United States District Court, D. Nebraska
MEMORANDUM AND ORDER
R. Zwart, United States Magistrate Judge.
government filed the above-captioned action for forfeiture in
rem on July 18, 2018. (Filing No. 1). The defendant property
was seized on January 30 and 31, 2018, from properties
located on the Winnebago Reservation in Nebraska pursuant to
four warrants signed by the undersigned magistrate
judge. The government alleges the defendant
property is subject to forfeiture as proceeds derived from
violating the Contraband Cigarette Trafficking Act, l8 U.S.C.
§ 2341(c)(2). The warrants ordered seizure of all
cigarette packs that did not bear a Nebraska tax stamp, and
seizure of property used in the distribution, manufacture,
and transportation of cigarettes, to include forklifts and
box trucks. Claimants HCI Distribution, Inc.
(“HCID”) and Rock River Manufacturing, Inc.
(“Rock River Manufacturing”), both wholly owned
subsidiaries of Ho-Chunk Industries (“HCI”), have
filed claims to recover the property. (Filing Nos. 19 &
August 22, 2018, Rock River Manufacturing filed an Amended
Claim asserting ownership of Defendant 52, 843 Cartons of
Assorted Brand Cigarettes. (Filing No. 25). On the same date,
HCID filed an Amended Claim asserting ownership of the
remaining five Defendant properties, including cigarettes and
vehicles. (Filing No. 24). Claimants filed their answer to
the operative complaint on September 4, 2018. (Filing No.
following motions are pending before me and fully submitted:
1) Claimants' motion to unseal the search warrants,
including the affidavits supporting those warrants, (Filing
2) The government's motion for interlocutory sale of the
cigarettes, (Filing No. 43); and
3) The government's motion to stay the above-captioned
civil forfeiture case pending the outcome of the
government's related criminal investigation, (Filing No.
reasons explained below, Claimants' motion will be denied
and the government's motions will be granted.
relevant to the pending motions, the facts are undisputed.
Rock River and HCID are corporations organized under the laws
of the Winnebago Tribe, and are wholly owned and operated by
the Tribe. (Filing No. 39-1, ¶ 3, 39-3; 39-4; 39-14,
¶ 3). Rock River is a federally-licensed cigarette
manufacturer and federally-licensed importer of cigarettes.
(Filing No. 39-1, ¶¶ 7-9, 39-2). HCID distributes
cigarettes. (Filing No. 39-14, ¶¶ 4-5). During the
January 30 seizures, ATF seized 52, 843 cartons of cigarettes
owned by Claimant Rock River from its warehouse located on
the Winnebago reservation at 503 Ho-Chunk Plaza and 505
Ho-Chunk Plaza, (Filing No. 39-1, ¶¶ 5-6, 10-13;
39-2 at CM/ECF pp. 1-5, 39-5), and it seized 44, 846.80
cartons of cigarettes, a 2015 Dodge Ram 3500, Assorted
Samples of Cartons and a Crown Fork Lift RR S200 owned by
Claimant HCID. (Filing Nos. 39-6; 39-11; 39-12; 39-13; 39-14,
the facts underlying the seizure warrants, the
government's criminal investigation is ongoing, as
explained with specificity in the government's evidence
filed ex parte as permitted under 18 U.S.C. § 981(g)(5).
(Filing No. 47). But those facts have nonetheless spawned
substantial litigation dating back to before the seizures
explained in Ho-Chunk, Inc. v. Sessions, 253
F.Supp.3d 303, 306 (D.D.C. 2017), in June 2016, Claimants
Rock River and HCID, along with Woodlands Distribution, Inc.
(Woodlands), another wholly owned subsidiary of HCI (Filing
No. 39-14, ¶¶ 29, 31), received a notice from ATF
stating the agency intended to inspect and copy information
about the HCI entities' cigarette and tobacco inventory.
The ATF claimed it was entitled to perform such inspections
pursuant to the CCTA. The HCI entities agreed to provide the
requested information regarding off-reservation transactions,
but they objected to providing records of the inter-tribal
transactions absent a federal court ruling which clarified
their obligation to comply with the CCTA reporting
requirements. Ho-Chunk, 253 F.Supp.3d at 306. In
August of 2016, HCI filed a federal court complaint seeking
declaratory relief in the United District Court for the
District of Columbia.
