United States District Court, E.D. Michigan, Southern Division
In re VPH PHARMACY, Inc. Debtor, SAMUEL D. SWEET, Chapter 7 Trustee, Plaintiff,
UNITED STATES OF AMERICA, Defendant.
ORDER GRANTING UNITED STATES' MOTION FOR PARTIAL
WITHDRAWAL OF THE REFERENCE
VICTORIA A. ROBERTS UNITED STATES DISTRICT JUDGE
VPH Pharmacy (“VPH”) filed for bankruptcy on
January 13, 2017. The United States Government filed a motion
for withdrawal of the reference of that portion of the
bankruptcy proceedings which encompasses proceeds seized by
the Drug Enforcement Agency (“DEA”) around
September 22, 2015 from VPH's bank accounts.
reasons that follow, that motion is GRANTED.
September of 2015, as a result of an ongoing criminal
investigation, the DEA seized $230, 068.79 and $11, 793.55
from two Fifth Third Bank accounts, in the names of VPH
Pharmacy PC and VPH Pharmacy, Inc., respectively. On May 17,
2016, the Government filed a second amended complaint in an
in rem civil forfeiture proceeding against more than
$1, 000, 000 held in numerous bank accounts, including the
two Fifth Third Bank accounts, pursuant to 21 U.S.C. §
881(a)(6), 18 U.S.C. §§ 981(a)(1)(A) and/or
981(a)(1)(C). These accounts were linked to Devenkumar Patel
and Amee Patel, who owned multiple pharmacies, including VPH.
The Government alleges that these proceeds were generated
from or traceable to drug diversion and/or health care fraud,
used to facilitate federal crimes, or involved in money
Court granted the Government's motion to stay the civil
forfeiture proceedings during the pendency of the related
criminal investigation and proceedings. Accordingly, no
judgment has been entered in the civil forfeiture proceeding;
the seized funds remain in the Government's possession.
months later - on January 13, 2017 - VPH filed for bankruptcy
under Title 11, Chapter 11 of the United States Bankruptcy
Code. The petition was converted to Chapter 7 on June 30,
2017. The Chapter 7 Trustee (“Trustee”) filed an
adversary proceeding on February 15, 2018 seeking turnover of
the Fifth Third Bank Account proceeds by the United States
under 11 U.S.C. § 542(a); and, alleging fraudulent
transfer under 11 U.S.C. § 550(a)(1)(B). In his
complaint, the Trustee alleges that the seized property is
part of the bankruptcy estate and can be used to pay
creditors - which would not include the Medicare Trust Fund.
Alternatively, the Trustee seeks to avoid and recover the
seized funds as a fraudulent transfer.
April 23, 2018, the Government filed its motion to withdraw
the reference from the bankruptcy proceeding with respect to
the seized property. It argues that 1) withdrawal is
mandatory because resolution of the civil forfeiture case
requires significant and material consideration of both Title
11 and non-bankruptcy laws that regulate activities affecting
interstate commerce; 2) alternatively, the District Court may
permissively withdrawal the reference because the civil
forfeiture case is a non-core proceeding that can only be
decided in bankruptcy court with the Government's
consent; and 3) the civil forfeiture case is exempt from the
automatic stay as an exercise of the Government's police
power under 11 U.S.C. § 362(b)(4).
response to the Government's motion, the Trustee argues:
1) mandatory withdrawal is not warranted because the
resolution of the Trustee's claims does not require
substantial consideration of other federal laws; 2) none of
the factors supporting permissive withdrawal is present; and
3) the automatic stay prohibits the Government from enforcing
a civil forfeiture money judgment.
addressing mandatory withdrawal, the Court must first
consider whether the seized assets should even be part of the
Forfeited Property Is Not Part Of The Bankruptcy Estate
the Government filed its civil forfeiture complaint against
VHS, the Clerk of the Court issued arrest warrants for the
two VPH seized bank accounts at issue. The warrants served as
notice to VPH that the seized bank accounts were in the
Attorney General's custody and control. 21 U.S.C. §
Trustee admits that the only issue relevant to deciding his
claims that requires consideration of federal law is whether
the monies seized by the Government constitute property of
the estate. According to the Trustee, this issue was resolved
by the Supreme Court in United States v. 92 Buena Vista
Ave., 507 U.S. 111, 127 (1993), when it held that until
a court enters a judgment of forfeiture, the Government does
not take title to seized ...