Opinion
Case No. 1:98-CR-220
July 16, 2002
John C. Bruha, for Plaintiff.
Sharon A. Turek, for Defendant D. Ricketts
Robert N. Swartz, for Defendant C. Ricketts.
Frank S. Spies, for Defendant D. Swackhammer.
Scott D. Broekstra, for Claimant EquiCredit.
OPINION
This matter is before the Court on Claimant EquiCredit Corporation of America's Motion for Return of Property under Federal Rule of Criminal Procedure 41(e). Plaintiff United States of America has opposed the request on the ground that the property at issue (proceeds from the sale of real property, 936-942 33rd Street, S.E., Grand Rapids, Michgan, previously owned by Defendants David and Carolyn Ricketts) should be used to reimburse the United States of America for costs of Defendants' criminal defense pursuant to 18 U.S.C. § 3006A. The Court determines that oral argument is unnecessary to resolve the Motion.
Although Rule 41(e) contemplates an evidentiary hearing to adjudicate factual disputes, the parties here have not requested an evidentiary hearing and they appear prepared to rely upon the statements and records filed with their briefs, which mostly consists of record facts relating to the mortgage. As such, and in light of the adequate briefing, further hearing of this matter is unnecessary. See United States v. Gross, 137 F. Supp. 244, 246 (D.N.Y. 1956) (holding that hearing is unnecessary where essential facts are undisputed); see also United States v. Migely, 596 F.2d 511, 513 (1st Cir. 1979); In re Search of 949 Erie Street, 645 F. Supp. 55, 57 (E.D. Wis. 1986).
Those facts pertinent to the resolution of this matter are as follows: On April 5, 1998, Defendants purchased the real estate subject to the mortgage of CommonPoint Mortgage. CommonPoint's mortgage was recorded on April 8, 1998 with the Kent County Recorder of Deeds. The CommonPoint mortgage was then assigned to the EquiCredit Corporation of America (hereafter "EquiCredit") in December 1998 when it purchased the mortgage. EquiCredit's assignment was recorded on December 22, 1998.
On November 25, 1998, Defendants were indicted on federal charges. On January 29, 1999, Plaintiff caused to be filed with the Kent County Recorder of Deeds a notice of pending lien (pursuant to 18 U.S.C. § 3006A) asserting its legal interest in the real property (similar to a tax lien).
Beginning in January 1999, Defendants began to market the property for sale. In August 1999, Greenridge Realty on behalf of Defendants located a buyer. On August 25, 1999, an unsigned letter from a "customer service representative" was sent on the letterhead of EquiCredit to David Ricketts advising him that a payoff check had been received by EquiCredit, that the check would be processed, and that a satisfaction of mortgage should be forthcoming in 30 to 60 days. EquiCredit now disavows any knowledge of how this document was sent or prepared and claims to have no copy of the document in its files. EquiCredit also denies, in the event that letter was sent by its customer service representative, that such person had any authority to make those statements on behalf of EquiCredit. EquiCredit also apparently denies receipt of any such payment.
In September 1999, Transnation Title Insurance Company (hereafter "Transnation") prepared settlement papers for the sale of the property which did not account for the EquiCredit mortgage because of the August 25, 1999 letter. The property was sold and the entire balance, less expenses of sale, was deposited in the Court's registry, pursuant to this Court's Order of August 28, 1999, for later distribution. In other words, it was the purpose of the August 28, 1999 Order to facilitate sale by discharging the United States' lien, but reserving for later determination the rights of the various claimants to the money based on their ownership interests which pre-dated the discharge. The sale was not closed by Transnation until November 15, 1999. (EquiCredit's Motion, Exhibit G at 4.)
As of June 9, 1999, EquiCredit had assigned its interests in the mortgage to Credit Based Asset Servicing and Secularization, L.L.C. (hereafter "Credit Based"). The assignment was recorded on November 22, 1999. During the assignment, payments were directed to Credit Based's servicing company, Litton Loan Servicing, L.L.P.
