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UNITED STATES v. INFELISE

August 23, 1996

UNITED STATES OF AMERICA
v.
ROCCO ERNEST INFELISE and SALVATORE DeLAURENTIS



The opinion of the court was delivered by: WILLIAMS

 Before the court are petitions by defendants and third parties seeking to amend a 1992 criminal forfeiture order entered by the court pursuant to 18 U.S.C. § 1963. In addition, the United States seeks a final forfeiture order and moves for forfeiture of various substitute assets pursuant to 18 U.S.C. § 1963(m).

 Background

 Salvatore V. DeLaurentis and Rocco E. Infelise were among twenty defendants convicted in 1992 of conspiracy in violation of the Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962. The RICO case was based on predicate acts of murder, extortion, bribery and other offenses committed by the defendants as members of the Ferriola Street Crew, a subdivision of the Chicago Outfit "Mob" organization. Upon conviction, the jury returned a special verdict pursuant to 18 U.S.C. § 1963 ordering forfeiture to the United States of various pieces of real property belonging to DeLaurentis, Infelise, and their families. In addition, the jury ordered DeLaurentis and Infelise to forfeit $ 3,000,000 in proceeds from their RICO activities, for which they were jointly and severally liable. To satisfy this $ 3,000,000 judgment, the government subsequently moved for forfeiture of additional property of DeLaurentis and Infelise as substitute assets pursuant to 18 U.S.C. § 1963(m), including houses, jewelry, bank accounts and investment accounts. After receiving notification of the forfeiture order, members of both the DeLaurentis and Infelise families petitioned the court to amend its order, claiming third party interest in much of the forfeited property. *fn1" The parties then engaged in extensive discovery on the forfeiture issues, agreed to a set of Omnibus Factual Stipulations, and assembled a series of Joint Group Exhibits. In order to expedite the court's consideration of the forfeiture issues, the parties agreed to waive a formal evidentiary hearing on the third party petitions, asking the court to rely instead on the stipulations and exhibits, along with affidavits, the trial record and the parties' briefs.

 On March 1, 1996, the Seventh Circuit affirmed the convictions of DeLaurentis, Infelise and their co-defendants, but ordered the re-sentencing of DeLaurentis. United States v. DiDomenico, 78 F.3d 294 (7th Cir. 1996). The court is now prepared to issue a final order of forfeiture.

 Analysis

 The court will first address property relating to DeLaurentis, and will then address property relating to Infelise.

 I. PROPERTY OF SALVATORE DELAURENTIS

 Three items pertaining to Salvatore DeLaurentis are at issue. The two principal items are real property in Inverness and Island Lake, Illinois. Because their disposition depends on common principals of trust law, the court will begin by providing the relevant law covering both items, and will then proceed to offer background facts and analysis for each item separately. The third item, a bank account, will be addressed last.

 A. Relevant Law

 Under 18 U.S.C. § 1963, the government may seek forfeiture of certain property belonging to an individual who violates 18 U.S.C. § 1962. Section 1963(a) describes the three general categories of forfeitable property interests: (1) those "acquired or maintained in violation of Section 1962;" (2) those "affording a source of influence over any enterprise" operated in violation of Section 1962; and (3) those "constituting, or derived from, any proceeds which the person obtained, directly or indirectly, from racketeering activity or unlawful debt collection in violation of Section 1962."

 Under the "relation back" doctrine of 18 U.S.C. § 1963(c), the government's interest in a convicted RICO defendant's property vests at the time of the commission of acts that give rise to the forfeiture. If a defendant transfers the property after the commission of the acts, the government's interest in the property remains paramount unless the transferee can show, by a preponderance of the evidence, either that: (a) his interests and rights in the property were superior to the defendant's at the time of the commission of the acts; or (b) he was a bona fide purchaser for value who was reasonably without cause to believe that the property was subject to forfeiture. 18 U.S.C. § 1963(1)(6).

 If forfeited property cannot be located or is otherwise unavailable, the government may, pursuant to 18 U.S.C. § 1963(m), seek forfeiture of any other property of the defendant as a substitute asset up to the value of the unavailable forfeited property.

