Govt to Wilson in motions — Ed Peters’ money ours, no proof it’s theirs … text

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF MISSISSIPPI
WESTERN DIVISION
UNITED STATES OF AMERICA PLAINTIFF
vs. NO. 3:08CV137-SA-SAA
$425,000.00 IN U.S. CURRENCY DEFENDANT
MEMORANDUM IN SUPPORT OF REPLY TO
CLAIMANTS’ OPPOSITION TO PLAINTIFF’S MOTION
TO STRIKE AND FOR JUDGMENT OF FORFEITURE
Comes now the United States of America, Plaintiff in the
above styled cause, by and through its undersigned United States
Attorney for the Northern District of Mississippi, and in support
of its Reply to the Claimants’ Opposition to Plaintiff’s Motion
to Strike, states the following, to-wit:
Introduction
The government has challenged the standing of both Wm.
Roberts Wilson and Wm. Roberts Wilson, Jr., P.A. (hereinafter
“Claimants”) to contest the forfeiture of the Defendant property.
The Claimants oppose the government’s motion and assert that they
have standing both as the owners of the Defendant property and as
the victims of Ed Peters alleged actions. The government
maintains that the Claimants lack any ownership interest, both
legal or equitable, and that the proper avenue for the Claimants
to attempt to receive the Defendant property is through the
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remission and mitigation process Congress has specifically
legislated for to vindicate victim interests.
In order to challenge the forfeiture of the Defendant
property the Claimants must be able to establish that they have
an ownership interest in the specific property sought to be
forfeited. See 18 U.S.C. §983(d)(6). Stated another way, to
contest a forfeiture a claimant must be able to show that only
the transfer of the specific property subject to forfeiture can
satisfy that claimant’s interest. Otherwise, a claimant is
merely an unsecured creditor with a claim against another
person’s estate without any interest in any specific item of that
estate. As shown herein, each of the Claimants’ arguments fails
to establish a right to contest the forfeiture of the Defendant
property and, as such, the government’s Motion to Strike and for
Judgment of Forfeiture should be granted.
Discussion
I. THE GOVERNMENT’S MOTION TO STRIKE THE CLAIM AND ANSWER OF
CLAIMANTS SHOULD BE GRANTED AND A JUDGMENT OF FORFEITURE
SHOULD BE ENTERED AGAINST THE DEFENDANT PROPERTY.
In the Fifth Circuit only owners have standing to contest
the forfeiture of property. U.S. v. $38,570 in U.S. Currency,
950 F.2d 1108, 1111 (5th Cir. 1992). The Fifth Circuit broadly
construes the term “owner” to include “any person with a
recognizable legal or equitable interest in the property seized.”
Id. Even under the Fifth Circuit’s broad construction, the
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Claimants lack standing to contest the forfeiture of the
Defendant property because they cannot establish any legal or
equitable ownership interest in the specific property sought to
be forfeited.
A. The Claimants Are Not Owners of the Defendant Property.
The Claimants make no allegation that they have a legal
interest in the Defendant property. Rather, the Claimants’
alleged ownership interest in the Defendant property is grounded
in equity. Specifically, the Claimants allege that each has an
equitable ownership interest in the Defendant property by virtue
of their status as a beneficiary of a constructive trust. The
Claimants’ constructive trust argument is actually a two-part
argument. The Claimants allege that a constructive trust has
arisen over the Defendant property by virtue of their
victimization by Ed Peters, but even more so that they are
entitled to a constructive trust over the Defendant property
because the Defendant property came into Peters’ possession visa-
vis Richard Scruggs.
1. Claimants’ constructive trust argument with respect to
Richard Scruggs.
There is no question that the Claimants have had a
longstanding legal battle with Richard Scruggs over whether or
not Scruggs owes the Claimants monies collected from asbestos
litigation. This legal fee dispute was the precise issue before
the state court in the Hinds County, Mississippi case over which
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1 The court was able to determine that Scruggs’ request for summary
judgment on the constructive trust issue was precluded.
