United States Court of Appeals, District of Columbia Circuit
Argued: September 9, 2014.
Appeal from the United States District Court for the District of Columbia. (No. 1:10-cr-00298-1).
John D. Quinn argued the cause for appellant. With him on the briefs were Stephen Sale and David B. Smith.
Zia M. Faruqui, Assistant U.S. Attorney, argued the cause for appellee. With him on the brief were Ronald C. Machen Jr., U.S. Attorney, and Elizabeth Trosman, John P. Mannarino, and Diane G. Lucas, Assistant U.S. Attorneys. Elizabeth H. Danello, Assistant U.S. Attorney, entered an appearance.
Before: BROWN, MILLETT and WILKINS, Circuit Judges. OPINION filed by Circuit Judge BROWN. Concurring opinion filed by Circuit Judge WILKINS.
Brown, Circuit Judge.
In an episode of the iconic 1990s television show Friends, Joey Tribbiani tries to dissuade Rachel Green from moving to Paris. Joey asks Rachel to flip a coin. If he wins the coin flip, she must agree to stay. Rachel flips the coin; Joey loses. When later recounting the story to Ross Gellar, a befuddled Joey says, " [w]ho loses fifty-seven coin tosses in a row?" Friends: The One with Rachel's Going Away Party (NBC television broadcast Apr. 29, 2004). Before Ross can answer, Joey explains Rachel's rules: " Heads, she wins; tails, I lose." Id.
The proceedings in this case have largely followed the same rules. SunRise Academy (" SunRise" ) claimed the federal government seized property from criminal defendant Charles Emor belonging to SunRise. But the government succeeded in excluding SunRise from Emor's criminal proceedings, suggesting SunRise could press its claims to the property in a third-party forfeiture proceeding. When SunRise later did so, the government filed a
motion to dismiss the petition, contending that SunRise should be denied a hearing based on findings the court made in the prior proceeding from which SunRise was excluded. Because this heads the government wins and tails SunRise loses form of criminal forfeiture does not comport with the statutory scheme, we reverse.
SunRise was founded in 1999 by Charles Emor as a private nonprofit school serving special needs children in the District of Columbia. SunRise was governed by a Board of Directors, which, at various times, consisted of SunRise's principal, teachers, employees, and Emor's family members. Emor was the one constant on SunRise's Board.
SunRise was no small operation. It built a solid financial endowment, possessed two campuses, educated over 150 students each semester, and employed a number of teachers, therapists, and counselors. In July 2007, SunRise filed a successful application for a Certificate of Approval with the District of Columbia to provide educational services to special needs students. Students paid no tuition to attend SunRise; instead, the District reimbursed SunRise for educating the students. That reimbursement often totaled over $400,000 a month.
In April 2009, the District of Columbia Public Schools (" DCPS" ) decided to investigate whether SunRise had fully implemented DCPS's policies. More than a year later, the Office of State Superintendent of Education (" OSSE" ) issued a report and revoked SunRise's Certificate, after finding SunRise had failed to keep accurate daily attendance records, fully report absenteeism, and had fabricated student records to receive payment from the District for services not actually rendered. But OSSE did not revoke SunRise's Certificate due to the quality of education provided by SunRise.
Meanwhile, from January 2006 through November 2010, Emor used his authority as a SunRise Director and Board Member to withdraw funds from SunRise's bank accounts. He then used those funds to, inter alia, purchase luxury items for himself, provide money to his family members, and pay the rent on his townhouse.
Emor's most brazen fraud involved convincing SunRise's Board to invest in a for-profit company called Core Ventures. According to the proposal, Core would build a coffee shop or vocational school on SunRise property. The business would provide training for SunRise students and profits would be returned to SunRise.
Beginning in March 2009, Jamila Negatu, a SunRise Board Member and employee, made a series of wire transfers totaling over two million dollars to Core. Emor directed Negatu to transfer the money, even though SunRise possessed no loan documentation binding Core to repay the money, reinvest the profits, or explaining the consequence of default. The only documentation regarding the money transfers were minutes from two SunRise Board meetings and financial documents prepared for SunRise by its accountant characterizing the transfers as loans.
The money wired to Core was never returned to SunRise. Nor did Core pursue its plans for building a coffee shop or a vocational school. Core, however, did purchase and pay the insurance on a Lexus SUV that Emor drove.
The federal government eventually caught Emor, arresting him, and seizing
the Lexus SUV and the over two million dollars in Core's bank account. The government charged Emor with thirty-seven counts, including mail and wire fraud, and various other federal and D.C. Code violations. The government also provided notice it was seeking forfeiture of Core's property.
The government had trouble identifying the alleged victim of Emor's fraud. In some counts, the government alleged Emor, through SunRise, devised a scheme to defraud and to obtain public money from the District, for his own use and benefit. Consistent with a scheme to defraud the District, the government charged Emor with ten counts of mail fraud and five counts of wire fraud, with each count involving the District reimbursing SunRise for educational services. The district court ultimately dismissed these counts of the indictment with prejudice over the government's objections.
But the government also described Emor's scheme as one to defraud SunRise, alleging Emor created a set of bogus SunRise Board of Director resolutions purportedly authorizing SunRise to lend over two million dollars to Core for the purposes of operating a coffee shop, when the " terms of the loan w[ere] never reduced to writing." J.A. 50. And the government charged Emor with several wire fraud counts involving each wire transfer from SunRise to Core.
SunRise was never charged with wrongdoing by the government. In fact, SunRise filed a motion under Federal Rule of Criminal Procedure 41 for the return of its property, claiming that it owned the two million dollars and the Lexus. The district court denied that request, holding that 21 U.S.C. § 853(k) prohibits third parties from intervening in criminal proceedings, other than a third party proceeding under 21 U.S.C. § 853(n). Sunrise Acad. v. United States, 791 F.Supp.2d 200, 204 (D.D.C. 2011).
Emor ultimately negotiated a sweetheart deal with the government, which agreed to drop every count save one in exchange for Emor's guilty plea. The Statement of the Offense, included as part of Emor's plea agreement to one count of wire fraud, alleged that Emor devised a scheme to obtain money " from SunRise's bank accounts." J.A. 71. As a part of the scheme, Emor committed " various misrepresentations and omissions of material facts," and " used the money obtained from SunRise's bank accounts in a manner unrelated to the education of students with disabilities at SunRise." Id. But the prosecutors consciously and deliberately declined to identify the victim of Emor's fraud, and the district court deferred a determination of the fraud victim's identity until the preliminary forfeiture hearing.
SunRise could not participate at the preliminary forfeiture hearing, although two board members and several employees were called to testify as part of the government's case. The court made a number of findings at the hearing, of which three are relevant to this appeal. First, the court found SunRise did not own Core. Second, the court held SunRise was Emor's alter ego. Third, the court found, for restitution purposes, that SunRise was not a victim of Emor's fraud. The ...