40 F. Supp.2d 74 (1999) | Cited 0 times | D. Rhode Island | March 19, 1999


This case is before the Court for decision following a benchtrial. Plaintiff United States of America ("United States") seeksthe forfeiture pursuant to 21 U.S.C. § 881(a)(6) of defendantreal estate located at 352 Northup Street in Cranston, RhodeIsland (the "Property"). The United States alleges that theProperty was purchased with the cash proceeds of illegalnarcotics transactions conducted by Charles Kennedy, Jr.("Kennedy Jr."), who is currently serving a fifteen year sentencefor narcotics trafficking imposed by this Court. Challenging theforfeiture is claimant Bellevue Limousine Service, Inc.("Bellevue"), a Rhode Island corporation controlled by CharlesKennedy, Sr. ("Kennedy Sr."), the father of Kennedy Jr. KennedySr. counters that he purchased the Property on behalf of Bellevuewith "clean" money unconnected to his son's drug dealing. For thereasons detailed below, the Court concludes that the Propertyis subject to forfeiture to the United States but that claimanthas an untainted interest therein.

I. Standard of Law for Bench Trials

Pursuant to Federal Rule of Civil Procedure 52(a), this Courtmay enter judgment following a trial without a jury. See Fed.R.Civ.P. 52(a). In crafting a decision following a bench trial,the Court "shall find the facts specially and state separatelyits conclusions of law thereon." Id. It is within the purviewof the trial court to weigh the credibility of witnesses for thepurpose of making findings of fact. See id.; United States v.One Lot of U.S. Currency ($36,634), 103 F.3d 1048, 1054-55 (1stCir. 1997) (finding in a probable cause determination that aclaimant's explanation was not believable).

II. The Federal Law of Forfeiture

Federal statutes provide for the civil forfeiture to the UnitedStates government of property exchanged, or intended to beexchanged, for illegal narcotics. See 21 U.S.C. § 881(a). Thesubsection of this statute relevant to this proceeding providesthat:

(a) The following shall be subject to forfeiture to the United States and no property right shall exist in them:

(6) All moneys, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance or listed chemical in violation of this subchapter, all proceeds traceable to such an exchange, and all moneys, negotiable instruments, and securities used or intended to be used to facilitate any violation of this subchapter. . . .

Id. § 881(a)(6). Real property may constitute proceeds andtherefore be forfeited under § 881(a)(6). See United States v.Parcels of Land, 903 F.2d 36, 48 (1st Cir. 1990).

The forfeiture statute instructs that the burdens of proof inthese actions are governed by 19 U.S.C. § 1615, the statuteallowing for forfeiture of property for customs violations. See21 U.S.C. § 881(d). The government bears the initial burden ofdemonstrating probable cause to believe the property at issue maybe forfeited. See 19 U.S.C. § 1615; $36,634, 103 F.3d at1052. The United States Court of Appeals for the First Circuithas explained that the government must establish "the existenceof probable cause to believe that the property had the requisitenexus to a specified illegal purpose." United States v. One Lotof U.S. Currency ($68,000), 927 F.2d 30, 32 (1st Cir. 1991). Thegovernment has satisfied this standard when it has shown thatthere is probable cause to believe that the property representedthe proceeds of an illegal narcotics transaction. See $36,634,103 F.3d at 1053. Significantly, although the government mustestablish a nexus between the property and some illegal narcoticstransactions, it need not link the property to any particulartransaction. See United States v. Parcels of Property, WithBuilding Appurtenances and Improvements Located at 255 Broadway,Hanover, 9 F.3d 1000, 1004 (1st Cir. 1993). Furthermore, "`thegovernment's evidence need not exclude other plausible hypothesesof the source of the money.'" United States v. One Parcel ofReal Property, 921 F.2d 370, 377 (1st Cir. 1990) (quotingUnited States v. $250,000, 808 F.2d 895, 899 (1st Cir. 1987)).

Although each fact presented to the court in a probable causeproceeding must be weighed for probity, the final probable causedetermination must be reached by considering the totality of thefacts before the court, not by examining specific facts out ofcontext. See United States v. $250,000, 808 F.2d 895, 899 (1stCir. 1987) (explaining that courts must view the "`aggregate' ofthe facts"). In this Circuit, probable cause "requires more than`mere suspicion,' but less than `prima facie proof.'" $36,634,103 F.3d at 1054(quoting 255 Broadway, 9 F.3d at 1004). In essence, the court'stask is to search for a "reasonable ground" for believing thatthe property is linked to illegal narcotics transactions. Id.