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Judge Delaughter presided. Along with the state court litigation
the Claimants commenced a federal court proceeding for the
imposition of a constructive trust against tobacco litigation
proceeds that Scruggs received. Wilson v. Scruggs, et al.,
3:02CV525, (S.D. Miss 2005). The Claimants’ theory in the
federal court litigation was that Scruggs wrongfully withheld
monies owed to the Claimants from asbestos litigation and
converted and commingled those monies with Scruggs’ other assets
in order to fund the tobacco litigation undertaken by Scruggs.
The analysis conducted by the district court in the prior
federal litigation provides guidance in this case. The Court was
ultimately unable to decide the issue of whether or not Wilson
was entitled to the imposition of a constructive trust against
monies held by Scruggs.1 Wilson v. Scruggs, 371 F. Supp. 837,
844 (S.D. Miss. 2005). In its analysis of the constructive trust
claim, the Court concluded the following:
Wilson seeks the imposition of a constructive trust on money
he claims is owed to him by Scruggs; and yet there is no
question but that to date, there has been no determination
by any court of the amount due him from Scruggs. That is
the precise subject of the state court litigation, and for
this court to undertake to decide that issue under the guise
of resolving Wilson’s constructive trust claim would be to
overstep its jurisdiction. This is a classic case, as it
turns out, of plaintiff’s, in effect, placing the cart
before the horse.
Wilson, 371 F.Supp.2d at 844.
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2 Apparently an order dismissing the state court litigation was never
entered. Thus, to date the case of Wilson v. Scruggs, Cause No. 94-251-582,
is still an active case on the docket of the Hinds County, Mississippi Circuit
Court. Furthermore, there have been a number of recent filings in the state
court proceeding so it appears that the litigation is ongoing. Based on
information and belief, the Claimants have recently filed a motion in the
state proceeding seeking the imposition of sanctions against Scruggs.
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The Court made clear that is was deciding only that Wilson’s
claim for a constructive trust was a viable claim. The Court
also made clear that the constructive trust issue could not
ultimately be decided until the specific issue of Wilson’s
entitlement to asbestos fees, a prerequisite to his claim for a
constructive trust, was decided. Id. at 843, n.9.
The fatal flaw of the Claimants’ claim of a constructive
trust over Scruggs assets in this case is the same flaw that
existed in the previous litigation. To date, there has never
been a determination of whether or not Scruggs owes Wilson any
monies at all. This court essentially sits in the same position
as the prior district court. This Court cannot decide that the
Claimants have an ownership interest in the Defendant property
without first deciding that the Claimants are owed any money by
Scruggs. The issue of whether or not the Claimants are owed any
money is still pending before the Circuit Court of Hinds County,
Mississippi.2 Just as the district court decided in the previous
litigation, the district court now cannot undertake to decide the
question of whether or not the Claimants are entitled to any
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monies from Scruggs under the guise of deciding the constructive
trust claim.
The Claimants’ constructive trust claim over Scruggs’ assets
is further undercut by the fact that there is absolutely no
evidence that would show that the Defendant property would have
been subject to a constructive trust had one been imposed. In
other words, the Claimants must be able to show that the
Defendant property was the actual property being wrongfully
withheld. This showing is impossible as the Defendant property
cannot be separated from Scruggs’ other assets. The Claimants’
constructive trust claim with respect to Scruggs is tantamount to
the Claimants saying that Scruggs owes them something and the
Defendant property would be a good start. More is required to
have standing to contest a forfeiture.
Finally, it should be noted that the Claimants’ previous
constructive trust claim over Scruggs’ tobacco proceeds was
settled in the prior district court litigation. As a result of
the settlement with Scruggs, the Claimants’ constructive trust
claims against Scruggs were dismissed with prejudice. The
Claimants in this proceeding consented to the entry of a Final
Judgment of Dismissal with Prejudice dated September 6, 2006,
which states “it being known to the Court that the Plaintiffs’
claims have been fully resolved against Defendants, Richard F.
Scruggs, Richard F. Scruggs, P.A., Asbestos Group, P.A. and
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Scruggs, Millete, Lawson, Bozeman & Dent, P.A.” The Claimants
are now attempting to reassert a claim that was previously
settled and dismissed with prejudice by the district court.
Because the Claimants have never held a constructive trust
against any property held by Richard Scruggs it stands to reason
that the Claimants’ alleged ownership interest in the Defendant
property cannot be recognized by this Court. Accordingly, the
Claimants do not have standing to contest the forfeiture of the
Defendant property based on the allegation of a constructive
trust against monies previously held by Richard Scruggs.
