Motion — United States v. Shibley (Dkt. 143, W.D. Wash. No. 2:20-cr-00174)

Record facts

U.S. District Court for the Western District of Washington · No. 2:20-cr-00174-JCC · Doc. 143 · 2021-12-31 · Docket on CourtListener

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U.S.’ Reply in Support of Motion for Entry of a Combined Preliminary  
Order of Forfeiture and Order of Forfeiture – 1 
U.S. v. Shibley, CR20-174-JCC 
UNITED STATES ATTORNEY 
700 STEWART STREET, SUITE 5220 
SEATTLE, WA 98101 
(206) 553-4399 
 
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The Hon. John C. Coughenour 
 
 
 
 
 
 
 
UNITED STATES DISTRICT COURT FOR THE 
WESTERN DISTRICT OF WASHINGTON 
AT SEATTLE 
 
UNITED STATES OF AMERICA, 
 
        Plaintiff, 
 
v. 
 
ERIC SHIBLEY, 
                           Defendant. 
 
CASE NO. CR20-174-JCC 
UNITED STATES’ REPLY IN 
SUPPORT OF MOTION FOR ENTRY 
OF A COMBINED PRELIMINARY 
ORDER OF FORFEITURE AND 
ORDER OF FORFEITURE   
 
NOTED ON MOTION CALENDAR: 
December 31, 2021 
The Court should deny ES1 LLC’s attempts to intervene in the criminal case and 
to transfer the $100,000 seized from ESI LLC’s account (the “seized funds”) to the ES1 
LLC bankruptcy estate (Dkt. No. 142, “Response”) and should enter the proposed 
combined orders of forfeiture.  Defendant Eric Shibley (“Shibley”) is the sole owner of 
ES1 LLC.  ES1 LLC was one of the entities Shibley used to submit false and fraudulent 
PPP and EIDL applications as part of his scheme to defraud COVID-19 relief programs.  
Shibley and ES1 LLC received this money after Shibley fraudulently applied for a PPP 
loan totaling $100,000 in the name of ES1 LLC from TCF National Bank.  On or about 
May 29, 2020, the United States seized the $100,000 in fraudulently obtained PPP funds 
pursuant to a judicial forfeiture seizure warrant.   
As addressed below, ES1 LLC cannot intervene as a third party claimant in the 
criminal case against Shibley and the seized funds should remain under this Court’s 
Case 2:20-cr-00174-JCC     Document 143     Filed 12/31/21     Page 1 of 8

 
 
 
U.S.’ Reply in Support of Motion for Entry of a Combined Preliminary  
Order of Forfeiture and Order of Forfeiture – 2 
U.S. v. Shibley, CR20-174-JCC 
UNITED STATES ATTORNEY 
700 STEWART STREET, SUITE 5220 
SEATTLE, WA 98101 
(206) 553-4399 
 
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jurisdiction until the completion of the criminal case.  Criminal proceedings are exempt 
from the automatic bankruptcy stay.  These funds were seized pursuant to a judicial 
forfeiture seizure warrant, so did not become part of the bankruptcy estate.  Further, title 
to forfeitable property vests in the United States at the time of the underlying offense – 
which occurred in April 2020 – so even if the funds had not been seized, they would no 
longer be property of the bankruptcy estate after entry of the order of forfeiture. 
ARGUMENT 
A. 
ES1 LLC Cannot Intervene in the Criminal Case Against Shibley. 
Third party claims to potentially forfeitable property in a criminal case are 
deferred until the ancillary proceeding under Rule 32.2, which is triggered by the entry of 
a preliminary order of forfeiture.  While Defendant Shibley is the sole member and owner 
of ES1 LLC (see 21-BK-12109, Dkt. No. 13, pp. 1, 19-21), ES1 LLC must assert any 
claim in the ancillary proceeding.  See 21 U.S.C. § 853(k) (no party claiming interest in 
property subject to criminal forfeiture may intervene in trial or appeal of criminal case or 
commence an action at law or equity concerning the validity of that interest except as 
provided in section 853(n)); see also Libretti v. United States, 516 U.S. 29, 44 (1995). 
There are only two ways that a third party may show a valid interest in property 
subject to criminal forfeiture under Section 853(n)(6).  The petitioner must either: 
(A) have an interest in the property that is superior to the criminal defendant’s interest 
and arose before the commencement of the crime; or (B) qualify as a “bona fide 
purchaser for value” of the property who was “reasonable without cause to believe that 
the property was subject to forfeiture” at the time of purchase.  See 21 USC § 853(n)(6). 
B. 
The Seized Funds Should Remain in the Court’s Control and Jurisdiction. 
Federal district courts have exclusive jurisdiction of federal forfeiture cases, 28 
U.S.C. § 1355(a), and of federal criminal cases, including criminal forfeitures, 18 U.S.C. 
§ 3231.  Once a federal district court takes control of property for forfeiture, it has the 
authority to prevent other courts from interfering with its jurisdiction.  See Penn General 
Casualty Co. v. Pennsylvania, 294 U.S. 189, 195 (1935) (court first taking in rem 
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U.S.’ Reply in Support of Motion for Entry of a Combined Preliminary  
Order of Forfeiture and Order of Forfeiture – 3 
U.S. v. Shibley, CR20-174-JCC 
UNITED STATES ATTORNEY 
700 STEWART STREET, SUITE 5220 
SEATTLE, WA 98101 
(206) 553-4399 
 
