Opinion
109227/07.
Decided on August 4, 2008.
Bernard D'Orazio, P.C., Plaintiffs.
Robert M. Morgenthau, NY County District Attorney, By: Tara Christie Miner.
Plaintiffs, Tupi Cambios S.A. ("Tupi") and Slemish Corporation S.A. ("Slemish") (collectively, "plaintiffs"), filed identical motions for summary judgment on their respective fourth causes of action for money had and received by the defendant, Robert M. Morgenthau, District Attorney of the County of New York ("defendant", "DA" or "Claiming Authority") in the sums of $170,992.40 and $1,430,085.00, respectively (the "T and S funds"). The DA filed opposition to these motions which are being consolidated for disposition.
Tupi is a Paraguayan corporation which operates one of its country's largest foreign money exchange businesses.
Slemish is a Uruguayan corporation that makes short term loans and provides credit to customers, many of whom are Tupi's customers.
Brief Background
In February 2003, the DA, as Claiming Authority, commenced a CPLR Article
13-A action against Beacon Hill Service Corporation ("BHSC") and Anibal Contreras
("Contreras") (sole principal of BHSC) "seeking the forfeiture of funds in their possession or control on the ground that the funds were instrumentalities of criminal activity, to wit, [BHSC's] and Contreras' violation of certain provisions of the Banking Law proscribing money transmission in New York without the appropriate license ( see Banking Law
§ 641, § 650) . . ." ( Tupi Cambios SA v. Morgenthau , 48 AD3d 278 , 851 NYS2d 180
[1st Dept., 2008]). At that time, the Claiming Authority obtained an ex-parte TRO and order to attach any property in which BHSC and Contreras had any legal, equitable, custodial or beneficial interest. To that end, the TRO restrained all bank accounts BHSC maintained at J.P. Morgan Chase Bank in its own name as well as fiduciary accounts BHSC maintained there on behalf of certain foreign businesses including Tupi and Slemish.
Concomitant with the forfeiture action and after obtaining indictments, Morgenthau proceeded to prosecute the criminal case against BHSC and Contreras. While the DA agreed to discontinue prosecuting Contreras individually, the criminal case proceeded against BHSC. BHSC was eventually convicted of running a money transmitting business without a license ( see Banking Law § 650[b][1]) and fined $4,210.00 (Exhibits E to Tupi and Slemish Motions).
Evidently desirous of resolving the civil forfeiture action, the DA and BHSC entered into a two-attorney stipulation of settlement so-ordered on May 5, 2004 ("May Stipulation" as Exhibits F to Tupi and Slemish Motions). The May Stipulation contained the following relevant provisions:
WHEREAS, Beacon Hill held various accounts at J.P. Morgan Chase Bank into which it had deposited funds received by clients.
WHEREAS, pursuant to contracts, entitled "master agreement" [see Exhibits I and J to Tupi and Slemish Motions], between Beacon Hill and its clients, Beacon Hill had sole signatory power on the bank accounts and control over the funds, received from its clients, deposited in Beacon Hill's J.P. Morgan Chase Bank accounts.
WHEREAS, all of Beacon Hill's funds held in J.P. Morgan Chase Bank were restrained pursuant to a TRO signed by this Court on February 23, 2003.
WHEREAS, Beacon Hill has the authority and power to petition the court for the release of restrained funds, received from its clients and deposited in Beacon Hill's J.P. Morgan Chase bank accounts, to be applied for the payment of various Beacon Hill expenses which have included but were not limited to: . . . payment of attorney's fees for Anibal Contreras and Beacon Hill on both the criminal and civil asset forfeiture cases. . .
WHEREAS, Beacon Hill has authority to settle the above captioned forfeiture proceeding and accept a monetary settlement from Plaintiff-Claiming Authority, to be paid to Beacon Hill out of its restrained funds.
IT IS HEREBY AGREED AND STIPULATED between Beacon Hill
. . . and Plaintiff-Claiming Authority . . . that[ ] Plaintiff Claiming Authority will agree to the release $725,000.00 . . . from the restrained Beacon Hill funds held in J.P. Morgan Chase accounts, to be paid to Beacon Hill.
