by David Cosgrove
Embezzlement can be found at the root of both criminal and civil litigation. While it is common to come across criminal cases involving the government prosecuting an embezzler, the damages caused by an embezzlement scheme frequently draw a multitude of collateral victims into the courts.
For example, in Douglas v. Trustmark National Bank, 2016 WL 4442829 (August 18, 2016) (link) the plaintiff, Ms. Douglas, was victimized by her own bankruptcy attorney. The bankruptcy attorney obtained control of a $500,000 auto-accident settlement, paid fees to Douglas’s personal-injury attorney, and embezzled the balance of the proceeds. Ms. Douglas blamed and sued her personal-injury attorney. The personal-injury law firm and its malpractice insurer paid monies to Ms. Douglas, and assigned to her its restitution claim against the bankruptcy attorney. But Ms. Douglas was not done with problematic legal representation.
Her subsequent suit against the banks that retained the embezzler’s trust accounts was dismissed by the Federal District Court. The Court held that her newest attorney – not the attorney that settled with her or the attorney that embezzled from her – failed to adequately allege that Ms. Douglas even owned the funds that were embezzled or that the banks owed a duty of care to her personal-injury attorney’s law firm (remember, as an assignee, she was standing in the shoes of that law firm as plaintiff).
The legal opinion fails to mention the fate of the original embezzler. Since the dismissal was issued in 2016, and the car accident case was settled in 2009, and the embezzler embezzled in 2010, the embezzler was probably in and out of prison in time for this dismissal. Perhaps Ms. Douglas will now sue her federal court attorney for malpractice. The bankruptcy estate, rather than Ms. Douglas, should have been the assignee of the claims against the banks.
A couple of weeks before the District Court in Mississippi handed down its Douglas v. Trustmark National Bank opinion, the United States Court of Appeals in Philadelphia issued its opinion in Langbord v. United States Department of Treasury, 2016 WL 4073269 (August 1, 2016) (link). The Plaintiffs in Langbord were the purported owners of gold coins confiscated by the government. The facts of this case are too fascinating for me to paraphrase, so here they are:
The ten gold pieces at issue—1933 Double Eagles with a face value of $20—were designed at the request of President Theodore Roosevelt by Augustus Saint-Gaudens shortly before the renowned sculptor's death in 1907. During the next twenty-five years, the United States Mint manufactured and circulated tens of millions of Double Eagles as legal tender. Things changed significantly for the Double Eagle during the Great Depression, however. Within days of his inauguration on March 4, 1933, President Franklin Delano Roosevelt signed a series of orders effectively prohibiting the Nation's banks from paying out gold. See Proclamation No. 2039, 48 Stat. 1689–91 (Mar. 6, 1933); Exec. Order No. 6073 (Mar. 10, 1933). Less than three months later, the United States went off the gold standard. See Exec. Order No. 6102 (Apr. 5, 1933); H.R.J. Res. 192, 73d Cong., 48 Stat. 112–13 (June 5, 1933). That same year, the United States Mint in Philadelphia struck 445,500 Double Eagles, but they were never issued. Instead, all but 500 of the 1933 Double Eagles were placed into the Mint's vault in June 1933. The remaining coins1 were held by the Mint's Cashier; of those, twenty-nine were destroyed in chemical reactions used to verify their metallic purity and two were sent to the Smithsonian Institution in October 1934.
By 1937, all of the 1933 Double Eagles held at the Philadelphia Mint were supposed to have been melted. This turned out not to be the case, however, as some coins were transferred among collectors, which prompted the Secret Service to begin investigating the matter in March 1944. The following year, the Secret Service recovered a small number of 1933 Double Eagles and determined that they had been stolen from the Mint by George McCann, who was the Mint's Cashier from 1934 to 1940. The Secret Service also concluded that the coins had been distributed by a Philadelphia merchant, Israel Switt, who was Joan Langbord's father (and grandfather to Roy and David Langbord).
*2 Since 1944, the United States has attempted to locate and recover all extant 1933 Double Eagles. See United States v. Barnard, 72 F.Supp. 531, 532–33 (W.D. Tenn. 1947) (seeking replevin of a 1933 Double Eagle held by a private collector). The only exception has been a 1933 Double Eagle sold to King Farouk of Egypt in 1944 and later acquired in 1995 by Stephen Fenton, an English coin dealer. When Fenton attempted to resell that coin to a collector in New York, the Government seized it and a protracted legal dispute ensued. According to the Government, it agreed to resolve its dispute with Fenton because the Treasury Department had improvidently issued an export license for the coin when it was sold to King Farouk in 1944. The “Fenton-Farouk Coin” was sold at auction in 2002 to an anonymous buyer for $7,590,020 and the net proceeds were divided equally between Fenton and the Government pursuant to their settlement agreement.