 To determine the extent of a defendant's interest in forfeited property, federal courts turn to state property law. United States v. Marx, 844 F.2d 1303, 1305 (7th Cir. 1988), cert. denied, 503 U.S. 939, 117 L. Ed. 2d 623, 112 S. Ct. 1480 (1992). A resolution of the disputes over 411 Lauder Lane and 103 East State Road therefore turns on Illinois trust law. Three types of trusts are relevant here: express trusts, resulting trusts and constructive trusts.

 Express Trusts. Under Illinois law, an express trust exists where there is: (1) intent of the parties to create a trust; (2) a definite subject matter or trust property; (3) ascertainable beneficiaries; (4) a trustee; (5) specifications of a trust purpose and how the trust is to be performed; and (6) delivery of the trust property to the trustee. In Re Marchiando, 142 Bankr. 246, 249-50 (N.D. Ill. 1992), aff'd, 13 F.3d 1111 (7th Cir. 1994), cert. denied, 129 L. Ed. 2d 810, 114 S. Ct. 2675 (1994); In Re Estate of Zukerman, 218 Ill. App. 3d 325, 578 N.E.2d 248, 251, 161 Ill. Dec. 121 (Ill. App. Ct. 1991); Estate of Wilkening, 109 Ill. App. 3d 934, 441 N.E.2d 158, 163, 65 Ill. Dec. 366 (Ill. App. Ct. 1982). If the existence of any one of these elements is uncertain, no trust is created. Wilkening, 441 N.E.2d at 163; Marchiando, 142 Bankr. at 250. To determine whether intent to create an oral express trust existed, Illinois courts look to the conduct of the parties to see if they treated the property as if it were the subject of a trust. Zukerman, 578 N.E.2d at 252. In the context of a forfeiture case, where a preexisting trust is asserted to avoid forfeiture of property, the proximity in time between government efforts to prosecute a defendant and the emergence of evidence proving the existence of the trust becomes especially relevant. United States v. 10652 South Laramie, 779 F. Supp. 952, 955 (N.D. Ill. 1991). Scrutiny of such timing is necessary to prevent "sham transfers" of property to third parties by defendants facing forfeiture. Id.

 In addition, Illinois' Statute of Frauds requires that express trusts in land be in writing. 740 ILCS 80/9 (ILL ANN. STAT. 1993). This writing requirement applies to the transfer of a beneficial interest in an Illinois land trust. IMM Acceptance Corp. v. First Nat. Bank and Trust Co., 148 Ill. App. 3d 949, 499 N.E.2d 1012, 1016, 102 Ill. Dec. 232 (Ill. App. Ct. 1986). The written manifestation of the express trust, however, need not be a formal trust agreement, nor need it be executed contemporaneously with the declaration of trust. E.g., Kellogg v. Peddicord, 181 Ill. 22, 54 N.E. 623, 626 (Ill. 1899) (later deposition was satisfactory); First Nat. Bank of Ottawa v. Weise, 333 Ill. App. 1, 76 N.E.2d 538, 542 (Ill. App. Ct. 1948) (various letters and correspondence sufficed).

 The Statute of Frauds is an affirmative defense and use of it to undermine an oral trust agreement is limited to the parties to the purported trust and their privies. Pasquay v. Pasquay, 235 Ill. 48, 85 N.E. 316, 320 (Ill. 1908); Whildin v. Kovacs, 93 Ill. App. 3d 582, 417 N.E.2d 736, 737, 49 Ill. Dec. 46 (Ill. App. Ct. 1981). Strangers to the trust agreement are thus unable to invoke it. Haas v. Cravatta, 71 Ill. App. 3d 325, 389 N.E.2d 226, 228-29, 27 Ill. Dec. 414 (Ill. App. Ct. 1979) (trial court could not raise it sua sponte). In other words, "an oral trust in violation of the Statute of Frauds is voidable at the election of the trustee, but not void" per se. In Re German, 193 F. Supp. 948, 952 (S.D. Ill. 1961) (citing Klass v. Hallas, 16 Ill. 2d 161, 157 N.E.2d 261, 265 (Ill. 1959)). *fn2" In addition, the Statute of Frauds cannot be invoked to avoid a trust that has been fully performed. David v. Schiltz, 415 Ill. 545, 114 N.E.2d 691, 697 (Ill. 1953); In Re Naramore, 3 Bankr. 709, 714 (N.D. N.Y. 1980) (applying New York law). But this full performance must be done solely on account of the oral agreement, and not, for example, to carry out a subsequent need to keep property out of the reach of creditors. Murray v. Behrendt, 399 Ill. 22, 76 N.E.2d 431, 433 (Ill. 1947); In Re Fill, 82 Bankr. 200, 222-23 (Bankr. S.D.N.Y 1987).

