Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 1 of 19
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF FLORIDA
`
`CASE NO.: 16-20549-CR-LENARD
`
`UNITED STATES OF AMERICA,
`
`V.
`
`PHILIP ESFORMES,
`ODETTE BARCHA, and
`ARNALDO CARMOUZE,
`
`Defendants.
`it
`
`l
`
`JOINT MOTION FOR I1\/IMEDIATE INTERLOCUTORY
`SALE-_OF CARE FACILITIES
`
`Phillip Esformes (“Esformes”) and the Business Entities‘ (collectively, “Movants”) join
`
`in this Motion and respectfully request the Court to order an immediate interlocutory sale of four
`
`skilled nursing facilities (“SNFs”) (d/b/a Oceanside, Mercy, Harmony, and Fair Havens) and
`
`seven assisted living facilities (ALFs”) (dlblal Courtyard Manor, Flamingo, La Serena, South
`
`Hialeah Manor, Lauderhill, Eden Gardens, and North Miami Retirement Living). The four SNFs
`
`1 The Business Entities consist of 21 entities, including ADME Investment Partners Ltd., ADME
`Real Estate LLC, Sefardik Associates, LLC, Ayintove Associates, LLC, GBRE Associates LLC,
`Fair Havens Center, LLC, Fair Havens Real Estate LDC, Courtyard Manor Retirement Living,
`Inc., Courtyard Manor Retirement
`Investors Ltd., Flamingo Park Manor LLC, The Pointe
`Retirement Investors Ltd., La Hacienda Gardens LLC, Rainbow Retirement Investors Ltd., Lake
`Erswin LLC, Morsey LC, Lauderhill Manor LLC, 2801 Holdings LLC, Edens Gardens LLC,
`Adar Associates LLC, Jene’s Retirement Living, Inc., and Jene’s Retirement Investors Ltd.
`
`The Business Entities include the entities that operate the four SNFs and seven ALFs as well as
`the entities that own the real estate the SNFs and ALFs are located on. Phillip Esformes has
`varying equity ownership positions in the various Business Entities, most of which are less the
`fifty percent. A chart setting forth the operating entities and property holding entities for the At-
`Risk Facilities, which includes the details of all of the varying equity positions of their owners, is
`attached as Exhibit “A”.
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 2 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`and seven ALFs will be collectively referred to as the “At-Risk Facilities”. In support thereof,
`
`Movants state:
`
`I.
`
`Introduction
`
`In one thing, at least, the government and Philip Esformes (“Esformes”) are allied: both
`
`are - or should be - committed to preserving the maximum possible value of the At-Risk
`
`Facilities. The govermnent, in anticipation of the conviction it believes it will achieve in this
`
`matter, should want
`
`the At-Risk Facilities to be as valuable as possible come the day the
`
`government may ultimately obtain a conviction and order of forfeiture with respect to Esformes’
`
`interests in these facilities and sells them. Esformes, in anticipation of the acquittal he believes
`
`he will achieve, wants the value of his life’s work preserved against the day he can finally
`
`reclaim it. The uncharged other equity owners do not want to have their presently valuable
`
`holdings become collateral damage in this dispute.
`
`But an irrepressible cascade of events — initially set
`
`in motion by the indictment of
`
`Esformes - imminently threatens to deplete the going concern value of the At-Risk Facilities, if
`
`they cannot be immediately sold and converted into cash. For example, the Centers for Medicare
`
`and Medicaid Services (“CMS”) has dramatically reduced the Medicare percentages permitted
`
`for reimbursement to the At-Risk Facilities. CMS has also canceled the Medicare provider
`
`agreement with Oceanside. And the Florida Agency for Health Care Administration (“AHCA”)
`
`has denied Mercy’s application for a renewal of its license. In this motion, Esformes and the At-
`
`Risk Facilities themselves ask the Court to take notice of these dire circumstances and their
`
`certain progression, and to order approving the process described in detail below to effect a
`
`prompt and timely interlocutory sale to preserve the rapidly diminishing value of these assets.
`
`2
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 3 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`H.
`
`Factual background
`
`Each of the At-Risk Facilities has two groups of owners — those who own the real
`
`property where the At-Risk Facilities operate their business and provide care to the many
`
`hundreds of frail elderly residents,, and those who own the business operations of the At-Risk
`
`Facilities. Phillip Esformes is a significant - but almost entirely only a minority - owner of all
`
`those entities. “Exhibit A” sets forth in detail the equity interests in the property entities (the so
`
`called “Propcos”) as well as the equity interests in the operating entities (the so called “Opcos”).