2. Claimants’ argument for constructive trust with respect
to Ed Peters.
The Claimants also contend that a constructive trust over
the Defendant property has arisen due to the Claimants’
victimization by Ed Peters. The Claimants are in essence asking
this Court to hold that a claimant, by virtue of their status as
a crime victim, automatically obtains a constructive trust
ownership interest in the perpetrator’s assets.
In support of their argument, the Claimants cite U.S. v.
$4,224,958.57, 379 F.3d 1146 (9th Cir. 2004)(“Boylan”). The
Boylan case provides that fraud victims in the Ninth Circuit may
have standing to contest the forfeiture of property. Boylan, 379
F.3d at 1005. The Boylan case involved an investment fraud
scheme wherein an individual, Sexton, persuaded seventy-eight
others to send him money to invest. Boylan, 379 F.3d at 1003.
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Rather than investing the money he received, Sexton shuffled the
money around several different bank accounts in Liechtenstein.
Id. The Government eventually repatriated $4.25 million of the
funds from Liechtenstein and commenced a civil forfeiture
proceeding against the funds without providing notice of the
proceedings to any of the seventy-eight fraud victims. Id.
Despite not receiving notice, twenty-five of the seventy-eight
individuals filed claims to the property the government sought to
forfeit. Id. at 1004. The district court rejected the claims
and found that each victim was an unsecured creditor and lacked
standing to contest the forfeiture. Id.
The Ninth Circuit reversed the district court’s decision and
held that if each victim could prove they were defrauded of funds
they would be a beneficiary of a constructive trust under
California law and would therefore have Article III standing to
contest the forfeiture of the funds. Boylan, 379 F.3d at 1005.
On remand the Ninth Circuit instructed the district court to
administer the constructive trust and ensure that each claimant
received their fair share. Id. However, the Boylan decision has
been narrowly construed and the case is distinguishable from the
case at bar.
Claimants construe the Boylan holding to suggest that anyone
who is defrauded by another possesses an equitable ownership
interest in the assets held by their fraudster. This is not the
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holding in Boylan. Rather, the Ninth Circuit held that fraud
victims could have standing to contest a forfeiture proceeding if
they could establish that they were beneficiaries of a
constructive trust under California law. The Ninth Circuit did
not confer standing on all of the victims simply because they
were victims. The Court held that if a victim could establish
that they were defrauded of property then a constructive trust
against that property would arise. Thus, to have standing in the
present case the Claimants must establish that they too would be
entitled to the imposition of a constructive trust over Ed
Peters’ property in order to have standing.
In Mississippi, the facts required for the imposition of a
constructive trust must be shown by clear and convincing
evidence. Stinson v. Hall, 938 So. 2d 887, 890 (Miss. Ct. App.
2006). A constructive trust arises in order to prevent unjust
enrichment by a person gaining property which rightfully belongs
to someone else. Stinson, 938 So. 2d at 890. The Claimants
cannot establish the requirements of a constructive trust under
Mississippi law in this case because they cannot establish that
the Defendant property has ever constituted property that
rightfully belonged to them. Unlike the Boylan victims, the
Claimants cannot establish that they were deprived of any
specific property. For example, a Boylan victim could have
potentially established that they invested $100,000 with the
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fraudster. According to the Ninth Circuit, if a victim could
establish that they were defrauded of the $100,000 then it is
perfectly logical to conclude that the victim held an equitable
interest in $100,000 of the fraudster’s property that was subject
to forfeiture. The Claimants have stated numerous times
throughout this proceeding that the Defendant property rightfully
belongs to them, yet they cannot offer any evidence of a right to
the property to support their allegation. The Claimants’ entire
constructive trust argument rests upon the assumption that the
Claimants would have been successful in their litigation without
any interference by Ed Peters and others. The Claimants were no
doubt wronged by Peters’ alleged actions, however, the end result
is that the Claimants were deprived of their right to a fair and
impartial consideration of their claims and not any property. As
such, Ed Peters’ alleged actions do not give the Claimants an
ownership interest in Peters’ property. Rather, the Claimants
have an in personam action against Ed Peters and others. Based
on these facts the Claimants are unsecured creditors of Ed Peters
and unsecured creditors lack standing to contest the forfeiture
of property.
