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United States v. Funds in Amount of $246

United States District Court, Northern District of Illinois, Eastern Division

April 29, 2015

UNITED STATES OF AMERICA, Plaintiff,
v.
FUNDS IN THE AMOUNT OF $246, 197.44 SEIZED FROM JP MORGAN CHASE BANK ACCOUNT XXXXX9895, Defendant.

MEMORANDUM OPINION AND ORDER

JAMES B. ZAGEL, UNITED STATES DISTRICT JUDGE

The United States of America (“Plaintiff”) filed a verified complaint (“Complaint”) seeking forfeiture in rem of property held by claimant AU Electronics, Inc. (“Defendant” or “AU”) under the subject account Funds in the Amount of $246, 197.44 Seized from JP Morgan Chase Bank Account XXXXX9895 (“Defendant Property” or “Subject Account”). AU moves to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6) and Rules E(2) and G(2) of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (the “Supplemental Rules”). For the foregoing reasons, Defendant’s motion is denied in its entirety.

I. BACKGROUND

The following facts are viewed in the light more favorable to the United States of America, the target of this motion. AU Electronics, Inc., a business incorporated and registered in Illinois, describes itself as the “biggest existing wholesale provider of hi tech gadgets and consumer electronic products from the USA market” to “Business (B2B) customers worldwide.” AU operated from store front locations in the Chicago area, including Chicago, Oak Park, and Bedford Park, until April 2012 and then operated solely from its offices at 6600 North Lincoln Avenue, Suites 306 and 314, Lincolnwood, Illinois from April 2013 until around September 2013.

From at least sometime in 2012 through September 2013, AU received and purchased electronic devices, which included iPads, iPhones, and other mobile devices, that were stolen or fraudulently obtained from suppliers, repackaged the devices, and then sold those devices to domestic and international customers at prices higher than AU paid its own suppliers. Plaintiff alleges that AU’s suppliers included individuals who sold stolen or fraudulently obtained electronics to AU on a recurring basis, and AU knew that the majority of the devices, if not all of the devices, were stolen or fraudulently obtained.

AU paid its suppliers for these stolen or fraudulently obtained products via wire transfer, electronic funds transfer, check, and cash from funds in AU’s bank accounts, which were funds paid by AU from the Subject Account since it was opened on approximately May 30, 2013. Between approximately June 6, 2013 and August 30, 2013, AU’s customers in the United Arab Emirates, China, and Hong Kong wire transferred approximately $8, 065, 555.26 in funds to the Subject Account to pay for the stolen and fraudulently obtained electronic devices. AU used these funds, and others contained in the Subject Account, to continue its operations, including, but not limited to, purchasing additional stolen and fraudulently obtained electronic devices, which AU then resold to its customers, and to pay its employees and principals.

II. LEGAL STANDARD

Rule G(8)(b) of the Supplemental Rules allows a claimant with standing to move for the dismissal of a complaint pursuant to Fed.R.Civ.P. 12(b)(6). A motion to dismiss under Fed.R.Civ.P. 12(b)(6) does not test the merits of a claim; rather it tests the sufficiency of the complaint. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In deciding a Rule 12(b)(6) motion, the court accepts all well-pleaded facts as true, and draws all reasonable inferences in favor of the plaintiff. Id. at 1521. Generally, to survive a Rule 12(b)(6) motion, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). “A complaint should not be dismissed for failure to state [a] claim unless it appears beyond doubt that the plaintiff is unable to prove any set of facts which would entitle the plaintiff to relief.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 546, 127 S.Ct. 1955, 1959 (2007).

