U.S. v. Borne

Full title: UNITED STATES OF AMERICA v. MELVILLE BORNE, JR AND DYNASTAR DEVELOPMENT…

Court: United States District Court, E.D. Louisiana

Date published: Nov 24, 2003

CRIMINAL ACTION NO: 03-0247, SECTION: "J"(5) (E.D. La. Nov. 24, 2003)

Opinion

CRIMINAL ACTION NO: 03-0247, SECTION: "J"(5).

November 24, 2003

ORDER AND REASONS

CARL BARBIER, District Judge

Before this Court are the Government's Motion to Determine the Necessity of an Evidentiary Hearing, or in the Alternative, Limiting the Hearing to Oral Argument (Rec. Doc. 28) and Defendants' Joint Motion and Incorporated Memorandum to Lift and/or Modify the Lis Pendens, for Discovery and for and Evidentiary Hearing (Rec. Doc. 21). Oral argument was heard on October 29, 2003, at which time the motions were taken under advisement.

Background

On July 25, 2003, a Grand Jury returned an indictment against Melville Borne, Jr. ("Borne") and Dynastar Development, L.L.C. ("Dynastar") containing counts of health care fraud, mail fraud, and embezzlement of employee pension funds. In addition, the indictment provided a notice of forfeiture of three pieces of real property in the event of conviction based on health care fraud and mail fraud. Following the return of the indictment, the government filed a notice of lis pendens on the three pieces of real property. Two of the three properties ("Folsom Properties") are described as follows:

1. A parcel of land of approximately 100 acres in Folsom, Louisiana;

2. A parcel of land and the improvements thereon of approximately 50 acres located in Folsom, Louisiana.

Additionally, a third property exists but is encumbered with a mortgage and is without substantial equity. Thus, the third property is not discussed by either the government or the defendants. However, the third property is as follows:

3. Property at 136 E. Ruelle, Mandeville, Louisiana ("East Ruelle").¹

1 The defendants, in their Joint Response to the Government's Motion to Determine Necessity of an Evidentiary Hearing, corrected a prior mistake and explained that although the East Ruelle property does have a sizeable mortgage on it, the property has been appraised at a value in excess of the mortgage. Thus, the arguments asserted regarding the "Folsom Properties" also apply to East Ruelle.

On October 17, 2003 a Grand Jury returned a superseding indictment containing counts of money laundering and a notice of money laundering forfeiture. The indictment alleged that Borne used money from the healthcare fraud to pay for his personal home and estate, the Folsom Properties.

The defendants assert that Borne, a businessman, owned and operated nursing homes. Borne's nursing home company was Evangeline Health Care, Inc. ("EHC") which served as a holding company for three nursing homes located in Louisiana. The three nursing homes included: Evangeline of Ormond, located in Destrehan; Evangeline Village, located in Houma; and Evangeline of Nachitoches, located in Nachitoches. Borne also owned a construction and development company, Dynastar, and another company Dixie Properties of North Carolina, Inc. ("Dixie").

The defendants contend that of the Folsom Properties, the 100-acre property was purchased by Dixie on July 20, 1995 for $454,500.00; this entire price was financed. On February 12, 1998, the property was sold to Dynastar for a purchase price that was the assumption of the mortgage balance of $402,490.93. The current appraised value is $1,800,000.00. Additionally, the 50-acre property was purchased by Dixie on October 11, 1994 for $751,555.00. A down payment of $75,155.00 was made and the balance was financed with a mortgage of $676,400.00. The current appraised value is $2,194.000.00. The defendants argue that the Folsom Properties are substitute assets and based on the Ex Post Facto Clause of the Constitution, they are not subject to forfeiture. Moreover, the defendants argue that they are entitled to a pre-trial evidentiary hearing because the lis pendens acts as a restraint on the properties.

The government disagrees and first argues that the defendants are not entitled to a pre-trial evidentiary hearing. Furthermore, the government contends that each parcel of land was "involved in" money laundering and is subject to forfeiture in globo. Specifically, the government alleges that Borne transferred money from the bank accounts of the individual nursing homes to EHC's bank account. Thereafter, the money was transferred to bank accounts of Dynastar and Dixie. The mortgage payments were then made by Dixie or Dynastar on the Folsom Properties.

Discussion

Pre-trial Evidentiary Hearing

The government has various means, short of seizure, to protect its legitimate interests in forfeitable real property. United States v. James Daniel Good Real Prop., 510 U.S. 43, 58 (1993). In criminal forfeiture procedures, the targeted property is not actually forfeited until the defendant is convicted of the underlying offense. United States v. St. Pierre, 950 F.Supp. 334, 337 (M.D. Fla. 1996). "The purpose of a notice of lis pendens is to give effective notice to third persons of the pendency of litigation affecting title to real property." Whitney Nat'l Bank v. McCrossen, 635 So. 2d 401, 403 (La.App. 4^th Cir. 1994). It is clear that the filing of a notice of lis pendens constitutes neither a lien nor a pre-judgment seizure. Id. In comparison, "a seizure of property occurs when there is some meaningful interference with an individual's possessory interests in that property." United States v. Jacobsen, 466 U.S. 109, 113 (1984).

