United States Court of Appeals
For the First Circuit
Nos. 06-1187, 06-1423, 06-1444
UNITED STATES,
Plaintiff, Appellee/Cross-Appellant,
v.
UNION BANK FOR SAVINGS & INVESTMENT (JORDAN),
Claimant, Appellant/Cross-Appellee,
REUVEN KRAUZER,
Claimant, Appellant,
THE BANK OF NEW YORK BY THE UNION BANK FOR SAVINGS
AND INVESTMENTS JORDAN, Funds on Deposit in Account
No. 8900057173 up to the Value of $2,343,905.33, ET AL.,
Defendants-In-Rem.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Paul J. Barbadoro, U.S. District Judge]
Before
Boudin, Chief Judge,
Lynch and Lipez, Circuit Judges.
Jeffrey C. Spear, with whom Martha Van Oot and Orr & Reno,
P.A. were on brief, for appellant Union Bank for Savings &
Investment (Jordan).
Christopher H.M. Carter, with whom Hinckley, Allen & Snyder,
LLP was on brief, for appellant Reuven Krauzer.
Gretchen Leah Witt, Assistant United States Attorney, with
whom Jean B. Weld, Assistant United States Attorney, and Thomas P.
Colantuono, United States Attorney, were on brief, for appellee.
May 18, 2007
LYNCH, Circuit Judge. This case raises a novel issue of
the proper construction of 18 U.S.C. § 981(k), a civil forfeiture
provision concerned with interbank accounts of foreign banks, which
was added as part of the USA PATRIOT Act, Pub. L. No. 107-56, §
319(a), 115 Stat. 272, 311-12 (2001).
Section 981(k) provides for the forfeiture of amounts in
interbank accounts held by a foreign bank at banks in the United
States when forfeitable funds are deposited into an account at the
foreign bank. 18 U.S.C. § 981(k)(1)(A). Frequently, however,
foreign banks are innocent of the underlying wrongdoing that forms
the basis for the forfeiture. As a result, if a foreign bank were
allowed to file a claim for amounts seized from its interbank
account, as was the case before enactment of section 981(k), it
would often succeed in recovering the seized amounts as an
"innocent owner" of the funds, see id. § 983(d), even when the
foreign depositor might not qualify as an innocent owner.
To avoid this result, Congress in enacting section 981(k)
also provided that generally the foreign depositor, and not the
foreign bank, is considered an "owner" of the seized funds,
eligible to challenge the forfeiture on innocent owner or other
grounds. See id. § 981(k)(4)(B)(i). An exception to this
designation of ownership applies, however, and the foreign bank is
the owner of the funds, to the extent that the bank has "discharged
all or part of its obligation to the prior owner of the funds" by
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the time of the seizure. Id. § 981(k)(4)(B)(ii)(II). It is this
exception that is at the heart of this case.
In this case, the United States seized over $2.8 million
from an interbank account held by Union Bank for Savings &
Investment (Jordan) at the Bank of New York, claiming that, under
section 981(k), these funds corresponded to proceeds of a Canadian
telemarketing fraud conspiracy. A parallel indictment charged
sixteen defendants with violations of federal RICO, mail fraud, and
wire fraud statutes in that conspiracy to defraud more than eighty
Americans, many of them elderly widows and widowers. Proceeds of
the fraud, in the form of cashier's checks sent by those defrauded,
had been eventually deposited into two accounts at a branch of
Union Bank (Jordan) in Ramallah in the West Bank, one in the name
of Samir Esseileh and the other in the name of his brother,
Mohammed Ghaleb Esseileh. In response to the seizure, Union Bank
(Jordan), but not the Esseilehs, claimed ownership of the seized
funds, arguing that the exception at section 981(k)(4)(B)(ii)(II)
applied. The Bank of New York, the bank at which the interbank
account was located, is not a party in these proceedings.
In ruling on cross-motions for summary judgment, the
district court held that the "obligation" referred to in section
981(k)(4)(B)(ii)(II) is the obligation of a bank to repay amounts
on deposit. In so holding, the court rejected the contention of
Union Bank (Jordan) that the discharge of its obligations should be
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measured against its ability to obtain recourse from its depositors
under banking law. We agree with the district court on this point;
the interpretation posited by Union Bank (Jordan) is contrary to
the language of the statute and would undermine Congress's intent
in enacting section 981(k).
The district court also held that while the relevant
obligations are not limited to those arising from the specific
account into which the forfeitable funds were deposited,
"obligations [that] do not arise from and are not in any way
connectable to the obligation that arose from the receipt of the
forfeitable funds" do not count as obligations under section
981(k). The court based this on the view that the principle in
section 984(a)(2) limiting the forfeiture of substitute property to
that found in the "same place or account" should inform the
interpretation of the term "obligation" in section
981(k)(4)(B)(ii)(II). On this point, we do not agree. In
attempting to chart this middle course between the government's and
the bank's positions, the district court borrowed concepts relevant
to determining the forfeitability of funds in ordinary accounts to
decide the question of ownership of funds in interbank accounts.
Both the language and the legislative history of section 981(k)
demonstrate that Congress did not intend to apply analogous
substantive limits to forfeitability in determining ownership under
section 981(k). Thus, we hold that for purposes of section 981(k),
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obligations include amounts in any account held at the time of the
seizure by anyone who was an owner of the funds at the time they
were deposited.
Union Bank (Jordan) makes other arguments, which were
rejected by the district court, and which we also reject. We
reject the bank's claim that the forfeiture is excessive under the
Eighth Amendment because we find the forfeiture is not punitive
relative to Union Bank (Jordan). We also hold that the district
court did not abuse its discretion in requiring a joint statement
of undisputed material facts for purposes of the cross-motions for
summary judgment.
In addition, we find no abuse of discretion in the
district court's striking as untimely the claim of Reuven Krauzer,
an earlier holder of the cashier's checks at issue, who also
appeals.
I.
The facts we describe are drawn from the Joint Statement
of Undisputed Material Facts filed by the government and Union Bank
(Jordan), or are otherwise undisputed, except as noted.
Union Bank (Jordan) was chartered by the Central Bank of
Jordan in 1990 and has its main branch in Amman, Jordan. Since
1995, it has operated a branch in Ramallah, in the West Bank in the
Palestinian territories.