Notwithstanding the Claimants’ inability to establish
themselves as the beneficiaries of a constructive trust against
the Defendant property, the doctrine of prudential standing
precludes the Claimants’ standing in this case. In the Fifth
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Circuit a claimant in a forfeiture proceeding must “be able to
show at least a facially colorable interest in the proceedings to
satisfy the case-or-controversy requirement and the ‘prudential
considerations defining and limiting the role of the court.’”
U.S. v. $9,041,598.68 in U.S. Currency, 163 F.3d 238, 245 (5th
Cir. 1998)(overruled on other grounds). The doctrine of
prudential standing and its application in light of the Boylan
decision has recently been addressed.
At least one court district court has held that Boylan is to
be interpreted narrowly. U.S. v. 730 Glen-Mady Way, 590
F.Supp.2d 1295, 1302 (E.D. Ca. 2008). In 730 Glen-Mady Way, the
district court concluded that the Boylan Court failed to address
the separate prudential strand of the standing doctrine. 730
Glen-Mady Way. 590 F.Supp. at 1302. The court discussed the
prudential standing doctrine at length and noted that “prudential
standing encompasses the requirement that a litigant’s claim fall
within the zone of interests protected by the law invoked.” Id.,
quoting Elk Grove Unified School Dist. v. Newdow, 542 U.S. 1, 12,
124 S.Ct. 2301, 159 L.Ed.2d 98 (2004). The court recognized
“Congress is presumed to legislate against the backdrop of the
prudential standing doctrine, which applies unless expressly
negated.” Id. The court also noted courts “‘employ the
prudential standing doctrine to avoid usurping the legislature’s
role as the policymaking body in our separation of powers.’” Id.,
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quoting Get Outdoors II, LLC v. City of San Diego, 506 F.3d 886,
891 (9th Cir. 2007). The 730 Glen-Mady Way court held that the
victims/investors lacked prudential standing because their
interests were not within the zone of interests Congress intended
to protect within forfeiture proceedings and this holding is the
correct analysis. 730 Glen-Mady Way. 590 F.Supp. at 1302. The
court looked to Congress’ April 2000 amendment to Section 981,
Title 18, United States Code, whereby Congress specifically
provides the United States Attorney General with the sole
responsibility and discretion to address victim claims through
the remission process, for guidance in its prudential standing
analysis. Id. The Court held that Congress’ explicit referral
of victim’s claims to the Attorney General, along with the
absence of statutory language negating the application of the
prudential standing doctrine to potential claims of victims, led
to the conclusion that the victims in that case lacked standing.
Id. at 1303. Indeed, the court found that to hold otherwise
“would shun the procedures Congress deliberately enacted to
vindicate victim interests in forfeited property.” Id. The
remission process is available to the Claimants in the present
case and is the only proper avenue for the Claimants to seek the
transfer of the Defendant property.
There is no doubt that the Claimants in this proceeding were
wronged by Ed Peters’ alleged actions. However, their status as
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a potential crime victim does not act to confer standing on the
Claimants to contest the forfeiture of the Defendant property.
The Claimants cannot establish that they were deprived of the
specific property sought to be forfeited in this proceeding.
Without such a showing the Claimants are not entitled to the
imposition of a constructive trust against the Defendant
property. The Claimants are entitled to pursue an in personam
action against Ed Peters and petition the United States Attorney
General for remission of the Defendant property, or a portion
thereof, after the property is forfeited to the United States.
B. Claimants’ Estoppel Argument
The Claimants’ estoppel argument is without merit.
Essentially, the Claimants allege some type of government plot to
keep the Claimants away from the Defendant property so the
government can keep the spoils for itself. This is far from the
case. The fact of the matter is that even if the Claimant’s were
able to secure a judgment against Ed Peters they would not be
able to prevail in this forfeiture proceeding as the Claimants’
interest as a judgment creditor of Ed Peters could only have
arisen after the government’s interest in the Defendant property
vested.