Every probable cause inquiry is unique because of the myriad offactual scenarios upon which forfeiture cases are based.Precedent in this area of the law, therefore, is less importantthan application of sound principles and common sense. See 255Broadway, 9 F.3d at 1004 ("`[B]ecause there are so manyvariables in the probable cause equation, probable cause findingsare not invariably bound by precedent.'") (quoting United Statesv. Maguire, 918 F.2d 254, 258 (1st Cir. 1990)); One Parcel ofReal Property, 921 F.2d at 376 (applying "common sense,""reason," and "common experience considerations" to the probablecause inquiry). Furthermore, probable cause may be based on anyreliable evidence, including circumstantial evidence, as well asevidence that would be inadmissible at trial. See Parcels ofLand, 903 F.2d at 38.

If the government is successful in demonstrating probablecause, the burden of proof shifts to the claimant to prove by apreponderance of the evidence that the subject property shouldnot be forfeited. See United States v. Parcel of Land andResidence at 28 Emery Street, Merrimac, Mass., 914 F.2d 1, 3(1st Cir. 1990). The claimant must "establish that some or all ofthe property is not traceable as proceeds from an illegalexchange of controlled substances." One Parcel of RealProperty, 921 F.2d at 375.

A claimant who fails to prove that the property is not theproceeds of illegal narcotics transactions may have recourse to asecond defense. The forfeiture statute contains an "innocentowner defense" providing that "no property shall be forfeitedunder this paragraph, to the extent of the interest of an owner,by reason of any act or omission established by that owner tohave been committed or omitted without the knowledge or consentof that owner." 21 U.S.C. § 881(a)(6). Therefore, a claimant maybe able to preserve an interest in the property if that claimantdemonstrates both an ownership interest in the property andignorance of the property's tainted past. See United States v.92 Buena Vista Ave., 507 U.S. 111, 123, 113 S.Ct. 1126, 122L.Ed.2d 469 (1993); United States v. 170 Westfield Drive,34 F. Supp.2d 107, 114 (D.R.I. 1999). Opportunities to successfullyinvoke this provision, however, are uncommon. See United Statesv. Real Property Located at 20832 Big Rock Drive, 51 F.3d 1402,1410 (9th Cir. 1995) ("The innocent owner exclusion fromforfeiture comes into play only in those situations, admittedlyrare, where a purchaser uses drug money to buy an asset, or aninterest in an asset, without knowing the illegal source of themoney. The clearest example of this would be a gift. . . .").

Even if the government is successful in establishing probablecause and the claimant fails to rebut that finding, thegovernment may only be entitled to a portion of the property."[A]n entire defendant property is not forfeitable on a mereshowing that there is probable cause to believe that a portion ofthe property is traceable as proceeds from an exchange ofcontrolled substances." One Parcel of Real Property, 921 F.2dat 375. Rather, the government is entitled only to that portionof the property which it can demonstrate was acquired withtainted funds. See United States v. Pole No. 3172, Hopkinton,852 F.2d 636, 639-40 (1st Cir. 1988); 170 Westfield Drive, 34F. Supp.2d at 116. It is the duty of the court to determine "therespective interests of the government and the claimant to thecash proceeds that result[] from the sale of the forfeitedassets." United States v. One 1980 Rolls Royce, 905 F.2d 89, 92(5th Cir. 1990); see One Parcel of Real Property, 921 F.2d at377.

III. Findings of Fact

This Court has carefully reviewed the evidence presented by theparties during the three day bench trial and makes the followingfindings of fact based on those submissions.

At the heart of this forfeiture action is the tale of KennedyJr.'s criminal narcotics operation. In 1997, this Court sentencedKennedy Jr. to fifteen years imprisonment on his convictions forconducting a continuing criminal enterprise, conspiracy todistribute controlled substances, and money laundering. Theseconvictions were the result of federal law enforcementinvestigations that dated back to the 1980s. Uncovered by theinvestigators was a criminal organization, headed by Kennedy Jr.,that included suppliers, brokers, and couriers who transportedmarijuana and cocaine from California, Mexico, and Florida toKennedy Jr.'s East Greenwich, Rhode Island home. It is undisputedthat the activities of this criminal ring were planned anddirected by Kennedy Jr.