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On October 18, 2002, the United States seized
$2,343,905.33 from a U.S. interbank account held by Union Bank
(Jordan) at the Bank of New York, as part of a seizure of over $4.5
million from the interbank accounts of a number of different
foreign banks. The government simultaneously filed a complaint
against the seized funds in federal district court in New Hampshire
for forfeiture in rem. On November 19, 2003, the United States
seized an additional $501,228.18 from the same Union Bank (Jordan)
account at the Bank of New York, of which $30,000.00 was
subsequently released, for a total seizure from this interbank
account of more than $2.8 million. Proceedings under the second
seizure were consolidated into the first.
This $2.8 million corresponded to the combined face value
of 124 cashier's checks drawn on U.S. banks and deposited into
customer accounts at Union Bank (Jordan). The government alleged
that these cashier's checks (and others corresponding to the
balance of the $4.5 million seized) were forfeitable as the
proceeds of a Canadian telemarketing fraud scheme that victimized
American citizens. The perpetrators of the scheme convinced dozens
of individuals to send cashier's checks of $5,000 to $100,000 or
more to designated post office boxes in Montreal, purportedly to
cover expenses associated with large prizes from a Canadian
sweepstakes or lottery.
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After receiving the checks, the perpetrators of the fraud
sold them to a restaurant owner in Montreal in exchange for
Canadian currency. He in turn sold the cashier's checks to a
person with connections in Israel. The 124 checks at issue in this
case were all eventually sold to Reuven Krauzer, a money changer in
Jerusalem.
Krauzer then sold the checks to Mohammed Ghaleb Esseileh.
Mohammed Ghaleb Esseileh and his brothers Samir and Talal, together
with other family members, operated a money exchange business in
East Jerusalem. At times relevant here, various members of the
Esseileh family maintained bank accounts at Union Bank (Jordan) in
the course of their money exchange business; the business as a
whole did not have a business account at the bank.
Each of the 124 cashier's checks was deposited into one
of two Esseileh accounts at Union Bank (Jordan), both of which the
Esseilehs used for the deposit of checks received in the ordinary
course of business. The first account, opened on February 28,
1996, was in Samir's name, although, pursuant to a written
agreement with the bank, his brother Mohammed Ghaleb also had
authority on this account, including the authority to make deposits
and withdrawals. This account was closed on February 18, 2002,
before the date of the seizures in this case.
The second account, opened sometime in 2001, was in
Mohammed Ghaleb's name. On January 14, 2002, the bank approved a
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credit facility on this account, allowing for the deposit of U.S.
dollar instruments to the account without prior bank approval.
Samir and Talal were both guarantors on this credit facility,
jointly liable with Mohammed Ghaleb for paying any deposited items
that were returned. Shortly before the account in Samir's name was
closed, all or nearly all of the funds in that account were
transferred to the Mohammed Ghaleb account. The parties agree that
most of the checks were deposited into the Samir account, rather
than the Mohammed Ghaleb account, but they dispute the precise
division between the two accounts.
On and just after the date of the first seizure, Samir
did not have any account at Union Bank (Jordan) in his name, nor
did he have deposit authority on the Mohammed Ghaleb account. On
the dates of the seizures, Talal had at least one account at the
bank, but none of the checks had been deposited into Talal's
accounts. As of the dates of the seizures, the amount seized was
more than the total funds in Mohammed Ghaleb's accounts alone, but
less than the total funds in Mohammed Ghaleb's and Talal's accounts
combined.
Once the checks were deposited with Union Bank (Jordan),
the bank transmitted the checks to its U.S. interbank accounts to
obtain payment on the checks; the checks were primarily, but not
exclusively, transmitted to its account at the Bank of New York.
The Bank of New York then presented the checks to the issuing banks
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for payment, giving Union Bank (Jordan) a provisional credit on its
interbank account in the interim. If an item had been properly
returned by the issuing bank, the Bank of New York would have then
debited the Union Bank (Jordan) interbank account and forwarded the
returned item to Union Bank (Jordan), to allow it to collect on the
item from the Esseilehs. In this case, none of the issuing banks
sought to reverse payment, and the applicable statutory and
regulatory time periods for seeking such a reversal expired; as a
result, the credit on the Union Bank (Jordan) interbank account
became final.
Had any items been returned to Union Bank (Jordan), the
bank could have sought recourse from the Esseilehs based on their
customer agreements and the guarantee signed by Samir and Talal.
Those agreements provided that the Esseilehs would be responsible
for "all liabilities which may result from depositing cheques in
foreign currency . . . in case such cheques are proved to be
invalid, counterfeited or unacceptable for cashing due to any
reason whatsoever." The bank's position is that neither these
customer agreements nor general banking law provide any basis for
it to recover from the Esseilehs based on the seizures in this
case.
Following the initial seizure, Union Bank (Jordan)
transferred approximately $2.4 million from Mohammed Ghaleb's
accounts into a restricted trust account. The bank has stated
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under oath that it had no legal basis for this transfer. The
Esseilehs sent to Union Bank (Jordan) a "notorial" warning that
they would file suit to recover these funds, but following the
bank's request to postpone any such suit pending the outcome of
this case, the Esseilehs have not filed suit to date. The bank and
the Esseilehs discussed the ability of the Esseilehs to file a
claim in this case. The bank ultimately decided that it would be
"stronger to do it alone," and the Esseilehs did not file a claim
to challenge the forfeiture of the seized funds.
On February 6, 2003, Union Bank (Jordan) filed a claim in
the in rem proceedings to the amounts initially seized from its
interbank account, and on January 23, 2004, it filed a claim to the
amounts subsequently seized. Following discovery, on July 1, 2004,
both parties filed motions for summary judgment. The bank argued
that it was an innocent owner of the funds, that the forfeiture of
the funds would be an excessive fine under the Eighth Amendment,
and that section 981(k) unconstitutionally treated foreign banks
differently from American banks. The government argued that the
bank was not an owner of the funds under section 981(k), and that
as a result, the bank lacked both Article III standing and any
right under section 981(k) to challenge the forfeiture.
On October 5, 2004, the district court denied the bank's
motion for summary judgment on the merits of its innocent owner
defense. In all other respects, both motions were denied without
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prejudice. The court invited the bank to "renew its motion to the
extent that it raises constitutional challenges and to the extent
that it asserts that it is an 'owner' under the statute."