March 24, 2017, the District of Columbia District Court held
that the CCTA's recordkeeping requirements were
applicable to the HCI entities; HCID, Rock River, and
Woodlands. Ho-Chunk, 253 F.Supp.3d at 311. HCI moved
to enjoin enforcement of the court's order pending
appeal. That motion was denied on August 2, 2017.
Ho-Chunk, Inc. v. Sessions, No. 16-CV-01652 (CRC),
2017 WL 4856862 (D.D.C. Aug. 2, 2017). Explaining that the
ATF is statutorily required to “determine whether
cigarettes are being manufactured, sold, or distributed
illegally, ” the District of Columbia court held it
would “undermine the effectiveness of the CCTA to delay
the enforcement of its recordkeeping provision as to
Plaintiffs for a year or more, pending the resolution of this
litigation.” Ho-Chunk, Inc. v. Sessions, No.
16-CV-01652 (CRC), 2017 WL 4856862, at *2 (D.D.C. Aug. 2,
2017). HCI, HCID, Rock River, and Woodlands promptly
warrant applications at issue were presented before and
signed by the undersigned magistrate judge on January 26,
2018 (Filing No. 39-7, 39-9, & 39-10), and January 30,
2018 (Filing No. 39-8). The warrants were executed on January
30 and 31, 2018.
March 29, 2018, HCI moved for immediate return of all seized
data and property. (Filing No. 6, 4:18-MJ-3005, 4:18-MJ-3006,
4:18-MJ-3007, 4:18-MJ-3009). The undersigned magistrate judge
denied HCI's motion on June 5, 2018. (Filing No. 13,
4:18-MJ-3005; Filing No. 15, 4:18-MJ-3006; Filing No. 13,
4:18-MJ- 3007; Filing No.13, 4:18-MJ-3009). That decision was
appealed on June 19, 2018. Judge Kopf held a hearing on the
appeal on June 26, 2018. (Filing No. 18, 4:18-MJ-3005; Filing
No. 20, 4:18-MJ-3006; Filing No. 18, 4:18-MJ-3007; Filing
3, 2018, the Court of Appeals for the District of Columbia
affirmed the ruling of the District of Columbia trial court.
Ho-Chunk, Inc. v. Sessions, 894 F.3d 365 (D.C. Cir.
2018). The Circuit Court held that tribal entities are not
exempt from the CCTA's recordkeeping requirements: The
CCTA and its implementing regulations are applicable to Rock
River, HCID, and Woodlands-corporations wholly-owned by the
Winnebago Tribe of Nebraska, a federally-recognized Indian
tribe. Ho-Chunk, Inc., 894 F.3d at 367.
above-captioned forfeiture action was filed on July 19, 2018.
(Filing No. 1). The forfeiture complaint was amended on July
24, 2018 to add the Defendant property 2005 Freightliner
M2106 Box Truck VIN: 1FVACWDCX5HV11800. (Filing 5, ¶
25, 2018, Judge Kopf entered his ruling affirming the denial
of HCI's demand for immediate return of the seized
property. (Filing No. 19, 4:18-MJ-3005; Filing No. 21,
4:18-MJ-3006; Filing No. 19, 4:18-MJ-3007; Filing No.19,
4:18-MJ-3009). Judge Kopf's order set forth specific
terms for review of the seized documents by the
government's filter team, and as to HCI's request for
discovery, Judge Kopf stated “[t]here is no right to
discovery under FRCP 16 at this time.” (Filing No. 19,
at CM/ECF p. 9, 4:18-MJ-3005; Filing No. 21, at CM/ECF p. 3,
4:18-MJ-3006; Filing No. 19, at CM/ECF p. 3, 4:18-MJ-3007;
Filing No.19, at CM/ECF p. 3, 4:18-MJ-3009).
River Manufacturing and HCID filed their claims in the
forfeiture action on August 22, 2018. (Filing Nos. 24 &
25), and they answered the amended complaint on September 4,
2018. (Filing No. 26).
seized tobacco has been stored in temperature-controlled
storage at the federal government's expense since it was
seized in January. Tobacco is perishable; it has a finite
shelf life. (Filing Nos. 42, at CM/ECF p. 18, ¶ G; 77,
at CM/ECF p. 4, ¶ 14). The government began discussions
with Claimants no later than September of 2018 to sell the
tobacco. (Filing No. 59, audio file). Those discussions
October 11, 2018, Claimants filed their Motion to Unseal the
warrant applications. (Filing No. 38). The government moved
to stay further proceedings on October 12, 2018, and for
interlocutory sale of the cigarettes on October 12, 2018.
(Filing Nos. 43 & 45). The undersigned magistrate judge
convened a telephonic hearing to facilitate a potential
compromise and prompt resolution on the terms for selling the
tobacco. (Filing No. 59, audio file). When it was clear that
an agreement on how to conduct a commercially reasonable sale
could not be reached during that call, the court suggested
the government locate a consultant on the recommended type
and terms for such a sale, and once the consultant's
information was available, confer with Claimants' counsel
and perhaps jointly propose an order for the interlocutory
sale of the tobacco. (Filing No. 59, audio file).
government received the consultant's information on
November 19 and 20, 2018, which proposed an on-line auction
of the defendant cigarettes and a detailed proposal for the
division of the defendant cigarettes into lots to maximize
the scope of interested buyers. All interested bidders must
be pre-qualified by completing a form, providing a copy of a
valid Tobacco Dealers License, and submitting a deposit. The
bidder must be in compliance with applicable state and
federal laws relating to wholesale tobacco products; cannot
owe any state or federal taxes, cannot be subject to any
state or federal criminal investigation or prosecution; and
must pay any applicable and appropriate taxes after purchase.
(Filing No. 73-1, at CM/ECF pp. 2-3, ¶¶ 4-5, 7-9).
information was forwarded to Claimant's counsel on
November 20, 2018, with comments requested by November 30,
2018. No. comments were received as of that date. (Filing No.
73-1, at CM/ECF p. 3, ¶ 10). The consultants personally
inspected the stored tobacco products on December 6, 2018,
and thereafter proposed no changes to their sale suggestions.
(Filing No. 73-1, at CM/ECF p. 3, ¶ 11).
for the government and for Claimants met on December 7, 2018
to discuss the terms and sale procedures for the proposed
sale and to answer Claimants' questions. Claimants'
counsel did not request any changes to the proposed lot
division of the defendant cigarettes. The government
solicited Claimant's assistance in identifying potential
bidders and provided Claimants with a copy of the marketing
material and website for the auction. (Filing No. 73-1, at
CM/ECF pp. 3-4, ¶¶ 13).
parties were unable to reach an agreement on sale terms
because they cannot agree on whether Claimants or any
HCI-affiliated business or company, including Woodlands,
Grand River Enterprises, Six Nations, Ltd. of Ontario Canada,
or agents, members or principles thereof, should be
prohibited from bidding on the lots. (Filing No. 73-1, at
CM/ECF pp. 3-4, 19 ¶ 12 & Ex. B). Of these, Woodland
is located in Nebraska, but it is not a licensed stamping
agent in Nebraska. Claimants will not certify that Woodlands
would pay the necessary and applicable taxes if it was the
winning bidder, and Claimants will not identify a
Nebraska-licensed entity or person that would accept
possession or delivery of the tobacco currently stored in
Nebraska, state where the tobacco would be stored (other than
HCID's warehouse) in Nebraska, provide the list of
customers to whom the tobacco would be sold and the states in
which these sales would occur, or state whether Woodlands is
listed on the target states' directories. Claimants will
also not confirm that Woodlands would maintain records and
permit ATF inspection of those records as required by the
CCTA. The government therefore believes Claimants' demand
that Woodlands be allowed to participate in the auction
“is a thinly veiled attempt to regain control of the
Defendant cigarettes for the benefit of the overall HCI
businesses, if not directly for physical control of the
Defendant cigarettes by Claimants.” (Filing No. 67, at
CM/ECF p. 6).
to Unseal Search ...