`
`Other than Phillip Esfonnes, no one with any interest in any Propco or Opco is charged with any
`
`crime. None of the entities themselves are charged with any crime, despite being subject to
`
`government restraint.
`
`Skilled nursing facilities (“SNFs”) such as Oceanside, Mercy, Fair Havens, and
`
`Harmony, and assisted living facilities (“ALFs”) such as Courtyard Manor, Flamingo, La Serena,
`
`South Hialeah Manor, Lauderhill, Eden Gardens, and North Miami Retirement Living, are
`
`valuable operations, as they have the potential if they are managed well to generate substantial
`
`net income - so long as they are going concerns. As mere real property, however, their value is
`
`typically orders of magnitude less, especially because single purpose-built SNFs and ALFs aren’t
`
`easily adapted to other uses.
`
`All elder care facilities are highly regulated by both the United States and the State of
`
`Florida. Without the necessary approvals at all levels of government, the SNFs are not eligible to
`
`receive the Medicare or Medicaid monies that fund a large part of their operations. Without the
`
`proper licenses, SNFs and ALFs obviously cannot operate at all.
`
`3
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 4 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`Almost immediately after the indictment in this matter was handed down, CMS - the
`
`federal agency primarily charged with regulation of elder care facilities - began taking action
`
`against facilities associated in any way with Phillip Esformes. Payments of Medicare funds
`
`through CMS were substantially curtailed, then increased,
`
`then curtailed again, seemingly at
`
`random and always without explanation. Over the months, counsel for the At-Risk Facilities has
`
`expended tremendous effort to rationalize and stabilize the financial impact of these capricious
`
`regulatory actions.’ Then, on December 20, 2016, CMS dropped the axe on one of the At-Risk
`
`Facilities, Oceanside Extended Care (“Oceanside”), by cancelling Oceanside’s Medicare
`
`provider agreement. A copy of this letter is attached as Exhibit “B”. That meant that Oceanside
`
`was no longer eligible to receive Medicare funds. Without those funds, Oceanside had to close
`
`and relocate all of its patients?
`
`Now, CMS’s action against Oceanside has triggered a veritable avalanche of events that
`
`signals the inevitable and imminent collapse of the rest of the At-Risk Facilities which are the
`
`subject of this Motion. This is so because, under Florida law, the Agency for Health Care
`
`Administration (AHCA)“ is now required to deny license renewal
`
`to any facility where any
`
`person holding more than a five percent interest in Oceanside also holds more than a five percent
`
`interest? As a result, The Nursing Center at Mercy (“Mercy”), on 23 February,
`
`received
`
`ACHA’s “Notice of Intent to Deny.” A copy is attached as Exhibit “C”. Without a state nursing
`
`2 Indeed, many of the Business Entities intervened in the related civil suit before Judge Williams
`and filed a Motion for an Order to Show Cause or for an Injunction Under the All Writs Act (DE
`64)—an extraordinary remedy—seeking to rein in CMS’ behavior.
`3 There are many other business problems to deal with that are expensive and potentially not
`solvable without a sale. For example, the decertification of Oceanside by CMS has triggered a
`default by Oceanside’s mortgagee. This same mortgagee is a lender to other of the At-Risk
`Facilities. And Oceanside no longer has any income with which to pay the lender.
`“ The state agency which regulates and manages distribution of Medicaid funds.
`5 Exhibit A illustrates these overlapping minimum ownership interests.
`4
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 5 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`home license, Mercy will have to shut down. It is only a matter of time - and not much time at
`
`that - before the rest of the At-Risk Facilities receive similar ACHA notices and face the same
`
`fate.
`
`While all of this has been going on, the At-Risk Facilities have been trying in vain to
`
`encourage the govemment to agree to a seemingly obvious solution for a seemingly obvious
`
`problem: While these At-Risk Facilities will soon be worth very little, they are now worth quite a
`
`lot, so the time to sell them is now. Indeed, they are worth enough — even with their current
`
`regulatory difficulties, but only so long as they remain open - that the facility owners have
`
`received numerous unsolicited inquiries from interested buyers. (As has, Movants are advised,
`
`the government.) The owners have kept the government apprised of the fact of these inquiries“
`
`and have attempted to secure the govemment’s cooperation to allow these inquires to develop
`
`and, possibly, bear fruit - the ultimate goal being to sell the At-Risk Facilities while they still
`
`have real value, so that the funds can be secured regardless of the outcome of the criminal case.