The defendants in the present case argue that without a pretrial hearing, the lis pendens will adversely impact the defendants' business plans and will subject them to loss of income and investment opportunities. The defendants further argue that although a pre-filing hearing² may not be required by law, the present circumstances require that a post-filing hearing should be allowed.³ In other words, the defendants argue that a pre-trial evidentiary hearing is required. For support, defendants cite Aronson v. City of Akron, 116 F.3d 804, 810-12 (6^th Cir. 1997). However, the court in Aronson stated that "[t]he filing of a lien notice has the same practical effect as the filing of a lis pendens notice. Id. At 811. The court concluded that the filing of an ordinary lien or lis pendens notice does not represent the "grievous loss" that necessitates prior notice and an opportunity to be heard. Id. at 812.

2 A hearing held before the government files the notice of lis pendens.

3 The defendants acknowledge that the United States Supreme Court in James Daniel Good determined that a lis pendens did not have the same impact as a seizure and was one method the government could use to preserve property for forfeiture short of seizure.James Daniel Good, 510 U.S. at 504 (1993).

The defendants also argue that there are cases where evidentiary hearings have been permitted. However, the defendants only cite United States v. Scardino, 956 F. Supp. 774 (N.D. Ill. 1997). In Scardino, the court conducted a pre-trial hearing on the motion for an order voiding the lis pendens notices filed by the government. Id. 776. The government had returned an indictment against several defendants asserting various counts of wire fraud and unlawful use of funds. Id. The indictment also asserted money laundering charges against two defendants, and the government sought forfeiture of certain assets based on the money laundering charges. Id. Consequently, the government filed lis pendens notices. Id. A third defendant argued that the notices of lis pendens should be voided because the affected properties were owned by her and not by the two defendants charged with money laundering. Id. 777. The indictment did not claim forfeiture allegations against the third defendant. Id. at 776. After considering the arguments, the court acknowledged that nine of the ten properties were given to the third defendant in an effort to keep the properties out of the government's reach. Id. 780. Thus, the court granted the defendant's motion to void the lis pendens on only one of the ten properties and denied the motion on the remaining nine properties. Id.

Unlike the defendant in Scardino, the defendants in the present case are not third parties claiming that their properties are being seized under forfeiture provisions only applicable to other defendants. Instead, like most other cases involving lis pendens, the forfeiture provisions relate directly to the defendants.

In a more analogous case, the Eleventh Circuit explained that "notices of lis pendens affect only one incident of ownership-alienability — whereas other methods of securing potentially forfeitable property are significantly more restrictive." United States v. Register, 182 F.3d 820, 836 (11^th Cir. 1999) (emphasis added). The defendant in Register argued that the district court erred by refusing to provide him with a post-seizure, pre-trial hearing to determine whether the government had probable cause to demand forfeiture and file lis pendens notices. Id. At 835. Furthermore, the defendant claimed that because the government filed the notices of lis pendens against his only two assets, he could not use those assets to retain an attorney of his choice. Id. The court acknowledged that notices of lis pendens have the effect of impeding the sale of property by restricting the owner's market value. Id. at 836.

The effect of lis pendens is constraining and for all practical purposes, it would be difficult to sell or mortgage the property because any interest sold or mortgaged would be subject to the lawsuit. Id. (citing Beefy King Int'l, Inc. v. Veigle, 464 F.2d 1102, 1104 (5^th Cir. 1972)). However, the right to alienate the property still exists. Id. (citing Chrysler Corp. v. Fedders Corp., 670 F.2d 1316, 1323 (3d Cir. 1982)). Moreover, because the filing of lis pendens is not a seizure of property, it does not implicate the Due Process Clause of the Fifth Amendment. Id. at 837. Accordingly, the defendant was not entitled to a pre-trial hearing on the legitimacy of the government's claim to his property. Id.

The Court finds the reasoning of the court in Register to be persuasive. The defendants in the present case are not entitled to a pre-trial evidentiary hearing.⁴ Moreover, because an evidentiary hearing is not required at this time, this Court declines to address the remaining issues raised by the parties in their briefs as such discussion would be premature.⁵ Therefore;

4 See also St. Pierre, 950 F. Supp. at 337 (holding that because lis pendens was not a seizure of property, defendants were not entitled to a pre-trial hearing).

5 As stated previously in this memorandum, the defendants' have also raised an Ex Post Facto argument and have argued that the properties are not subject to forfeiture in their entirety.

IT IS ORDERED that the Government's Motion to Determine the Necessity of an Evidentiary Hearing, or in the Alternative, Limiting the Hearing to Oral Argument (Rec. Doc. 28) is granted and Defendants' Joint Motion and Incorporated Memorandum to Lift and/or Modify the Lis Pendens, for Discovery and for and Evidentiary Hearing (Rec. Doc. 21) is denied.