Motion — United States v. Shibley (Dkt. 144, 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. 144 · 2022-01-21 · Docket on CourtListener

Full text

ORDER 
CR20-0174-JCC 
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THE HONORABLE JOHN C. COUGHENOUR 
UNITED STATES DISTRICT COURT 
WESTERN DISTRICT OF WASHINGTON 
AT SEATTLE 
UNITED STATES OF AMERICA, 
 
Plaintiff, 
 
v. 
ERIC SHIBLEY, 
 
Defendant. 
CASE NO. CR20-0174-JCC 
ORDER 
 
This matter comes before the Court on the Government’s motion for entry of a combined 
preliminary order of forfeiture and an order of forfeiture. (Dkt. No. 140.) 
I. 
PROPERTY AT ISSUE 
The Government seeks to forfeit to the United States, Defendant Eric Shibley’s interest in 
the following property (collectively, the “Subject Property”):  
1. 
$49,500.86 in U.S. funds, seized on or about May 29, 2020 from Navy Federal 
Credit Union account #******7528, held in the name of Eric R. Shibley MD PLLC (“Subject 
Property 1”); 
2. 
$100,000.00 in U.S. funds, seized on or about May 29, 2020 from Wells Fargo 
account #******2378, held in the name of ES1 LLC (“Subject Property 2”);  
3. 
$804,816.63 in U.S. funds, seized on or about May 27, 2020 from Wells Fargo 
account #******3536, held in the name of The A Team Holdings LLC (“Subject Property 3”);  
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4. 
$114,440.00 in U.S. funds, seized on or about June 30, 2020 from Verity Credit 
Union account #***5390, held in the name of Dituri Construction LLC (“Subject Property 4”);  
5. 
$114,743.59 in U.S. funds, seized on or about June 30, 2020 from Verity Credit 
Union account #***5320, held in the name of SS1 LLC (“Subject Property 5”); and 
6. 
A sum of money in the amount of $254,199, reflecting the remainder of the 
proceeds the Defendant personally obtained from the offenses (“Subject Property 6”). 
II. 
DISCUSSION 
The Government’s motion is undisputed, except for Subject Property 2. ES1 LLC 
(“ES1”) has filed an appearance in this case and objects to forfeiture of that property. (Dkt. Nos. 
141, 142.) For the reasons explained below, the Court OVERRULES the objection and 
GRANTS the Government’s motion. 
ES1 is an entity controlled by Mr. Shibley, which the jury found was involved in Mr. 
Shibley’s illegal activity. (See Dkt. Nos. 123 at 19, 128 at 5 (jury instructions and completed 
verdict form).) ES1 argues that forfeiture of Subject Property 2 is improper because ES1 has 
filed for bankruptcy protection; therefore, it argues, Subject Property 2 belongs to the bankruptcy 
estate, should be turned over to the debtor, and is protected against forfeiture by the automatic 
bankruptcy stay. (Dkt. No. 142 at 2–3 (citing 11 U.S.C. § 362(a)(3)).)1  
Critically, Mr. Shibley himself does not contest the forfeiture, and ES1 does not assert 
that Subject Property 2 lacks a sufficient nexus to a criminal offense, only that the bankruptcy 
proceeding prevents its forfeiture. (See generally Dkt. No. 142.) Nor has any party requested a 
hearing on the issue. (See id.) Thus, no hearing will be held. See Fed. R. Crim. P. 32.2(b)(1)(B). 
 
