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United States v. Maddux

United States District Court, E.D. Kentucky, Northern Division, Ashland

January 29, 2019

UNITED STATES OF AMERICA PLAINTIFF
v.
JOHN MADDUX, et al. DEFENDANTS IN RE THIRD-PARTY CLAIMS OF CHRISTINA CARMAN, et al.

          MEMORANDUM OPINION AND ORDER

          DAVID L. BUNNING UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on Claimants Christina Carman and Judith Thieben's Objection (Doc. # 724) to the Magistrate Judge's Report and Recommendation (“R&R”), which denied Carman's Motion to Compel and recommended disposition on four other motions, including Claimants' Motions for Summary Judgment. (Doc. # 721). Pursuant to its earlier Order, the Court will adjudicate the Objection to the Magistrate Judge's denial of Carman's Motion to Compel, after which Carman and Thieben will have the opportunity to file renewed motions for summary judgment. See (Doc. # 727). The United States having filed a Response (Doc. # 728), the Objection to the Magistrate Judge's Order denying Carman's Motion to Compel is now ripe for the Court's review. For the reasons set forth below, the Objection is overruled and Carman's and Thieben's Motions for Summary Judgment are denied without prejudice.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         A. The Criminal Case

         Claimant, formerly Defendant, Christina Carman was found guilty of conspiracy to commit mail fraud, wire fraud, and money laundering. (Doc. # 345). On September 6, 2016, Carman filed an appeal of the guilty verdict to the Sixth Circuit Court of Appeals, which remains pending. (Doc. # 543); see No. 16-6370 (6th Cir. Sept. 8, 2016). The Indictment alleged that Carman, along with her husband John Maddux and ten other individuals, trafficked large quantities of untaxed cigarettes in violation of the Jenkins Act and Prevent All Cigarette Trafficking (“PACT”) Act, 15 U.S.C. §§ 375-378. (Doc. # 1). Specifically, Maddux, Carman, and an unindicted co-conspirator, Glenn Herndon (now deceased), utilized corporations such as Your Kentucky Tobacco Resource, Inc. (“YKTR”) and others to purchase untaxed cigarettes from suppliers inside and outside of the United States and resell them-tax free-to customers around the United States via mail and phone orders. Id. at 8. Carman was convicted of conspiring to use mail and wire communications to execute the scheme, and of conspiring to launder the proceeds of her crimes. (Doc. # 345). After the jury verdict, this Court reversed Carman's conviction on the money-laundering count. (Doc. # 427).

         B. Forfeiture Allegations

         The Indictment also contained forfeiture allegations against five defendants, including Carman and Maddux, pursuant to 18 U.S.C. § 981(a)(1)(C) and § 982(a)(1). (Doc. # 1 at 69-70). The Indictment included a lengthy list of real and personal property subject to forfeiture, including houses, brokerage and bank accounts, vehicles, boats, firearms, jewelry, and sports memorabilia. Id. at 70-80. The United States did not attempt to prove its forfeiture allegations against Carman during the trial, with the exception of two vehicles, which Carman stipulated to. (Docs. # 378-1 at 2 n.5 and 621 at 3, 15-17). After the conclusion of the trial, the United States filed a Motion for Preliminary Judgment of Forfeiture, seeking a money judgment of $34, 934, 514.12 against Carman for the illegal proceeds attributable to her. (Doc. # 378-8). On January 17, 2017, this Court granted the Government's Motion in part, reducing the money judgment against Carman by half. (Docs. # 659 at 16 and 664 at 1). Carman then appealed the Court's imposition of a money judgment. (Doc. # 668). That appeal remains pending. See No. 17-5074 (6th Cir. Jan. 23, 2017).

         After Carman's trial, Defendant Maddux pleaded guilty to 29 out of 34 counts in the Indictment. (Doc. # 432). As part of his guilty plea, Maddux agreed to forfeit any interest he had in the property listed in the Indictment. Id. Accordingly, on August 30, 2016, the Court entered an Agreed Preliminary Order of Forfeiture, which forfeited Maddux's interest in the property listed in the Indictment. (Doc. # 535). As discussed below, several parties have made ownership claims to property listed in the Agreed Preliminary Order of Forfeiture pursuant to Federal Rule of Criminal Procedure 32.2(c) and 21 U.S.C. § 853(n). However, some of the property listed in the Agreed Preliminary Order of Forfeiture went unclaimed. As a result, the United States filed a Motion for Partial Final Decree and Order of Forfeiture on February 28, 2017, seeking forfeiture of the unclaimed property in the August 30, 2016 Agreed Preliminary Order of Forfeiture. (Doc. # 675). On November 9, 2018, the Court issued a Partial Final Decree and Order of Forfeiture for the property that had not been claimed. (Doc. # 736).

