Business Law Chapter 13 Homework Soul bury Alleges And The Government Does Not

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246

Chapter 13

Capacity and Legality

Case 13.1

C.A.D.C.,2009.

U.S. v. $6,976,934.65, Plus Interest Deposited into Royal Bank of Scotland Intern., Account No.

2029-5614070, Held in Name of Soulbury Ltd.

554 F.3d 123

United States Court of Appeals,

District of Columbia Circuit.

UNITED STATES of America, Appellee

This case is an appeal of an in rem action brought by the United States seeking the civil forfeiture of $6,976,934.65 plus interest on

the ground that it was involved in or is traceable to a scheme to launder money earned through an unlawful offshore Internet

CHAPTER 13: CAPACITY AND LEGALITY 247

gambling enterprise. The district court invoked the fugitive disentitlement statute, 28 U.S.C. § 2466 (Supp. V 2005), to grant

the Internet. The court issued a warrant for Scott’s arrest, but he was not in the country. Although living abroad, Scott was aware of

the criminal proceedings. He appeared in an episode of the Canadian television newsmagazine

the fifth estate,

broadcast in 2001,

about the rise of Internet gambling. The report featured Scott’s operation of several gambling websites and mentioned the pending

criminal charges against him. When the reporter interviewing him stated that there was a warrant out for his arrest, Scott

responded, “No, … no … well you can call it warrant. There is a criminal complaint. Complaint. I have not been indicted. It’s a

981(a)(1)(A) as property involved in or traceable to money laundering transactions. The district court issued a warrant for in rem

arrest of the funds. Although the forfeitable funds were being held in the Rock Nominees account in the Bailiwick of Guernsey, an

island dependency of the United Kingdom located off the coast of France, seizure was possible under 18 U.S.C. § 981(k). That

statute provides that forfeitable funds on deposit at a foreign financial institution that has an eligible interbank account in the United

States “shall be deemed to have been deposited into the interbank account in the United States, and any … arrest warrant in rem

warrant issued on April 7, 2005, the district court kept them under seal for over a year based on the government’s belief that Davis

might enter the country voluntarily. When it became apparent that Davis would not, the government asked the court to unseal the

indictment and lift the stay in the civil forfeiture case. The court lifted the stay on March 24, 2006, and unsealed the indictment on

May 16, 2006.

Soulbury then filed a motion to dismiss the forfeiture case, again asserting improper venue and failure to state a claim upon which

exercise of its discretion. It rejected Soulbury’s due process argument, noting that Soulbury would be free to assert a claim to the

funds if Scott submitted to the criminal jurisdiction of the federal courts. The court also rejected Soulbury’s argument that it must

rule first on the affirmative defenses, holding that the disentitlement statute barred Soulbury from asserting any challenge to the

seizure. The court dismissed Soulbury’s claim, granted summary judgment in favor of the United States, and ordered that the funds

be condemned as forfeited.

claim based on the fugitive’s evasion of a related, but separate, criminal proceeding.

See, e.g., United States v. $45,940,

739 F.2d

792, 798 (2d Cir.1984) (affirming dismissal of claim to funds forfeited under customs statute by Canadian citizen who refused to

face related U.S. criminal charges);

Doyle v. U.S. Dep’t of Justice,

668 F.2d 1365, 1366 (D.C.Cir.1981) (affirming dismissal of FOIA

request related to criminal sentence that appellant was evading by remaining in Panama). Other courts refused to extend the

disentitlement doctrine beyond its original application.

See, e.g., United States v. $40,877.59,

32 F.3d 1151, 1155 (7th Cir.1994)

1777. The Court held that disentitlement of claims in civil forfeiture actions was a disproportionate response to the problem of

permitting a fugitive from criminal justice to litigate a related civil proceeding. None of the government’s asserted concerns-risk of

delay, inability to enforce the forfeiture judgment, use of civil discovery to gain an improper advantage in the criminal matter,

(1) after notice or knowledge of the fact that a warrant or process has been issued for his apprehension, in order to avoid

criminal prosecution-

(2) is not confined or held in custody in any other jurisdiction for commission of criminal conduct in that jurisdiction.

CHAPTER 13: CAPACITY AND LEGALITY 249

(b) Subsection (a) may be applied to a claim filed by a corporation if any majority shareholder, or individual filing the claim on

behalf of the corporation is a person to whom subsection (a) applies.

28 U.S.C. § 2466.

argues that the district court incorrectly granted summary judgment as to the other three elements. The question, therefore, is

whether Soulbury raised a genuine issue of material fact as to any of those three elements. We address each element in turn.

Section 2466(a) requires not only that a warrant or similar process have issued, but also that the alleged fugitive have “notice or

knowledge” of that fact. 28 U.S.C. § 2466(a)(1). The district court concluded that this requirement was satisfied because “either Mr.

therefore appropriate to “impute Soulbury’s knowledge of the outstanding warrants to Mr. Scott.”