* * * * * *
IT IS HEREBY AGREED AND STIPULATED that in consideration for the above amounts in settlement of the case, Beacon Hill shall forfeit its interest in the remaining funds restrained by Plaintiff Claiming-Authority in J.P. Morgan Chase Bank.
IT IS HEREBY AGREED AND STIPULATED that all remaining restrained funds held in Beacon Hill's accounts at J.P. Morgan Chase Bank shall be released to the New York County District Attorney's Office for distribution pursuant to CPLR Section 1349.
Approximately $11 million (including the T and S funds) was forfeited to the DA's office and eventually distributed to various law enforcement agencies.
In November 2004, plaintiffs commenced a special proceeding pursuant to
CPLR § 1327 seeking a declaration that the T and S funds belong to them and the return of such funds. Their petition grounded on this CPLR provision was ultimately found to be untimely. See, Tupi Cambios SA, supra, 48 AD3d at 279, 851 NYS2d at 181. However, the Appellate Division did find that plaintiffs should have been granted leave to file proposed amended petitions seeking relief under CPLR § 1311(7) , thus precluding outright dismissal of the petitions. In consonance with the foregoing, plaintiffs in these actions assert identical CPLR § 1311(7) claims in their respective sixth causes of action ( see Amended Complaints as Exhibits B and C to Tupi and Slemish Motions).
CPLR 3211 (7) states, in relevant part: "Remission. In addition to any other relief provided under this chapter, at any time within one year after entry of a judgment of forfeiture, any person, claiming an interest in the property subject to forfeiture who did not receive actual notice of the forfeiture action may petition the judge before whom the forfeiture action was held for a remission or mitigation of the forfeiture and restoration of the property . . . The court may restore said property upon such terms and conditions as it deems reasonable and just if (i) the petitioner establishes that he or she was without actual knowledge of the forfeiture action or any related proceeding for a provisional remedy and did not know or should not have known that the forfeited property was connected to a crime or fraudulently conveyed and (ii) the court determines that restoration of the property would serve the ends of justice.
The Summary Judgment Motions
Plaintiffs advance identical arguments for summary judgment on their respective fourth causes of action for money had and received. Tupi and Slemish emphatically state the following: (1) in contravention of CPLR § 1311(5), the DA claimed and obtained forfeiture of the T and S funds from plaintiffs who were never indicted for, or convicted of, any crime nor named as defendants in any criminal or civil forfeiture action; (2) the restrained funds including the T and S funds were maintained in fiduciary bank accounts at J.P Morgan Chase Bank in each of plaintiffs' names with BHSC acting as their agent (Exhibits G and H to Tupi and Slemish Motions); (3) BHSC managed these fiduciary accounts pursuant to a Master Agency Agreement (the "Agreement") it executed with Tupi and Slemish respectively (Exhibits I and J to Tupi and Slemish Motions); (4) while BHSC was contractually granted sole signatory authority and control over the T and S funds foreclosing plaintiffs from having direct access to their respective fiduciary bank accounts to withdraw funds (Paragraph 5 of the Agreement), nonetheless, all BHSC's money management decisions regarding the T and S funds plaintiffs deposited in their respective fiduciary accounts were made solely in accordance with plaintiffs' instructions (Paragraph 2 of the Agreement); (5) the DA was fully aware that BHSC had three of its own accounts at J.P. Morgan Chase Bank and managed 32 fiduciary accounts as agent for disclosed foreign businesses including plaintiffs ( see Footnote 6 to Financial Investigator Washburn's Affidavit at p. 6 as Exhibits C to Tupi and Slemish Motions); (6) Claiming Authority's self-perceived characterization of BHSC as the true owner of the T and S funds is belied by the express language in the May Stipulation to the effect that BHSC only agreed to forfeit "its interest" in any seized funds but did not consent, or claim any authority to consent, to the forfeiture of the agent accounts including the T and S funds ( see Nacheles Reply Aff. at ¶ 7); (7) only property owned by a criminal defendant is subject to forfeiture, and relevant to these actions, the Claiming Authority could not lawfully justify the forfeiture of the T and S funds as instrumentalities of the crime BHSC committed of running an unlicensed money transmitting business when these funds undisputably belong to plaintiffs as innocent owners; (8) plaintiffs' respective fourth causes of action for money had and received lies against the Claiming Authority for erroneously seizing and receiving the T and S funds from named agent accounts plaintiffs owned; and (9) based upon "principles of equity and good conscience," the DA should not be permitted to keep illegally seized funds. (Plaintiffs' Joint Memorandum of Law at p. 25).
