Case of the Month Archive: People v. Mozes
Case of the Month Archive
Mom failed to show that she had legitimately acquired interest in Dad’s frozen assets or was innocent third party . . .
In affirmance, Second District holds that trial court did not err in concluding that Mom’s claim for child support arrearages did not have priority over restitution claims of Dad’s white collar crime victims against same assets
People v. Mozes
(February 17, 2011)
California Court of Appeal 2 Civil B221020 (Div 6) 192 Cal.App.4th 1124, __ Cal.Rptr.3d __, 2011 FA 1477, per Coffee, J (Gilbert, PJ and Perren, J, concurring). Santa Barbara County: Eskin, J, affirmed. For appellant: Vanessa Kirker, CFLS, (805) 964-5105. For respondent: Senior Deputy DA Paula Waldman, (805) 569-2300. CFLP §S.42.3.
During their 25-year marriage, Christen Brown and Orson Mozes started the Adoption International Program (AIP), which posted photos of adoptable children from Russia, Ukraine, or Kazakhstan on its website. Between 2001 and 2004, Christen acted as president and executive director of AIP, sat on its board of directors, and “oversaw all aspects” of the business. At the same time, Orson was active in its operation. After Christen stepped down as president and executive director in 2004, she remained on its board and was involved in its operations.
Prospective adoptive parents who found a child on the website that they wished to adopt would “pa[y] AIP thousands of dollars” for assistance in the adoption. Orson frequently assured them that their selected child was available and on hold for them until the adoption was completed. However, after the prospective adoptive parents became attached to their selected child and spent considerable time and effort to adopt him or her, they often discovered that the child was no longer available. In one such instance in 2005, Vanessa Donaher and her family made plans to travel to Kazakhstan to meet their selected child, Valena, but found out that Valena had been placed in South Africa weeks before. When Vanessa sent a letter to AIP, calling its operation a “ ‘fraudulent scam or gross negligence,’ ” Christen quickly responded that a mistake was made in the Ministry. She assured the family of a refund and urged them to take a look at another child who would soon be posted on the website.
Sometime later in 2005, Christen and Orson began living in separate parts of their Montecito home. Christen filed for divorce in July 2006. Orson operated AIP until July 22, 2007, when he suddenly left California with the AIP computer after cleaning out the funds in AIP’s accounts to the tune of between $135,000 and $152,000. Christen found out that he had absconded when Orson’s sister gave her a note from him, telling her to sell the Montecito house and use the proceeds to pay his debts. She was left to wind up the business and place its clients with other agencies.
On March 28, 2008, the Santa Barbara County DA charged Orson with 62 counts of theft by false pretenses, naming the prospective adoptive parents as his victims. The trial court issued a warrant for his arrest on April 1. Two weeks later, the court issued an order to compel Christen’s testimony and granted her use immunity. Meanwhile, in the disso action, that trial court imputed $25,000 a month income to Orson and ordered him to pay $4,000 a month for child support, effective July 21, 2006, and $6,000 a month for spousal support, effective September 1, 2008. The court also authorized Christen to withdraw funds from the parties’ community account for those payments. In addition, it ordered Orson to pay $17,000 for Christen’s attorney’s fees, $8,000 for costs, and $100,000 for credits and reimbursements. It also found that he owed her $326,249 for breach of spousal fiduciary duties. The court also awarded her the entire proceeds from the sale of the family home, approximately $850,000, and “authorized the placement of [Orson’s] community interest . . . in a ‘[c]ommunity [a]ccount.’ ”
On December 29, 2008, Florida authorities arrested Orson and seized his assets, including currency and gold coins he’d bought between July 2007 and September 2008, all of which was worth more than $300,000. In March 2009, the Santa Barbara County DA filed an amended complaint charging Orson with 59 counts of theft by false pretenses, plus aggravated white collar crime allegations as to each count. In addition, the DA filed a petition to preserve Orson’s assets, subject to levy or seizure under PC §186.11(a)(3). On March 24, the trial court issued a protective order, directing the placement of the cash and equivalent assets in an interest-bearing trust account and the coins in a safe deposit box. On July 2, as part of a plea bargain, Orson pled guilty to 17 felony counts of theft by false pretenses, admitted the white collar crime allegations, and agreed to pay restitution totaling $746,000 and to release his interest in the seized assets.
On July 10, the DA filed a request for distribution of the seized assets to the victims, as authorized by PC §186.11(j). Christen filed an objection to the distribution, asserting that her claims for child and spousal support arrearages had priority over the victims’ claims. She followed up with a notice of judgment lien, stating that Orson owed more than $304,000 on the disso judgment. On July 22, the family law court issued a writ of execution for child support arrearages of $166,000, plus interest, which the sheriff served on the DA on July 23. Christen then contacted the Department of Child Support Services (DCSS) to report the unpaid child support. Meanwhile, she used the funds from the community account to pay her attorneys’ fees and costs, and Orson’s obligation for reimbursement, credits, and breach of fiduciary duty.
At the hearing on Christen’s claim for the seized assets, her attorney asked the trial court to allow DCSS to speak, but the court refused that request as untimely. After further hearings over a period of time, the trial court issued its written decision, finding that Christen did not have a legitimately acquired interest in Orson’s frozen assets and was not an innocent spouse. Concluding that the child support claim did not have priority over the restitution claims, the trial court ordered Orson’s assets distributed to the victims.
Christen appealed, but the Second District affirmed.
Up to her armpits . . .
