta Tire. Claimant has admitted that the profit per pound was between $50 and $75, split between Claimant and John Paulette.
On May 15, 1997, Claimant was arrested in New York after selling approximately 200 pounds of marijuana to an undercover police officer for $135,000. Following this arrest, Claimant and his co-conspirators were indicted in the Middle District of North Carolina for conspiracy to distribute marijuana and conspiracy to launder money. In an interview with U.S. Customs Service agents while in custody, Claimant admitted that he had started dealing drugs in 1994 and had used drug proceeds to purchase some of the materials used to build his home at 3714 Cancun Loop.
The bill of indictment filed in this district charged Claimant with conspiring to distribute drugs from in or about June 1995, and conspiring to launder money from in or about August 1995. Claimant vigorously disputes that the drug conspiracy commenced as early as 1994, as Customs agents represent. It is unclear whether Claimant denies dealing any drugs whatsoever as early as 1994, or whether Claimant merely denies being a part of the Paulette-Bessone conspiracy at that time.
On February 20, 1998, Claimant pleaded guilty to charges of conspiracy to launder money and conspiracy to distribute marijuana and was sentenced to 121 months' imprisonment. He presently is confined at F.C.I. Texarkana, Texarkana, Texas.
Claimant disputes that drug proceeds were used to finance the construction of his home and asserts that Special Agent Jack Barnwell of the U.S. Customs Service committed perjury by declaring under oath that Claimant had said so. Claimant alleges that the attorney who represented him on the New York charges, Mr. Ernest Peace, initiated a meeting with federal agents working on the North Carolina investigation in an attempt to procure a downward departure in Claimant's sentencing. According to Mr. Peace, when Claimant told the agents at this meeting that the Government was trying to take away his home, they replied that they were not interested in taking Claimant's home but in prosecuting Claimant and others for their actions. These negotiations did not result in a downward departure motion for Claimant, however, because the Government questioned Claimant's truthfulness as to the quantity of drugs he distributed.
II. DISCUSSION
Claimant has failed to offer competent evidence to rebut the Government's showing of probable cause that his property at 3714 Cancun Loop, Laredo, Texas was financed by illegal drug proceeds. As such, summary judgment will be granted to Plaintiff, and a judgment of forfeiture will be entered against the defendant property.
Summary judgment is appropriate when the pleadings and other evidence show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c);Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986)
Section 881(a), Title 21, United States Code, provides for forfeiture to the United States of, inter alia:
(6) All moneys, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance or listed chemical in violation of this subchapter, all proceeds traceable to such an exchange, and all moneys, negotiable instruments, and securities used or intended to be used to facilitate any violation of this subchapter.21 U.S.C. § 881 (a)(6) (West 2002) (emphasis added). In an action brought pursuant to this section, the government "has the initial burden of demonstrating probable cause for the belief that a substantial connection exists between the property to be forfeited and the criminal activity defined by statute." United States v. Thomas, 913 F.2d 1111, 1114 (4th Cir. 1990). To demonstrate probable cause, the government must show "reasonable ground[s] for belief of the property's guilt; supported by less than prima facie proof but more than mere suspicion." United States v. One Parcel of Real Property, 921 F.2d 370, 373 n. 6 (1St Cir. 1990). The evidence relied upon by the government in establishing probable cause need not be admissible in court, but it nevertheless must be reliable. See United States v. Pole No. 3172, Hopkinton, 852 F.2d 636, 639 (1St Cir. 1988).
Once the government has established probable cause, the burden shifts to the claimant to establish by a preponderance of the evidence that the defendant property was not purchased with drug proceeds or otherwise connected to illegal drug activity. See United States v. One Single Family Residence, 933 F.2d 976, 979 (11th Cir. 1991). If the claimant is unable to produce such evidence to rebut the government's assertion, probable cause alone will justify a judgment of forfeiture. See Thomas, 913 F.2d at 1114.
In the instant case, it is clear that the Government has produced substantial circumstantial evidence of the defendant property's connection to drug trafficking. See Thomas, 913 F.2d at 1117 (finding circumstantial evidence sufficient to support probable cause). Claimant was convicted of drug conspiracy charges involving the distribution of more than 700 pounds of marijuana between June 1995 and May 1996 alone. Even using Claimant's own conservative estimate of $50 profit per pound of marijuana sold (with $25 profit going to Paulette and $25 to Claimant), Claimant would have earned $17,500 during that one-year period. At $75 profit per pound, Claimant would have earned over $26,000. Despite the fact that Claimant had no documented legitimate income from 1993 to 1997, he was able to make payments to Hill Top totaling $17,193 for the defendant property. Moreover, Claimant also was able to expend an unknown but undoubtedly substantial sum of money on building materials for his home, resulting in a finished residence that was assessed at $106,720 in 1997. These circumstances, when considered in their totality, create probable cause to believe that Claimant's home was financed by drug proceeds. See Thomas, 913 F.2d at 1117 (courts are not to parse various items of evidence in isolation, but to consider evidence in its totality)
Claimant has offered little evidence to rebut the Government's showing of probable cause that his residence was financed with drug trafficking proceeds. Even if the court were to take at face value Claimant's assertion that he earned $8,000 in 1993, $25,000 in 1994, and $36,000 in 1995 in "commissions" income (on the basis of his tax returns, offered without any supporting documentation), his "legitimate" income is far exceeded by his expenditures for the period. Claimant made over $17,000 in payments toward his lot and was able to purchase building materials and/or hire subcontractors to build a residence that was valued by tax authorities in 1997 at over $100,000. Moreover, Claimant somehow found enough cash for his business, Fiesta Tire, to make disbursements resulting in a net loss to the business of over $48,000.
The court notes that these income figures are suspiciously round for one who claims to have been self-employed in the field of auto body repair.
Under the "net worth" theory, the court is allowed to presume that a claimant's expenditures in excess of legitimate sources of income are from illegitimate sources of income, in the absence of any explanation reasonably susceptible of being checked. See United States v. Nelson, 851 F.2d 976, 980 (7th Cir. 1988). Because Claimant has failed to provide any such explanation, this court finds that Claimant has failed to establish by a preponderance of the evidence that the defendant property was not purchased with drug proceeds.
III. CONCLUSION
Claimant has failed to rebut the Government's showing of probable cause that the defendant property was financed with drug proceeds, and, consequently, has tailed to raise a genuine issue of material fact. Therefore, pursuant to 21 U.S.C. § 881 (a)(6), the Government's motion for summary judgment will be granted and the defendant property will be forfeited to the United States,
A judgment in accordance with this memorandum opinion will be filed contemporaneously herewith.
JUDGMENT
For the reasons stated in the memorandum opinion filed contemporaneously herewith,
IT IS ORDERED AND ADJUDGED that Plaintiff's Motion for Summary Judgment [61] is granted.
IT IS FURTHER ORDERED that Claimant's Motion for Summary Judgment [75] is denied. Claimant's Motion in Limine [90], Application for Witness Subpoena F [92], and Motion and Affidavit in Support of Request to Proceed In Forma Pauperis [93] are denied as moot.