Kennedy Jr. and his cohorts employed several couriers to ferrycash and narcotics across the country, visiting cities such asLos Angeles and Miami, where wholesale drug purchases were made.Among those employed in such a capacity were Kenneth Mamoorianand Kennedy Jr.'s one-time girlfriend Laurie Ann Brodeur. Severalassociates also assisted Kennedy Jr. in acquiring illegalnarcotics. One of these was Rodrigo Espinosa, who served as abroker in various drug transactions. In the early 1990s, Espinosalived in Quebec City, Canada and served as one of Kennedy Jr.'smost important links to narcotics suppliers. Over several years,Espinosa was able to broker kilo-weight amounts of marijuana andcocaine for Kennedy Jr.

Against this backdrop of narcotics trafficking by Kennedy Jr.,the government presents the action sub judice to forfeit realproperty located at 352 Northup Street, Cranston, Rhode Islandowned by Bellevue. Bellevue, a limousine service, is owned byKennedy Jr.'s father, mother, and brother. Kennedy Sr. is theprincipal of the corporation and controls sixty-percent of itsequity shares. The United States contends that the Property waspurchased by Kennedy Sr. with the proceeds of his son's illegalnarcotics operations and, therefore, is forfeitable under21 U.S.C. § 881(a)(6).

Kennedy Sr. purchased the Property on November 26, 1994 for$23,687.46 from Genevieve Park, an elderly woman who resided inthe home and was planning to move into a long-term care facility.Kennedy Sr. paid the full purchase price that day in severalsums. He placed a $1,000 deposit in cash on the Property early inthe day. Later, at the closing, he paid Park $8,687.46. Of thatamount, $8,000 was paid in the form of two bank checks for $4,000each, both originally payable to Rodrigo Espinosa. The remaining$687.46 was paid in cash. The final portion of the sale price,$14,000, was paid outside of the closing on that same day, alsoin cash. Following the purchase, Kennedy Sr., with the help ofseveral others, rehabilitated the Property over the course of sixmonths, investing, by his estimate, $15,000 into the project intime and materials.

Because this Court, in determining whether the Property islinked to drug proceeds, must apply a totality of thecircumstances test, the broader context of the relationshipbetween Kennedy Sr. and his son is important as a reference pointin evaluating their conduct at issue in this case. There issubstantial evidence of a pattern of behavior between the fatherand son aimed at concealing the financial dealings of Kennedy Jr.Kennedy Sr. was, in effect, a financial broker for his son,taking large sums of cash from Kennedy Jr. and using those sumsto purchase bank checks for his son's use. Kennedy Sr. alsoplayed the part of his son's front man, placing his own name onthe records of sale for expensive items that his son was, infact, purchasing for himself. The record includes severalexamples of such conduct.

In 1984, Kennedy Jr. purchased a home in East Greenwich, RhodeIsland for $140,000. According to several witnesses, the moneyused for the purchase was Kennedy Jr.'s and it was Kennedy Jr.who actually lived in the house. However, the deed was placed inthe name of Kennedy Sr. The seller provided some financing forthe house and $89,000 of the purchase price was paid at theclosing in the form of nine bank checks issued from eightdifferent banks. Using Kennedy Sr.'s name on the deed was part ofa strategy devised by the Kennedys to conceal the origins of thefunds used to purchase the property, according to PatriciaMandile, Kennedy Jr.'s former wife who was part of the scheme andwho attended meetings where the strategy was discussed by thefather and son. The family, including the father, his wife, theson, and his wife, decided that Kennedy Jr. would provide sums ofcash in amounts of approximately $9,000 to the others who wouldpurchase bank checks to be used at the closing. Their purpose inusing sums of $9,000, according to Mandile, was to avoid theTreasury Department's Currency Transaction Report system whichrequires banks to inform the federal government of cashtransactions involving at least $10,000. On the stand, KennedySr. had no explanation for this unusual arrangement. He had tooffer only a meek, and rather unbelievable, "I never asked why."

