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United States v. 2015 Dodge Ram 3500 Truck

United States District Court, D. Nebraska

December 14, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
2015 DODGE RAM 3500 TRUCK, VIN 3C6URVJG5FES12061, 44, 846.80 CARTONS OF ASSORTED BRAND CIGARETTES, ASSORTED SAMPLES OF ASSORTED CARTONS OF CIGARETTES, CROWN FORK-LIFT, RR S200 SERIES, SERIAL No. 1A268808, 52, 843 CARTONS OF ASSORTED BRAND CIGARETTES, and 2005 FREIGHTLINER M2106 BOX TRUCK, VIN 1FVACWDCX5HV11800, Defendants.

          MEMORANDUM AND ORDER

          Cheryl R. Zwart, United States Magistrate Judge.

         The 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.[1] 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 & 20).

         On 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. 26).

         The following motions are pending before me and fully submitted:

1) Claimants' motion to unseal the search warrants, including the affidavits supporting those warrants, (Filing No. 37);
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. 45).

         For the reasons explained below, Claimants' motion will be denied and the government's motions will be granted.

         STATEMENT OF FACTS

         As relevant to the pending motions, the facts are undisputed.

         Claimants 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, ¶¶ 10-28).

         As to 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 occurred.

         As 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.

         On 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 appealed.

         The 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.

         On 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 No.18, 4:18-MJ-3009).

         On July 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.

         The 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, ¶ 2(1)).

         On July 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).

         Rock 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).

         The 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 stalled.

         On 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).

         The 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).

         The 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).

         Counsel 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).

         The 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).

         LEGAL ANALYSIS

         Motion to Unseal Search ...


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