Youngstown Daily Legal News

Judges: Internet posting not good enough for notice of forfeiture

JESSICA SHAMBAUGH
Special to the Legal News
Published: June 28, 2012

A cooler containing $250,000 cash belonging to a convicted fraudster and buried in a Cincinnati-area golf course may not be forfeited to the government without providing the trustee of the fraudster’s bankruptcy estate with notice of the forfeiture proceeding, according to a recent 6th Circuit Court of Appeals ruling.

The three-judge appellate panel rejected the government’s claims that it did not have to directly notify the trustee of A. William Erpenbeck Jr.’s bankruptcy estate that Erpenbeck’s cash was going through forfeiture proceedings because it found the trustee was clearly a party with interest in the property.

“The district court sided with the government, but because the government did not provide the trustee with sufficient notice of the forfeiture proceeding, depriving him of the chance to assert his claim, we vacate the final order of forfeiture and remand,” 6th Circuit Judge Jeffrey Sutton wrote for the court.

Case summary details that Erpenbeck used his position as the president of a large residential development company to bilk nearly $34 million from banks and home buyers between 1999 to 2002.

In April 2003 he pleaded guilty to federal bank fraud charges. The district court sentenced him to 300 months in prison and ordered that he forfeit $33,935,878 in fraud proceeds.

The FBI learned in 2009 that prior to going to prison, Erpenbeck had given a friend more than $250,000 cash to hold until he was released. The cash was loaded into a cooler and buried near a green on the third hole of Summit Hills Country Club near Cincinnati, according to case summary.

The FBI recovered the cooler in October 2009.

“What came next is a tug-of-war over who gets the money: the government, which wants a criminal forfeiture of the cash, or the trustee of Erpenbeck’s bankruptcy estate, who wants to distribute the cash to Erpenbeck’s creditors,” Sutton wrote.

The government sought forfeiture of the cash and posted notice of the process online during November and December 2009. Erpenbeck’s trustee contacted an assistant U.S. Attorney and stated that the estate had an interest in the cash but the attorney failed to inform the trustee about the ongoing forfeiture proceedings, case summary states.

Finding that no third party had asserted interest in the cash, the district court granted all rights to the cash to the government.

The trustee claimed the cash belonged to the bankruptcy estate and moved to stay the forfeiture order but the district court denied the motion because he did not make the motion with the required 30 days.

“The trustee never knew the 30-day clock was ticking — having apparently not occupied his free time by browsing www.forfeiture.gov — and thus never had a chance to assert his interest in a timely manner,” Sutton wrote.

On review, the 6th Circuit maintained that the government’s posting of the process online was not enough and it should have directly notified the trustee.

“Imagine if the statute did not require direct notice to parties whom the government knows, or reasonably should know, have an interest in the forfeitable property. That would raise serious, likely devastating, constitutional objections,” Sutton continued.

The government contended that the cash did not belong to Erpenbeck and therefore the trustee did not have an interest.

The appellate panel held that this would be true if the cash were classified as tainted property, which is property obtained directly through a person’s criminal activity. However, it found that the cash was not classified as such and the trustee should have been notified.

It also rejected the government’s arguments that it did not provide direct notice because it did not know the bankruptcy was still open and because it thought the district court would notify the trustee.

“The government’s efforts to explain away its failure to notify the trustee overlook a simple reality: Neither the forfeiture statute nor the Due Process Clause demands that the government undertake ‘heroic efforts’ to provide the required notice; mailing the trustee a certified letter will suffice,” Sutton stated. “Even though the trustee’s interest in the cash was far from a mystery, the government did not take this modest step.”

The judges ruled that the appropriate action was to remand the case to the district court so that it could accept the third party petition and hold an ancillary proceeding.

Fellow 6th Circuit Judge David McKeague and 7th Circuit Judge Kenneth Ripple joined Sutton to form the majority.

Attempts to contact Debra Pleatman of Covington, Ky. for Erpenbeck and the U.S. Attorney’s Office in Cincinnati were unsuccessful prior to press deadline.

The case is cited USA v. Erpenbeck and Baker, case No. 11-3530.

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