Kennedy Sr. allowed his son to use his name to conceal the trueownership of other expensive assets. In 1994, Kennedy Sr. signeda lease agreement and a credit application for a $75,000 Mercedescar with a local car dealer. However, Kennedy Sr. acknowledged attrial that the lease was negotiated by his son, that his son madethe lease payments, and that the car was used by his sonexclusively. When questioned why the two had structured the leasewith Kennedy Sr. as the nominal lessee when both knew thatKennedy Sr. would have no other connection to the expensivevehicle, the father again responded with a canned "I never askedwhy."

In addition to evidence that Kennedy Sr. held as nominal ownera $29,000 Chevy truck actually purchased and used by his son anda second lot of real property in East Greenwich, valued at$90,000, actually purchased by his son, there is evidence thateven smaller financial transactions were conducted by Kennedy Jr.through his father. During a search of Kennedy Jr.'s home,investigators found credit cards belonging to Kennedy Sr. Alongwith account statements, investigators discovered originaltransaction slips that indicate that Kennedy Jr. used the cardsregularly. Among his purchases were charges for car rentals andhotel accommodations in California and Medellin, Columbia.

Furthermore, Kennedy Sr.'s pattern of facilitating his son'sfinancial transactions included the conversion of large sums ofKennedy Jr.'s cash into bank checks. For example, in December1994, according to bank records and the testimony of Kennedy Sr.himself, Kennedy Jr. gave his father $6,000 in cash. Kennedy Sr.deposited the money in his credit union account and immediatelywithdrew that same amount in the form of a bank check payable toKenneth Mamoorian, a criminal associate of Kennedy Jr. and latera co-defendant in Kennedy Jr.'s criminal proceedings. Again, attrial Kennedy Sr. claimed that he never asked why his son madesuch requests of him. Similar conversions of Kennedy Jr.'s cashinto bank checks were effected by the father for the purchase ofthe East Greenwich home and for the 1994 payments intended forcriminal associate Rodrigo Espinosa mentioned above.

These transactions are significant not only because theyestablish a pattern of conduct by the Kennedys by which the sonwas able to conceal his investments, but because the cash he usedin each of these transactions very likely represented theproceeds of his illegal narcotics trafficking. There is nocredible evidence in the record that Kennedy Jr. was evergainfully employed.According to his former wife, he didn't work. According to theInternal Revenue Service, he never filed a tax return. Hisfather, who witnessed his son spend hundreds of thousands ofdollars on real estate, cars, and travel, claimed to be unsure ofhow Kennedy Jr. earned this money. Kennedy Sr., againunbelievably, claimed at trial that he never asked his son verymuch about his business dealings and that he assumed his son wasearning the money as a deep-sea fisherman, or maybe as a privateinvestigator, or maybe as a part-time jewelry salesman, or maybeeven as a locksmith.

In addition to acting as a broker for his son's cashtransactions, Kennedy Sr. also served as a banker, holdingseveral thousands of dollars in cash in his Warwick, Rhode Islandhome for his son "in case he [Kennedy Jr.] needed it." In May1996, federal investigators executed a search warrant for KennedySr.'s residence. They found hidden in the bathroom nearly $9,000in cash that Kennedy Sr. identified as belonging to his son. Theonly explanation given by the father for the stash was that hewas asked by his son "to hold onto it."

It is within the context of this money laundering relationshipbetween father and son that the purchase of the Property must beviewed. Of the $23,687.46 purchase price, $15,687.46 (the $1,000deposit plus the $14,687.46 paid at and outside of the closing)was paid in cash that Kennedy Sr. claimed to have had around thehouse. There is at least probable cause to believe that thismoney represented the proceeds of Kennedy Jr.'s illegal narcoticsdealings. Despite Kennedy Sr.'s contention that he regularlyhoarded up to $15,000 in cash in his home, no cash was foundthere when his house was searched in May 1996 except for the cashbelonging to his son. Furthermore, according to his own financialrecords, $15,000 represented a large percentage of the incomeearned by him and his wife, nearly thirty-percent of the annualtotal. As discussed above, Kennedy Jr. earned his cash from drugdealing; he had no other means of accumulating $15,000. KennedySr.'s recital of the origins of the funds he used for thepurchase is not credible, while the common sense inference thatit was Kennedy Jr.'s money is compelling.

