Opinion
Criminal No. 01-00694.
September 8, 2004
MEMORANDUM AND ORDER
On August 27, 2002, the judge to whom this case was then assigned entered an order, without a hearing, denying defendant's motion for the return of property. The defendant appealed, and, on August 14, 2003, the Court of Appeals vacated that order and remanded for an evidentiary hearing. On February 19, 2004, the case was reassigned to my docket. The required evidentiary hearing has now been held.
The Indictment charges the defendant with having made false statements to various federally-insured lending institutions in order to obtain loans, and with having given false testimony in a bankruptcy proceeding, with the ultimate effect, according to the government, of enabling the defendant to purchase a valuable hotel property which he later sold advantageously. The underlying transactions occurred in the 1997-1999 period, and the defendant was indicted in 2001, but the case has not yet reached trial. The delay is attributable not only to the intervening appeal, but also to ongoing plea negotiations, which have apparently foundered because of disagreements concerning the government's forfeiture claims, and the proper disposition of the substantial funds now being held in escrow in various accounts.
Most of the escrowed funds in dispute are claimed by the government to be forfeitable as "proceeds" of the defendant's indictment-related activities. Everyone agrees that these funds are subject to pre-trial seizure by the government, pending the trial and ultimate disposition in the event of conviction. As to these "proceeds," the only pre-trial issue is determining the exact amount which constitutes "proceeds." The somewhat complicated legal and factual issues involved in that determination will be addressed later — preferably after trial, in the event of a conviction.
For present purposes, it suffices to note that the concept of forfeitable "proceeds" of original activity seems to vary considerably, depending upon precisely what statute a defendant is convicted under. At some point, I will require further briefing concerning such matters as the proper definition of "proceeds" under the money-laundering statute, as compared with fraud statutes or income tax violation statutes; and the difference between crediting a defendant with business expenses associated with the use of criminal proceeds in the conduct of legitimate business activities which produced a net gain, as compared with expenses incurred in carrying out unlawful activities. I believe these issues can best be addressed only if necessary — i.e., in the event of a conviction at trial. I note, further, that on the present record the government has made at least a prima facie showing that at least a very substantial portion of the escrowed funds may ultimately prove to be forfeitable, hence may now be frozen in place; and that the defendant has not shown a pressing need for the funds in the interim.
With respect to the approximately $150,000 remaining in escrow from the sale of the Barclay Hotel, the issues are quite different. The government concedes that its claim to these funds is based on the proposition that they would constitute substitute assets — i.e., assets of the defendant not derived from criminal activity as such, but rather "untainted" assets needed to replace forfeitable assets not now available to the government. And, as the Court of Appeals noted, the government concedes that substitute assets are not subject to pre-trial seizure. Thus, the defendant would be entitled to the immediate return of those funds unless, as the government contends, the defendant has contracted away his right to pre-trial possession of those funds.
The contracts in question consist of a letter agreement dated June 18, 1999, pursuant to which the funds were deposited in escrow, and an escrow agreement entered into a few days later, depositing the funds with Commonwealth Land Title Insurance Company as escrow agent. The Court of Appeals found that these documents are ambiguous, and the case has been remanded to this court for a hearing to resolve the ambiguities.
The government contends that, by virtue of these two agreements, the defendant has stipulated that the $150,000 proceeds from the Barclay sale will be held in escrow until the conclusion of the criminal trial and forfeiture proceeding, unless otherwise agreed between the parties. The defendant contends that he is not precluded from seeking earlier return of the escrowed funds. The Court of Appeals concluded that either interpretation of the contracts can be considered reasonable, and that the parties should be permitted to present extrinsic evidence to resolve the ambiguities.
The only evidence presented by the parties at the hearing held this date consisted of affidavits of counsel and statements made in the course of oral argument. There is no dispute about the accuracy of the affidavits, nor as to the credibility of statements made at oral argument. The evidentiary record now establishes (1) that defendant and his counsel did not intend to relinquish their right to challenge, pre-trial, the government's right to retain the $150,000 Barclay proceeds in escrow, and sincerely believed that they had not relinquished their rights in that regard; and (2) that counsel for the government fully intended to enable the government to retain the $150,000 in escrow until the ultimate outcome of forfeiture proceedings, and sincerely believed that he had achieved that result. In short, there was no actual meeting of the minds on that issue.
In the letter agreement, the government agreed that it would not file money-laundering charges against the defendant with respect to the sale of the Barclay Hotel. This is not surprising, since the government was anxious to have the Barclay sale go through — just as anxious as the defendant was. Moreover, contrary to some of the government's present argument, the concession that completion of the sale of the Barclay Hotel would not be charged as constituting money laundering can hardly be regarded as a significant concession; the government expressly retained the right to charge the defendant with money laundering in connection with his original purchase of the Barclay Hotel; and the sale of the hotel was being carried out with the express consent of the government. Thus, the argument that it would be inequitable to permit the defendant to seek return of the escrowed $150,000 because of the benefits the government has conferred upon the defendant by entering into the escrow agreement rings hollow.
It is agreed that counsel for the government drafted the letter agreement. Under normal rules of contract construction, ambiguities should be resolved against the drafter. More important, however, in this case it is agreed that the defendant's counsel insisted upon including in the agreement the statement "Pantelidis reserves all rights with respect to the disposition of the proceeds of the sale." In my view, among the "all rights" retained by the defendant is the right to establish that the $150,000 escrow constitutes substitute assets not subject to pre-trial detention.
To some extent, the foregoing interpretation of the letter agreement is reinforced by the provisions of the escrow agreement, which provides:
"Escrow agent will release funds upon the following conditions:
1. An agreement between Jerry Pantelidis and the United States Government; or
2. Final unappealable Judicial Order by a court of competent jurisdiction . . ."
There is nothing in either the letter agreement or the escrow agreement which suggests that a court order can be sought or obtained only after trial.
For all of the foregoing reasons, I conclude that the remaining escrowed funds representing proceeds from the sale of the Barclay Hotel (in the approximate sum of $150,000) should be returned to the defendant.
An Order follows.
ORDER
AND NOW, this day of September 2004, upon consideration of defendant's motion for return of property, IT IS ORDERED:1. With respect to the approximately $150,000 in escrow representing proceeds from the sale of the Barclay Hotel, the motion is GRANTED; said funds shall be promptly released to the defendant.
2. In all other respects, disposition of the motion deferred until the conclusion of the criminal trial and such further proceedings as may eventuate.