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United States v. Canela

United States District Court, M.D. Tennessee, Nashville Division

June 20, 2019

UNITED STATES OF AMERICA, Plaintiff,
v.
JUAN CANELA, Defendant, PAULA CANELA, Third Party Petitioner.

          MEMORANDUM

          Aleta A.Trauger, United States District Judge.

         On January 3, 2019, the government filed a Motion for Entry of a Preliminary Order of Forfeiture of Defendant Canela's Interest in Substitute Asset Real Property (Doc. No. 183), which the court granted (Doc. No. 187). Thereafter, Paula Canela, wife of defendant Juan Canela, filed a Third Party Petition (Doc. No. 195), contesting the forfeiture of the real estate sought by the government. The government filed a Response in Opposition to Third Party Petition (Doc. No. 196), which the court construes as a motion to dismiss the Third Party Petition for lack of standing. Upon being directed to do so by the court, Paula Canela filed a Response to the Government's Construed Motion to Dismiss (Doc. No. 202), and the government filed a Reply (Doc. No. 204).

         For the reasons set forth herein, the court finds that no sentence of forfeiture was issued and no judgment of forfeiture was ever entered against defendant Juan Canela in this case, as a result of which the United States lacks the authority to effect the forfeiture of any real estate or other property owned by Juan Canela. The court, therefore, will vacate the Preliminary Order of Forfeiture of Defendant Canela's Interest in Substitute Asset Real Property (Doc. No. 187) and deny as moot the Third Party Petition (Doc. No. 195).

         I. Background

         Then-defendant Juan Canela was indicted under 21 U.S.C. §§ 841(a)(1) and 846 (Counts 1-3) in April 2002. (Doc. No. 25.)[1] The Indictment included a forfeiture count (Count 4), pursuant to 21 U.S.C. § 853. In April 2003, a jury found Canela guilty on Counts 1 through 3 of the Indictment (Verdict Form, Doc. No. 79) and was then called upon to consider the forfeiture issue. The jury completed a Special Jury Verdict Form, finding that $200, 000 was “property constituting or derived from proceeds that JUAN CANELA received as a result” of his crime. (Doc. No. 80.) Consistent with the jury verdict, the government filed a Motion for Issuance of a Preliminary Order of Forfeiture, seeking forfeiture of specific property derived from the defendant's criminal enterprise. (Doc. No. 91.) A Preliminary Order of Forfeiture was entered on September 10, 2003, providing that the defendant “shall forfeit to the Government the amount of $200, 000.00 or any other property up to that amount.” (Doc. No. 92.) Almost two years later, on April 2005, the court entered an Amended Preliminary Order of Forfeiture, applying $38, 000 seized by the government to the $200, 000 judgment. (Doc. No. 155.) Shortly thereafter, the court entered a Final Order of Forfeiture as to the $38, 000. (Doc. No. 161.) No. final order of forfeiture of the remaining $162, 000 was ever entered.

         Although the jury rendered its verdict in 2003, Canela was not actually sentenced until October 31, 2005. The government's Motion for Downward Departure (Doc. No. 168) explains that Canela had begun cooperating with the government in November 2003, at great personal risk to himself. He ultimately provided substantial assistance and testimony in an unrelated case that led to the conviction of a fellow inmate for conspiracy to kill an Assistant U.S. Attorney and three other people, using a mafia hitman. (Id.; see also Sent'g Tr., Doc. No. 186.) At the sentencing hearing conducted on October 31, 2005, Canela was sentenced to a prison term of five years, to be followed by four years of supervised release. (Doc. No. 186, at 23.)

         Importantly, the issue of forfeiture was never even mentioned-by the government, defense counsel, or the court-a single time during the entirety of the sentencing hearing. (See id., passim.) Judgment was entered in November 2005. (Doc. No. 172.) Although the Judgment references the finding of guilt on Count 4, for Criminal Forfeiture under 21 U.S.C. § 853, it contains no reference to the amount of the forfeiture awarded. It does not incorporate by reference or otherwise the Preliminary Order of Forfeiture of Substitute Assets or, indeed, the Final Order of Forfeiture of the $38, 000. Neither party appealed.

         Canela was released from prison in July 2006. In November 2008, the court granted his motion for early termination of supervised release. (Doc. No. 181.) As of that date, Canela was a free man, having fully served his sentence. However, from the government's perspective at least, regardless of whether Canela himself was aware of it, a forfeiture money judgment of $162, 000 still hung over his head. No. further payments have been made toward the money judgment since that time.

         According to the allegations in the sworn Third Party Petition, Juan Canela married Paula Canela[2] on May 24, 2008. In August 2009, more than a year after the marriage and nearly a year after the termination of supervised release, Canela, as a “married person, ” purchased real property located at 1264 Roma Court in Orlando, Florida (the “Subject Property”). Paula Canela avers in the Third Party Petition that the home was purchased as a family home for her and her husband and that no funds derived from the criminal enterprise that led to Canela's 2003 conviction were used to purchase the property. (Doc. No. 195, at 1-2.) Although the Subject Property is titled to Juan Canela, “a married person, ” Paula Canela's name is not specifically identified on the Special Warranty Deed. (Doc. No. 185-1.) The government maintains that only Canela's name was on the original mortgage. The mortgage was re-recorded in November 2010 to show Paula A. Canela as a co-borrower. (Doc. No. 196-1.)[3] There is no dispute that Paula Canela has been on the mortgage since no later than November 2010.

