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United States v. Federative Republic of Brazil

United States Court of Appeals, Second Circuit

March 24, 2014

UNITED STATES OF AMERICA, Interpleader Plaintiff,
v.
THE FEDERATIVE REPUBLIC OF BRAZIL, Interpleader Defendant-Appellee, and TAMMY FU AND ELEANOR FISHER, as Liquidators of Trade and Commerce Bank, Interpleader Defendants-Appellants. [*]

 Argued, September 26, 2013

Page 87

In this interpleader action to determine competing claims to $6.8 million held by the United States, appellants challenge a grant of summary judgment in favor of the Federative Republic of Brazil (" Brazil" ), whose claim to the monies derives from the criminal forfeiture judgment of a Brazilian court. Because we construe the " penal law rule" to preclude United States courts from directly or indirectly enforcing foreign criminal laws, we vacate the grant of summary judgment in favor of Brazil. Nevertheless, we recognize that 28 U.S.C. § 2467 creates an exception to the penal law rule and, because Brazil has represented that it intends to request, pursuant to its mutual legal assistance treaty with the United States, that the Attorney General file a § 2467 action to secure the interpleader monies for Brazil, we remand with instructions to the district court to afford Brazil and the Attorney General a reasonable period of time to do so before the district court conclusively decides which interpleader party, if any, is entitled to the funds at issue.

WILLIAM T. REID, IV (Rachel S. Fleishman, Craig A. Boneau, Reid Collins & Tsai LLP, New York, New York; Chun T. Wright, Esq., Washington, D.C., on the brief), Reid Collins & Tsai LLP, New York, New York, for Interpleader Defendants-Appellants.

JOHN W. MOSCOW, Baker & Hostetler LLP, New York, New York, for Interpleader Defendant-Appellee.

Before: RAGGI AND DRONEY, Circuit Judges, KEENAN, District Judge.[**]

OPINION

Page 88

Reena Raggi, Circuit Judge

The United States filed this interpleader action to resolve competing claims to more than $6.8 million seized from a bank account held by Kesten Development Corporation (" Kesten" ), an entity incorporated in the British Virgin Islands. On this appeal, Tammy Fu and Eleanor Fisher, as Liquidators of Trade and Commerce Bank (" Liquidators" ), a Cayman Islands bank, challenge the award of summary judgment entered on October 24, 2012, in the United States District Court for the Southern District of New York (Thomas P. Griesa, Judge ), in favor of the Federative Republic of Brazil (" Brazil" ). See United States v. Barry Fischer Law Firm, LLC, No. 10-Civ-7997, 2012 WL 5259214 (S.D.N.Y. Oct. 24, 2012). The district court concluded that a forfeiture judgment entered by a Brazilian court pursuant to Brazil's successful criminal prosecution of Kesten's former principals and owners took precedence over the Liquidators' Cayman Islands civil default judgment against Kesten. In so holding, the court rejected the Liquidators' invocation of the " penal law rule," a common law principle whereby a sovereign--in this case, the United States--generally declines to enforce the criminal laws of another nation.

For the reasons explained in this opinion, we conclude that the penal law rule precludes awarding summary judgment in favor of Brazil based on a forfeiture judgment of that sovereign grounded in a violation of Brazil's penal laws. At the same time, however, we recognize that 28 U.S.C. § 2467--which permits the United States Attorney General, upon request of a foreign nation pursuant to a mutual forfeiture assistance treaty, to petition a United States court to enforce a foreign forfeiture judgment--is a statutory exception to the penal law rule. While no § 2467 request from Brazil is presently before the Attorney General, that nation's counsel advised this court at oral argument that, if the challenged summary judgment decision were vacated based on the penal law rule, Brazil would promptly file a § 2467 petition pursuant to the nations' mutual legal assistance treaty.

Accordingly, while we conclude that the penal law rule requires vacatur of summary judgment in favor of Brazil, we remand this case to the district court with instructions that it afford Brazil and the Attorney General a reasonable period of time to satisfy § 2467's exception to that rule before reaching a final decision in this interpleader action.

I. Background

The background to this appeal is complex, involving criminal and civil litigation over 15 years in the courts of four countries: the United States, Brazil, the Cayman Islands, and the British Virgin Islands.

A. The United States' Seizure of the Funds at Issue and Its Own Unsuccessful Forfeiture Litigation

In January 1999, federal agents, acting pursuant to a warrant, seized approximately

Page 89

$6.8 million in purported drug proceeds from a bank account in Kesten's name at the New York branch of MTB Bank (" Venus Account" ). In June 2000, the United States commenced a civil forfeiture action in the District of New Jersey pursuant to 18 U.S.C. § § 981, 984, maintaining that the seized funds were proceeds of violations of United States money laundering laws.[1] While the district court initially granted forfeiture, the Third Circuit vacated judgment and remanded, whereupon the district court granted Kesten's motion to dismiss, holding that the government had failed to demonstrate probable cause to think that the funds in the Venus Account were proceeds of unlawful conduct and ordered return of the monies to Kesten. See United States v. $8,221,877.16 in U.S. Currency, 148 F.Supp.2d 427, 434 (D.N.J. 2001), vacated and remanded, 330 F.3d 141 (3d Cir. 2003); see id. Civ. No. 00-2667 (JWB), at *18-*19 (D.N.J. July 7, 2004) (granting dismissal).[2]

B. Brazil's Initial Effort To Restrain the Venus Account Funds

Meanwhile, Brazilian authorities were investigating Kesten principal Pires and his associates for money laundering, tax evasion, fraud, and other financial crimes violative of Brazilian penal law. In December 2004, on the basis of prosecutors' representations that Pires and his confederates used Kesten and other entities as shell companies to launder illicit proceeds, a Brazilian court issued a seizure warrant for the Venus Account. Soon thereafter, Brazil requested assistance from the United States in executing its warrants pursuant to the nations' mutual legal assistance treaty. See Treaty Between the Government of the United States of America and the Government of the Federative Republic of Brazil on Mutual Legal Assistance in Criminal Matters, U.S.-Braz., Oct. 14, 1997, S. Treaty Doc. No. 105-42 (1998).

Upon receipt of Brazil's request, the Attorney General moved in the District of Columbia, pursuant to 28 U.S.C. § 2467, for a temporary restraining order on the funds in the Venus Account.[3] On January 26, 2005, the district court granted the motion, finding that the United States had demonstrated a substantial probability that Brazil would succeed in its forfeiture action against Pires.

The restraining order apparently remained in effect until September 22, 2010, when the United States moved for, and the district court ordered, vacatur in light of In re: Any and All Funds or Other Assets, in Brown Bros. Harriman & Co. Account #8870792 in the Name of Tiger ...


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