CPLR § 1311(5) states, in relevant part that "[n]o person shall forfeit any right, title or interest in any property who is not a defendant in the action."
DA's Opposition
As gleaned from the DA's brief opposition to both motions, defendant disputes that the T and S funds belong to plaintiffs; that in the absence of any documentary evidence tracing the source of the funds in Tupi's and Slemish's respective accounts (e.g., deposit receipts, wire transfers from Paraguay or Uruguay, etc.), there remains a material triable issue as to whom the seized funds belong, particularly when BHSC had possession and control of all its accounts at J.P. Morgan Chase Bank; that "[t]he funds were forfeited from a convicted felon and who professed the authority, in writing and under the advice and supervision of counsel, to agree to the forfeiture . . ." (Miner Opp. Aff. at ¶ 9); and that plaintiffs do not come to court with clean hands as they either were or should have been aware that Contreras and BHSC were performing varied money transmitting services on their behalf without a license in violation of New York law. Because the seized funds have been distributed to law enforcement agencies, defendant also argues that plaintiffs' motions should be denied as they failed to join such these agencies as necessary parties in these actions.
In reply, plaintiffs contend that the DA's opposition is legally deficient to defeat their summary judgment motions as defendant's papers solely consist of an attorney's affirmation which is wholly speculative and conclusory in nature. In particular, plaintiffs highlight that the Claiming Authority, previously in possession of BHSC records, failed to proffer any documentary proof to rebut the prima facie evidence of Tupi's and Slemish's ownership of the T and S funds by virtue of their having been deposited in their named fiduciary accounts BHSC undeniably managed as their agent. Tupi and Slemish also observed that the DA did not contest critically operative facts, namely, that the fiduciary accounts were agent accounts registered to BHSC's clients (i.e., foreign businesses including plaintiffs) which were governed by the Agreement. Plaintiffs reiterate that BHSC's counsel has attested to having carefully drafted the May Stipulation to provide that BHSC only agreed to forfeit its funds, not its clients' funds. Finally, plaintiffs claim that the DA's need for discovery is a red herring in the face of plaintiffs' overwhelming evidentiary support, plaintiffs have standing to sue for the return of the T and S funds, and the DA is the only necessary party who bears the legal responsibility for returning plaintiffs' wrongfully seized funds.
Discussion
An award of summary judgment is appropriate when no issues of fact exist. See CPLR 3212(b); Sun Yau Ko v. Lincoln Sav. Bank, 99 AD2d 943, 473 NYS2d 397 (1st Dept., 1984), aff'd 62 NY2d 938, 479 NYS2d 213 (1984); Andre v. Pomeroy, 35 NY2d 361, 362 NYS2d 131 (1974). In order to prevail on a motion for summary judgment, the proponent must make a prima facie showing of entitlement to judgment as a matter of law by providing sufficient evidence to eliminate any material issues of fact. Winegrad v. New York University Medical Center, 64 NY2d 851, 853, 487 NYS2d 316 (1985); Alvarez v. Prospect Hosp., 68 NY2d 320, 324, 508 NYS2d 923 (1986). Indeed, the moving party has the burden to set forth evidentiary facts to establish his cause sufficiently to entitle him to judgment as a matter of law. Friends of Animals, Inc. v. Associated Fur Mfrs., Inc., 46 NY2d 1065, 416 NYS2d 790 (1979).
