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BRENDA GRANTLAND Cal. Bar #165899
KENNETH A. COREN, Cal. Bar # 96367
Attorneys for Claimant
265 Miller Avenue
Mill Valley, California 94941
Telephone:  415.380.9108
Facsimile:   415.383.7667

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

UNITED STATES OF AMERICA		)    CR. No. 02-0016 PJH
						  	)
	Plaintiff,			  		)    MEMORANDUM IN SUPPORT OF    
						  	)    MOTION BY THIRD PARTY
	v.					  	)    CLAIMANTS FOR INTERLOCUTORY
						  	)    SALE AND SUBSTITUTION OF
JOHN B. HYDE,					)    NEW RES TO PREVENT WASTING
				  			)    OF ASSET NAMED IN INDICTMENT
	Defendant.				  	)    AS SUBSTITUTE PROPERTY
							)    
                                                                                    )    
							)
HY-KING LLC, MARY ALICE KING AND	)
							)
CHRISTINE HYDE,					)
							)
	Third Party Claimants.			)
                                                                                    )
		
FACTS
The parties
	Third party claimant Mary Alice King is the adult daughter of John B. Hyde, who is the defendant in this criminal action.  Christine Hyde is the daughter-in-law of John B. Hyde, and the widow of John S. Hyde, the defendant’s deceased son.  Mary Alice King and Christine Hyde each own 49% of claimant Hy-King LLC.  John B. Hyde and his wife, Margaret Ann Hyde each own one share of Hy-King LLC.
	Hy-King is not one of the dime-a-dozen shell companies set up (allegedly) to hide assets which are so often encountered in forfeiture cases.  This family company was set up to hold title to real property which these family members purchased and own together.  The amount of actual financial contributions each party made toward the purchase of this property is closely equivalent to their shares.  The government prosecutors in this case have probably not seen the paper trail, because John B. Hyde’s criminal lawyer succeeded in getting his financial documents sealed from their view.  However, the claimants here have financial documents proving their financial stake in the property is legitimate, and they are willing to share that documentary information with the prosecutors.
	In short, John B. Hyde’s wife, Margaret Ann Hyde, was the primary beneficiary of a trust  established by her mother Mary Alice T. Jones, in 1973 – the Margaret Ann Hyde Family Trust.  See exhibit _.  The beneficiaries of that trust are Margaret Ann Hyde and her descendants.  Margaret Ann Hyde had only two children, Mary Alice King and John S. Hyde.  John S. Hyde is deceased, but is survived by his wife Christine and a minor child.  Money from this trust fund was used to purchase Mary Alice King’s interest (49%), John S. Hyde/Christine Hyde’s interest (49%) and Margaret Ann Hyde’s interest (1%) in the real estate purchased and held by Hy-King.  John B. Hyde – the defendant in this case – owns no interest in the Margaret Ann Hyde Family Trust.
The property at issue
	Hy-King LLC owns just one asset – a house on the Pacific Ocean in Stinson Beach, located at 98 Calle del Ribera.  That property was used to secure John B. Hyde’s bail bond, with the consent of the other co-owners of Hy-King.  The property was also named the forfeiture count (count 64) in John B. Hyde’s indictment, paragraph 16 as a substitute asset.  There were no allegations that the property was forfeitable as proceeds or facilitating property.  In a conversation with the prosecutors, it appears that there was no restraining order issued regarding this property.  However, the government recorded a lis pendens on the property, announcing that the property was named in a criminal forfeiture count in United States v. John B. Hyde.
	When the property was purchased by Hy-King it was a duplex, with one unit downstairs and one upstairs.  Defendant John B. Hyde and his wife Margaret lived in one unit and their son John S. Hyde, his wife Christine and daughter Jessie lived in the other.  John S. Hyde died intestate on September 2, 2002.  His wife Christine succeeded to his interest in Hy-King.	 Christine and her daughter still live in the subject property with John S. Hyde and his wife.
	In early 2002, when the property was pledged as surety for John B. Hyde’s bail, it was valued at $1.3 million.  In April, 2002, it was discovered that the lower unit/first floor of the property was illegally constructed by the previous owner.  The County of Marin issued a final abatement order requiring removal the lower residential area.  On September 2, 2003, the County of Marin inspected and approved the compliance.  This removed approximately 50% of the living area and reduced the market value to $950,000.  
	The two families living in the property were forced to move into the one remaining unit – approximately 900 square feet – not much room for three adults and a child.  The monthly mortgage payment, which was borne by John B. Hyde in his rental agreement with Hy-King, is over $6,000 per month. Since his criminal indictment, Mr. Hyde’s employment opportunities have dried up, and the mortgage is now more than three months in arrears, with foreclosure imminent.
	In order to prevent foreclosure, HyKing has contracted to sell the Stinson Beach house for $950,000 and has a contingent contract to purchase a less expensive house in Novato with a lower monthly payment.  There will still be as much or more equity in the property – so the government’s interests in the property – whatever they are – will not be diminished by the transfer.
	It is essential to hold onto the current prospective buyer for the Stinson Beach property.  The property has serious zoning problems, and was on the market for 20 months, with all the other potential buyers backing out (because of the forced reduction of the size of the house by 50%.)  The current buyer intends to purchase the property with private funds, without conventional financing.  The closing date of escrow has already been delayed once.  The original closing date was September 9.  We have asked the buyer to give us two more weeks, which he has agreed to.  But if the delays continue, we may lose this buyer.
	Undersigned counsel were recently retained, and immediately contacted the prosecutors to try to negotiate an stipulation to allow the lis pendens and the lien securing John B. Hyde’s bail bond to be lifted and transfered to the new property, with the proceeds of the sale going directly from the first escrow to the second.  They refused to agree to the stipulation.