Just over a year after the Fenton-Farouk Coin was sold at auction, Joan Langbord allegedly discovered ten 1933 Double Eagles in a family safe-deposit box. Her attorney, Barry Berke, who had represented Fenton in his dispute with the Government, contacted the Mint in an effort to resolve the Langbords' claim in the same way. After meeting with Mint officials, the Langbords agreed to turn the coins over for authentication but reserved “all rights and remedies.” App. 806. The Mint took possession of the ten 1933 Double Eagles from Roy Langbord on September 22, 2004.
The Mint authenticated the coins in May 2005, but refused to return them to the Langbords. In July 2005, attorney Berke asked the Mint to reverse course in light of its treatment of other coins of questionable provenance and argued that “there [was] no basis for the government to seek forfeiture of the...1933 Double Eagles.” App. 911–13. A month later, the Mint rejected Berke's overture, writing:
The United States Mint has no intention of seeking forfeiture of these ten Double Eagles because they are, and always have been, property belonging to the United States; this makes forfeiture proceedings entirely unnecessary. These Double Eagles never were lawfully issued but, instead, were taken out of the United States Mint at Philadelphia in an unlawful manner. Indeed, the Langbord family was legally obligated to return this property to the United States ... and will not be able to establish based on any reliable or admissible evidence how they currently possess, or ever possessed, title to this United States Government property.
App. 823.
Although the Mint had disclaimed any intention of forfeiting the coins, the Langbords responded in September 2005 by sending a “seized asset claim” to the Mint, invoking 18 U.S.C. § 983, a statute enacted by the Civil Asset Forfeiture Reform Act of 2000 (CAFRA), Pub. L. No. 106–185, 114 Stat. 202, that contains procedural protections for those whose property is subject to forfeiture. The Mint returned the claim to the Langbords “without action.” App. 837. In doing so, the Government argued that no seizure had occurred because “all 1933 Double Eagles are, and always have been, property belonging to the United States” and that the family had “voluntarily surrendered” the coins to the Mint. App. 837–38. In a series of missives exchanged in December 2005, the Langbords criticized the Mint for attempting to “rewrite history and create some kind of record a few days before the deadline for the government to either return the coins or institute a forfeiture action.” App. 841. The Mint responded curtly that the parties had a “fundamental [ ] disagree[ment].” App. 848.
Id. at pp. 1-2. You read that correctly: the U.S. government agreed to examine the coins and then confiscated them. Notably, precious metals dealers have been prosecuted for suggesting that any such thing could happen. On the other side of the coin, pardon the satire, is the fact that the Secret Service concluded that Ms. Langbord’s father had distributed the coins after they were embezzled from the U.S. Mint. So, the U.S. Court of Appeals determined that the U.S. Treasury was allowed to retain the coins because the U.S. Secret Service said that they had been stolen from the U.S. Mint. But, alas, it was a jury of citizens that ruled in favor of the government.
Judge Hardiman, my friend from Notre Dame, class of 1987, summed it up nicely:
So too here. As illustrated by One “Piper” Aztec, CAFRA's retroactivity clause is the beginning and end of the Landgraf analysis in this case because only one date is relevant to CAFRA's applicability: August 23, 2000.19 See 321 F.3d at 357–58. For this reason, we hold that CAFRA's amendment to § 981(a)(1)(C) applies to property made forfeitable by conduct occurring prior to the Act. Accordingly, for predicate offenses already listed in § 1956(c)(7) at the time CAFRA was passed—such as § 641—we need only look to whether the Government filed its forfeiture complaint on or after August 23, 2000. Id. With respect to the ten 1933 Double Eagles at issue in this case, the Government filed its forfeiture complaint in 2009. App. 1162–82. Thus, “our inquiry is done.” One “Piper” Aztec, 321 F.3d at 358. The District Court's jury instructions were proper.
* * *
This case is unique for many reasons. It involves iconic American gold pieces that apparently had lain dormant in a safe-deposit box for decades. Almost immediately after the 1933 Double Eagles surfaced in 2002, the right to possess and own them was vigorously disputed. The resolution of that dispute required the District Court to consider novel questions of constitutional, statutory, and common law. The able trial judge worked diligently through all of the issues and gave both sides a fair trial. Once the jury had spoken, the District Court declared that the 1933 Double Eagles had always been property of the United States. Although the benefit of hindsight has convinced us that certain errors were committed in the conduct of the trial, they did not affect the outcome. We will affirm the judgment of the District Court.
Id. at pp. 22-23. In Estrada v. Wal-Mart Stores, Inc., 2016 WL 5846977 (October 6, 2016) (link) a former employee sued Wal-Mart after a Wal-Mart Market Asset Protection Manager leveled false allegations of embezzlement against her, which in turn, led to her termination. More specifically, her claims included those for wrongful termination, defamation, and intentional infliction of emotional distress.
Wal-Mart filed a motion to dismiss Ms. Estrada’s suit, which was pending before a federal district court in San Francisco. The District Court dismissed Ms. Estrada’s wrongful termination and defamation claims, but gave her leave to amend them. Moreover, the Court refused to dismiss any of the other causes of action in her suit. So why were only these two claims dismissed?