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jurisdiction over property may maintain and exercise that jurisdiction to the exclusion of 
other courts); see also 18 U.S.C. § 981(c) (property taken or detained for civil forfeiture 
deemed to be in the custody of Attorney General of Secretary of Treasury; such property 
is subject only to the orders and decrees of the official or court having jurisdiction); see 
also 21 U.S.C. § 853(k)).  
This court has possession of and exclusive jurisdiction over the seized funds.  The 
Indictment was filed on October 15, 2020.  See Dkt. No. 31.  The funds were seized on 
May 29, 2020 pursuant to a judicial forfeiture seizure warrant finding probable cause to 
believe they are subject to forfeiture.  See Dkt. No. 41.  They were identified in a bill of 
particulars and are subject to a protective order restraining them until the conclusion of 
the criminal case.  Dkt. Nos. 39, 60.  Federal law prohibits a criminal defendant from 
filing a bankruptcy that affects criminally forfeitable property after the filing of an 
indictment or information alleging the property is forfeitable.  See 21 U.S.C. § 853(k). 
Even were the seized funds property of the bankruptcy estate, they would still 
remain subject to the court’s protective order.  ES1 LLC may not use turnover provisions 
to capture assets that are subject to criminal forfeiture.  “[I]t is settled law that the debtor 
cannot use the turnover provisions to . . . demand assets whose title is in dispute.”  See 
United States v. Inslaw, Inc., 932 F.2d 1467, 1472 (D.C Cir. 1991) (citing In re Charter 
Co., 913 F.2d 1575, 1579 (11th Cir. 1990)), cert. denied, 502 U.S. 1048 (1992). 
C. 
Forfeiture Proceedings are Exempt from the Automatic Bankruptcy Stay. 
Forfeiture proceedings are exempted from the stay by 11 U.S.C. §§ 362(b)(1) and 
(b)(4).  Shibley filed a bankruptcy petition on behalf of ES1 LLC on November 19, 2021, 
see 21-BK-12109, Dkt. No. 1, well after the commencement of the criminal case and the 
identification and seizure of these funds for forfeiture.  While the bankruptcy petition 
triggers an automatic stay of most civil litigation against the debtor, it does not prevent 
the government from commencing, or continuing with, a criminal case.  See 11 U.S.C. 
§§ 362(b)(1), (b)(4); see also In re Chapman, 264 B.R. 565 (B.A.P. 9th Cir. 2001); also 
In re Rodriguez, No. 07-276, 2008 WL 8448043, at *4 (9th Cir BAP Jul. 10, 2008). 
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U.S.’ Reply in Support of Motion for Entry of a Combined Preliminary  
Order of Forfeiture and Order of Forfeiture – 4 
U.S. v. Shibley, CR20-174-JCC 
UNITED STATES ATTORNEY 
700 STEWART STREET, SUITE 5220 
SEATTLE, WA 98101 
(206) 553-4399 
 
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This exemption also protects the victims of fraud offenses.  A key difference 
between bankruptcy and forfeiture is that forfeiture provides recovery for victims who 
may not qualify as creditors in a bankruptcy setting.  Returning forfeited assets to victims 
through the remission and restoration processes is one of the primary goals of the 
Department of Justice’s (“Department”) Asset Forfeiture Program.  See Asset Forfeiture 
Policy Manual (2021), Chap. 14, Sec. I (citing The Attorney General’s Guidelines on the 
Asset Forfeiture Program (July 2018), Sec. II).  Where, as here, there are identifiable 
victims of the defendant’s crimes, the government seeks to return the proceeds generated 
from forfeiture to those victims.  Remission and restoration authority exists for virtually 
all offenses for which the government obtains a forfeiture order.  Department policy is 
that victims have priority to forfeited funds after the resolution of any claims of innocent 
owners, lienholders, and the payment of eligible government expenses.  See Asset 
Forfeiture Policy Manual (2021), Chap. 14, Sec. II.A.3 (“Priority in the distribution of 
forfeited assets is given to valid owners, lienholders, federal financial regulatory 
agencies, and victims (in that order), who in turn have priority over official use requests 
and equitable sharing requests.”)  In bankruptcy, the proceeds would, in all likelihood, be 
paid pursuant to the statutory priority scheme.  Thus, payment for things such as 
administrative expenses of the estate (including attorney’s fees), wages of employees, 
secured creditors, and taxes would be made before the unsecured victims of the crime 
that produced the funds in question received any reimbursement.  See 11 U.S.C. § 507. 
D. 
The Seized Funds Are Not Property of the Bankruptcy Estate. 
Section 541(a) provides that all legal or equitable interests of the debtor become 
property of a bankruptcy estate upon the filing of a petition.  11 U.S.C. § 541(a)(4).  
Neither Defendant Shibley nor ES1 LLC can hold a legal or equitable interest in the 
forfeitable proceeds of fraud, which vests in the United States at the time of the offense 
and is transferred upon entry of the order of forfeiture.  ES1 LLC appears to recognize 
this fact, as it does not identify the seized funds among the assets of the bankruptcy 
estate.  See Dkt. No. 13, pp. 2-7 (Asset and Liability Schedules). 
Case 2:20-cr-00174-JCC     Document 143     Filed 12/31/21     Page 4 of 8

 
 
 
U.S.’ Reply in Support of Motion for Entry of a Combined Preliminary  
Order of Forfeiture and Order of Forfeiture – 5 
U.S. v. Shibley, CR20-174-JCC 
UNITED STATES ATTORNEY 
700 STEWART STREET, SUITE 5220 
SEATTLE, WA 98101 
(206) 553-4399 
 
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Under the relation back doctrine, the government’s interest in forfeitable property 
vests at the time of the offense giving rise to forfeiture.  21 U.S.C. § 853(c) (“All right, 
title, and interest in [forfeitable] property . . . vests in the United States upon the 
commission of the at giving rise to forfeiture under this section”); 18 U.S.C. § 981(f) 
(same); 21 U.S.C. § 881(h) (same).  This means that forfeitable property will not be 
property of the bankruptcy estate upon entry of the order of forfeiture.  Where property is 
seized pursuant to a forfeiture seizure order issued prior to a bankruptcy petition, courts 
have held that the seized property never becomes property of the bankruptcy estate. 
The relation back doctrine and its impact were clearly articulated by the U.S. 
Supreme Court in United States v. Stowell: 
By the settled doctrine of this court, whenever a statute enacts that 
upon the commission of a certain act specific property used or 
connected with that act shall be forfeited, the forfeiture takes effect 
immediately upon the commission of the act; the right to the property 
then vests in the United States, although [its] title is not perfected until 
judicial condemnation; the forfeiture constitutes a statutory transfer of 
the right to the United States at the time the offense is committed; and 
the condemnation, when obtained, relates back to that time, and 
avoids all intermediate sales and alienations, even to purchasers in 
good faith. 
133 U.S. 1, 16-17 (1890); see also United States v. 92 Buena Vista Avenue, 507 U.S. 111, 
125-126 (1993) (when forfeiture order is entered, the government obtains title back to 
time of criminal act, absent any applicable innocent owner defenses). 
The seized funds are proceeds of Shibley’s wire and bank fraud schemes and are 
forfeitable on that basis.  The government’s interest in the seized funds vested in April 
2020, when Shibley digitally signed applications containing material false representations 
in support of a $100,000 PPP loan for ES1 LC and submitted them to TCF National 
Bank; thus, the government’s interest vested long before the creation of the bankruptcy 
estate on November 19, 2021.  The PPP loan was approved on or about May 11, 2020 
and the funds were deposited to an ES1 LLC account on or about May 15, 2020.  On or 
about May 21, 2020, Shibley transferred the full $100,000 to a Wells Fargo account 
Case 2:20-cr-00174-JCC     Document 143     Filed 12/31/21     Page 5 of 8

 
 
 
U.S.’ Reply in Support of Motion for Entry of a Combined Preliminary  
Order of Forfeiture and Order of Forfeiture – 6 
U.S. v. Shibley, CR20-174-JCC 
UNITED STATES ATTORNEY 
700 STEWART STREET, SUITE 5220 
SEATTLE, WA 98101 
(206) 553-4399 
 