Similarly, the government could renew its motion "as a cross motion
to defendants' motions for summary judgment raising the same
issue." The court further ordered that "[t]he parties shall each
be limited to a single brief limited to 20 pages and the parties
shall submit a joint statement of undisputed material facts in
support of the motion." On November 22, 2004, the parties filed a
joint statement of undisputed material facts and renewed cross-
motions for summary judgment on the issue of ownership.
On January 6, 2005, the district court held an extended
hearing on the summary judgment motions, at the conclusion of which
it granted the government's motion and denied the bank's motion.
The court held that the "obligation" referred to in section
981(k)(4)(B)(ii)(II) is the bank's obligation to repay funds on
deposit, so that the bank's ownership status is measured against
the "amounts that remain on deposit in the prior owner's . . .
accounts" on the date of the seizure.1 Furthermore, the court
found that "the evidence demonstrates unequivocally that the
1
The court first held that, contrary to the bank's argument,
Union Bank (Jordan) was "the foreign financial institution" under
18 U.S.C. § 981(k)(4)(B)(i)(II) and hence was excluded by that
provision from the definition of an "owner" unless one of the
exceptions in 18 U.S.C. § 981(k)(4)(B)(ii) applied. Union Bank
(Jordan) does not challenge this aspect of the ruling on appeal.
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activities at issue here, the deposits of the checks into the [two]
account[s], were the activities of a jointly conducted money-
changing business operated by S[amir], M[ohammed Ghaleb], and Talal
. . . ." Thus, amounts in the Mohammed Ghaleb account represented
an "obligation" to the prior owners of funds deposited into either
the Samir account or the Mohammed Ghaleb account. Because "[t]he
bank ha[d] not presented [the court] with evidence suggesting that
the [Mohammed Ghaleb] account [did] not contain enough money," the
court found that the bank was not an owner of any of the seized
funds, without considering whether to include funds in Talal's
accounts as obligations under the statute.
On February 3, 2005, Union Bank (Jordan) filed a motion
for reconsideration, presenting exchange rate information to show
that the amount of the first seizure exceeded the balance in
Mohammed Ghaleb's accounts on that day by at least $450,000, and
also arguing that Talal's account should not be considered because
it had "never [been] used for any money changing purposes." Union
Bank (Jordan) also renewed its Eighth Amendment challenge.
On May 13, 2005, the district court held a second
hearing, at which it granted the motion for reconsideration. The
court held that the only obligations that needed to be discharged
under 18 U.S.C. § 981(k)(4)(B)(ii)(II) in order for the bank to be
an owner were those "that arise from the bank's receipt of
forfeitable funds." Because there was "no evidence that there were
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any transfers between the [Mohammed Ghaleb] account and Talal
Esseileh's account," Talal's account was not an obligation that the
bank had to discharge in order to be considered an owner. A
factual dispute remained on whether an account used as security for
the Mohammed Ghaleb account should be counted as "part of" that
account, and hence part of the relevant obligation. That issue was
set for trial, together with the merits of the bank's innocent
owner defense. The court also rejected the bank's Eighth Amendment
challenge, on the basis that the forfeitures at issue were entirely
remedial.2
Thus, following these rulings, Union Bank (Jordan) was
found not to be the owner of more than $2.1 million of the seized
funds, with approximately $660,000 still in dispute. The parties
then agreed to a settlement of the remaining issues, which provided
for the forfeiture of approximately $280,000, the return of
approximately $300,000 to Union Bank (Jordan), and a stipulation as
to the remaining nearly $80,000 that its disposition would depend
on whether the government successfully obtained on appeal a final
decision that the bank was not the owner of these funds. The
bank's appeal thus concerns the $2.1 million, while the
government's cross-appeal relates to the $80,000.
2
The court also rejected the bank's procedural due process
claim, finding that the bank had failed to plead the claim in its
answer and that the claim was without merit in any event. Union
Bank (Jordan) does not raise this issue on appeal.
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Meanwhile, on September 6, 2005, Reuven Krauzer filed a
claim and motion to intervene, asserting an interest in the more
than $2.1 million that the district court had held was not owned by
the bank. Krauzer alleged that he had been forced to indemnify the
Esseilehs after the bank had frozen $2.4 million from the
Esseilehs' accounts, and that he had thereby succeeded to the
Esseilehs' ownership interest in the seized funds. Earlier in the
litigation, on March 17, 2003, Krauzer had filed claims to certain
amounts seized from other banks' interbank accounts. Those claims
had been settled, and the corresponding final order of forfeiture
with respect to those claims had entered on December 27, 2004.
Krauzer explained the delay in filing the September 2005 claim on
the basis that it was dependent on the court's ruling that Union
Bank (Jordan) was not the owner of the funds in question.
On October 18, 2005, the district court struck Krauzer's
claim as untimely, finding the delay "inexcusable," the potential
prejudice to the government "severe," and the disruption to the
court's management of the proceedings significant. Subsequently,
final orders of forfeiture entered in accordance with the district
court's rulings and the settlement between the government and Union
Bank (Jordan).
II.
In 2001, as part of the USA PATRIOT Act, Congress added
a new provision to the federal civil forfeiture statute, 18 U.S.C.
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§ 981(k), which established special rules for forfeitures from
interbank accounts held by foreign banks at banks in the United
States.3 USA PATRIOT Act § 319(a), 115 Stat. at 311-12.
Interbank accounts, also known as correspondent accounts,
are used by foreign banks to offer services to their customers in
jurisdictions where the banks have no physical presence, and
otherwise to facilitate transactions involving such jurisdictions.
See generally Minority Staff of S. Permanent Subcomm. on
Investigations, 107th Cong., Report on Correspondent Banking: A
Gateway for Money Laundering 11-14 (Comm. Print 2001). Given the
international importance of U.S. currency and the U.S. market, many
foreign banks have such interbank accounts in the United States.
Id. at 11-12. There are banks that conduct virtually all
transactions external to the bank through their U.S. interbank
accounts. Id. at 13.
Because interbank accounts can be used to complete
transactions in the United States without the need to directly
establish an account in the United States, they can be vehicles for
money laundering, with or without the complicity of the foreign
bank. Id. at 30. Before the 2001 enactment of section 981(k), it
was difficult for the U.S. government to seek the forfeiture of
3
The statute defines an "interbank account" to be "an account
held by one financial institution at another financial institution
primarily for the purpose of facilitating customer transactions."
