Star Class sloop Flash II not forfeitable

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Congratulations to FEAR president Brenda Grantland for another victory in United States versus One Star Class Sloop Named Flash II. On October 1, 2007, the U.S. District Court of Massachusetts ruled that her client’s Star Class sloop “Flash II” (formerly owned by the late President John F. Kennedy) is not subject to forfeiture at all.

Court rules sailboat formerly owned by the late President J. F. Kennedy is not subject to forfeiture:
Government had no right to sell the sloop, nor does it have any right to pocket proceeds from that sale.

by Judy Osburn

First the government obtained a forfeiture judgment against the Star Class sloop “Flash II” without bothering to notify Dr. Kerry Lane, a successful anesthesiologist and principle owner of the prized sailboat. The Flash II was formerly owned by the young future president J.F. Kennedy when he triumphed by an unprecedented four and a half minute margin in the 1936 Atlantic Coast Championships.

Attorney Brenda Grantland achieved Dr. Lane’s first victory in this case in August 2006, when the First Circuit Court of Appeals vacated the default judgment that had been obtained in Dr. Lane’s absence. The appeals court held that due process requires the government to at least attempt to locate innocent owners with an interest in seized property. The First Circuit remanded

U.S.

v. One Star Class Sloop Sailboat Built in 1930 Named Flash II to the district court in Massachusetts for further proceedings in which Dr. Lane had an opportunity to be heard. In the meantime, however, the government sold the boat at auction without a minimum reserve, causing the boat to be sold at only about one tenth of it’s appraised value.

At trial the government conceded that Dr. Lane was totally innocent of any wrongdoing or negligence. Nevertheless, the government argued that Flash II was subject to forfeiture as proceeds traceable to drug money pursuant to 18U.S.C. § 981(a)(1). Boat restorer Ole Anderson had organized the consortium of investors who provided funding to purchase and restore the Flash II. The government attempted to support its theory that drug money could be traced to the Flash II through its cooperating witness, Gary Milo, who had pleaded guilty to trafficking 11,000 pounds of marijuana, for which he received a mere 18 days’ imprisonment due to his cooperation in building a forfeiture case against the Flash II. Milo testified that during the course of his lengthy illegal career he had hired Ole Anderson on a couple of occasions and that he paid him $16,000.

Ms. Grantland argued that the government offered no more than mere suspicion that any of the funds used by Ole Anderson to pay for maintenance of the Flash II included any portion whatsoever of Gary Milo’s $16,000 in tainted currency. If Gary Milo’s drug proceeds became commingled with Ole Anderson’s untainted funds, “whether in a bank account or in a tattered suitcase,” argued Grantland, “the government's burden of showing that money in the account or an item purchased with cash withdrawn therefrom is ‘traceable to’ illegal activity will be difficult, if not impossible, to satisfy.”¹ The forfeiture statute’s term “traceable to” means exactly what it says, Grantland continued in a post-trial memorandum, and the government's theory of forfeitability fades away without a trace once Gary Milo's drug money is transferred to Ole Anderson.

On October 1, 2007, the district court ruled that, although the government’s contention that some of the funds used to refurbish the Flash II are traceable to the drug proceeds of the government’s cooperating witness Gary Milo is “theoretically possible,” the government failed to carry its burden of proof under the Civil Asset Forfeiture Reform Act of 2000 (CAFRA).

Not only was Dr. Lane a completely innocent owner, but no portion whatsoever of the sailboat seized and sold by the government had been subject to forfeiture. “Accordingly,” District Judge William G. Young ruled, “the sloop was not forfeitable. Because the sloop was not forfeitable, the government had no interest in the sloop and therefore no right to dispose of the sloop.”

The district court’s Memorandum of Decision held that some portion of the Flash II would have been forfeitable if any funds from the government’s cooperating witness Gary Milo “were actually put into refurbishing or maintaining the boat.” The court found that Lane and other investors in the Flash II, as well as the government’s cooperating witness Gary Milo, all gave Ole Anderson money, and that Ole Anderson “drew indiscriminately from these funds in refurbishing the sloop.”