 Regardless of whether the Statute of Frauds applies to an express trust, parol evidence offered to prove the existence of an express trust must be clear, unambiguous and unequivocal: "if the evidence is doubtful or capable of reasonable explanation upon theories other than the existence of a trust, it is not sufficient." Carrillo v. O'Hara, 400 Ill. 518, 81 N.E.2d 513, 520 (Ill. 1948); In Re Wilkening, 441 N.E.2d at 163.

 Resulting Trusts. If all the requisite elements of an express trust do not exist, two classes of implied trusts can arise outside of the Statute of Frauds by operation of law: resulting trusts and constructive trusts. Murray, 76 N.E.2d at 434. A resulting trust arises by law when one party receives title to property, but under circumstances which raise an inference that -- despite having failed to express an intent to do so -- the parties intended the title holder to hold the property in name only for the benefit of another. Id. ; Janes v. First Fed. Savings and Loan Ass'n, 11 Ill. App. 3d 631, 297 N.E.2d 255, 261 (Ill. App. Ct. 1973). Typically, a resulting trust arises "when land is purchased with the money of one party and title is taken by another and hence it is presumed that title is held in trust for the purchaser." Suwalski v. Suwalski, 40 Ill. 2d 492, 240 N.E.2d 677, 680 (Ill. 1968). Because a resulting trust arises to effectuate the intent of the parties, it is essential that those seeking to assert a resulting trust establish that such intent actually existed and was evidenced in the parties' conduct. Wilkening, 441 N.E.2d at 164; Suwalski, 240 N.E.2d at 680. Such evidence "must be clear, unequivocal, and unmistakable, and, if it is doubtful or is capable of reasonable explanation upon any theory other than the existence of a trust, it is not sufficient." Link v. Emrich, 346 Ill. 238, 178 N.E. 480, 482 (Ill. 1931).

 Constructive Trusts. By contrast, a constructive trust does not depend on intent, but arises by law when a party obtains title to property through fraud, breach of fiduciary relationship or other wrongful conduct and thus has an equitable duty to convey it to another to prevent unjust enrichment. Janes, 297 N.E.2d at 261; Murray, 76 N.E.2d at 434.

 B. 411 Lauder Lane, Inverness, Illinois

 1. Background

 In November 1977, Victoria and Jerry DeLaurentis, the parents of defendant Salvatore V. DeLaurentis, purchased property at 3017 Eastway Lane in Island Park, Illinois. *fn3" (Omnibus Factual Stipulations P 5). Victoria and Jerry financed the acquisition with a $ 70,000 mortgage, payable in one year. (Id.) They placed the property in a trust in the McHenry State Bank. (Id. P 4.) In September 1978, after selling another residence, Victoria and Jerry paid off approximately one half of the mortgage on the Island Lake property. (Id. P 8.) At the same time, they assigned the beneficial interest in the McHenry State Bank trust to their son, Salvatore. (Id. P 9.) In October 1978, Salvatore secured a loan and paid off the balance of the mortgage on the property. (Id. PP 10-11.) In August 1979, Salvatore executed an amendment to the McHenry State Bank trust, altering the beneficial interest in the trust to read as follows:

 
SALVATORE V. DELAURENTIS, the entire beneficial interest hereunder, with full power to assign or deal with all of the rights and interests of the beneficial interest. Upon the death of said Salvatore V. DeLaurentis during the existence of this trust, and provided that the beneficial interest or any part or right thereunder, shall not have been previously assigned or otherwise disposed, then the entire beneficial interest hereunder shall vest in the surviving children of Salvatore V. DeLaurentis in equal shares.

 (Id. P 14.)