18 U.S.C. §§ 981(k)(4)(A), 984(c)(2)(B).
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laundered funds in the interbank accounts of foreign banks. Id. at
41-42. This was because the bank, like any other account holder,
was considered the owner of the funds in its interbank account, and
hence the bank was entitled to assert an innocent owner defense to
an attempted forfeiture. Id. In most cases, the bank was not
criminally complicit in the underlying wrongdoing, and thus most
such forfeitures would fail. See id.
Section 981(k) broadened the government's civil
forfeiture power in two important ways. First, section
981(k)(1)(A) provides:
For the purpose of a forfeiture under this
section or under the Controlled Substances Act
. . . , if funds are deposited into an account
at a foreign financial institution . . . , and
that foreign financial institution . . . has
an interbank account in the United States with
a covered financial institution . . . , the
funds shall be deemed to have been deposited
into the interbank account in the United
States, and any restraining order, seizure
warrant, or arrest warrant in rem regarding
the funds may be served on the covered
financial institution, and funds in the
interbank account, up to the value of the
funds deposited into the account at the
foreign financial institution . . . , may be
restrained, seized, or arrested.
Thus, it is the deposit of forfeitable funds into an account at a
foreign bank, rather than the continued existence of forfeitable
funds in that account, that triggers the forfeitability of an
equivalent amount of funds in the foreign bank's interbank account.
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The funds in the interbank account are forfeitable even
if those funds have no connection to the forfeitable funds
deposited in the foreign account. This is made clear by section
981(k)(2), which provides that in a forfeiture action under section
981(k)(1), "it shall not be necessary for the Government to
establish that the funds are directly traceable to the funds that
were deposited into the foreign financial institution . . . , nor
shall it be necessary for the Government to rely on the application
of section 984."4 The net effect is to "treat[] a deposit made
into an account in a foreign bank that has a correspondent account
at a U.S. bank as if the deposit had been made into the U.S. bank
directly." H.R. Rep. No. 107-250(I), at 58 (2001).
The provisions just described expand the reach of the
forfeiture statute, but would not prevent the foreign bank from
asserting an innocent owner defense. The statute further provides
that "the owner of the funds deposited into the account at the
foreign financial institution . . . may contest the forfeiture."
18 U.S.C. § 981(k)(3). "Owner" is, however, defined as follows:
(B) Owner.
(i) In general. Except as provided in clause
(ii), the term "owner"--
4
Section 984 provides for the forfeiture of "any identical
property found in the same place or account as," inter alia,
forfeitable "funds deposited in an account in a financial
institution," 18 U.S.C. § 984(a), so long as the forfeiture action
is commenced within one year of the underlying offense, id.
§ 984(b).
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(I) means the person who was the owner, as
that term is defined in section 983(d)(6), of
the funds that were deposited into the foreign
financial institution . . . at the time such
funds were deposited; and
(II) does not include either the foreign
financial institution . . . or any financial
institution acting as an intermediary in the
transfer of the funds into the interbank
account.
Id. § 981(k)(4)(B). Thus, the general rule is that the foreign
depositor, and not the foreign bank, is deemed the owner of funds
seized under section 981(k), with the right to challenge the
forfeiture and assert an innocent owner or other defense.
The statute provides two exceptions to the rule that the
foreign bank is not an owner of the seized funds:
(ii) Exception. The foreign financial
institution . . . may be considered the
"owner" of the funds (and no other person
shall qualify as the owner of such funds) only
if--
(I) the basis for the forfeiture action is
wrongdoing committed by the foreign financial
institution . . . ; or
(II) the foreign financial institution . . .
establishes, by a preponderance of the
evidence, that prior to the restraint,
seizure, or arrest of the funds, the foreign
financial institution . . . had discharged all
or part of its obligation to the prior owner
of the funds, in which case the foreign
financial institution . . . shall be deemed
the owner of the funds to the extent of such
discharged obligation.
Id. § 981(k)(4)(B)(ii). It is the exception in subsection
981(k)(4)(B)(ii)(II) that we must construe here.
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III.
We turn now to the central issue on appeal: whether Union
Bank (Jordan) fits within the second exception to the general rule,
such that it is the "owner" under section 981(k)(4)(B)(ii)(II) of
some or all of the funds seized from its interbank account. We
review the district court's rulings on summary judgment de novo.
United States v. One Parcel of Real Prop., 960 F.2d 200, 204 (1st
Cir. 1992). Summary judgment is proper "if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law." Fed. R. Civ. P. 56(c). We draw
all reasonable inferences in favor of the nonmoving party, but
where that party bears the burden of proof, it "must present
definite, competent evidence" from which a reasonable jury could
find in its favor. One Parcel of Real Prop., 960 F.2d at 204.
Under section 981(k)(1)(A), once the cashier's checks in
this case were deposited into accounts at Union Bank (Jordan),
those checks were "deemed to have been deposited into the interbank
account" of Union Bank (Jordan) in the United States, and the
government then could and did seize an equivalent amount of funds
from that interbank account. Because the checks were "deemed"
deposited into the interbank account, funds from that account were
forfeitable regardless of any subsequent fluctuations in the Samir
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and Mohammed Ghaleb accounts, into which the checks were actually
deposited. Union Bank (Jordan) does not challenge this aspect of
the statute on appeal; rather, the question is whether subsequent
fluctuations in the Samir and Mohammed Ghaleb accounts affected who
is to be considered the owner of the seized funds.
It is clear that Union Bank (Jordan) is "the foreign
financial institution" excluded under section 981(k)(4)(B)(i)(II)
as a general rule from ownership of the seized funds. Instead,
absent an exception, section 981(k)(4)(B)(i)(I) places ownership in
the hands of the "owner . . . of the funds that were deposited into
[Union Bank (Jordan)] at the time such funds were deposited."
"Owner" is in turn defined by reference to section 983(d)(6), the
provision that defines ownership for purposes of determining who
can raise an innocent owner defense outside of the interbank
context. This cross-reference makes clear that, for the purpose of
determining ownership, Congress intended to simply treat the
foreign deposit as a domestic one.
Thus, putting aside the exception for the moment,
ownership of the deposit is determined as if the transaction were
wholly domestic. Section 983(d)(6)(A) defines "owner" to be "a
person with an ownership interest in the specific property sought
to be forfeited, including a leasehold, lien, mortgage, recorded
security interest, or valid assignment of an ownership interest."