`
`The At-Risk Facilities, for months, have had telephone conferences and exchanged letters
`
`with the government about the sale issues. The At-Risk Facilities have made a very detailed
`
`proposal to the government conoeming a sale, which is as follows:
`
`'
`
`If any person presents an offer to purchase all or any portion of the At-Risk Facilities
`before any further action by the seller, seller will share with the government information
`that will include the names of any potential buyers, the amounts of any of their offers,
`and the finarrcials of the entities that have been provided to such potential buyers.
`
`' The govemment will expeditiously present any objections to the buyer.
`
`' Once the government approves a buyer or buyers, the government will have a period of
`time in which to approve the price offered by any buyer who offers the highest price for
`the At-Risk Facilities or to submit a counteroffer.
`
`the
`too, of the amounts presently being offered, but
`6 The government has been apprised,
`movants think it wise not to include those offers in a public pleading. Of course, they stand ready
`to inform the Court of the current offer amounts at the Court’s request.
`5
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 6 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`°
`
`'
`
`the government will receive that
`If and when a government-approved sale occurs,
`percentage of the proceeds (after expenses of sale and any liens are satisfied) that
`coincides with Phil Esformes’ ownership interest in that entity prior to his indictment, at
`the time his assets were frozen. The government will hold those funds in escrow in an
`interest-bearing account until
`the criminal case is resolved. The remaining proceeds
`would be distributed among the other equity owners based on their percentage
`ownership.7
`
`The government, Esformes, and the At-Risk Facilities, after coming to agreement would
`present the proposed sale procedures to this Court for approval.
`
`So far, the government has, in essence, ignored the At-Risk Facilities and simply refused
`
`to cooperate in moving forward with the sales process.“ But with “economic death sentences”
`
`like the ACHA Notice to Mercy now on the near horizon for the rest of the At-Risk Facilities, a
`
`failure to act quickly will mean that tremendous value will be lost to whoever it is - Esformes or
`
`the United States - might otherwise ultimately have received it. Even more problematic, a failure
`
`to act — or more accurately, a refusal
`
`to act — to sell
`
`these properties would amount to an
`
`intentional governmental depreciation of assets belonging mostly to innocent owners. That is an
`
`untenable position.
`
`Selling the At-Risk Facilities soon will not only maximize their value, it will also have
`
`the laudable goal of permitting the facilities to continue to provide care to their patients. This
`
`including his interests in the Business Entities, are without question
`7 Phil Esformes’ assets,
`restrained by the Court. The government has also filed lis pendens against certain of the real
`property owned by the Business Entities. But the equity positions of the owners (other than Phil
`Esformes) in the Business Entities are not restrained by this Court.
`" Driving the At-Risk Facilities out of business is sadly consistent with what the government has
`apparently been trying to do from the outset. For example, the govemment convinced Judge
`Williams to enter an all-encompassing Ex-Parte TRO in the related civil suit restraining all of the
`bank accounts of many of the SNFs and AL.Fs, including those of the At-Risk Facilities (DE 11).
`This would have put the facilities out of business in very short order and caused them to have to
`relocate hundreds of patients. The facilities intervened in that the case immediately and filed an
`Emergency Motion to Dissolve the TRO (DE 14). Judge Williams conducted a hearing that same
`day and entered an Order the next day carving out the bank accounts of the facilities so they
`could operate and so that the patients could continue to receive care. This Court also entered a
`similar Order the very next day modifying its Ex Parte Restraining Order (DE 41).
`6
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 7 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`will prevent the catastrophic consequence of having to relocate over a thousand patients and
`
`could even prevent loss of life of patients due to transfer trauma. In short, everyone would
`
`benefit by a quick sale of the At-Risk Facilities and everyone would be harmed if the At-Risk
`
`Facilities are left to close their doors.
`
`III.
`
`Argument
`
`In a forfeiture action, property may be subjected to an interlocutory sale “[i]f [that]
`
`property .
`
`.
`
`.
`
`is perishable, or liable to deterioration, decay, or injury. . .” United States v.
`
`Esposito, 970 F.2d 1156, 1160 (2d Cir. 1992); see also United States v. King, 2010 U.S. Dist.
