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United States v. Gray

United States District Court, W.D. Oklahoma

June 12, 2017

DEBORAH A. GRAY, and KEITH B. GRAY, II, Defendants.



         This a criminal forfeiture matter stemming from Defendant Deborah Gray's pleading guilty to healthcare fraud. The United States (“the Government”) now seeks a final order of forfeiture of the house she holds in joint tenancy with her husband, Keith Gray. Arguing that the Government has inappropriately forfeited his interest in the residence and a shared bank account, Mr. Gray asks the Court to set a hearing to adjudicate his rights in the property. Doc. 56. In response, the Government moves to dismiss his Petition, Doc. 61, and requests that the Court enter an order for an interlocutory sale of the property. Doc. 62.

         Because Mr. Gray alleges that he paid value for the house without knowledge of his wife's crimes, the Court GRANTS his motion for a hearing. Doc. 56. The Government's Motion to Dismiss is therefore DENIED. Doc. 61. The Government's motion for an interlocutory sale is also DENIED. Doc. 62.

         I. Background

         Petitioner Keith Gray and his wife, Defendant Deborah Gray, purchased a home together (“the Gray marital residence”) in Oklahoma City in March 2013. Doc. 56, Ex. 1. At that time, Mr. Gray was allegedly unaware that his wife and son had been perpetrating healthcare fraud upon the federal government since October 2011. Indeed, according to Mr. Gray he remained oblivious to these crimes until July 6, 2016, when a federal grand jury sitting in the Western District of Oklahoma returned a 151-count indictment against his wife and their son. The indictment described in detail how from October 2011 through May 2014 the pair submitted false and fraudulent Medicaid claims through their employer to the Oklahoma Healthcare Authority. Doc. 1, at 8, 11, and 15. The indictment also sought forfeiture of any property constituting or derived from proceeds of the offenses. Doc. 1, at 20 - 21. Guilty pleas from both soon followed, including his wife's on January 4, 2017, in which she agreed to forfeit all her right, title, and interest in assets subject to forfeiture under federal law. These assets included three bank accounts and the Gray marital residence, all of which she admitted were proceeds or instrumentalities of her crimes. Doc. 45, at 4.

         II. Mr. Gray's Third-Party Petition

         A. Overview of Criminal Forfeiture and Ancillary Proceedings

         Section 982 of Title 18 of the United States Code prescribes different forfeiture penalties for different categories of federal crimes. See 18 U.S.C. § 982(a). Assuming that an applicable federal statute calls for the forfeiture of a defendant's property, the Court will enter an order to that effect. Fed.R.Crim.P. 32.2(b). It does so only after the defendant has been found guilty and the Court has determined there is an established nexus between the defendant's crimes and the property. Fed.R.Crim.P. 32.2(b)(1)(A). Importantly, the Court “enter[s] the order without regard to any third party's interest in the property.” Id. Once the Court has entered the order, any third party claiming a legal interest in the forfeited property can petition the court for a hearing at which the party must establish his legal interest by a preponderance of the evidence. 18 U.S.C. § 853(n)(6). Assuming he carries this burden, the Court will amend its earlier order of forfeiture to preserve the petitioner's interest in the property. And while Federal Rule of Criminal Procedure 32.2(c)(1) mandates that the court must conduct this ancillary proceeding if the third party files a petition, [1] the Rule also clarifies that before the formal hearing, the “court may, on motion, dismiss the petition for lack of standing, for failure to state a claim, or for any other lawful reason.” Fed.R.Crim.P. 32.2(c)(1)(A). This motion is simply treated like a motion to dismiss a civil complaint under Federal Rule of Civil Procedure 12(b). See, e.g., Pacheco v. Serendensky, 393 F.3d 348, 352 (2d Cir. 2004). So as with Rule 12(b), the Court must assume that all “allegations in the complaint are true (even if doubtful in fact).” Bell Atlantic Corp v. Twombly, 550 U.S. 544, 555 (2007).

         B. Procedural Posture

         Defendant Deborah Gray is subject to mandatory forfeiture due to her conviction for healthcare fraud. 18 U.S.C. § 982(a)(7). After this Court found the requisite nexus between her property and her crimes, it entered its Preliminary Order of Forfeiture pursuant to Federal Rule of Criminal Procedure 32.2(b). After the Government, in accordance with 18 U.S.C. § 853(n)(1), provided notice to Mr. Gray as a potentially interested party, Mr. Gray petitioned this Court for a hearing to adjudicate his interests in the Tinker Account and the Gray marital residence. While the Government does not contest his claim to certain monies in the Tinker Account, it does dispute that he has a legal interest in the Gray marital residence. It argues, first, that Mr. Gray lacks a legal interest to raise a claim in this ancillary proceeding, and, second, even if Mr. Gray has a legal interest in the Gray marital residence, it is not sufficient to prevail under § 853(n).

         C. Standing in an Ancillary Proceeding

         Any party petitioning for a hearing under § 853(n) must first demonstrate both constitutional and statutory standing. As for constitutional standing, “a party seeking to challenge a forfeiture of property must first demonstrate an ownership or possessory interest in the seized property in order to have standing to contest the forfeiture.” United States v. Timley, 507 F.3d 1125, 1129 (8th Cir. 2007). At least in regards to this question, the Court is at a loss to see how the seizure of the home in which Mr. Gray lives is not sufficient to confer constitutional standing on him.

         Statutory standing is a different matter. § 853(n)(2) requires a third party claimant have a legal interest-as opposed to an equitable interest-to petition the court. Id. State law, rather than federal, decides whether this legal interest exists. Willis Mgmt. (Vermont), Ltd. V. United States, 652 F.3d 236, 242 (2d Cir. 2011). If state law affords the petitioner no valid interest in the forfeited property, “the inquiry ends and the claim fails for lack of standing.” Timley, 507 F.3d at 1130 (8th Cir. 2007). In contrast, where the petitioner does hold a legal interest under state law, federal law then determines the consequences of that interest-i.e., whether the interest is sufficient to prevail on the merits under § 853(n)(6). United States v. BCCI Holdings (Luxembourg), S.A., 961 F.Supp. 287, 293 (D.D.C. 1997).

         Here, Mr. Gray undoubtedly holds a legal interest in the Gray marital residence. In the eyes of Oklahoma, he and his wife are joint tenants of the Gray marital residence. Because Mr. Gray “has an interest in the property under the law of the jurisdiction that created the property right, ” the question becomes the consequence of that interest. In other words, the court must look ...

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