Therefore, wrote Judge Young, this case “is analogous to cases concerning withdrawals from bank accounts that commingle drug proceeds and clean money” as in the Second Circuit case Untied States v. Banco Cafetero Panama²:

For example, if a depositor placed a $175 check from his automobile insurer in payment of a damage claim into an account that contained $100 from a drug sale and the next day paid a $175 bill for car repairs, a fact-finder would be entitled to conclude that the $175 withdrawal did not contain “traceable proceeds” of the drug transaction but solely the “traceable proceeds” of the insurance payment, with the tainted deposit remaining in the account. Obviously, few cases will present facts that neatly match untainted deposits with withdrawals, and the real question therefore becomes which side bears the risk of the inevitable uncertainty that will arise in most cases.³

Judge Young also used a example from Grantland’s post-trial memorandum, stating that his “conclusion is bolstered by United States v. Voigt,”⁴ a case where the government bore the burden of proving by a fair preponderance of the evidence that jewelry was “traceable to” the proceeds of money laundering activity:

While we can envision a situation where $500,000 is added to an account containing only $500, such that one might argue that the probability of seizing "tainted" funds is far greater than the government's preponderance burden (50.1%), such an approach is ultimately unworkable. … [T]he presence of one illegal dollar in an account does not taint the rest–as if the dollar obtained from money laundering activity were like a drop of ink falling into a glass of water.⁵

The court ruled that in light of numerous intervening bank deposits and withdrawals, it could not “say that, more probably than not, the jewelry [was] ‘traceable to’ money laundering activity.”⁶

“What now?” asked Judge Young:

Simply ruling that the vessel is not forfeitable puts no money in Lane’s pockets. …
It is deeply troubling indeed, and perhaps unconstitutional, for the government to seize real and personal property with multiple owners upon probable cause, sell and property, and finally, when the sale is adjudicated improper, to say to an innocent claimant, “Prove the extent of you interest and we’ll give that proportion back,” and for the government to pocket the difference. This is topping it very high indeed.”
The simple fact is this: the government had no right to sell the sloop. Nor does it have any right to the proceeds.

The court found that the government had no right to sell the sloop, nor any right to the proceeds of that sale. It also found that Dr. Lane is at least a part owner of the proceeds of the government’s auction. “As between the two, Lane has the superior claim.” Thus, a claimant may obtain the return of defendant property in a forfeiture proceeding by demonstrating that it was wrongfully seized.⁷ When the government has sold that defendant property in the interim, the proceeds from the sale constitute the substitute property that is returned to the claimant. “It is not often that a claimant overcomes an initial default and has the chance to contest the forfeiture proceeding after the [defendant property] has long since been sold,” Judge Young wrote for the district court.

However, Judge Young let the government off the hook for violating its own policies in auctioning the sailboat with no minimum reserve over Dr. Lane’s objections. The court ruled that “the price that the sloop sold for at auction reflected its fair market value at the time of its seizure” (rather than its $800,000 to one million dollar value appraised just prior to the government's auction).

Therefore, concluded the court, Lane is entitled to recover from the government the $100,000 received at auction, less the sum paid by the government to another co-owner in a previous settlement agreement “should the government successfully prove” that its previous settlement amount was no larger than that co-owner’s proportional share of ownership interest. Accordingly, a “prompt evidentiary hearing will be scheduled at which the government shall bear the burden of justifying” a deduction from the return of Lane’s $100,000 of whichever is lesser of: 1) the sum already paid pursuant to the settlement agreement with the other co-owner; or 2) the amount of the other co-owner’s share of the $100,000 government auction sale.