 In May 1986, Salvatore sold the Island Lake property and used the proceeds, along with a new loan and mortgage, to buy property at 411 Lauder Lane, Inverness, Illinois as joint tenant with his wife, Donna M. DeLaurentis. (Joint Group Ex. No. 26.) Salvatore and Donna placed this property in a trust with the Cole Taylor Bank, and thereby transferred the corpus of the McHenry State Bank trust that served the Island Lake property to this new trust. (Id.) On July 15, 1987, Salvatore and Donna set up a new Cole Taylor Bank Trust, transferring title in 411 Lauder Lane to this trust subject to its terms, which read, in part:

 
The following named persons shall be entitled to the earnings, avails and proceeds of said real estate as set forth, to wit:
 
Donna and Gianna Marie DeLaurentis as joint tenants with right of survivorship, as to an undivided 50% interest upon the demise of the survivor then to the following living parties: Vicki Belleno, Gina DeLaurentis Johnson, Salvatore A. DeLaurentis [Jr.] and Vincent C. DeLaurentis.
 
Vicki Belleno, Gina DeLaurentis Johnson, Salvatore A. DeLaurentis [Jr.] and Vincent C. DeLaurentis as tenants in common with rights of survivorship as to an undivided 50% interest, upon the demise of the survivor then to Donna M. DeLaurentis and Gianna Marie DeLaurentis or the survivor thereof.
 
The power of direction under the terms of the trust for such property is as follows: Donna M. DeLaurentis and upon her demise then to Vicki Belleno.

 (Omnibus Factual Stipulations P 95.)

 On May 31, 1986 -- after Jerry and Victoria had transferred the property to Salvatore but before the establishment of the 1987 trust -- a conversation was consensually recorded between Les Perrelli and Salvatore at 411 Lauder Lane during which Perrelli paid a portion of a gambling debt owed to Salvatore. (Id. P 71.)

 Following Salvatore's 1992 conviction under the Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962, the jury returned a special forfeiture verdict on March 11, 1992, finding, among other things, that Salvatore's interest in 411 Lauder Lane was subject to forfeiture by the United States pursuant to 18 U.S.C. § 1963. On July 24, 1992, Salvatore's parents, wife and children ("the petitioners") filed a Petition to Amend the Order of Forfeiture to Provide for the Interests of Innocent Third Parties, pursuant to 18 U.S.C. § 1963(1)(2). Petitioners claimed, among other things, that when Victoria and Jerry transferred the Island Lake property to Salvatore in 1978, they created an express oral trust under which the Salvatore was to maintain the property as trustee on behalf of his children, the trust's true beneficiaries. Petitioners assert that the existence of this express trust renders the court's forfeiture order of 411 Lauder Lane invalid, because Salvatore never held the property as anything more than a trustee, and at all times his children had superior interests. Alternatively, petitioners contend that their interest in the property remains viable under a resulting or a constructive trust theory.

 The government denies that Victoria and Jerry created an express trust in 1978, given that intent to do so has not been proven and the oral trust was never evidenced in writing. In addition, the government contends that its interest in defendant's portion of the property vested in 1986, when acts in furtherance of a RICO conspiracy occurred on the premises, and that the 1987 written trust was a sham transfer designed to thwart forfeiture efforts.

 In 1993, upon agreement of all the parties, this court approved the sale of 411 Lauder Lane. One half of the proceeds went to Salvatore's wife and children, and the other half ($ 118,042.53) is being held as "substitute res" pending a final forfeiture decision by this court. (Omnibus Factual Stipulations P 143.)

 2. Analysis

 As explained above, to claim their right to the entire 411 Lauder Lane property, the petitioners bear the burden of proving, by a preponderance of the evidence, that either: (A) their interest in the property was superior to Salvatore's at the time of the commission of the acts that gave rise to the forfeiture; or (B) they were bona fide purchasers for value of the property. 18 U.S.C. § 1963(1)(6). For the reasons stated below, the petitioners fail to satisfy this burden.

 Express Trust. To decide if the petitioners can satisfy the first of these two possibilities, the court must determine whether the petitioners possessed a superior interest in the property in 1986, when an act giving rise to forfeiture occurred at 411 Lauder Lane. This question turns on the validity of the purported express oral trust in 1978 involving the Island Lake property. Under this trust, petitioners claim, Victoria and Jerry assigned the interest in the McHenry State Bank trust to Salvatore to hold for the benefit of his children. They also assert that the trust assignments transferred to the Cole Taylor Bank trust in 1986 when Salvatore sold the Island Lake property and used the proceeds to buy 411 Lauder Lane with his wife. If the 1978 express oral trust in fact existed, then the petitioners' interest in 1986 would have been superior to that of Salvatore, and forfeiture of the property would be barred.