1 The Court takes judicial notice that ES1 voluntarily filed for Chapter 11 bankruptcy on 
November 19, 2021, a day after a jury found Mr. Shibley guilty on seven counts of wire fraud, 
three counts of bank fraud, and five counts of money laundering. (Dkt. No. 128); In re ES1 LLC, 
Case No. BK21-12109-CMA, Dkt. No. 1 (Bankr. W.D. Wash. 2021). This timing appears to be 
coincidental, as ES1’s bankruptcy counsel told the bankruptcy court during a phone conference 
that the timing was based on an upcoming scheduled foreclosure sale. See In re ES1 LLC, BK-
21-12109-CMA, Dkt. No. 25 (audio recording). 
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Criminal forfeitures are governed by Federal Rule of Criminal Procedure 32.2, and by 21 
U.S.C. § 853. See 18 U.S.C. § 982(b)(1) (providing that 21 U.S.C. § 853 governs forfeiture 
proceedings arising from, among other offenses, wire fraud and bank fraud). Under § 853(k)(1), 
“no party claiming an interest in property subject to forfeiture . . . may intervene in a trial or 
appeal of a criminal case regarding the forfeiture of such property.” And Federal Rule of 
Criminal Procedure 32.2(c)(1) suggests that a third party asserting an interest in property to be 
forfeited must do so by filing a petition to commence an ancillary proceeding as prescribed by 
statute. See also § 853(n). Thus, ES1’s participation at this juncture is premature and improper. 
Even if ES1 had followed the correct procedure, its arguments fail. Courts generally 
prevent criminal defendants and debtors from using bankruptcy protections to short-circuit 
forfeiture proceedings. See, e.g., In re Chapman, 264 B.R. 565, 572 (B.A.P. 9th Cir. 2001); In re 
Thena, Inc., 190 B.R. 407, 411–13 (Bankr. D. Or. 1995) (analyzing 11 U.S.C. §§ 541(a) and (d) 
and holding that property seized before the debtor petitioned for bankruptcy does not become 
property of the bankruptcy estate). 
For example, where, as here, the Government seizes property under a warrant before the 
debtor declares bankruptcy, (see Dkt. No. 41 at 2–3), the property does not even end up in the 
bankruptcy estate—only the right to challenge the forfeiture does. See In re VPH Pharm., Inc., 
2018 WL 3574721, slip op. at 2 (E.D. Mich. 2018) (citing Thena, 190 B.R. at 410). This happens 
because, under 11 U.S.C. § 541(d), property in which the debtor holds “only legal title and not an 
equitable interest” when it files for bankruptcy, becomes property of the bankruptcy estate “only 
to the extent of the debtor’s legal title to such property, but not to the extent of any equitable 
interest in such property that the debtor does not hold”—and a debtor has no equitable interest in 
possessing or benefitting from property that was seized under a warrant. See Thena, 190 B.R. at 
410.  
Even if Subject Property 2 were part of ES1’s bankruptcy estate, the automatic stay 
would not bar the Government’s attempt to obtain it via forfeiture. Section 362(b)(4) of the 
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Bankruptcy Code exempts from the automatic stay an action by a governmental unit to enforce 
its “police or regulatory power.”2 See Chapman, 264 B.R. at 572 (holding that this exception 
exempted a civil forfeiture action from the automatic stay even before the Government obtained 
a forfeiture judgment). If that was true of the civil forfeiture action in Chapman, it is even more 
so for the post-conviction criminal forfeiture motion at issue here, which adjudicates only Mr. 
Shibley’s interest in the Subject Property. See id. (stating the legal tests for application of the 
“police and regulatory power” exception). 
Moreover, under the relation-back doctrine, title to forfeited property passes to the United 
States retroactively as of the date of the underlying offense, thus preceding any later-filed 
bankruptcy petition. See, e.g., In re Dreier LLP, 452 B.R. 391, 411 (S.D.N.Y. Bankr. 2011) 
(“The relation-back doctrine can divest a bankruptcy estate of its property even though the estate 
was created before the forfeiture order was entered.” (emphasis original)). 
 
 In Chapman, the Government sought civil forfeiture of a property allegedly used to grow 
marijuana. 264 B.R. at 569. The bankruptcy court reasoned that the automatic stay must apply to 
the civil forfeiture action because otherwise the Government could circumvent the Bankruptcy 
Code’s distribution priorities via the relation-back doctrine, retroactively taking the property out 
of the bankruptcy estate. Id. at 572. The Bankruptcy Appellate Panel of the Ninth Circuit 
disagreed. It explained:  
There is no conflict between [the distribution priorities] and § 362(b)(4). Indeed, 
the conflict here arises because of the relation-back doctrine and the possibility 
that the Property, when all is said and done, may not be property of the estate. 
However, if that happens, it is because that is the appropriate result under the law. 
Under § 362(b)(4), the government is not stayed from pursuing the [civil 
forfeiture] Action to judgment even if the end result is that the Proceeds are not 
property of the estate. 
Id. 
 
2 The Government asserts that not only 11 U.S.C. § 362(b)(4) but also § 362(b)(1) exempts 
forfeiture proceedings from the stay. (Dkt. No. 143 at 5.) The Court need not determine whether 
subsection (b)(1) applies because the Court resolves this issue solely under § 362(b)(4). 
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In sum, Subject Property 2 is not part of ES1’s bankruptcy estate, even if it were, the 
automatic stay would not apply, and in any event, the passing of title to the Government will 
relate back to the time of them underlying crimes once this preliminary order of forfeiture 
becomes final. Therefore, ES1’s objection is OVERRULED. 
 