The civil forfeiture statute provides that all right, title,
and interest in property described sought to be forfeited by the
United States “shall vest in the United States upon commission of
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the act giving rise to the forfeiture.” 18 U.S.C. §981(f). The
United States’ interest in the Defendant property vested upon Ed
Peters’ receipt of the funds from Joey Langston. As such, even
if Claimants would have been able to secure a judgment at the
earliest possible time, that interest could never be an interest
superior to the vested interest of the government. On this
reasoning, this Court should find that the doctrine of estoppel
does not preclude the government’s request to strike the
Claimants’ Claim and Answer.
C. The Crime Victims Rights Act of 2004 and the Attorney General
Guidelines for Victims and Witness Assistance.
Neither the Crime Victims Rights Act of 2004 (“CVRA”), 18
U.S.C. §3771, nor the Attorney General Guidelines for Victims and
Witness Assistance (hereinafter “AG Guidelines”) confer standing
on the Claimants to challenge the forfeiture of the Defendant
property. The vindication of victim’s rights in forfeiture cases
is specifically addressed by Congress in its legislation
pertaining to the remission and mitigation procedures for
forfeited property. See 28 C.F.R. §9.1, et seq. Congress has
given the United States Attorney General the sole responsibility
for requests for remission or mitigation of property involved in
a judicial forfeiture proceeding. 18 U.S.C. §981(d). Had
Congress intended to provide crime victim’s standing in civil
judicial forfeiture cases it could have done so in the CVRA.
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3 The Claimants contend that Ed Peters surrendered the property to the
government as restitution. The government had authority to request the
issuance of a seizure warrant for the Defendant property. Voluntary surrender
of property subject to forfeiture is simply one of several ways that the
government may take possession of forfeitable property. The record of this
case reveals that the funds were immediately turned over to the custody of the
U.S. Marshal’s service pursuant to an Warrant for Arrest In Rem that was
issued by the court.
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Instead, Congress specifically legislated for the remission and
mitigation procedures.
Claimants attempt to equate the manner in which the
government seized the Defendant property and Ed Peters’ failure
to file a claim to the Defendant property as yet another plot to
keep the Claimants away from the Defendant property.3 It is
almost as if the Claimants suggest that the government should be
required to commence criminal proceedings against Ed Peters in an
effort to ensure that the Claimants receive restitution.
However, as the CVRA provides “[n]othing in this chapter shall be
construed to impair the prosecutorial discretion of the Attorney
General or any officer under his direction.” 18 U.S.C.
§3771(d)(6).
The AG Guidelines also do not confer standing upon the
Claimants in this forfeiture proceeding. Specifically, the AG
Guidelines provide as follows:
These AG Guidelines provide only internal Department of
Justice guidance. They are not intended to, do not, and may
not be relied upon to create any rights, or standards of
conduct or care, substantive or procedural, enforceable at
law by any person in any matter civil or criminal. These AG
Guidelines shall not be construed to create, enlarge, or
imply any duty or obligation to any victim, witness, or
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other person for which the United States or its employees
could be held liable in damages.
See AG Guidelines, Art. XI., Nonlitigability.
Because neither the CVRA nor the AG Guidelines confer
standing upon the Claimants the government’s motion should be
granted.
Conclusion
The government is not attempting to take the position that
the Claimants have not suffered due to the alleged acts of Ed
Peters and others. The government does contend that the facts of
this case, along with judicial precedent and statutory
provisions, do not support a finding that the Claimants have
standing to contest the forfeiture of the Defendant property.
There has never been a determination that the Claimants are owed
any monies from Richard Scruggs. As such, the Court is left only
with the Claimants’ unsupported allegations. Additionally, the
Claimants cannot establish that they are entitled to a
constructive trust over Ed Peters’ assets as they cannot
establish that they were deprived of the Defendant property by Ed
Peters’ alleged actions. Despite the Claimants’ arguments to the
contrary, the Claimants are unsecured creditors of both Richard
Scruggs and Ed Peters. The Claimants have the right to pursue an
in personam action against each party that they believe has
wronged them. The Claimants also have the right to assert that
they are a victim and petition the United States Attorney General
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for remission of the Defendant property. The Claimants cannot
establish any legal or equitable ownership interest in the
Defendant property and standing should be denied in this in rem
forfeiture action. To hold otherwise would undermine the intent
Congress had in legislating the remission and mitigation process.