`
`LEXIS 123668, 2010 WL 4739791, at *1 (S.D.N.Y. Nov. 12, 2010). It is uncontested that the
`
`value of the At-Risk facilities diminishes dramatically by the day. The govemment’s position has
`
`supposedly been that a protective order is required “to preserve for forfeiture, the availability
`
`of property identified in the forfeiture allegations of the Second Superseding Indictment (DE
`
`200), upon conviction of the defendant.” (DE 202) (emphasis supplied)? Refusing to sell the At-
`
`Risk facilities is antithetical to that priority because their value will plummet, rendering them
`
`virtually unavailable for forfeiture “because an asset worth nothing cannot be said to be
`
`‘available.’” United States v. Dream, 2013 U.S. Dist. LEXIS 152840 at "14 (E.D. Ken. October
`
`24, 2013).
`
`Movants have standing to raise this motion. Esformes has standing because his ownership
`
`interest in the various Business Entities and the At-Risk Facilities is subject to imminent injury,
`
`and he has a right to preserve that interest in the event of an acquittal. The Business Entities have
`
`standing because the uncharged owners and operators have an actual, valuable interest in the At-
`
`9
`The govemment’s refusal to agree to a sale is even more unbelievable when juxtaposed with its
`own stated intent: “In this case, the United States seeks to preserve the status quo of the property
`identified in the Second Superseding Indictment by preventing the alienation and dissipation of
`the property subjectlto forfeiture.” (DE 202) (emphasis supplied).
`7
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 8 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`Risk Facilities, untouched by the Second Superseding Indictment and unsought by the
`
`govemment, which they too have the right to seek to preserve. The Court has the inherent
`
`authority to protect and enforce its own orders, and has the authority by various rules, statutes,
`
`and case precedent to order an interlocutory sale even over objection. Movants have put forth a
`
`detailed sale proposal that relies on govemment approval and works to protect the best interest of
`
`all
`
`interested parties. Movants suggest escrowing those portions of the proceeds related to
`
`Esformes pending the outcome of his case, while distributing the innocent owners’ proceeds
`
`according to their interest.
`
`A.
`
`Movants Have Standing to Bring this Motion
`
`It is axiomatic that Phil Esformes, as a defendant in this criminal case, has standing to
`
`seek to preserve the value of restrained assets that he has an interest in pending the resolution of
`
`the criminal case.
`
`Non-parties like the Business Entities, already Intervenors in the related civil case, can
`
`also have standing to move the court in a criminal case to order an interlocutory sale when their
`
`interests in the property are sufficiently threatened by injury. See United States v. Hyde, 287 F.
`
`Supp. 2d 1095, 1097 (N.D. Cal. 2003). While the statutory and rule-based framework does not
`
`explicitly set out a procedure pursuant to which third parties can raise issues in connection with
`
`the interlocutory sale of property, neither does it preclude a third party from being heard. See
`
`Hyde; United States v. King, 2010 LEXIS 123668 at *11 (SDNY 2010). Indeed, those asserting
`
`an interest in property potentially subject to forfeiture are entitled to be heard on the specific
`
`issue of the sale of the property. United States v. Maye, 2011 U.S. Dist. LEXIS 67937 at *5
`
`(W.D.N.Y. June 24, 2011). Here, Movants own the At-Risk Facilities and are at risk of imminent
`
`injury to their property interests if an interlocutory sale is denied.
`
`H
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 9 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`United States v. Hyde is instructive. In Hyde, the defendant was charged with various
`
`oormts of healthcare fraud as well as money laundering. 287 F. Supp. 2d at 1096. The indictment
`
`sought forfeiture of certain property, including a beach house. Id. The beach house was owned in
`
`party by the defendant and in part by defendant’s wife, daughter, and daughter-in-law. Id. The
`
`innocent owners moved as third party claimants for an interlocutory sale of the beach house due
`
`to problems causing a rapid decrease in the beach house’s value. Id. at 1097. The innocent
`
`owners sought essentially to trade one property for another, even transferring the governrnent’s
`
`its pendens to the new property, in order to preserve the value pending the outcome of the
`
`criminal case. Id. While the government in Hyde asserted that the third party claimants lacked
`
`standing to move for the interlocutory sale, the court disagreed, citing United States v. Scardino,
`
`956 F. Supp. 774 (N.D. Ill. 1996) and stating “
`
`[i]t is possible that under the multi-factor Due
`
`Process balancing test applied by the Ninth Circuit in Crozier”, Due Process could be violated
`
`should the instant motion not be heard on the merits, particularly in view of the effective restraint
`
`on alienation . . .” Hyde, 287 F. Supp. 2d at 1099.