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ending 2378, from which they were seized pursuant to the judicial forfeiture seizure 
warrant.  See Dkt. No. 140; see also Dkt. No. 41, pp. 10-12 (articulating underlying facts 
in support of the government’s motion for protective order).  Upon entry of the order of 
forfeiture, title will pass to the United States, effective April 2020. 
Courts have addressed the interaction between bankruptcy and forfeiture 
proceedings and the application of the relation back doctrine.  See e.g. In re Chapman, 
264 B.R. 565.  The Chapman court held that title to forfeitable property vests in the 
United States at the time of the offense, even though title does not pass until entry of an 
order of forfeiture, and that the bankruptcy filing does not prevent the government from 
proceeding with judicial forfeiture.  Id. at 568-573.  Thus, where a bankruptcy petition is 
filed prior to the entry of an order of forfeiture, the forfeitable property may be property 
of the bankruptcy estate, but only until the order of forfeiture is entered, after which the 
relation back doctrine removes it from the bankruptcy estate.  Id.  As the court noted, “if 
that happens, it is because that is the appropriate result under the law.”  Id. at 572. 
In In re Thena, Inc., an Oregon district court engaged in a similar analysis, reached 
a consistent conclusion, and determined that property seized pursuant to a forfeiture 
seizure warrant did not become part of the bankruptcy estate.  In re Thena, Inc., 190 B.R. 
407, 95-6226-HO (D. Ore. Oct. 6, 1995).  In that case, the United States seized funds 
pursuant to a criminal forfeiture seizure warrant.  Debtors, who filed a bankruptcy 
petition after seizure but before criminal charges were filed, sought turnover of the seized 
funds to the bankruptcy estate.  Id., 190 B.R. 409-410.  The court held the property was 
not part of the bankruptcy estate and rejected the turnover request.  Other district courts 
have also concluded that seized property is not part of a bankruptcy estate.  See e.g., In re 
VPH Pharmacy, Inc., 65 B.R. 259, 18-11280, 2018 WL 3574721 (E.D. Mich. Jul. 25, 
2018) (collecting cases).  As one court observed, “[I]f the Court were to hold otherwise, 
entities subject to forfeiture proceedings could undo any prepetition seizures by filing 
bankruptcy and seeking turnover.”  Id. at *2, quoting In re Timiryan, 2007 Bankr. LEXIS 
1627, *11 (Bkrtcy C.D. Cal. Mar. 26, 2007). 
Case 2:20-cr-00174-JCC     Document 143     Filed 12/31/21     Page 6 of 8

 
 
 
U.S.’ Reply in Support of Motion for Entry of a Combined Preliminary  
Order of Forfeiture and Order of Forfeiture – 7 
U.S. v. Shibley, CR20-174-JCC 
UNITED STATES ATTORNEY 
700 STEWART STREET, SUITE 5220 
SEATTLE, WA 98101 
(206) 553-4399 
 
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CONCLUSION 
 
For the reasons set forth above, the United States requests the Court deny ES1 
LLC’s attempts to intervene in the criminal case and to obtain transfer of the seized funds 
to the ES1 LLC bankruptcy estate.  The United States further requests the Court enter the 
proposed combined forfeiture order. 
 
DATED this 31st day of December, 2021. 
 
Respectfully submitted, 
NICHOLAS W. BROWN 
United States Attorney 
 
s/Krista K. Bush 
 
KRISTA K. BUSH 
Assistant United States Attorney 
700 Stewart Street, Suite 5220 
Seattle, Washington 98101-1271 
(206) 553-7970 
Krista.Bush@usdoj.gov 
 
Case 2:20-cr-00174-JCC     Document 143     Filed 12/31/21     Page 7 of 8

 
 
 
U.S.’ Reply in Support of Motion for Entry of a Combined Preliminary  
Order of Forfeiture and Order of Forfeiture – 8 
U.S. v. Shibley, CR20-174-JCC 
UNITED STATES ATTORNEY 
700 STEWART STREET, SUITE 5220 
SEATTLE, WA 98101 
(206) 553-4399 
 
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CERTIFICATE OF SERVICE 
 
 
 
I hereby certify that on December 31, 2021, I electronically filed the foregoing 
with the Clerk of the Court using the CM/ECF system, which will send notification of 
such filing to the parties of record. 
 
 
s/Krista K. Bush 
 
 
 
KRISTA K. BUSH 
Assistant United States Attorney 
700 Stewart Street, Suite 5220 
Seattle, Washington 98101-1271 
(206) 553-7970 
Krista.Bush@usdoj.gov 
 
 
Case 2:20-cr-00174-JCC     Document 143     Filed 12/31/21     Page 8 of 8

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