Just a few months before the auction Guernsey’s Auction House owner, Arlan Ettinger, performed an appraisal for the U.S. Government. He appraised Flash II at $800,000 - $1 million. The government and the auction house spent $1,000 insuring the sailboat for the few days that Flash II was in Guernsey’s hands. The insurance contract valued the sailboat at $800,000.

In ruling that market value of the Flash II did not exceed the auction proceeds of $100,000, the court completely avoided any decision on the complex and extensively briefed issues surrounding the government’s liability for allegedly auctioning the boat at a fraction of its value prior to a final judgment of forfeiture.

Upon the First Circuit’s remand of the case to provide Dr. Lane an opportunity to be heard, the government moved for a partial summary judgment. After reading Ms. Grantland’s response to that summary judgment motion the prosecutor feared the government might be held liable under CAFRA for the difference between the $800,000 appraised value of the sailboat and the $100,000 received by the government at auction.⁸

“Fearing this result,” Judge Young wrote for the court, “the government then began to cast out anchors to windward … to foreclose such recovery,” by raising an argument of sovereign immunity in its reply brief for partial summary judgment. Later at oral argument the government raised for the first time its further argument that it could hide behind its “discretionary function” exception to CAFRA’s waiver of sovereign immunity regarding loss of value of seized property held in government custody.

This prompted further waves of pleadings involving claimants’ right to compensation for loss of the value of property held in government custody under CAFRA, sovereign immunity and exemptions to exemptions thereof, plus government negligence under the Federal Torts Claim Act--all of which Judge Young converted to “the spillage of a great deal of ink” by ruling the Flash II was worth no more than the $100,000 that it sold for at auction.

Among other violations of federal statutes as well as the government’s own policies for auctioning property pending litigation over the opposing party’s objections, the government falsely warranted that it had title free and clear of all liens and claims–despite the fact that it was involved in pending litigation over title to the sailboat. The government backed up these warranties of clear title by a hold harmless agreement in which the it agreed to indemnify Guernsey’s Auction House and/or the buyer, including attorneys fees, if they had to undergo litigation over title to the sailboat. Amazingly, the government also warranted that the sailboat was “not ‘confiscated property’ within the meaning of any United States federal or state laws.” After the government needed to avoid liability for its actions by arguing a value of not more than $100,000, Guernsey's owner Arlan Ettinger testified in a deposition that he now estimated the value of the Flash II to be $100,000, rather than his previous government contracted appraisal of at least $800,000.

Why the government targeted this asset and abused its forfeiture powers to take Flash II away from an innocent citizen remains an unsolved mystery. We will explore the astounding depth of corruption by a cynical Department of Justice turned thief, fencing stolen property, and laundering the proceeds to prevent Dr. Lane from undoing the sale in a forthcoming article,. “One brief shining moment and innocence lost: a cynical corrupt government shatters the great myth of American decency and hope.”

In the meantime, members of FEAR’s Brief Bank can get a preview of the full story of Dr. Lane’s fight for justice, rule of law and government accountability. FEAR's Brief Bank II already contains 15 pleadings and orders from United States v. One Star Class Sloop Named “Flash II” –even before we add the post-trial pleadings later this week.

Endnotes:
1. Citing United States v. Voigt, 89 F.3d 1050, 1087-1088 (3d Cir. 1996).
2. 797.2d 1154 (1986).
3. One Star Class Sloop Named “Flash II,” Memorandum of Decision, quoting Untied States v. Banco Cafetero Panama, 797.2d 1154 (2nd Cir., 1986) (emphasis added by Flash II Court).
4. 89 F.3d 1050 (3rd Cir. 1996).
5. Id. at 1087 (brackets and citation omitted).
6. Id. at 1088.
7. 28 U.S.C. § 2465(a)(1).
8. CAFRA amended the Federal Tort Claims Act, 28 U.S.C. §2680(c), to allow successful forfeiture claimants to sue the government and obtain money damages for injury or loss to property while held by the government pending forfeiture.