$6,976,934.65,

520 F.Supp.2d at

192 n.4. But Scott’s status as majority shareholder does not necessarily make him a client of the corporation’s attorneys.

Shareholders, even majority shareholders, are not ordinarily deemed the “clients” of the corporation’s lawyers.

See Goldstein v.

SEC,

451 F.3d 873, 881 (D.C.Cir.2006);

see also

D.C. RULES OF PROF’L CONDUCT § 1. 13, cmts. 1-2 (explaining that although

an organization can act only through its constituents, “that does not mean … that constituents of an organizational client are the

reason to think that, under British Virgin Islands law, Soulbury is acting as an agent of Scott. And although Scott, as majority

shareholder, may in some circumstances be an agent of Soulbury, “[n]otice of facts that a principal knows … is not imputed

downward to an agent.”

Id.

§ 5.03 cmt. g. In short, we can discern no basis for the district court’s imputation of Soulbury’s notice of

the outstanding warrants to Scott.

The evidence of Scott’s notice or knowledge of the warrants includes the media coverage cited by the district court and Scott’s

250 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW

notice of the 1998 warrant. During his televised interview, Scott acknowledged that a criminal complaint had been filed against him

and that he would likely be arrested if he entered the United States. Soulbury offered nothing to cast doubt on this evidence that

Scott knew or had reason to know he was subject to arrest.

FN1. This conclusion is reinforced by the existence of statutes demonstrating that when Congress means to require

“

actual

notice or knowledge,” it makes that requirement explicit.

See

7 U.S.C. § 2567 (2000); 26 U.S.C. §§ 3505, 6323,

6332 (2000).

FN2. As discussed in Part II.C,

infra,

Scott may no longer be subject to prosecution on the 1998 criminal complaint

because the statute of limitations has run, and there is a genuine question whether that statute is tolled. But the statute of

limitations does not apply to the warrant, and we have no other reason to think the warrant is no longer valid. Because

Scott has notice of an outstanding warrant for his arrest, this element of § 2466 is satisfied.

between criminal and civil forfeiture cases. Moreover, the elements of § 981(g)(4)‘s definition-similarity of parties, witnesses, facts,

and circumstances-are tailored to suit the specific discovery concerns addressed by that provision. Although the effect of civil

discovery*131 on a related criminal prosecution is a concern that informs fugitive disentitlement,

see Degen,

517 U.S. at 826, 116

S.Ct. 1777, the statute addresses other concerns as well.

[7] We think a better standard to govern the “related” element of § 2466 is found in the statute that provides for civil forfeiture of

wire communication which entitled the recipient to receive money and credit as a result of bets and wagers.” J.A. at 119. The

charge was based on Scott’s operation of an Internet sports betting service called World Wide Tele-Sports from 1997 to 1998. The

2005 indictment included the same charge against Scott and the other defendants, and also charged them with international

money laundering. The civil forfeiture complaint, brought pursuant to § 981(a)(1)(A), is based on, inter alia, charges of international

money laundering with intent to promote a specified unlawful activity. The “specified unlawful activity” being promoted is the Wire

Id.

2466(a)(1)(A)-(C). The district court determined that Scott’s “constructive flight”-that is, his failure to reenter the United States to

face the pending criminal charges-brought him within the second prong of this element. Alternatively, the court found the third

prong satisfied because Scott has “otherwise evaded” the criminal jurisdiction of the United States by renouncing his U.S.

citizenship and adopting Antiguan citizenship in what the *132 court speculated was an attempt to avoid extradition.

As Soulbury argues, however, the district court erred in concluding that the statute does not require the government to show “that

FN3. Although it did not directly address the question, the Second Circuit appears to have reached this conclusion as

well, noting that disentitlement is proper for fugitives who “learned that their arrests were sought and who then refused to

return to the United States in order to avoid prosecution.”

Collazos,

368 F.3d at 199.

[9] Soulbury alleges, and the government does not dispute, that Scott voluntarily left the United States in 1992, long before either

the 1998 or the 2005 criminal prosecution. The government has not satisfied its burden on summary judgment to show that Scott

This is particularly so with regard to the 1998 charges, because it is not clear that Scott could still be indicted based on the

complaint filed in the Southern District of New York. Under 18 U.S.C. § 3282(a), “no person shall be prosecuted … for any

[noncapital] offense … unless the indictment is found or the information is instituted within five years next [sic] after such offense

shall have been committed.” The complaint charged Scott with criminal conduct continuing through March 18, 1998. No indictment

issued on the complaint by March 18, 2003, nor has any indictment issued since. Despite the five-year statute of limitations, Scott

In light of the factual dispute regarding Scott’s intent to avoid criminal prosecution, the district court erred in granting summary

judgment on the applicability of the fugitive disentitlement statute to Soulbury through Scott.