III. 
FINDINGS – PRELIMINARY ORDER OF FORFEITURE 
The Court, having heard the United States’ motion, as well as the evidence presented at 
trial, hereby FINDS entry of a Preliminary Order of Forfeiture regarding Subject Properties 1–5 
is appropriate because: 
A. 
Wire Fraud: 
• The Defendant has been convicted of Wire Fraud, in violation of 18 U.S.C. §§ 1343 
and 2, as charged in Counts 1–7 of the Indictment (Dkt. No. 31 at 9–13); 
• Property that constitutes or is traceable to proceeds of a Wire Fraud scheme is subject 
to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(C), by way of 28 U.S.C. § 2461(c); 
• The evidence presented at trial established that Subject Properties 1–5 constitute or 
are traceable to proceeds of the Defendant’s Wire Fraud scheme; 
• The evidence in the record established the requisite nexus between Subject Properties 
1–5 and the offense of conviction (Wire Fraud), pursuant to Federal Rule of Criminal 
Procedure (“Fed. R. Crim. P.”) 32.2.(b)(1)(A)–(B). 
B. 
Bank Fraud: 
• The Defendant has been convicted of Bank Fraud, in violation of 18 U.S.C. 
§§ 1344(2) and 2, as charged in Counts 8–10 of the Indictment (Dkt. No. 31 at 14–
15); 
• Property that constitutes or is traceable to proceeds of a Bank Fraud scheme is subject 
to forfeiture pursuant to 18 U.S.C. § 982(a)(2); 
• The evidence presented at trial established that Subject Properties 1–3 constitute or 
are traceable to proceeds of the Defendant’s Bank Fraud scheme; 
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• The evidence in the record established the requisite nexus between Subject Properties 
1–3 and the offense of conviction (Bank Fraud), pursuant to Fed. R. Crim. P. 
32.2.(b)(1)(A)–(B). 
C. 
Money Laundering: 
• The Defendant has been convicted of Money Laundering, in violation of 18 U.S.C. 
§§ 1957 and 2, as charged in Counts 11–15 (Dkt. No. 31 at 16); 
• Property involved in Money Laundering is subject to forfeiture pursuant to 18 U.S.C. 
§ 982(a)(1); 
• The evidence presented at trial established that Subject Properties 4–5 are involved 
in, or traceable to property involved in, one or more of the Defendant’s Money 
Laundering offenses;  
• The evidence in the record established the requisite nexus between Subject Properties 
4–5 and the offense of conviction (Money Laundering), pursuant to Fed. R. Crim. P. 
32.2.(b)(1)(A)–(B). 
 
IV.  
FINDINGS – ORDER OF FORFEITURE 
The Court also FINDS entry of an Order of Forfeiture regarding the sum of money in the 
amount of $254,199, reflecting the unrecovered proceeds of the Defendant’s Wire Fraud and 
Bank Fraud schemes (Subject Property 6), is appropriate because: 
A. 
Wire Fraud: 
• 
The proceeds of Wire Fraud, in violation of 18 U.S.C. §§ 1343 and 2, are 
subject to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(C), by way of 28 
U.S.C. § 2461(c); 
B. 
Bank Fraud:   
• 
The proceeds of Bank Fraud, in violation of 18 U.S.C. §§ 1344(2) and 2, 
are subject to forfeiture pursuant to 18 U.S.C. § 982(a)(2); 
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C. 
Based on the evidence presented at trial: 
• 
The Defendant obtained proceeds of approximately $2,821,200 from his 
Wire Fraud and Bank Fraud schemes; 
• 
The Defendant withdrew approximately $200,000 of these proceeds in 
bulk cash; 
• 
The United States seized a total of approximately $1,183,501.083 (Subject 
Properties 1–5) with seizure warrants; 
• 
Financial institutions recovered a total of approximately $1,383,500; and 
• 
A sum of money in the amount of $254,199 reflects the remaining 
unrecovered proceeds received by the Defendant. 
V. 
ORDER 
Now, therefore, the Court ORDERS as follows: 
1. 
ES1’s objection (Dkt. No. 142) is OVERRULED, and the Government’s motion 
(Dkt. No. 140) is GRANTED. 
2. 
Pursuant to 18 U.S.C. §§ 981(a)(1)(C), by way of 28 U.S.C. § 2641(c), 18 U.S.C. 
§ 982(a)(1), and 18 U.S.C. § 982(a)(2), the Defendant’s interest in the Subject Property is fully 
and finally forfeited, in its entirety, to the United States; 
3. 
Pursuant to Fed. R. Crim. P. 32.2(b)(4)(A)–(B), the Preliminary Order will 
become final as to the Defendant at the time he is sentenced, it will be made part of the sentence, 
and it will be included in the judgment; 
 