         C. Ownership Claims to Property Listed in the Agreed Preliminary Order of Forfeiture

         On October 14, 2016, Carman filed a Verified Notice of Claim to twenty items of property listed in the August 30, 2016 Agreed Preliminary Order of Forfeiture, asserting “possessory interests in her own behalf and as a shareholder of ESR II, Inc. and ASR Inc.” (Doc. # 580). Judith Thieben also filed a Verified Notice of Claim with regard to twenty-four items of property listed in the August 30, 2016 Agreed Preliminary Order of Forfeiture. (Doc. # 570). Thieben was the longtime partner of Glenn Herndon-now deceased-who was Maddux's father and an alleged unindicted co-conspirator. (Docs. # 1 at 4, 7 and 613-1 at 2). Thieben was not charged in this case, and the Government has not brought forfeiture proceedings against her. (Docs. # 375 at 16 and 724 at 11). She claims a right to the abovementioned property because of “possessory interests in her own behalf, as a shareholder of ASR, Inc., and ESR II, Inc., and as sole beneficiary of the Glenn Herndon Living Trust and the Estate of Glenn Herndon.” (Doc. # 570).

         Another Third-Party Claimant, DOT Capital Investment, LLC, submitted a Petition, claiming an ownership interest in the property located at 112 Bellefonte Drive in Ashland, Kentucky because it holds a tax lien on the property. (Doc. # 676). Carman filed a Response objecting to DOT Capital's Petition on the ground that its claim is untimely. (Doc. # 678 at 2). In the alternative, Carman requested additional time to conduct discovery regarding DOT Capital's claim. Id. The United States filed a Reply to Carman's Response, arguing that DOT Capital's claim was filed within the time permitted by Federal Rule of Criminal Procedure 32.2. (Doc. # 679).

         D. Thieben's and Carman's Motions for Summary Judgment

         Claimants Thieben and Carman each filed a Motion for Summary Judgment on their forfeiture claims on November 20 and 28, 2016, respectively. (Docs. # 613 and 630). The United States filed Responses in Opposition. (Docs. # 637 and 645). Claimants replied. (Docs. # 644 and 649). Both Motions for Summary Judgment were referred to Magistrate Judge Atkins for preparation of an R&R. (Docs. # 432 and 635). On February 3, 2017-after Thieben's and Carman's Motions were fully briefed- Magistrate Judge Atkins issued an Order stating “the Court finds that discovery is desirable to fully develop the factual nature of the claims and defenses in these ancillary proceedings.” (Doc. # 670 at 1-2). Accordingly, Magistrate Judge Atkins ordered that the parties conduct discovery until May 5, 2017 and gave the parties until May 26, 2017 to “file a motion for summary judgment or a supplement to an existing motion for summary judgment . . . .” Id. at 2. On June 13, 2017, the Magistrate Judge granted Claimants Carman and Thieben's Motion to Extend Discovery (Doc. # 703), resetting the discovery deadline to July 10, 2017 and the dispositive motion deadline to August 7, 2017. (Doc. # 706).

         On July 5, 2017, Carman filed a Motion to Compel the United States to produce Thomas Lesnak for deposition. (Doc. # 709). Lesnak is a retired Special Agent for the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), who Carman asserts would provide testimony supporting her forfeiture claims. Id. The United States submitted a Response in Opposition to the Motion to Compel (Doc. # 710), to which Carman replied. (Doc. # 713). The United States also filed an unopposed Motion for Extension of Time to file dispositive motions, citing the “pending motion to compel additional discovery.” (Doc. # 712). Magistrate Judge Atkins granted the Motion for Extension of Time on August 9, 2017, ordering that “[t]he parties shall have 30 days from the date of this Court's Order ending discovery (after adjudication of the pending Motion to Compel (R. 709)) in which to file dispositive motions.” (Doc. # 714). No further dispositive motions have been filed regarding the contested forfeiture claims.

         E. The Magistrate Judge's R&R

         On January 17, 2018, Magistrate Judge Atkins issued an R&R, in which he considered five motions: Thieben's Motion for Summary Judgment on Forfeiture Claims (Doc. # 613), Carman's Motion for Summary Judgment on Forfeiture Claims (Doc. # 630), The Government's Motion for Partial Final Decree and Order of Forfeiture (Doc. # 675), the Petition by Third Party Claimant DOT Capital Investments, LLC, for Determination of Its Interest in Real Property at: 112 Bellefonte Drive, Ashland, KY (Doc. # 676), and Carman's Motion to Compel (Doc. # 709).

         Magistrate Judge Atkins denied Carman's Motion to Compel. (Doc. # 721). In addition, the Magistrate Judge recommended denying Carman's and Thieben's Motions for Summary Judgment, granting the Government's Motion for Partial Final Decree and Order of Forfeiture, [1] and granting the Petition by Third-Party Claimant DOT Capital. Id.

         F. Motion for Extension of Time

         On February 12, 2018, Claimants Carman and Thieben filed a joint Objection to the Magistrate Judge's R&R. (Doc. # 724). Claimants specifically objected to Magistrate Judge Atkins deciding the Motion for Summary Judgment contemporaneously with the Motion to Compel, which they argued contravened the Magistrate Judge's earlier order stating “[t]he parties shall have 30 days from the date of this Court's Order ending discovery (after adjudication of the pending Motion to Compel (R. 709)) in which to file dispositive motions.” (Doc. # 714) (emphasis added); see (Doc. # 724 at 9-10). Shortly after filing their Objection to the Magistrate Judge's R&R, Claimants submitted an Unopposed Motion for Extension of Time, requesting that the Court allow additional time to file renewed or supplemental motions for summary judgment after the Court's ruling on the Objection to the Magistrate Judge's denial of Carman's Motion to Compel. (Doc. # 726). The Court granted the Motion for Extension of Time, ...


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