`
`Here, the Business Entities have the same motive as the third parties in Hyde: they seek
`
`to preserve the value of the assets potentially subject to forfeiture while the assets are still
`
`valuable. Like the third parties in Hyde, the Business Entities are partially owned by individuals
`
`not under indictment and not charged with any crime who have an ownership interest in the
`
`Business Entities which is presently threatened. The Hyde Court’s concem, that due process
`
`might be violated should the third party claimants’ motion not be heard on the merits, is equally
`
`applicable here.
`
`1° United States v. Crazier, 777 F.2d 1376, 1382-84 (9th Cir. 1985) (“precluding third parties an
`opportunity to challenge a post-indictment order restraining the transfer of property violates due
`process”).
`
`9
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 10 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`Indeed, other courts have held that failure to consider the third party claimants’ interest in
`
`an interlocutory sale would amount to a violation of their right to due process of law. What
`
`process is due depends upon the nature of the interest affected, Haygood v.Yaunger, 769 F.2d
`
`1350, 1355 (9th Cir. 1985), and that determination involves balancing the risk of an erroneous
`
`deprivation,
`
`the state's interest
`
`in providing specific procedures and the strength of the
`
`individual's interest. Cleveland Board ofEducation v. Loudermill, 470 U.S. 532, (1985). Courts
`
`have recognized the overriding strength of the individual interest in the restraint of property in
`
`which parties other than the defendant have an interest. See King, 2010 LEXIS 123668 at "10
`
`(“Permitting the interlocutory sale of unique property without providing a party asserting an
`
`interest
`
`therein with notice and opportunity to be heard would raise serious due process
`
`concems”). The Business Entities have a valuable interest in these properties, part of which is
`
`not subject to restraint or forfeiture, and have standing to move the Court to order a sale of the
`
`At-Risk facilities in order to avoid further depreciation in their value.
`
`B.
`
`This_Courtl-Ias the Authority to Order the Sale of_the At-Risk Facilities
`
`The interlocutory sale of assets potentially subject to forfeiture upon conviction of a
`
`criminal defendant is governed by both a statutory and rule-based framework, which, read
`
`together, create a straightforward set of parameters for when an interlocutory sale should occur.
`
`Simpler still, where a preliminary restraining order mandates that assets be maintained without
`
`dissipation of their value, as the Restraining Order does in this case (see (DE 8)), the Court can
`
`always act on its own inherent authority to prevent such dissipation if the value of the asset is at
`
`risk. See SEC v. Infinity Grp. C0., 212 F.3d 180, 197 (3d Cir. 2000). There is likewise substantial
`
`case precedent supporting a court-ordered interlocutory sale in cases where the value of the asset
`
`is rapidly dissipating and the criminal case is in its early stages. In fact, it is nearly always the
`
`1E|
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 11 of 19
`Case No.: 16-20549-CR-LENARD
`
`government seeking an interlocutory sale of a vanishing asset to preserve the value of the asset
`
`pending years of litigation; the Department of Justice Manual “A Guide to Interlocutory Sales in
`
`Forfeiture Cases” (“DOJ Manual”) instructs DOJ attorneys on the myriad ways they should
`
`effectuate interlocutory sales as soon as practicable. The application of Fed. R. Crim. P. 32.2,
`
`Supplemental Rule G(7), and 21 U.S.C. § 853(e) are discussed in further detail below.
`
`i.
`
`Federal Rule ofCriminal Procedure 32.2 and Supplemental Rule ofCivil
`Procedure G(7)
`
`Federal Rule of Criminal Procedure 32.2(b)(7) states “At any time before entry of a final
`
`forfeiture order, the court, in accordance with Supplemental Rule G(7) of the Federal Rules of
`
`Civil Procedure, may order the interlocutory sale of property alleged to be forfeitable.” Fed. R.
`
`Crim. P. 32.2(b)(7). Pursuant to Rule G(7), Federal Rules of Civil Procedure, Supplemental
`
`Rules for Admiralty or Maritime Claims and Asset Forfeiture Action, “the court may order all or
`
`part of the property sold if: (A) the property is perishable or at risk of deterioration, decay, or
`
`injury by being detained in custody pending the action .