3 The Government’s motion and proposed order each contain a typographical error in which this 
figure is listed as “$1,183.501.” (See Dkt. Nos. 140 at 4,  140-1 at 4.) The Court arrived at what 
it believes to be the correct figure ($1,183,501.08) by calculating the sum of Subject Properties 
1–5. It is not clear, however, whether the $200,000 that Defendant withdrew in cash is included 
either in the sum of Subject Properties 1–5 ($1.183 million) or in Subject Property 6 ($254,199 
in unrecovered proceeds). The Court infers from the Government’s arithmetic that one of either 
Subject Property 6 or the sum of Subject Properties 1–5 must include the $200,000 in cash. 
Otherwise, the Government’s math does not check out. Paragraph 5 of Part V of this Court’s 
order instructs the Government on how to address this issue, if appropriate. 
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4. 
The United States Marshals Service, and/or its authorized agents or 
representatives, shall maintain the Subject Property in its custody and control until further order 
of this Court; 
5. 
As to Subject Property 6: 
a. 
No right, title, or interest in the above-identified sum of money in the 
amount of $254,199 exists in any party other than the United States.  
b. 
Pursuant to Fed. R. Crim. P. 32.2(e), in order to satisfy the sum of money, 
in whole or in part, the United States may move to amend this Order, at any time, to include 
substitute property having a value not to exceed $254,199; 
c. 
The forfeiture of the $254,199 sum of money is separate and distinct from 
any restitution that is ordered in this case. 
d. 
The forfeiture of the $254,199 sum of money is personal to the Defendant 
and, pursuant to Fed. R. Crim. P. 32.2(c)(1), no third-party ancillary process is required before 
forfeiting it. 
e. 
The Court’s ruling as to Subject Property 6 is based on the inference 
described in Footnote 3 of this order. If the Government believes the Court was incorrect in 
drawing this inference, the Government is ORDERED to submit, as soon as possible, but no 
more than three (3) days after this order, an amended calculation showing the correct figures, if 
any, so the Court can address the issue. See Fed. R. Crim. P. 36.  
6. 
The Court will retain jurisdiction for the purpose of enforcing this Order and 
amending the Order as necessary pursuant to Fed. R. Crim. P. 32.2(e). 
7. 
Pursuant to Fed. R. Crim. P. 32.2(b)(6) and 21 U.S.C. § 853(n), the United States 
shall publish notice of the Preliminary Order and the United States’ intent to dispose of the 
above-identified property as permitted by governing law. The notice shall be posted on an 
official government website—www.forfeiture.gov—for at least 30 days. For any person known 
to have alleged an interest in this property, the United States shall, to the extent possible, also 
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provide direct written notice to that person. The notice shall state that any person, other than the 
Defendant, who has or claims a legal interest in this property must file a petition with the Court 
within 60 days of the first day of publication of the notice (which is 30 days from the last date of 
publication), or within 30 days of receipt of direct written notice, whichever is earlier. The notice 
shall advise all interested persons that the petition: 
a. 
shall be for a hearing to adjudicate the validity of the petitioner’s alleged interest 
in this property; 
b. 
shall be signed by the petitioner under penalty of perjury; and 
c. 
shall set forth the nature and extent of the petitioner’s right, title, or interest in this 
property, as well as any facts supporting the petitioner’s claim and the specific 
relief sought; 
8. 
If no third-party petition is filed within the allowable time period, the 
United States shall have clear title to this property, and the Preliminary Order shall become the 
Final Order of Forfeiture as provided by Fed. R. Crim. P. 32.2(c)(2); 
9. 
If a third-party petition is filed, upon a showing that discovery is necessary to 
resolve factual issues that it presents, discovery may be conducted in accordance with the 
Federal Rules of Civil Procedure before any hearing on the petition is held.  Following 
adjudication of any third-party petitions, the Court will enter a Final Order of Forfeiture, 
pursuant to Fed. R. Crim. P. 32.2(c)(2) and 21 U.S.C. § 853(n), reflecting that adjudication; and 
10. 
The Court will retain jurisdiction for the purpose of enforcing the Preliminary 
Order, adjudicating any third-party petitions, entering a Final Order of Forfeiture, and amending 
the Preliminary or Final Order as necessary under Fed. R. Crim. P. 32.2(e). 
// 
 
// 
 
// 
 
// 
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DATED this 21st day of January 2022. 
A 
John C. Coughenour 
UNITED STATES DISTRICT JUDGE 
 
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