While the moving party has the initial burden of proving entitlement to summary judgment ( Winegrad v. NY Univ. Med. Center, 64 NY2d 851, 487 NYS2d 316 (1985), once such proof has been offered, in order to defend the summary judgment motion, the opposing party must "show facts sufficient to require a trial of any issue of fact." CPLR 3212(b); Zuckerman v. City of New York, 49 NY2d 557, 562, 427 NYS2d 595, 597 (1980); Freedman v. Chemical Const. Corp., 43 NY2d 260, 401 NYS2d 176 (1977); Friends of Animals, Inc. v. Associated Fur Mfrs., Inc., 46 NY2d 1065, 416 NYS2d 790 (1979). Further, "[w]here the moving party has demonstrated its entitlement to summary judgment, the party opposing the motion must demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action . . . and the submission of a hearsay affirmation by counsel alone does not satisfy this requirement." Id., 49 NY2d at 560, 427 NYS2d at 596. See also, Vermette v. Kenworth Trucking Co., a Div. of Paccar, Inc., 68 NY2d 714, 506 NYS2d 313 (1986); Marinelli v. Shifrin, 260 AD2d 227, 228-229, 688 NYS2d 72, 73 (1st Dept., 1999)("It is well settled that the opposing affidavit should indicate that it is being made by one having personal knowledge of the facts' [citation omitted] and, therefore, the affidavit of counsel is of no probative value in opposing a motion for summary judgment [citation omitted]"); Spearmon v. Times Square Stores Corp., 96 AD2d 552, 553, 465 NYS2d 230, 232 (2nd Dept., 1983) (opposing affidavit by an attorney is insufficient as a matter of law).
Here, upon plaintiffs establishing their prima facie cases, the burden of proof shifted to defendant to demonstrate by admissible evidence the existence of a factual issue requiring a trial. Zuckerman, supra; see also, DeSouter v. HRH Const. Corp., 216 AD2d 249, 628 NYS2d 691 (1st Dept., 1995); Commissioners of State Ins. Fund v. Photocircuits Corp. , 2 Misc 3d 300 , 773 NYS2d 190, (Sup. NY 2003). As set forth in Spearmon, supra: "It is incumbent upon a defendant who opposes a motion for summary judgment to assemble, lay bare and reveal his proofs, in order to show that the matters set up in his answer are real and are capable of being established upon a trial." Bare conclusory allegations are insufficient to defeat a motion for summary judgment [citations omitted]. Id., 96 AD2d at 553. Mere conclusory allegations, expressions of hope, speculation or conjecture is not sufficient to resist summary judgment. Zuckerman, supra . If the opposing party fails to submit evidentiary facts to controvert the allegations set forth in the movant's papers, the movant's allegations may be deemed admitted. Kuehne Nagel, Inc. v. F.W. Baiden, 36 NY2d 539, 544, 369 NYS2d 667, 671 (1975). Summary judgment may then be granted, as no triable issue of fact exists. Id.
Unquestioned on this record is: the fact that Tupi and Slemish were never charged and convicted of any crime, the proceeds or instrumentalities of which would conceivably be subject to forfeiture; the fact that fiduciary accounts were open by BHSC on behalf of plaintiffs; the fact that the Agreement governed BHSC's and plaintiffs' principal-agency relationship regarding the financial activity generated from the former's money transmitting services; and the fact that Claiming Authority did receive the T and S funds and benefitted from its receipt.
However, to succeed on a claim for money had and received, plaintiffs must satisfy the element that the funds defendant received actually belonged to plaintiffs. Notably, the DA's opposition does not quite meet the legal standards to resoundingly defeat a summary judgment motion as plaintiffs have demonstrated that they have a purported ownership interest in the T and S funds as titled owners of agent accounts with a financial stake in same (Exhibits G and H to Tupi and Slemish Motions) ( See, United States of America v. Contents of Account Number 208-06070 and 208-06068-1-2, 847 F.Supp. 329, 1994 U.S. Dist. LEXIS 3985 [S.D.NY,1994]). However, in searching the record, this court must consider documentary evidence the DA relies on which raises material questions rather than answers.