On or about June 5, 2001, EquiCredit repurchased its interests from Credit Based and was re-assigned the mortgage by Credit Based. In July 2001, David Ricketts was notified to send mortgage payments to NationsCredit Corporation (the servicing agent for EquiCredit). On June 19, 2002, EquiCredit submitted a notice of assignment, showing its ownership, to the Kent County Recorder of Deeds for recording. (EquiCredit Motion at 8.)
After the closing of the sale in November 1999, Transnation filed suit in Kent County Circuit Court, Case No. 01-03938, against EquiCredit and Credit Based for causing Transnation injury in the settlement of the purchase. Apparently it is EquiCredit's position in that suit that Transnation was negligent in closing the sale in that it improperly relied upon the August 25, 1999 letter and that it failed to follow proper escrow procedures. (See EquiCredit Motion, Exhibit F, Affidavit of Gerald Hardebeck.) Apparently it is Plaintiffs position, and that of Transnation as well, that EquiCredit acted wrongfully in making the representations contained in the August 25, 1999 letter. (See United States' Response at ¶ 4.)
LEGAL STANDARDS
This Motion is governed by Federal Rule of Criminal Procedure 41(e), which provides:
A person aggrieved by an unlawful search and seizure of property may move the district court for the district in which the property was seized for the return of the property on the ground that such person is entitled to lawful possession of the property. The court shall receive evidence on any issue of fact necessary to the decision of the motion. If the motion is granted, the property shall be returned to the movant, although reasonable conditions may be imposed to protect access and use of the property in subsequent proceedings. If a motion for return of property is made or comes on for hearing in the district of trial after an indictment or information is filed, it shall be treated also as a motion to suppress under Rule 12.
Case law on this Rule treats a post-judgment Rule 41(e) motion for property as a civil proceeding which is equitable in character. United States v. Dusenbery, 201 F.3d 763, 768 (6th Cir. 2000); United States v. Marolf, 173 F.3d 1213, 1216 (6th Cir. 1999); United States v. Duncan, 918 F.2d 647, 654 (6th Cir. 1990). In the Duncan case, the Sixth Circuit further explained the nature of this equitable proceeding as follows:
"The general rule is that seized property, other than contraband, should be returned to the rightful owner after the criminal proceedings have terminated." Sovereign News, 690 F.2d at 577 (quoting United States v. LaFatch, 565 F.2d 81, 83 (6th Cir. 1977), cert. denied, 435 U.S. 971, 98 S.Ct. 1611, 56 L.Ed.2d 62 (1978)). However, a defendant's right to the return of lawfully seized property is subject to any continuing interest the government has in the property. United States v. Francis, 646 F.2d 251, 263 (6th Cir.), cert. denied, 454 U.S. 1082, 102 S.Ct. 637, 70 L.Ed.2d 616 (1981). The government's interest may take different forms as long as it is a legitimate interest. See Sovereign News, 690 F.2d at 577 (use in investigation); Francis, 646 F.2d at 263 (right to levy).
Duncan, 918 F.2d at 654.
In applying this equitable proceeding, federal courts consider equitable defenses such as laches, Vance v. United States, 965 F. Supp. 944, 946 (E.D. Mich. 1997), unclean hands, United States v. Parlavecchio, 192 F. Supp.2d 349, 352 (M.D. Pa. 2002), and the restriction that equitable relief is unavailable when the movant has an adequate remedy at law, United States v. Elias, 921 F.2d 870, 875 (9th Cir. 1990). As an aside, the Parlavecchio decision involved one of the more colorful applications of the doctrine of unclean hands on record. In that case, the district court, under Rule 41(e), ruled that under the doctrine of unclean hands, a women who had been convicted of bribing a prison guard to provide to her husband in prison (for return to her) a cryogenic seminal fluid storage kit was not entitled to the return of the seminal fluids. Unclean hands, indeed!