	The government would not be prejudiced by the transfer of the lis pendens to the escrow and then to the new property.  The new property which Hi-King is trying to buy, 84 Half Moon Road, Novato, CA 94947, will have as much or more equity in it than the Stinson Beach property, but lower monthly payments.  With the lower monthly mortgage payments, there is less danger of the defendant defaulting on the mortgage, endangering whatever interest the United States has in the property.  The third party claimant are willing to structure the purchase of the new property to place the U.S. government in the same lien priority as it enjoys now.
	To the extent the bail bond is under-secured, with the devaluation of the Stinson Beach property by the forced removal of the lower storey, that damage is irreversible.  That diminution happened because of forces beyond the parties’ control.  Stopping these real estate transactions from going through will not resolve the problem of the diminution of the value of the property securing John B. Hyde’s bond, but will only exacerbate it, because with foreclosure imminent, all could be lost, and very soon.   
	Claimants will promise to use their best efforts to find another way to secure the remainder of John B. Hyde’s bond, if his counsel is unsuccessful in getting the bond  amount reduced.
ARGUMENT
	Third parties whose interests in property are restrained pending trial by a forfeiture count in a criminal indictment may obtain equitable relief from the criminal court in order to protect their interests.  See United States v. Siegal, 974 F.Supp. 55, 57-58 (D.Mass. 1997) and the cites cited therein.
	In the Ninth Circuit, substitute assets may not be restrained prior to conviction.  United States v. Ripinsky, 20 F.3d 359, 365 (9^th Cir. 1994).  In this case, the problem is more acute because the assets of third parties are being threatened with dissipation because of the restraint.
	Although the government insists that the property is not restrained because there was no restraining order entered against the property, the filing of the lis pendens, indicating that the subject real estate is subject to forfeiture as a substitute asset, has the practical effect of preventing the sale. The potential purchaser is unwilling to gamble on the purchase because he would take the property subject to the government’s interest as later determined at the outcome of this litigation.
	Although the real estate is not “seized” by the lis pendens, and the owners may continue to live in and otherwise use the property pending trial, the threat of foreclosure is imminent, and the equity in the property will certainly be wasted if the court does not intervene to allow the sale and purchase of less expensive property.  The only way to accomplish that is to lift the lis pendens and transfer it to other property.
	Such a solution is authorized by case law.  Even in the case of directly tainted assets, where third parties’ interests may be restrained by court order pending the criminal trial, “orders directed at third parties are strong medicine and should not be used where measures that are adequate and less burdensome on the third parties are available.”  United States v. Regan, 858 F.2d 115, 121 (2^nd Cir., 1988).  In Regan the court allowed other assets to be substituted for the targeted substituted assets, and thereby avoided the harm to the third parties.
Our reservation about the order in question arises from our belief that the sole government interest served by the order is the preservation of assets equivalent to the value of the defendants' partnership interests (and not the ouster of defendants from control, see note 2, supra) for forfeiture. In those circumstances, the order must have as a cornerstone a finding that the restraint of the defendants' individual assets, other than the partnership interests in the Group, is insufficient to accomplish that purpose. The government has conceded – as it must in light of the express provisions of Section 1963(d)(1) – that a bond in an amount equivalent to the value of the partnership interests at the time of the crimes would eliminate the need for the challenged order. We believe it follows that a restraint on individual assets of similar value would also suffice.		
United States v. Regan, 858 F.2d 115, 121 (2^nd Cir., 1988).  See also United States v. Berg, 998 F.Supp. 395, 398 (S.D.N.Y. 1998).
	Our proposed solution to the problem runs no risk to the government.  Assets of the same or greater value will be substituted for the substitute property named in the indictment.  This solution serves everyone’s interest because otherwise the defendant’s and these third parties’ equity in the property will be lost.
	WHEREFORE, for the foregoing reason, this court should order that:
	1.  The lis pendens be lifted from  98 Calle del Ribera, Stinson Beach;
	2.  The escrow proceeds otherwise due the sellers are to be transferred directly by wire transfer to the escrow agent for the second property;
	3.  If for any reason the purchase is not consummated on the property located at 84 Half Moon Road, Novato, CA 94947, the sale proceeds from 98 Calle del Ribera shall remain in the escrow account pending further order of this court.
	4.  Once the purchase of 84 Half Moon Road, Novato is consummated, the government may file a lis pendens on the second property.  Said lis pendens shall put the United States into the position of second lien, with the first mortgage obtained to finance the purchase of the property standing in the first position – in other words, the lis pendens shall not be recorded until after the purchase money mortgage is recorded.
	5.  The lien securing the bail bond be transferred to the escrow and then to the new property.
	6.  All parties including the third parties who sought this relief shall be bound by this court order.

			                                   Respectfully submitted,

                                     			________________________
                                       			BRENDA GRANTLAND, ESQ.
						
CERTIFICATE OF SERVICE
	I hereby certify that a copy of the foregoing answer was served, by mail, upon Assistant United States Attorneys Matt Jacobs and Haywood Gilliam, 450 Golden Gate Avenue, Box 36055, San Francisco, CA 94102, this ________  day of ___________________, 2003.

				                               		_________________________
								Brenda Grantland