In this context, certain relevant Agreement provisions which governed the principal-agency relationship between BHSC and plaintiffs (Exhibits I and J to Tupi and Slemish Motions) served as the underpinning to these raised questions. Paragraphs (2), (5), (16) and (17) of the Agreement state, in relevant part:
(2) APPOINTMENT OF BEACON HILL AS INTERNATIONAL BUSINESS AGENT. I hereby appoint you [BHSC] and you hereby accept appointment as my [Tupi or Slemish] international business agent, to perform such services as I may request and you shall accept in accordance with the Agreement, and pursuant to the instructions I may give you from time to time. . . . You shall also perform the services set out in Schedule A to this letter [Agreement] and such other services as you and I, from time to time, mutually agree that you will perform for me on my behalf.
Inexplicably, plaintiffs did not include a copy of Schedule A which presumably details the scope and breadth of the financial services BHSC was authorized to perform on plaintiffs' behalf. This document may have furnished some answers to unanswered questions on this record.
(3) INSTRUCTIONS. I authorize you on my behalf on instructions received from me or my authorized designee, in person, in writing, or by telecopier, telex, telegram, cable, or other means of communication that may not bear my original signature or that of my authorized designee . . .
* * * * * *
(5) SOLE SIGNATORY AUTHORITY; NON-INTEREST BEARING ACCOUNT; MODIFICATIONS IN YOUR AGREEMENTS WITH YOUR NAME. Under current banking regulations, I may not have access to such account(s), except for informational purposes only, and will not directly or personally be able to withdraw funds from such account, except acting through you. I acknowledge that any changes that your bank may from time to time unilaterally require in your agreements with it will automatically be incorporated in my agreement with you to the extent that such changes affect funds standing to my credit in my accounts with you or transactions that you effect on my behalf. You agree to notify me promptly of any such changes . . .
* * * * * *
(16) RECORDS AND REPORTS; ORAL STATEMENTS. You will furnish me with itemized statements reflecting all transactions effected by you on my behalf pursuant to this agreement and the current balance of funds standing to my credit in My Bank Account and any other accounts with you and summaries of all transactions effected on my behalf in connection with moneys deposited to my credit in my accounts with you at least monthly unless I instruct you in writing to the contrary . . .
(17) ADDITIONAL LIMITATION OF LIABILITY; INDEMNIFICATION. In addition to and in furtherance of the limitation of liability set forth in paragraph 4 above, you will not be liable for any loss, liability, cost or expense directly or indirectly caused by or arising out of . . . circumstances . . . beyond your reasonable control and without fault on your part. You will be liable for acts or omissions due to your gross negligence or willful misconduct only . . .
I agree to indemnify you against, and hold you free and harmless from, any and all loss, liability, cost and expense (including without limitation, reasonable legal fees) which you may incur or sustain as a result of any action taken or not taken in good faith pursuant to this agreement including without limitation, your costs and reasonable legal fees incurred in connection with any governmental inquiry or action or judicial order or subpoena sought or granted in respect of My Bank Account or any transaction or other dealings between us. (Emphasis added)
The foregoing Agreement provisions make it abundantly clear that accountability was required and expected of BHSC as plaintiffs' agent. True, BHSC had sole signatory powers and control to transmit funds from the fiduciary accounts, but solely upon plaintiffs' instructions. BHSC had a contractual obligation to notify plaintiffs of the status of their accounts, an obligation which ostensibly remained ongoing after its indictment and prosecution for then alleged criminal acts.
What is also clear and undisputed on this record is that the government action, viz., the DA's initial prosecution of both the criminal action and civil forfeiture action against Contreras and BHSC was not undertaken because of the latter's good faith actions on behalf of plaintiffs. Contrarily, Contreras and BHSC were eventually indicted for various banking crimes (it had been alleged that Contreras and BHSC illegally moved more than Three Billion Dollars through 32 fiduciary accounts, including plaintiffs' accounts, it maintained in J.P. Morgan Chase Bank) (see Exhibits C to Tupi and Slemish Motions) and BHSC was ultimately convicted. To say BHSC's actions constituted willful misconduct is an understatement.