Under a prior incarnation of an innocent owner defense, we noted
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Congress's instruction that, absent contrary statutory language,
"the term 'owner' should be broadly interpreted to include any
person with a recognizable legal or equitable interest in the
property seized." United States v. 221 Dana Ave., 261 F.3d 65, 71
n.5 (1st Cir. 2001) (quoting Joint Explanatory Statement of Titles
II and III, Pub. L. No. 95-633, 95th Cong., 2d Sess. (Oct. 7,
1978), reprinted in 1978 U.S.C.C.A.N. 9496, 9518, 9522) (internal
quotation marks omitted). There is no indication that Congress
intended to narrow that definition when it established a statutory
definition of "owner" in section 983(d), as part of the Civil Asset
Forfeiture Reform Act of 2000, Pub. L. No. 106-185, 114 Stat. 202,
206-07.
Under this definition, the Esseilehs were the owners of
the checks at the time the checks were deposited into the Union
Bank (Jordan) accounts. The district court found, and we agree,
that on the state of the evidence, any reasonable fact-finder would
be compelled to find that the Esseilehs' money-changing business
was a joint venture or partnership among them and that the
cashier's checks at issue had been acquired and deposited in the
normal course of that business. Thus, the checks were property of
the joint venture, and the Esseilehs, as joint venturers, were
owners of the funds at the time they were deposited, regardless of
which account the funds were deposited into. Cf. United States v.
U.S. Currency, $81,000.00, 189 F.3d 28, 35-36 (1st Cir. 1999)
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(finding that the name on a bank account is not conclusive of
ownership).
The question then becomes whether Union Bank (Jordan)
"had discharged all or part of its obligation to" the Esseilehs, so
as to become the owner of the seized funds under the exception to
the general rule at section 981(k)(4)(B)(ii)(II). The statute does
not define the term "obligation." Nevertheless, in the context of
bank deposits, the meaning of the term is clear. A deposit of a
certain amount into a bank account creates a corresponding
obligation on the part of the bank to repay that amount on demand.
See Villafane-Neriz v. FDIC, 20 F.3d 35, 39 (1st Cir. 1994)
("[B]ank deposits . . . represent obligations on the part of a bank
to repay funds to depositors."). Such an obligation is discharged
by repaying the appropriate amount. Thus, a bank's obligation to
a depositor is measured by that depositor's account balances. In
this case, it is undisputed that on the dates of the seizures, the
Esseilehs together had funds on deposit exceeding the amount of the
seizures.5 Because the Esseilehs, including Talal, were the prior
owners of the funds, Union Bank (Jordan) does not fit within the
exception because it had not discharged its obligation to the prior
5
Union Bank (Jordan) has not argued that Talal's account was
properly excluded because it contained funds that, as a matter of
partnership law, were not assets of the partnership. Any such
argument has thus been waived. See United States v. Zannino, 895
F.2d 1, 17 (1st Cir. 1990).
-23-
owners, and it is thus not an owner of any portion of the seized
funds.
Union Bank (Jordan) disputes this interpretation of
"obligation," arguing that the term should be read more narrowly.
While the district court rejected the bank's interpretation, it
adopted a different interpretation also narrower than the one we
have described. Neither of these two narrower interpretations is
consistent with the language of the statute or its purpose, as
reflected in the legislative history.
The primary argument of Union Bank (Jordan) is that the
bank's "obligation" should be tied to its ability to obtain
recourse for the seizure from its depositor, through setoff or
otherwise. The bank then argues that because no recourse or setoff
was possible in this case, it discharged its obligations and should
be deemed the owner of the seized funds. This definition of
"obligation" is said to stem both from the statutory language and
from a purported congressional intent to equalize in all respects
the treatment of foreign and domestic banks. Neither claim is
correct.
Far from being supported by the statutory language, the
bank's interpretation is entirely unmoored from that language.
Recourse available to the bank is hardly an "obligation"; it is in
the nature of a legal right or a contingency on an obligation. If
a bank is left without recourse, then its obligation remains in
-24-
full force, rather than being discharged. Nothing in the language
of the statute ties the definition of "obligation" to the foreign
bank's rights of recourse or setoff.
Indeed, the provision in section 981(k)(1)(B) strongly
indicates that Congress did not intend to tie the bank's lack of
ownership over the funds to its recourse rights. Section
981(k)(1)(B) provides that the Attorney General
may suspend or terminate a forfeiture under
this section if the Attorney General
determines that a conflict of law exists
between the laws of the jurisdiction in which
the foreign financial institution . . . is
located and the laws of the United States with
respect to liabilities arising from the
restraint, seizure, or arrest of such funds,
and that such suspension or termination would
be in the interest of justice and would not
harm the national interests of the United
States.
If, as Union Bank (Jordan) asserts, the foreign bank were always
able to assert ownership over any funds it could not recover from
its depositors, section 981(k)(1)(B) would not have been necessary.
Moreover, as section 981(k)(1)(B) recognizes, the contours of the
foreign bank's rights may well be governed by foreign law and may
well vary significantly from jurisdiction to jurisdiction. There
is every reason to think that Congress intended to avoid such
complexities in a statute meant to make forfeiture more efficient
and more available. See H.R. Rep. No. 107-250(I), at 57-58.
As to the argument that Congress intended to equalize the
treatment of foreign and domestic banks, any such intent appears to
-25-
have had more to do with subjecting foreign deposits to forfeiture
as if they were domestic deposits than with protecting foreign
banks from liabilities not faced by domestic banks. See 147 Cong.
Rec. S10547, at S10581 (2001) (statement of Sen. Levin) (describing
the foreign bank's lack of wrongdoing as "a strange reason for
letting the foreign depositor who was engaged in a wrongdoing
escape forfeiture"). Furthermore, the legislative history
indicates that the intent of the added money laundering provisions
was not only to "close the loopholes in existing law," but also to
"provide additional tools for law enforcement to use." Id. at
S10580.