More to the point, Plaintiff relies upon the equitable doctrine that equitable relief is unavailable when the movant has an adequate remedy at law and asserts that EquiCredit could proceed on legal claims in state court. EquiCredit argues that the defense does not apply since it is pertinent only when the remedy at law is "`plain, clear and certain, prompt or speedy, sufficient, full and complete, practical, efficient to the attainment of the ends of justice, final[,]'" Interstate Cigar Co. v. United States, 928 F.2d 221, 223 (7th Cir. 1991) (quoting American Jurisprudence); see also 27A Am. Jur.2d Equity § 37 (2002).
Although EquiCredit also protests doing so, its Motion recognizes that it also has an ability to foreclose on its mortgage. EquiCredit would prefer not to do so because it would dispossess the innocent purchasers and also because the property may have decreased in value. (See EquiCredit Motion at 13.)
LEGAL ANALYSIS
As noted in the Duncan decision, the general rule is that property of a claimant is to be returned upon conclusion of criminal proceedings subject to the valid interests of the government. The government does have a valid right and interest in levying in a defendant's property to pay costs of defense. However, as correctly noted by EquiCredit, this interest, while it might defeat the interest of an unsecured claimant, cannot under the ordinary legal principle of "first in time, first in right" defeat an interest which was secured prior to the government's levy. See United States v. Pioneer American, 374 U.S. 84, 87 (1963). Since in this case, EquiCredit's mortgage was recorded in April 8, 1998 and the United States' interest was perfected on January 29, 1999, EquiCredit has a superior property right in the proceeds.
This analysis, however, does not end the inquiry. The Court must also decide the terrible question of whether EquiCredit has an adequate remedy at law. Plaintiff argues that EquiCredit does have an adequate remedy at law. Possible legal remedies include its potential legal actions for foreclosure (against the innocent purchasers), and for negligence (against Transnation). Upon consideration, each of these remedies is not adequate. First of all, as was held in the Interstate Cigar Co. case, an action at law which is against different defendants (i.e., individual parties as opposed to an existing fund) is as a rule inadequate. Second, "jurisdiction in equity attaches unless the legal remedy, both in respect to the final relief and the mode of obtaining it, is as efficient as the remedy which equity would afford under the same circumstance." Interstate Cigar Co., 928 F.2d at 223 (quoting Gormley v. Clark, 134 U.S. 338, 349 (1890)). Here, it is apparent that the legal remedies available are far less efficient and complete. Certainly, recovery through a tort action against Transnation would be far more time-consuming and expensive. It would also be clouded in doubt given that the authorship of the August 25, 1999 letter now appears to be a perfect mystery. Also, while foreclosure against the innocent purchasers would seem to be a ready remedy, it too would occasion additional costs and delays. It is also likely to be an incomplete remedy given that the value of the property has probably declined. Therefore, the Court finds that the Claimant lacks an adequate remedy at law.
Accordingly, the Court determines that EquiCredit is now entitled to the return of the funds equal to its mortgage amount. Its mortgage was valued at $102,147.42 as of June 30, 2001. (See EquiCredit Motion, Exhibit A.) It is also entitled to interest on this amount, at the rate of 14.53 percent under the CommonPoint mortgage. (Id.) In calculating interest, the Court determines that the secured amount plus interest accrued as of April 30, 2002 is greater than the registry fund of $107,556.89 as of that date. Therefore, the entire fund shall be paid to EquiCredit.
This is the amount of registry fund, which is an interest bearing account, as of April 30, 2002. It is also noted that the registry fund bears interest at less than the mortgage rate.
CONCLUSION
Therefore, a final and appealable order shall enter directing the Clerk to pay to EquiCredit forthwith all of the registry funds deriving from the sale proceeds deposited from the sale of the subject property.
FINAL ORDER
In accordance with the Opinion of this date;
IT IS HEREBY ORDERED that Claimant EquiCredit Corporation's Motion for Return of Property (Dkt. No. 445) is GRANTED and the Clerk is directed to pay the registry funds at issue forthwith to the Claimant.