Based on the foregoing, the Verified Claim and Answer of Wm.
Roberts Wilson, Jr. and Roberts Wilson, Jr., P.C. should be
stricken pursuant to Supplemental Rule G(8)(c)(i)(B) and a
Judgment of Forfeiture of the Defendant Property should be
entered in favor of the Untied States.

PLAINTIFF’S REPLY TO CLAIMANTS’
OPPOSITION TO PLAINTIFF’S MOTION TO
STRIKE AND FOR JUDGMENT OF FORFEITURE
Comes now the United States of America, Plaintiff in the
above styled cause, by and through its undersigned United States
Attorney for the Northern District of Mississippi, and for its
Reply to the Claimants’ Opposition to Plaintiff’s Motion to
Strike, states the following, to-wit:
I.
The Plaintiff’s Motion to Strike and for Judgment of
Forfeiture should be granted, and
II.
The Claimants in this proceeding lack any legal or equitable
ownership interest in the Defendant property. Because the
Claimants cannot establish an ownership interest they lack the
requisite standing to contest the forfeiture of the Defendant
property, and
III.
For the purposes of this proceeding, the Claimants cannot
establish they are rightfully entitled to any monies now held or
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previously held by Richard Scruggs. Without such a finding the
requirements for a valid constructive trust over monies held by
Richard Scruggs cannot be established. The lack of any evidence
to suggest that the Claimants are the rightful owners of the
Defendant property precludes a finding that they have standing to
challenge the forfeiture of the Defendant property, and
IV.
The Claimants are not the beneficiaries of a constructive
trust over the assets of Ed Peters by virtue of their
victimization by Peters’ alleged actions. A crime victim does
not automatically obtain an ownership interest in the
perpetrator’s assets. Rather, for the valid imposition of a
constructive trust, a claimant must be able to show that the
perpetrator’s actions deprived them of a property right. The
Claimants cannot make this showing. As such, the Claimants are
unsecured creditors of this proceeding with the right to maintain
an in personam action against Ed Peters. While the Claimants may
have a claim against Ed Peters, they lack a claim to any specific
asset of Ed Peters. Based on these facts the Claimants cannot
maintain a claim of ownership against the Defendant property and,
therefore, lack standing to contest the forfeiture of the
Defendant property, and
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V.
The Government’s motion should not be denied on the grounds
of estoppel. Even if the Claimants could have obtained a
judgment against Ed Peters at the earliest possible moment their
judgment interest would never be superior to the Government’s
interest in the Defendant property. Pursuant to 18 U.S.C.
§981(f), the Government’s interest in the Defendant property
vested upon the commission of the crime giving rise to this
forfeiture. As such, the Government’s interest in the Defendant
property vested upon the transfer of the Defendant property from
Joseph Langston to Ed Peters. Any judgment obtained after the
transfer of the Defendant property would have been inferior to
the interest of the government and would preclude the Claimants
from being successful in this forfeiture proceeding, and
VI.
Neither the Crime Victims Rights Act of 2004 nor the United
States Attorney General Guidelines for Victim and Witness
Assistance confer standing upon the Claimants in this case. In
enacting the procedure for remission and mitigation of property
involved in a judicial forfeiture proceeding Congress gave the
United States Attorney General the sole responsibility of
considering and vindicating victims’ rights in a judicial
forfeiture proceeding. This process is the only proper avenue
for the Claimants in this case to attempt to receive the
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Defendant property or any portion thereof. Had Congress intended
for crime victims to have standing in a judicial forfeiture
proceeding it would not have enacted the remission and mitigation
procedure and would also have included victims in the definition
of “owner” in 18 U.S.C. §983(d)(6), and
VII.
The United States submits as grounds for its Motion to
Strike and for Judgment of Forfeiture the arguments and legal
authorities submitted in support of its motion along with the
Memorandum of Law in support of this Reply filed
contemporaneously herewith.
WHEREFORE, PREMISES CONSIDERED, the United States prays that
its motion be well-taken and that the collective claim and answer
of Wm. Roberts Wilson, Jr. and Roberts Wilson, Jr., P.C., be
stricken and that a judgment of forfeiture against the Defendant
property be entered in favor of the United States of America.