In the context of this case, the bank tries to further
narrow the term "obligation" by arguing that its obligation arose
under the cashier's checks and that any obligation was discharged
when the payment of those checks became final. But defining the
bank's "obligation" in terms of an obligation under a cashier's
check would tie the statutory language to the use of checks in this
case, and there is no indication, either elsewhere in the statute
or in the legislative history, that Congress intended ownership to
turn on whether cash or checks were deposited. In any event, the
argument is backwards. The primary obligation under a cashier's
check is an obligation on the part of the issuing bank to pay a
properly endorsed check. See United States v. Boren, 278 F.3d 911,
916 & n.4 (9th Cir. 2002). Such an obligation was one owed to
-26-
Union Bank (Jordan), at least while it was the holder of the check;
it was not an obligation owed by Union Bank (Jordan).
Union Bank (Jordan) relies heavily on the policy argument
that absent some ability on the part of the foreign bank to collect
from the foreign depositor, that depositor will have lost nothing
in the forfeiture and hence will have no incentive to appear in the
forfeiture proceeding, thus thwarting the expressed purpose of
Congress in crafting the ownership provisions. Whether or not the
bank is correct that it lacks recourse or setoff rights in this
case, it has not explained why, as a general matter, banks are not
in a position to protect themselves by contract or other means, so
as to give the foreign depositor the appropriate incentive to
appear.6 Cf. Landers v. Heritage Bank, 374 S.E.2d 353, 355 (Ga.
Ct. App. 1988) (considering whether a bank customer's "signature
card [was] effective" to permit the bank to debit the customer's
account based on a debit to the bank's own account); cf. also
Freese v. Regions Bank, N.A., No. A06A2154, 2007 Ga. App. LEXIS
398, at *8 (Ga. Ct. App. Mar. 30, 2007) (noting as a general
principle that "[t]he UCC permits parties to a contract of deposit
6
In fact, the Esseilehs signed customer and guarantee
agreements with Union Bank (Jordan) in which they agreed to hold
the bank harmless from "all liabilities which may result from
depositing cheques in foreign currency . . . in case such cheques
are proved to be invalid, counterfeited or unacceptable for cashing
due to any reason whatsoever." We express no view on whether this
language would provide a basis for Union Bank (Jordan) to recover
from the Esseilehs following the forfeiture in this case.
-27-
to agree between themselves as to their duties and the legal
consequences which flow therefrom"). By imposing the loss on the
bank as intermediary between the government and the foreign
depositor, as the statute does, the bank has an incentive to
explore all available options for passing on the loss and thereby
forcing foreign depositors such as the Esseilehs into U.S. courts
where they will be subject to discovery. Otherwise, the foreign
bank would have every incentive, as Union Bank (Jordan) has done
here, to step into its customers' shoes as claimants in the
forfeiture proceeding, exactly the result Congress wanted to avoid.
As a fall-back position, Union Bank (Jordan) argued to
the district court that its obligations were limited to those
arising from the account into which particular funds were
deposited. Since most of the checks were deposited into the Samir
account, which was closed before the first seizure, the bank argued
that it was the owner of at least those funds. The district court
rejected such an account-based limitation, finding the money in
different accounts potentially "fungible."
The court did, however, adopt a different limitation that
it had fashioned, holding that the only relevant obligations were
those "that arise from the bank's receipt of forfeitable funds."
The court explained that the government would have had to provide
evidence of "transfers between the [Mohammed Ghaleb] account and
Talal Esseileh's account" in order to have included obligations
-28-
under Talal's account. Union Bank (Jordan) pursues both its
original theory and that of the district court on appeal.
The flaw with these theories is that they are premised on
a conception of section 981(k) as reaching through the foreign bank
to seize amounts in particular accounts, whereas the language and
structure of the statute indicate that Congress intended to use the
ownership provisions to reach through the bank to particular
depositors. The obligation at issue in section 981(k) is the
bank's "obligation to the prior owner of the funds," 18 U.S.C.
§ 981(k)(4)(B)(ii)(II), not the obligation under a specific account
or the obligation "arising" from the deposit of forfeitable funds.
Congress could have added language limiting the relevant
obligations, but it did not do so.7
Indeed, had Congress intended to limit forfeitures under
section 981(k) to amounts corresponding to the balance in
particular accounts, section 981(k)(1)(A) would have been the
natural place to do so. But as we have noted, the "deeming"
language in that section makes the deposit of forfeitable funds in
the foreign account, not the continued presence of funds in that
account, the trigger for a forfeiture from the interbank account.
There would have been no reason to craft such language if Congress
7
In other contexts, where Congress has sought to limit the
relevant obligations, it has used specific language to that effect.
See, e.g., 7 U.S.C. § 1929a(a) (creating a fund "for the discharge
of the obligations of the Secretary [of Agriculture] under
[certain] contracts").
-29-
had intended to limit forfeitures to the amounts in particular
accounts. Union Bank (Jordan) is correct that, as a formal matter,
its argument relates only to the ownership provision in section
981(k)(4)(B) and not the forfeiture provision in section
981(k)(1)(A). One of the key purposes of Congress in enacting
section 981(k), however, was to expand the ultimate reach of the
civil forfeiture statute by eliminating the foreign bank's ability
to assert an innocent owner defense in most cases. See H.R. Rep.
No. 107-250(I), at 57-58. Since Congress was keenly aware that
granting ownership to the foreign bank would often defeat
forfeiture, we cannot believe that Congress would have intended the
ownership provision to implicitly incorporate an account-based
limitation, when the forfeiture provision carefully avoids such a
limitation.
There appears to be no legislative history directly
addressing the meaning of the term "obligation" in section
981(k)(4)(B)(ii)(II). Statements in the legislative history,
however, do support our view that ownership is to be measured in
terms of the bank's relationship to its depositor, and not in terms
of its relationship to particular accounts. The House committee
report notes that section 981(k) would "treat[] the deposit in the
correspondent account as a debt owed directly to the depositor, and
not as a debt owed to the respondent bank." Id. at 58. In
describing the effect of the ownership-shifting provision, no
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mention is made of the foreign account. Id. Instead, the focus is
on the debt represented by the amount in the interbank account.
The ownership provisions create the fiction that this debt is owed
to the foreign depositor. The statutory exception at section
981(k)(4)(B)(ii)(II) ensures that this debt corresponds to a real
debt owed by the foreign bank to the foreign depositor. For those
purposes, it does not matter in which account that debt is located.