Wal-Mart argued that it was protected by a privilege set forth in the California Code of Statutes. According to the court, this code:
“…establishes a privilege that bars liability in tort for the making of certain statements.” Under section 47(b), the privilege bars all tort claims (except malicious prosecution) for communications made “[i]n any (1) legislative proceeding, (2) judicial proceeding, (3) in any other official proceeding authorized by law, or (4) in the initiation or course of any other proceeding authorized by law and reviewable pursuant to [statutes governing writs of mandate].” Id. (quoting Cal. Civ. Code § 47(b)). To be privileged, a communication must be “(1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.”
Id. at p.3 (Citations Omitted). The court proceeded to evaluate whether any of these exceptions, or often-abused privileges, applied to “pre-litigation communications.” In doing so, it applied the following four-part test:
To determine whether to apply the privilege to pre-litigation communications, courts have considered four factors: (1) “the communication must have been made preliminary to a proposed judicial or quasi-judicial proceeding”; (2) “the verbal proposal of litigation must be made in good faith”; (3) “the contemplated litigation must be imminent”; and (4) “the litigation must be proposed in order to obtain access to the courts for the purpose of resolving the dispute.” (emphasis in original). A good faith proposal of litigation would be privileged, but not a threat of suit used “merely [as] a negotiating tactic and not a serious proposal made in good faith contemplation of going to court.” “Good faith” contemplation of is a question of fact.
Id. at p. 3 (Citations Omitted). The court concluded that Wal-Mart failed to satisfy this test, at least at the motion to dismiss stage, as to any of Ms. Estrada’s claims.
The most important aspects of the legal opinion apply to Ms. Estrada’s claims for wrongful termination and defamation. Although Ms. Estrada was an at-will employee, she attempted to base her claim upon a public-policy exception to that doctrine. In rejecting her claim the Court explained, in part, that:
Employment contracts in California are generally terminable at will. But “an employer's traditional broad authority to discharge an at-will employee ‘may be limited ...by considerations of public policy.’” Thus, “when an employer's discharge of an employee violates fundamental principles of public policy, the discharged employee may maintain a tort action and recover damages traditionally available in such actions.”
“In general, the elements of a claim for wrongful termination in violation of public policy are (1) an employer-employee relationship; (2) an adverse employment action; (3) that the adverse employment action violated public policy; and (4) the adverse employment action caused the employee damages.”
…a relevant public policy must be implicated. To support a wrongful termination claim, the policy must be: “(1) delineated in either constitutional or statutory provisions; (2) ‘public’ in the sense that it ‘inures to the benefit of the public’ rather than serving merely the interests of the individual; (3) well established at the time of discharge; and (4) substantial and fundamental.” …In California, “public policy cases fall into one of four categories: the employee (1) refused to violate a statute; (2) performed a statutory obligation; (3) exercised a constitutional or statutory right or privilege; or (4) reported a statutory violation for the public's benefit.”
…Ms. Estrada argues that because false imprisonment and extortion are criminal acts, the statutory policy prohibiting them is intended to benefit the public.
…Assuming, however, that the policies Ms. Estrada identifies benefit the public, the second issue is whether she satisfies her burden of establishing a casual nexus between those policies and her termination.
Here…Ms. Estrada’s wrongful termination claim focuses on Wal-Mart’s alleged wrongdoing (i.e. false imprisonment and extortion). She alleges that Wal-Mart fired her because she signed the acknowledgement form, but does not identify how this constitutes “a protected act or refusal to act.” …Ms. Estrada does not point to any authority supporting this kind of Tameny claim.
The court accordingly dismisses Ms. Estrada’s wrongful-termination claim, but grants leave to amend.
Id. at pp. 5-7 (Citations Omitted).
Finally, as to Ms. Estrada’s defamation claim, the Court evaluated the often over-looked “compelled self-publication” doctrine:
To state a claim for defamation, a plaintiff must allege facts showing “(a) a publication that is (b) false, (c) defamatory, and (d) unprivileged, and that (e) has a natural tendency to injure or that causes special damage.” A “publication” is a “communication to some third person who understands both the defamatory meaning of the statement and its application to the person to whom reference is made.” The originator of a defamatory statement is not normally liable for damage caused by the defamed person's communication of the statement … But under the “compelled self-publication” exception, self-publication “may be imputed to the originator of the statement if the person [defamed] is ‘operating under a strong compulsion to republish the defamatory statement and the circumstances that create the strong compulsion are known to the originator of the alleged defamatory statement at the time it was made.’” “This exception has been limited to a narrow class of cases, usually where a plaintiff is compelled to republish the statements in aid of disproving them.”
…In Howerton v. Earthgrains Baking Cos., Inc., a former employee adequately pled a theory of compelled self-publication. No. 1:13-cv-1397 AWI SMS, 2014 WL 2767399, at *3 (E.D. