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United States v. Sixty-Six Thousand Three Hundred Sixty-Nine Dollars $66

United States District Court, E.D. Michigan, Southern Division

July 10, 2019

UNITED STATES OF AMERICA, Plaintiff,
v.
SIXTY-SIX THOUSAND THREE HUNDRED SIXTY-NINE DOLLARS $66, 369 IN U.S. CURRENCY, et al., Defendant.

          ORDER GRANTING THE GOVERNMENT'S MOTION TO STRIKE BANKRUPTCY TRUSTEE'S CLAIM AND TO ENTER JUDGMENT ON THE PLEADINGS AGAINST THE TRUSTEE

          Victoria A. Roberts United States District Judge

         I. INTRODUCTION

         The Government asks the Court to strike the Chapter 7 Bankruptcy Trustee's claim to two bank accounts and enter a Judgment on the Pleadings because: (1) the Trustee lacks standing; and (2) the doctrine of collateral estoppel bars the Trustee from litigating whether he has a claim to the accounts. The Court agrees.

         Because the Court previously held that the accounts are not property of the bankruptcy estate, the Trustee has no claim.

         The Government's Motion is GRANTED. The Trustee's claim to the accounts is struck. Judgment will enter in favor of the Government.

         II. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

         In September of 2015, the Drug Enforcement Agency 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 (“VPH accounts”). On May 17, 2016, the Government filed its second amended complaint in this in rem civil forfeiture proceeding against more than $1, 000, 000 held in numerous bank accounts, including the VPH accounts, pursuant to 21 U.S.C. § 881(a)(6), 18 U.S.C. §§ 981(a)(1)(A) and/or 981(a)(1)(C). The Government alleges the account proceeds were generated from or traceable to drug diversion and/or health care fraud used to facilitate federal crimes, or property involved in money laundering.

         On January 13, 2017, VPH Pharmacy (“VPH”) filed for Chapter 11 bankruptcy. The petition was later converted to a Chapter 7 bankruptcy. The Chapter 7 Trustee filed an adversary proceeding on February 15, 2018 seeking turnover of the VPH accounts pursuant to 11 U.S.C. § 542(a); and, alleging fraudulent transfer under 11 U.S.C. § 550(a)(1)(B). The Trustee alleged that the VPH accounts were part of the bankruptcy estate. Alternatively, he sought to avoid and recover the VPH accounts as a fraudulent transfer.

         On April 23, 2018, the Government filed its motion to withdraw the reference from the bankruptcy proceeding with respect to the VPH accounts. The Court granted the motion, holding that because the Government seized the VPH accounts before VPH filed for bankruptcy, VPH had no equitable right to the accounts, and they were not includable in the bankruptcy estates.

         Accordingly, the two VPH accounts listed in the Government's second amended forfeiture complaint were withdrawn from the Bankruptcy Court.

         III. LEGAL STANDARD

         a. Motion to Strike Claim Pursuant to Rule G(8)(c) of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions

         Rule G(8)(c) provides that “[a]t any time before trial, the government may move to strike a claim or answer” either (a) “for failure to comply with Rule G(5) or (6), ” or (b) “because the claimant lacks standing.” Rule G(8)(c)(i)(A)-(B). The Rule also provides that a motion to strike must be decided before a claimant's motion to dismiss, and “may be presented as a motion for judgment on the pleadings or as a motion to determine after a hearing or by summary judgment whether the claimant can carry the burden of establishing standing by a preponderance of the evidence.” Rule G(8)(c)(ii)(A)-(B).

         b. Motion for ...


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