The district court expressed discomfort with the result
we reach, finding that it would effectively expose foreign deposits
to forfeiture that would not have been exposed had they been
domestic deposits. That is the unequivocal result of the "deeming"
language in section 981(k)(1)(A), however. The district court
relied on the fact that under section 984(a)(2), in a domestic
forfeiture, only amounts in the "same place or account" as the
forfeitable funds are themselves subject to forfeiture. Section
981(k)(1)(A) contains no such limitation, nor does section 981(k)
reference the application of section 984, except to disclaim it.
See 18 U.S.C. § 981(k)(2) ("[N]or shall it be necessary for the
Government to rely on the application of section 984."). Thus,
whatever disparity exists between foreign deposits and domestic
deposits under section 981(k) has been created by section
981(k)(1)(A). As we have already described, we do not believe
Congress would have intended to use the ownership provisions in
section 981(k)(4)(B) to alter this result.
-31-
Lastly, both the district court and Union Bank (Jordan)
invoke the canon of construction that forfeitures are to be
narrowly construed in support of their different limiting
interpretations of the term "obligation." To begin with, such a
canon only has application in resolving ambiguities, and, as we
have described, the language at issue here cannot support the
interpretations of the district court and Union Bank (Jordan). See
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 491 n.10 (1985) ("The
strict-construction principle is merely a guide to statutory
interpretation. Like its identical twin, the 'rule of lenity,' it
'only serves as an aid for resolving an ambiguity; it is not to be
used to beget one.'" (quoting Callanan v. United States, 364 U.S.
587, 596 (1961))).
Moreover, it is not clear the canon would cut in favor of
a narrow interpretation of "obligation." If the bank is deemed the
owner of some part of the funds, "no other person shall qualify as
the owner of such funds." 18 U.S.C. § 981(k)(4)(B)(ii). Thus, to
allow the bank's claim for ownership as to certain funds is to deny
ownership to all other claimants to the same funds. As a result,
when multiple claimants are involved, the interpretation of
"obligation" that we find compelled by the statute actually works
to promote the broadest set of claimants.
Because we find that the district court unduly limited
the obligations that the bank must discharge in order to claim
-32-
ownership, we reverse the district court's holding that Union Bank
(Jordan) was the owner of some portion of the seized funds and hold
that Union Bank (Jordan) was not the owner under the statute of any
of the funds. As such, Union Bank (Jordan) does not have the
statutory right to assert an innocent owner defense to the
forfeiture.
IV.
We turn next to the claim of Union Bank (Jordan) that the
forfeiture in this case is an excessive fine under the Eighth
Amendment. At the outset, the government appears to have
challenged the district court's jurisdiction to entertain this
claim, and hence our jurisdiction, arguing that Union Bank (Jordan)
lacks Article III standing. An issue of Article III standing is
one that we must resolve before proceeding to the merits. Steel
Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998).
Here, it is clear that regardless of whether Union Bank
(Jordan) is an "owner" under section 981(k), it has Article III
standing to challenge the forfeiture. To have constitutional
standing, a claimant generally need only show "any colorable claim
on the defendant property," a requirement that we have
characterized as "very forgiving." United States v. One-Sixth
Share of James J. Bulger in All Present & Future Proceeds of Mass
Millions Lottery Ticket No. M246233, 326 F.3d 36, 41 (1st Cir.
2003). The funds seized in this case were taken from the bank
-33-
account of Union Bank (Jordan), an account over which it exercised
full dominion and control. This suffices to establish Article III
standing. See U.S. Currency, $81,000.00, 189 F.3d at 39. That
Union Bank (Jordan) is not a statutory "owner" of the funds does
not, and cannot, alter its Article III standing. See United States
v. One Lincoln Navigator 1998, 328 F.3d 1011, 1014 (8th Cir. 2003).
Nevertheless, prudential concerns limit the bank's
ability to raise an Eighth Amendment challenge to the forfeiture of
funds of which it is not a statutory owner. Prudential standing
doctrine encompasses, among other principles, "the general
prohibition on a litigant's raising another person's legal rights."
Allen v. Wright, 468 U.S. 737, 751 (1984). Thus, to the extent
that the bank is claiming that the forfeiture in this case is an
excessive fine against the Esseilehs, or other statutory owners of
the funds, the bank lacks prudential standing. Given Congress's
goal in section 981(k) of bringing foreign depositors into
forfeiture proceedings in lieu of foreign banks, there is no reason
to allow foreign banks to assert the rights of those foreign
depositors.
Union Bank (Jordan) does have standing to argue that the
forfeiture is an excessive fine against the bank itself, but this
argument fails on the merits. A forfeiture is limited by the
Eighth Amendment only if it is punitive, at least in part. See
Austin v. United States, 509 U.S. 602, 610 (1993). A forfeiture
-34-
under section 981(k), however, is not intended to punish the
foreign bank at all, at least when the foreign bank is not a
statutory owner.8 Indeed, the ownership provisions in section
981(k)(4)(B) were drafted as such precisely because the foreign
bank would often be innocent and Congress wanted to make this
innocence irrelevant in most cases. Cf. id. at 619 (finding that
innocent owner defenses "serve to focus the [forfeiture] provisions
on the culpability of the owner," thus making such provisions look
more punitive). Congress's evident intent was to use the foreign
bank merely as an intermediary to reach the foreign depositor.
Regardless of whether Union Bank (Jordan) might be left to bear the
cost of the forfeiture in this case, the forfeiture does not treat
the bank as an object of punishment, and hence the Eighth Amendment
does not limit the government's ability to extract funds from the
bank's interbank account in the first instance.9
V.
Union Bank (Jordan) also argues that the district court
erred in requiring single, simultaneous cross-motions for summary
judgment and a joint statement of undisputed material facts. Our
8
We do not reach the issue of a foreign bank's ability to
raise an Eighth Amendment challenge to the forfeiture of funds when
the exception at section 981(k)(4)(B)(ii)(II) in fact applies and
the bank is a statutory owner.
9
Our resolution of the Eighth Amendment claim makes it
unnecessary to rule on the government's contention that proceeds
forfeitures such as this one are always wholly remedial.
-35-
review of such a case management order is for abuse of discretion.10
See Vélez v. Awning Windows, Inc., 375 F.3d 35, 41 (1st Cir. 2004).