 As an initial matter, the existence of this oral trust is not undermined by the Statute of Frauds, because the parties to the purported oral trust do not assert this defense. The only party to raise the issue is the government, which does not have standing to invoke the Statute of Frauds as a stranger to the trust. Whildin, 417 N.E.2d at 737; In Re German ; 193 F. Supp. at 952.

 Although Salvatore's 1979 amendment to the trust brought his children into the picture, it did not transfer full beneficial interest to them, and therefore it does not suffice as proof that the 1978 transfer was executed pursuant to an oral trust. The amendment, at most, made the children contingent beneficiaries of the trust. It stated that upon the death of their father, "provided that the beneficial interest or any part or right thereunder, shall not have been previously assigned or otherwise disposed, then the entire beneficial interest hereunder shall vest in the surviving children of Salvatore V. DeLaurentis in equal shares." (Joint Group Ex. No. 24-P.) The amendment thus implies that Salvatore was free to assign or transfer the property at his will, and that the beneficial interest would go to his children only if he chose not to transfer it. The execution of this amendment does not prove that Salvatore was holding the property merely as trustee for his children pursuant to a purported oral trust created by his parents. As the petitioners concede, under a valid Illinois land trust, the person holding the power of direction serves as a fiduciary and must act in the best interests of the beneficiaries. Dorman v. Central National Bank, 97 Ill. App. 3d 429, 422 N.E.2d 1019, 1022, 52 Ill. Dec. 810 (Ill. App. Ct. 1981). In this case, petitioners cannot claim that Salvatore was acting in the best interest of his children (as purported beneficiaries), given that he executed an amendment under which he was free to transfer the property and thereby act against the interest of the purported beneficiaries. Thus, no such land trust could have been in existence. The 1979 amendment therefore fails to prove that Victoria and Jerry intended to create an express oral trust in 1978 when they assigned the property to their son. This conclusion is confirmed by the February 22, 1994 deposition of Victoria. During her deposition, Victoria listened to a reading of the 1979 amendment and testified that its language encompassed the full extent of her wishes in regard to the property. (Joint Group Ex. No. 36.) As the amendment merely named the children as contingent beneficiaries, for Victoria to state that it fulfilled her wishes and then to claim that she and her husband intended to make their grandchildren more than just contingent beneficiaries is contradictory.

 In addition, Salvatore's actions in regard to the property after 1978 further refute the contention that he was holding it on behalf of his children subject to an express trust. Salvatore listed the Island Lake property as his own on several financial statements and loan applications. (Joint Group Ex. No. 25-A & 25-F.) Moreover, Salvatore for several years paid the mortgage on the property and deducted it from his income taxes. (Id. No. 39.) These actions are consistent with sole unhindered ownership of the property.

 In the absence of any compelling evidence to the contrary, this court is unwilling to find that an express trust came into being in 1978. The deposition testimony of Victoria and the signed verifications offered in support of the express trust do little to refute this conclusion given the contradictions in Victoria's testimony, the obvious bias of testifying family members and Salvatore's actions subsequent to 1978. Petitioners have therefore failed to meet their burden under 18 U.S.C. § 1963(1)(6)(A) of proving by a preponderance of the evidence that they possessed a superior interest in the property at the time of acts giving rise to the forfeiture.

 Likewise, petitioners have failed to satisfy the other possible avenue through which a third party can challenge a forfeiture order: they have not proven that they were bona fide purchasers of value of the property pursuant to 1963(1)(6)(B). Petitioners offer no evidence that Salvatore received anything in exchange for executing the 1987 trust agreement on behalf of his children. Accordingly, the petitioners cannot be deemed bona fide purchasers of the property in 1987 and thus are unable to invoke 1963(1)(6)(B).

 Petitioners advance two alternatives to the oral express trust theory in their petition, but neither successfully challenges the forfeiture order.

 Resulting Trust. First, petitioners claim that in the absence of an express oral trust, the court should recognize petitioners' interests under a resulting trust theory. As explained above, however, a resulting trust arises to effectuate the intent of parties who place title in the hands of one party who holds the property in name only on behalf of another. Murray, 76 N.E.2d at 433. Without unambiguous proof of such intent, no resulting trust can be recognized. Link, 178 N.E. at 482. Given that petitioners have failed to prove intent on ...


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