         Fast forward nine years. On January 29, 2019, the government filed its Motion for Entry of a Preliminary Order of Forfeiture of Juan Canela's interest in the Subject Property as a substitute asset, pursuant to Rule 32.2(e) of the Federal Rules of Criminal Procedure and 21 U.S.C. § 853(p), to partially reduce or pay in full the remaining balance of the forfeiture judgment. (Doc. Nos. 183, 184.) It is unclear whether Canela received notice of that motion. He did not file a response to it. The court granted the motion on February 13, 2019, entering a Preliminary Order of Forfeiture that effectively terminated Juan Canela's right, title and interest in the Subject Property, vested such interest in the United States, and authorized the Attorney General or his designee to seize the Subject Property and to begin ancillary proceedings to quiet title as to any third-party interests. (Doc. Nos. 187, 183-1.) Pursuant to 21 U.S.C. § 853(n), the government was required to publish notice of the Order and notice of its intent to dispose of the Subject Property. Said notice was required to direct any person with a legal interest in the property to file a petition setting forth the nature and extent of the legal interest, any additional facts supporting the petitioner's claim to the forfeited property, and the relief sought. Id. § 853(n)(2).

         In response to that notice, Ms. Canela filed her timely Petition. In support of her claim to the Subject Property, Ms. Canela states that she is the lawfully married spouse of Juan Canela; that she did not know at the time of the marriage or at the time the home was purchased that it might be subject to forfeiture; that the Special Warranty Deed conveying the property to Juan Canela clearly indicates that he was a “married person” at the time of the conveyance; and that, as the legal spouse of Juan Canela, under Florida law she has “a valid, good faith, and legally cognizable interest in the [Subject Property] even though [her] name does not appear on the deed.” (Doc. No. 195 ¶ 15.)

         In the construed motion to dismiss the Third Party Petition, the government argues that Ms. Canela has no “legal interest” in the Subject Property under Florida law, because a “marital asset” does not vest legal interest in real property in a non-titled spouse until and unless a judgment from a divorce court vests title in the non-titled spouse. As a result, the government claims, Ms. Canela “has no standing in this lawsuit.” (Doc. No. 196, at 2 (citing United States v. Kermali, 60 F.Supp.3d 1280 (M.D. Fla. 2014)).). It also argues that Florida Homestead law is preempted by federal forfeiture law. (Id. (citing United States v. Fleet, 498 F.3d 1225 (11th Cir. 2007)).)

         Ms. Canela's Response to the Construed Motion to Dismiss argues that the original 2005 forfeiture is “fatally flawed because forfeiture was not mentioned orally at sentencing and is not included in the judgment.” (Doc. No. 202, at 12.) Paula Canela contends that, because the original forfeiture order is invalid, a forfeiture order against purported substitute property based on that original order is also void. (Id.) She further asserts that Kermali is not binding on this court and was incorrectly decided and that she has both legal standing and a claim of legal interest in the family home.

         The court directed the government to file a Reply, which it has now done. The government argues that the 2003 money judgment was incorporated by reference in the criminal Judgment; the 2005 Order permitted a forfeiture of assets that reduced the 2003 money judgment; Paula Canela lacks standing to challenge the forfeiture judgment entered against Juan Canela; and Juan Canela waived his ability to attack the forfeiture by failing to appeal or otherwise challenge it.

         II. Analysis

         Under 21 U.S.C. § 853, “[a]ny person convicted of a violation of this subchapter or subchapter II of this chapter punishable by imprisonment for more than one year shall forfeit to the United States . . . (1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation” and “(2) any of the person's property used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, such violation.” 21 U.S.C. § 853(a). Although the statute by its terms pertains only to property used in or derived from the criminal enterprise and does not specifically list personal money judgments as a form of forfeiture, the Sixth Circuit nonetheless has held that they are permissible: “nothing suggests that money judgments are forbidden.” United States v. Hampton, 732 F.3d 687, 691-92 (6th Cir. 2013) (collecting cases).

         The law is clear that “[c]riminal forfeiture is part of a defendant's sentence.” Id. at 690. At the time Canela was sentenced, Rule 32.2 stated, “At sentencing-or at any time before sentencing if the defendant consents-the order of forfeiture becomes final as to the defendant and must be made a part of the sentence and be included in the judgment.” Fed. R. Crim. P. 32.2(b)(3) (2005) (emphasis added).[4] Rule 35 provided then that a court could, “[w]ithin 7 days after sentencing, . . . correct a sentence that resulted from arithmetical, technical, or other clear error.” Fed. R. Crim. P. 35(a) (2005).[5] “Sentencing” was defined by this rule as “the oral announcement of the sentence.” Fed. R. Crim. P. 35(c) (2005). On the other hand, Rule 36 provided that a court could “correct a clerical error in a judgment” “at any time” after giving such notice as it felt appropriate. Fed. R. Crim. P. 36 (2005). “Rule 36 is normally used to correct a written judgment of sentence to conform to the oral sentence pronounced by the judge.” United States v. Bennett, 423 F.3d 271, 278 (3d Cir. 2005) (citing 26 James Wm. Moore et al., Moore's Federal Practice ¶ 636.03[1][c] (3d ed.).

         The question presented in this case is this: What happens when, as here, forfeiture was not mentioned in the defendant's oral pronouncement of sentence or incorporated into the final Judgment, but the government nonetheless seeks, almost fourteen years after entry of Judgment, the forfeiture of the (former) defendant's interest in substitute assets? No. case of which this court is aware has addressed precisely the factual scenario presented here, but some relevant cases offer insight into how to proceed.

         A. The Caselaw: ...


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