There was no abuse of discretion here. The district
court required the filing of a joint statement of undisputed
material facts and limited each side to a single brief, but nothing
in the district court's orders can be read to have limited the
parties to referencing only undisputed facts. The district court's
orders simply required the parties to place on the record the facts
to which they could agree. The orders did not remove from
consideration those facts that were still disputed, and they
certainly did not preclude Union Bank (Jordan) from arguing in its
brief that genuine issues of material fact remained. As the
district court noted at the hearing on reconsideration: "To suggest
that [the court] would attempt to foreclose one of [the bank's]
options for resisting summary judgment is absurd." The court found
that "[n]o lawyer could reasonably [have] construe[d] anything [the
court] said" to mean that the bank was "prevented from raising
disputed factual issues."
10
Union Bank (Jordan) argues that our review should be de novo
because its claim is that the district court misapplied the summary
judgment standard. The bank does not, however, appear to take
issue with how the district court applied the summary judgment
standard to the evidence before it, but rather claims that it was
denied an opportunity to supplement that evidence. This latter
claim raises a case management issue, not an issue of the summary
judgment standard.
-36-
In any event, if the bank in fact believed that the
district court's orders were preventing it from meeting its burden
on summary judgment, it was the bank's responsibility to
contemporaneously object or seek clarification. Had the bank done
so, the district court would have had the opportunity to correct
any misunderstandings and to adjust the procedure as appropriate.
Raising the issue on reconsideration, after the district court's
opportunity to address the situation had passed, was too late. See
CMM Cable Rep, Inc. v. Ocean Coast Props., Inc., 97 F.3d 1504, 1526
(1st Cir. 1996).
VI.
Finally, we address Krauzer's claim that the district
court erred in striking his September 2005 claim as untimely. Our
review is for abuse of discretion. United States v. One Dairy
Farm, 918 F.2d 310, 311 (1st Cir. 1990).
Krauzer admits that his September 2005 claim was
untimely,11 but he argues that the district court should have
permitted the claim as an equitable matter because the untimeliness
11
The relevant deadline in this case required claims to be
filed "not later than 30 days after the date of service of the
Government's complaint." 18 U.S.C. § 983(a)(4)(A); see also Supp.
R. Certain Adm. & Mar. Cl. C(6)(a)(i). The initial complaint was
served on Krauzer on January 3, 2003, and the amended complaint on
or about February 3, 2003. The district court granted a brief
extension and gave Krauzer until March 17, 2003 to file his claims.
-37-
of the claim was the result of "excusable neglect."12 See Pioneer
Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 383
(1993). In Pioneer, the Supreme Court articulated a list of
factors relevant to determining whether a party proffering an
untimely submission has made a showing of excusable neglect. These
factors include "the danger of prejudice to the [opposing party],
the length of the delay and its potential impact on judicial
proceedings, the reason for the delay, including whether it was
within the reasonable control of the movant, and whether the movant
acted in good faith." Id. at 395. Krauzer cites the same factors
in defense of his claim.
A consideration of the Pioneer factors, however, clearly
demonstrates that the district court did not abuse its discretion
in rejecting Krauzer's claim of excusable neglect. Importantly,
Krauzer offers no valid excuse for the late filing of his claim.
Krauzer argues that because the bank filed a claim to these funds,
he should have been excused from filing a competing claim until
after the district court had rejected the bank's claim. This is
simply not true. The deadline for filing a claim in a forfeiture
proceeding exists precisely to force all claims, competing or not,
12
Krauzer briefly asserts that his claim on appeal also has
a due process dimension. Even if such an issue has been preserved,
Krauzer's invocation of due process adds nothing on these facts, as
he does not challenge the notice he was given, nor does he argue
that he was denied any opportunity other than the opportunity to
present an untimely claim. Cf. United States v. One Star Class
Sloop Sailboat, 458 F.3d 16, 22 (1st Cir. 2006).
-38-
to be made known at the outset of the proceeding. This procedure
not only permits, but requires, the filing of competing claims, in
the interest of judicial economy. See Ortiz-Cameron v. DEA, 139
F.3d 4, 6 (1st Cir. 1998).
Despite Krauzer's argument to the contrary, it makes no
difference that this case involved a novel issue of statutory
interpretation. Krauzer cannot reasonably argue that his claim was
based on an interpretation of the statute that caught him by
surprise. The interpretation that led to the denial of the bank's
claim was precisely the interpretation that the government had been
proposing from the beginning. Krauzer's argument in this regard
boils down to the assertion that he assumed the bank would win. It
was not reasonable to forgo filing a competing claim on the basis
of such an assumption. Cf. United States v. 22 Santa Barbara
Drive, 264 F.3d 860, 870 (9th Cir. 2001) ("Just because [the
claimants'] claims were not obviously winning ones does not excuse
their failure to file in a timely fashion.").
Krauzer does not suggest that inadvertence explains his
failure to file a timely claim to the amounts seized from the
interbank account of Union Bank (Jordan). Any such suggestion is
undermined in any event by his having filed claims to amounts
seized from other banks' interbank accounts. Thus, Krauzer appears
to have made a tactical decision to forgo the filing of a claim,
just as the Esseilehs appear to have made a tactical decision to
-39-
forgo filing their claim. Krauzer offers no reason not to hold him
to his decision.
Moreover, allowing Krauzer's late claim, filed almost two
and a half years after the deadline, would have resulted in
prejudice to the government and disruption of the judicial
proceedings. Both the government and the district court were
entitled to know at the outset what competing claims would be made
to the seized funds. The government may well have made different
litigation and settlement choices had Krauzer filed his claim
alongside that of the bank. And the district court could have
structured its case management orders and rulings to resolve the
parties' competing claims of ownership simultaneously.
In addition, Krauzer's claim depends on his assertions
about his indemnification of the Esseilehs. These assertions were
never explored in discovery because they were neither relevant to
Krauzer's earlier claim nor relevant to the claim of Union Bank
(Jordan). The potential need to reopen discovery would also
prejudice the government and disrupt the proceedings. Given the
significant costs of permitting Krauzer's claim, together with the
lack of an excuse for its untimeliness, we hold that the district
court did not abuse its discretion in striking the claim.
VII.
The judgment of the district court finding that Union
Bank (Jordan) was the owner of some portion of the seized funds is
-40-
reversed. In all other respects, the judgment of the district
court is affirmed. The case is remanded for further proceedings
consistent with this opinion. Costs on appeal are awarded to the
United States.
-41-