`
`.
`
`. or (D) the court fmds other good
`
`cause.” Supp. R. Civ. Pro. G(7)(b)(i)(A)-(D). 21 U.S.C. § 853(e) also authorizes the court to
`
`order the interlocutory sale of real property subject to criminal forfeiture to preserve the equity in
`
`the property under certain circumstances. United States v. Gianelli, 594 F.Supp. 2d 148, 150 (D.
`
`Mass. 2009).
`
`While the standards for ordering an interlocutory sale in the Supplemental Rules of Civil
`
`Procedure are not absolutely controlling in a criminal case, they provide persuasive guidance to
`
`the Court. See United States v. Dream, 2013 U.S. Dist. LEXIS 152840 at "11 (E.D. Ken.
`
`October 24, 2013) (relying on Supplemental Rule G(7) for guidance). Specifically, the two
`
`standards relevant here are “whether the property is perishable or at risk of deterioration, decay,
`
`'11
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 12 of 19
`Case No.: 16-20549-CR-LENARD
`
`or injury by being detained in custody [or restrained] pending the action” and “other good
`
`cause”. Supp. R. Civ. Pro. G(7)(b)(i)(A)-(D).
`
`Courts routinely order interlocutory sales under G(7)(b)(1)(A) when the value of property
`
`is at risk. Interlocutory sales in criminal cases are in fact an effective and approved way to
`
`preserve assets until a matter is resolved when the value of the asset is at iSSue. See, e.g., Hyde
`
`(ordering the sale of the property as its value was falling due to zoning changes); Dream, 2013
`
`U.S. Dist. LEXIS at "10 (E.D. Ken. October 24, 2013) (ordering the sale of a horse, Woodland
`
`Dream, because “there is a substantial risk that Woodland Dream's value will diminish
`
`significantly if she is not sold at this time, thereby rendering her current value, effectively
`
`unavailable for forfeiture”); United States v. Dean, 835 F. Supp. 1383, 1385-86 (M.D. Fla. 1993)
`
`(granting interlocutory sale of restaurant because its value was rapidly depreciating); United
`
`States v. Pelullo, 178 F.3d 196, 198-99 (3d Cir. 1999)
`
`(ordering interlocutory sale over
`
`defendant’s objection due to equity depletion of the property through taxes and foreclosure). In
`
`fact, the DOJ’s Intemal Manual “A Guide to Interlocutory Sales in Forfeiture Cases” counts
`
`preservation of the value of the asset as the paramount consideration in deciding whether to seek
`
`an interlocutory sale. DOJ Manual at H-2 (“the primary consideration .
`
`.
`
`is whether prompt sale
`
`is necessary to preserve the value of the property for forfeiture.”).
`
`The circumstances of this case meet the critical conditions for an interlocutory sale. The
`
`At-Risk Facilities are clearly subject to rapid devaluation due to loss of CMS funding, impending
`
`loss of licensure, and other administrative penalties. As in Hyde, Dream and Dean, there is
`
`substantial risk that the value of the properties will continue to fall if a sale is not ordered.
`
`Further,
`
`the DOJ Manual highlights scenarios in which an interlocutory sale is especially
`
`appropriate; among those listed are “businesses operating under state or local licenses which may
`
`12
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 13 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`be revoked” and “property subject to rapid, significant depreciation or loss in equity”. See DOJ
`
`Manual part H — 1. Both of those factors are present here. Not to be underestirrrated is the human
`
`collateral damage; there are numerous actual frail, elderly individuals residing in these facilities
`
`receiving full-time, high-quality care, who will have to be moved and will suffer significant
`
`trauma from their transfer to other nursing homes if the facilities are forced to close. See Bracco
`
`v. Lackner, 462 F. Supp. 436 (N.D. Cal. 1978). These factors demonstrate the urgency of the
`
`need for an interlocutory sale to preserve the remaining value of the assets.
`
`ii.