The justices noted that PC §186.11 permits a trial court to preserve any asset or property of a person charged with an aggravated while collar crime enhancement with an eye toward paying restitution to the victim and statutory fines. When that person is convicted, the panel continued, PC §186.11(g)(5) requires the trial court to determine what part of the frozen asset or property is available to be levied on for restitution or fine payment. A third party claimant to those assets, the justices explained, must show that he or she was not involved in the commission of the criminal activity and that the assets are “neither a product of the defendant’s criminal activity nor otherwise actually owned by the defendant.” Here, the panel found, Christen’s attempts to show that she had a legitimate interest in the frozen assets fell far short of establishing that she could meet those requirements. She claimed that she had “no significant involvement in the operation of AIP” during the time that Orson was engaged in his nefarious activities, but the evidence showed that she was actively dealing with disgruntled clients and was participating in hiring personnel at that time. In addition, it showed that she and Orson were living on his salary and not on home equity lines of credit, as she asserted. And, the evidence also showed that the gold coins she claimed were taken from the safe in the family home were actually purchased by Orson after he left. Therefore, the justices concluded, the trial court correctly found that Christen neither had a legitimately acquired interest in the frozen assets nor was she an innocent spouse not involved in Orson’s criminal activity.
Victims are first in line . . .
Christen also argued that regardless of her status, the child support arrearages that Orson owed should have priority over the restitution claims of the victims. The justices didn’t agree. They reasoned that the restitution provisions in §186.11, which are specifically aimed at preserving victims’ claims to restitution, prevail over the more general restitution statute, PC §1202.4, on which Christen based her claim. Moreover, the panel believed that giving priority to a child support claim made by a claimant who cannot show that he or she is an innocent third party would lead to the absurd result of favoring that claimant over victims who have legitimately acquired interests in the frozen assets. The panel brushed aside Christen’s contention that Fam C §17523 [lien for child support arises by operation of law where child support agency enforces claim against delinquent obligor] gave priority to the child support claim, noting that no agency was enforcing a child support claim against Orson. And, the DCSS made no move to participate in the “Freeze and Seize” action until the first session on distribution of the assets. In addition, when the trial court refused to allow DCSS to speak at the hearing, it also gave the agency the right to file appropriate documentation to make an appearance at a later time, something it failed to do. Accordingly, the justices concluded, the trial court correctly determined that the child support arrearages did not have priority over the victims’ claims to restitution, and they affirmed the judgment.
This case illustrates the difficulty that spouses will have in getting their hands on funds that their spouses obtained by nefarious means. The lesson in this case is that child-support arrearages don’t have priority over the claims of a spouse who can’t show essentially that he or she doesn’t have unclean hands. We can’t help but think that the justices here were less inclined to look favorably on Christen’s claim because she had funds on hand to pay the child support obligation and chose instead to spend the money on her attorney’s fees and for reimbursement owed by Orson. DCSS’s tardy entrance into the case didn’t help either. Those factors, together with her own involvement in the operation of AIP, spelled disaster for her claim.
Christen is not the only spouse to strike out in an attempt to claim her spouse’s ill-gotten gains. In People v. Fifteen Thousand Two Hundred Seventeen Dollars (Streem) (1990) 218 Cal.App.3d 720, 268 Cal.Rptr.450, 1990 CFLR 4292, 1990 FA 415, police arrested Martin Gustafson on narcotics charges and seized $15,217 in cash in October 1987. In November, the DA served Gustafson with notice of forfeiture and published the notice three times in the local newspaper. After Gustafson’s attorneys filed a claim of interest, the DA filed a forfeiture petition. At the hearing in April 1988, the trial court ordered, per stipulation, that $7,500 go to Gustafson’s attorneys and that the remainder be forfeited to various government agencies, per H&S C §11489 [mandates distribution of confiscated funds]. On October 7, 1988, Gustafson’s ex-wife, Kathryn Streem, moved to set aside the order on the grounds that as a judgment creditor for $10,155 in child-support arrearages, she was an “interested party” entitled to receive notice of the proceedings and to claim the funds. The trial court denied the motion, finding that Streem was not an interested party and that the court lacked jurisdiction to vacate an in rem judgment. On Streem’s appeal, the First District affirmed, relying on H&S C §11488.6 [“interested party” includes person holding valid lien or security interest] and on H&S C §11488.4(c)-(j)(5) [any person with interest in seized property is entitled to service of notice of seizure and intended forfeiture plus instructions for filing claim]. The panel held that Streem, as an unsecured creditor, had no legally cognizable interest in the seized funds that would entitle her to personal notice of the forfeiture. Because Streem had failed to place a levy on the judgment with a writ of execution, she had no lien on the cash.
In proceedings under the federal criminal forfeiture statute (21 USC 853), the Ninth Circuit held that California law does not protect innocent spouses from forfeiture of their community-property interest in the proceeds of drug-trafficking, In United States v. Hooper (9 Cir 2000) 229 F.3d 818, 2000 CFLR 8597, 2000 FA 970, the wives of two criminal defendants filed petitions in the federal government’s ancillary forfeiture proceedings to deal with third-party claims regarding property that the defendants proceeds of, drug transactions. The petitioners contended that the forfeiture order should be amended to reflect their community-property interests in the assets. After granting relief as to some of the property that hadn’t been purchased with drug money, the U.S. District Court denied their petitions as to the remaining items, finding that the wives hadn’t acquired a community-property interest in their husband’s ill-gotten gains under California law. On appeal, the Ninth Circuit affirmed. The judges found that even if they assumed that the wives might have a community interest in the property as innocent spouses under California law, the federal statute was controlling on the question of whether that interest could be forfeited. Here, the panel concluded, the petitioners did not qualify for the only two categories of exemptions to forfeiture provided in 21 USC 853(n)(6)(A) and (B) [petitioner with legal interest in forfeiture property that was vested at time of illegal acts or bona fide purchaser]: they had no legal interest in the drug-trafficking proceeds at the time of the illegal acts because their husbands didn’t acquire those proceeds until after committing the crimes, and they failed to show they were bona fide purchasers of the property.