III.

For the foregoing reasons, we reverse the district court’s grant of summary judgment in favor of the government. Under the correct

interpretation of the fugitive disentitlement statute, there is a genuine issue of material fact whether Scott is a person to whom the

FN4. Nor need we address the challenge to the statute’s constitutionality under the Excessive Fines Clause of the Eighth

Case 13.2

C.A.9,2009.

Comedy Club, Inc. v. Improv West Associates

553 F.3d 1277, 2009-1 Trade Cases P 76,482, 09 Cal. Daily Op. Serv. 1199, 2009 Daily Journal

D.A.R. 1458

corporation, Defendants-Appellees.

Nos. 05-55739, 05-56100.

Jan. 29, 2009.

GOULD, Circuit Judge:

On June 13, 1999, Comedy Club, Inc. and Al Copeland Investments, Inc. (collectively “CCI”) executed a Trademark License

an arbitrator’s manifest disregard of the law remains a valid ground for vacatur of an arbitration award under § 10(a)(4) of the

Federal Arbitration Act. Therefore, we adhere to the outcome in our prior decision.

Improv West is the founder of the Improv Comedy Club and the creator and owner of the “Improv” and “Improvisation” trademarks

(“Improv marks”). CCI owns and operates restaurants and comedy clubs nationwide. On June 13, 1999, CCI and Improv West

entered a Trademark Agreement FN1 that provided,

inter alia:

(1) that Improv West granted CCI an exclusive nationwide license to

FN1. Also on June 13, 1999, in a separate Asset Purchase Agreement, CCI purchased the Melrose Improv Club from

Improv West. The Melrose Improv Club is located in Los Angeles, California.

FN2. The original § 12.a. of the Trademark Agreement called for CCI to open and operate at least three Improv clubs by

2003.

FN3. Section 9.j. of the Trademark Agreement stated: “Licensee shall not own or operate, and Licensee shall ensure that

none of its Affiliates shall own or operate any bar, restaurant, nightclub, or other facility which presents live stand-up or

sketch comedy performances or live improvisational performances, other than the Melrose Improv or a Club, or Second

City.”

FN4. In CCI’s original complaint, CCI claims that it opened or obtained an interest in at least seven Improv clubs, not

including the Melrose Improv Club.

12.a. development schedule. In pertinent part, § 13.b. stated:

Nothwithstanding the above enumerated remedies, in the event [CCI] fails to fulfill the schedule set forth in section

12.a., [Improv West’s] sole remedy shall be as follows. Upon notice to [CCI], [CCI] shall lose the right, power, and

License (i) to use the Trademarks in connection with any Clubs which are not, as of the date of such failure, under

FN6. In a further response, CCI amended its complaint seeking to enjoin Improv West from opening, or authorizing third

parties to open, any Improv clubs, and asking for disgorgement of Improv West’s profits from any such action.

On August 2, 2004, the district court ordered the parties to arbitrate their dispute. CCI did not appeal that order until May 16, 2005.

FN7. Unless the parties agree to terminate the Trademark Agreement earlier, by its own terms, the Trademark Agreement

does not end until 2019.

FN8. Section 1 of the Trademark Agreement stated, in relevant part, that “ ‘a Person’ ” is “any natural person, or any

corporation, partnership, joint venture, limited liability company, business association, trust ... or other entity,” and that the

FN9. Although all the issues in this appeal concern the arbitrator’s decision in the Partial Final Arbitration Award entered

on February 28, 2005, the arbitrator issued a second arbitral award, the Final Arbitration Award, which was decided on

May 20, 2005. The district court confirmed that award on June 21, 2005, and entered judgment on August 29, 2005. CCI

timely appealed the district court’s order confirming the Final Arbitration Award on July 20, 2005, but raised no issues on

appeal concerning that award. We consolidated the two cases for appeal purposes.

that the arbitrator’s award was not completely irrational. Finally, addressing the issue raised by the Supreme Court’s remand, we

conclude that

Hall Street Associates

did not undermine the manifest disregard of law ground for vacatur, as understood in this

circuit to be a violation of § 10(a)(4) of the Federal Arbitration Act, and that the arbitrator manifestly disregarded the law.

CCI first argues that the district court erred when it issued its order compelling the parties to arbitrate. Improv West in turn

CHAPTER 13: CAPACITY AND LEGALITY 255

under § 16(a)(3)” (citation omitted)).

28 U.S.C. § 2107(a) and Federal Rule of Appellate Procedure 4(a)(1) require that a notice of appeal be filed in a civil case “within

30 days after the judgment or order appealed from is entered.” Fed. R.App. P. 4(a)(1)(A). Because the district court did not enter

judgment on the order to compel arbitration, CCI had 180 days to appeal the order.

See

Fed. R.App. P. 4(a)(7)(A)(ii);