In a civil forfeiture case, the pleading standard is harder to meet than in ordinary civil cases as an accommodation to the “drastic nature” of the civil forfeiture remedy. 12 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 3242 (1973). A civil in rem forfeiture movant must plead “the circumstances from which the claim arises with such particularity that the defendant or claimant will be able, without moving for a more definite statement, to commence an investigation of the facts and to frame a responsive pleading.” Supp. R. E(2)(a). To satisfy this standard, the government must “prove the connection between the property to be forfeited and the [illegal] activity by a preponderance of the evidence....” Civil Asset Forfeiture Reform Act of 2000, 18 U.S.C. § 983(c)(1) (“CAFRA”); United States v. Funds in Amount of Thirty Thousand Six Hundred Seventy Dollars, 403 F.3d 448, 467 (7th Cir. 2005); United States v. Funds in the Amount of Forty-Five Thousand Fifty Dollars ($45, 050.00), 2007 WL 2323307, at *2 (N.D. Ill. Aug. 9, 2007) (CAFRA's “preponderance of the evidence” standard has replaced the “probable cause” standard adhered to in pre-CAFRA cases).

In addition, “the government shall establish that there was a substantial connection between the property and the offense, ” if the Government's theory of forfeiture is that the property was involved in the commission of a criminal offense. 18 U.S.C. § 983(c)(3); United States v. Funds in the Amount of Forty-Five Thousand Fifty Dollars ($45, 050.00), 2007 WL 2323307, at *2 (N.D. Ill. Aug. 9, 2007). “No complaint may be dismissed on the ground that the Government did not have adequate evidence at the time the complaint was filed to establish the forfeitability of the property.”18 U.S.C. §983(a)(3)(D). Still, the court need not accept as true “legal conclusions merely because they are cast in the form of factual allegations.” United States v. One White Crystal Covered Bad Tour Glove & Other Michael Jackson Memorabilia, 2012 WL 8455336, at *1 (C.D. Cal. Apr. 12, 2012) (citing Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir.2003)).

III. DISCUSSION

Plaintiff filed this forfeiture action under 18 U.S.C. § 981(a)(1)(A), as property allegedly involved in transactions and attempted transactions in violation of 18 U.S.C. §§ 1956(a)(2)(A) and § 1956(h), as well as 18 U.S.C. § 981(a)(1)(C), as proceeds traceable to the transportation, sale, and receipt of allegedly stolen goods in violation of 18 U.S.C. §§ 2314 and 2315. To meet its pleading standard, the government must state facts that support a reasonable belief that the funds in the Subject Account were transferred to Defendant as payment for the sale of electronic devices, which Defendant, knowing that the devices were stolen or fraudulently obtained, purchased from suppliers. Defendant advances three arguments for dismissing Plaintiff’s complaint: (1) the government has failed to state a claim with particularity under the heightened pleading standard required under the Supplemental Rules; (2) the government has failed to plead facts to overcome the statutory warranty of title under § 2-312 of the Illinois Uniform Commercial Code; and (3) the government has failed to sufficiently detail the proceeds, tracing, and commingling of funds to a claim of net profits from illegal activity.

1. Does the Government’s Complaint Meet the Heightened Pleading Standard of Federal Rule of Civil Procedure Supplemental Rule E(2)(a) and G(2)(f)?

Defendant argues that the government has failed to state a claim for relief under §§ 981(a)(1)(A) or (C) with particularity under the heightened supplemental standard of Supplemental Rules E(2)(a) and G(2)(f), and even under the less stringent ordinary notice pleading standard. Plaintiff’s complaint must, at a minimum, “allege facts sufficient to support a reasonable belief that the property is subject to forfeiture.” Supplemental Rule G(2)(f); United States v. Mondragon, 313 F.3d 862, 865 (4th Cir.2002); United States v. Funds in the Amount of $9, 800, 952 F.Supp.1254, 1260 (7th Cir.1996). Particularly, Defendant asserts that Plaintiff has not alleged facts sufficient to reasonably support a substantial connection between the funds seized in the Subject Account and the sale of stolen or fraudulently obtained electronic devices. 18 U.S.C. §983(c)(3). A complaint that is “devoid of factual support” linking the monies seized in the Subject ...


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