Against this backdrop, questions are raised as to the nature of BHSC's authority to execute the March 12, 2003 stipulation with the Claiming Authority ("Pendente Lite Stipulation" as Exhibits D to Tupi and Slemish Motion) to transfer varied, albeit precise, sums of money from each of the 32 fiduciary accounts (including those of Tupi and Slemish) into a pooled account inter alia to pay certain of BHSC's and Contreras' business expenses and legal fees and expenses they incurred in defense of the criminal prosecution. Under the foregoing circumstances, this court cannot discern any contractual authority for BHSC and Contreras to unilaterally execute the Pendente Lite Stipulation without notifying any of the foreign account holders including plaintiffs and obtaining their permission. Seemingly, their actions strongly suggest that plaintiffs transfer of funds into their fiduciary accounts was irrevocable and any claims plaintiffs may have for wrongfully forfeited assets lies against BHSC and Contreras, not the DA. Thus, a question is raised as to the source of their authority if these pooled funds did not belong to BHSC and Contreras.
Moreover, BHSC's ultimate conviction precludes its contractual indemnification for its legal fees and expenses to which it would otherwise be entitled if it had undertaken "good faith" actions on behalf of plaintiffs. Admittedly waiving an appeal of its criminal conviction because of a dearth of funds (Necheles Reply Aff. at ¶ 5), how was BHSC authorized to arrogate to itself the substantial sum of $725,000.00 for its legal fees and expenses drawn substantially from fiduciary account funds, particularly without giving plaintiffs and the other accounts holders notice and obtaining their permission? As far as Claiming Authority was concerned, BHSC did have sole signatory authority over the fiduciary accounts pursuant to the Agreement and evidently used this authority to release about 11 million dollars contained in these accounts to the DA to settle the underlying civil forfeiture action. And it was reasonable for the DA to believe BHSC properly possessed that authority to do so without plaintiffs' imprimatur. That BHSC was willing "to forfeit its interest" in the seized accounts does not conclusively resolve a material issue as to the scope of its authority to allow the release of plaintiffs' funds allegedly without their knowledge and consent. At this juncture, creative draftsmanship of the May Stipulation does not get plaintiffs over the finish line.
Finally, plaintiffs' fourth causes of action cannot be disposed of in a vacuum but must be resolved in tandem with their sixth causes of action seeking the return of their forfeited funds pursuant to CPLR § 1311(7) as innocent owners. On this record, this court cannot discern whether plaintiffs truly had clean hands and entitlement to the return of their forfeited funds "to serve the ends of justice." Framing the material issue differently, were plaintiffs truly in the dark about BHSC's criminal activities regardless of the fact that Tupi and Slesmish were not violating the currency laws of Paraguay and Uruguay? If after discovery, it becomes clear that Tupi and Slemish knew or should have known that their funds were the instrumentalities of banking crimes, then plaintiffs should have no cause to complain and these actions will inevitably be dismissed. Accordingly, plaintiffs' respective motions for summary judgment are denied.
To successfully regain forfeited property, the innocent owner must establish that he or she never received actual notice of the forfeiture action. If the innocent owner "did not receive actual notice and overcomes the first prerequisite for the application [for remission], he or she must then establish lack of knowledge of the forfeiture action . . . and that he or she did not know or should not have known the relationship of the property to the crime. If all of this can be established, the court may restore the property, provided it determines that restoration will serve the ends of justice." (Preiser, 1997 Practice Commentaries, McKinney's Cons. Laws of NY, Book 7B, CPLR § 1311[7] at 428).
The parties shall appear in Part 1, Room 1127B, 111 Centre Street, New York County on August 19, 2008 at 9:30 a.m. for a conference to resolve outstanding discovery and related pre-Note of Issue concerns.
The foregoing constitutes this court's Decision and Order. A copy of this Decision and Order has been mailed to counsel for the parties.