The power of this inference is strengthened by the presence ofthe two checks payable to Rodrigo Espinosa among the funds usedby Kennedy Sr. to purchase the Property. Given the criminalrelationship between Kennedy Jr. and Espinosa, the large sumsinvolved, and Kennedy Sr.'s declared ignorance of Espinosa'sidentity, there is probable cause to believe that these twochecks were purchased by Kennedy Sr. with proceeds of his son'snarcotics trafficking. When combined with the Kennedys' methodsof concealing the true nature of Kennedy Jr.'s financialtransactions, these checks, payable to a known criminal associateof Kennedy Jr., color with probable cause the entire lot of moneyused for the purchase.

Kennedy Sr.'s tales of the origins of the two checks and the$15,687.46 in cash are not credible. On the stand, he trotted outyet again his familiar refrain, that he "never asked why" his sonasked him to purchase two $4,000 checks payable to Espinosa. Healso claimed that the checks were purchased with his own funds,however his credit union statements do not indicate significantwithdrawals near the time that the checks were purchased. As tothe cash, his explanation, as discussed above, is an unlikelystory. Given the large amount of cash involved relative to thereported incomes of the Kennedys, the history of the Kennedys'money laundering, and the presence of the Espinosa checks, thereis also probable cause to believe that the cash used in thetransaction represented the proceeds of Kennedy Jr.'s illegalnarcotics trafficking.

There is evidence, however, that Kennedy Sr. invested untaintedresources into rehabilitating the Property. According to hisundisputed testimony, Kennedy Sr. expended$15,000 and several months of time into repairs of the Property.This evidence was corroborated at trial by Thomas Beddingfield,Kennedy Sr.'s son-in-law and a participant in the repair of theProperty.

IV. Conclusions of Law

Based on the findings of fact discussed above, this Courtconcludes that the government has satisfied its burden ofdemonstrating probable cause to believe that the Property waspurchased with illegal narcotics proceeds as required by21 U.S.C. § 881(a)(6) and 19 U.S.C. § 1615. Applying a common senseapproach to the question, this Court has no trouble finding thatthe combination of the Espinosa checks, the large sums of cash,the Kennedy Jr. convictions, and the pattern of asset concealmentand money laundering between the father and son is sufficient toestablish probable cause.

Furthermore, Kennedy Sr. has failed to carry his burden ofproving either of the two defenses to forfeiture. He has notproven by a preponderance of the evidence that the funds used inthe purchase were untainted. This Court finds his testimonyregarding the origin of the Espinosa checks and the ownership ofthe cash used in the transaction not believable. It is morelikely, based on the facts already recounted, that the cash, likethe sum found by investigators in May 1996, was owned by KennedyJr. and that the checks represented Kennedy Jr.'s converted drugmoney.

Kennedy Sr. has also failed to prove by a preponderance of theevidence that he was an innocent owner of tainted property.Again, this Court finds not credible Kennedy Sr.'s testimony thathe knew nothing of his son's drug dealing. Common sense compelsthis conclusion, and Kennedy Sr. cannot escape its consequencesby feigning ignorance. Kennedy Jr. lived a lavish lifestyle, andhis father was well aware of its extent given his role as hisson's front man. It is not credible that Kennedy Sr. assumed thathis son could afford multiple real estate holdings and expensiveautomobiles with no visible means of support. It is Kennedy Sr.who bears the burden of proving innocence and he has failed toproduce any evidence, apart from his own unbelievable testimony,that would allow this Court to conclude that he knew nothing ofhis son's narcotics enterprise.

Therefore, this Court concludes that the entire $23,687.46 paidfor the Property represents the proceeds of illegal narcoticstrafficking. Claimant is entitled, however, to recoup, after theProperty has been sold by the United States, Kennedy Sr.'spro-rata share of the net sales price represented by theuntainted $15,000 investment he made to improve the Property.

V. Conclusion

For the forgoing reasons, this Court concludes that the UnitedStates has satisfied its burden of proof of probable cause underthe forfeiture statutes and that claimant has sustained itsburden that the funds used to rehabilitate the Property wereuntainted. The Property, therefore, is forfeited to the UnitedStates to the extent that its value represents the fruits ofillegal narcotics trafficking. Consequently, the forfeiture saleproceeds, after subtracting the costs of forfeiture and sale,will be distributed as follows: 61% to the United States and 39%to claimant. Judgment shall be entered to that effect. It is soordered.

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