`
`21 U.S.C. § 853
`
`Section 853 is not directly applicable because it typically addresses assets already
`
`deemed forfeitable by court order. However, there is a notable catchall provision, aligned with
`
`the spirit of encouraging the preservation of the asset value,
`
`that other courts have used for
`
`guidance in interlocutory sales." See, e.g., United States v. Maye, 2011 U.S. Dist. LEXIS 67937
`
`(W.D.N.Y. June 24, 2011) (in a post-indictment, pre-conviction criminal case, the Court first
`
`relied upon Fed. R. Crim. P. 32.2 and Supplemental Rule G(7), then looked to the catchall of
`
`Section 853). Section 853(c)(1) gives the court the authority to take “any other action” to
`
`preserve the availability of property subject to forfeittne, even before indictment, if, inter alia,
`
`“failure to enter the order will
`
`result
`
`in the property being destroyed,
`
`removed from the
`
`jurisdiction of the court, or otherwise made unavailable for forfeiture?" Like the Court’s
`
`11 The rmiformity of legislative intent in this arena can be seen also in 18 U.S.C. § 981(g)(6),
`which applies to criminal forfeiture actions where the associated civil forfeiture action has been
`stayed. That section states that a district court “shall enter any order necessary to preserve the
`value of the property or to protect the rights of lienholders or other persons with an interest in the
`property while the stay is in effect.” United States v. Real Prop. & Residence Located at 4816
`Chaffey Lane, 699 F.3d 956, 961 (6th Cir. 2012) (quoting 18 U.S.C. 981(g)(6)).
`'2 21 U.S.C. § 853’s “bar on intervention” does not apply in cases like this one, where the motion
`“does not concem the merits of the indictment... [but] merely seek[s] to substitute another res of
`equal or greater value in order to prevent wasting of the asset ”. United States v. Hyde, 287 F.
`13
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 14 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`inherent authority to take any action necessary to enforce its orders, this Court should consider
`
`the broad authority granted to the Court by various statutory schemes to take actions necessary to
`
`preserve the value of at-risk assets and order the sale of the At-Risk Facilities.
`
`C.
`
`The Proposed Sale and Disposition of the_Proceeds
`
`If the Court orders a sale over the government’s objection, the sale must comply with the
`
`provisions of 28 U.S.C. §§ 2001 and 2002.13 Section 2001(b) permits the properties to be sold by
`
`private sale, which the Business Entities request.
`
`The government is seeking to forfeit Esformes’
`
`interests in the Business Entities (see p.
`
`38-39 of the Second Superseding Indictment) as well as the real property on which the four SNFs
`
`at
`
`issue are located (see p. 35 of Second Superseding Indictment (RP7) Oceanside, (RP9)
`
`Harmony, (RP10) Fair Havens, (RP12) Mercy). The government is also seeking to forfeit as
`
`Substitute Real Property the real property on which six of the seven ALFs at issue are located
`
`(see p.40 of Second Superseding Indictment (SRP1) South Hialeah Manor, (SRP2) North Miami
`
`Retirement Living, (SRP3) Flamingo, (SRP4) La Serena, (SRP5) Courtyard Manor, (SRP6)
`
`Eden Gardens). Movants agree that the net proceeds from the interlocutory sale should be put in
`
`an interest-bearing account held by the U.S. Marshals pending any additional motions of Phil
`
`Esformes and the resolution of the criminal case.“ See United States v. Esposito, 970 F.2d 1156,
`
`Supp. 2d 1095, 1097 (N.D. Cal. 2003) (granting a third party's motion for interlocutory sale of
`the potentially-forfeitable asset in a pending criminal case). Movants are not asking the Court in
`this motion to detemrine entitlement or ownership rights in any restrained property. Rather,
`Movants seek only an interlocutory sale to preserve the value of the assets pending the resolution
`of the criminal case.
`13 It should be noted that if the government agreed to the sale, the terms and conditions of the
`sale are removed from the statutory requirements and are subject only to the agreement of all
`interested parties. Agreement would save substantial attorney and judicial time, expense, and
`labor and is in the best interest of everyone involved.
`1" Esformes and the Business Entities, by seeking the interlocutory sale of the At-Risk Facilities,
`expressly do not concede that the govemment will be entitled to any of the proceeds.
`14
`
`

`

`Case 1:16-cr-20549-JAL Document 213 Entered on FLSD Docket 03/08/2017 Page 15 of 19
`
`Case No.: 16-20549-CR-LENARD
`
`1160 (2d Cir. 1992) (“The government's right to forfeiture has not been established [and] the
`
`govemment must hold the proceeds of the sale in escrow pending determination of that right.”);
`
`Supp. Rule G(7)(b)(iv) (“Sale proceeds are a substitute res subject to forfeiture in place of the
`
`property that was sold. The proceeds must be hel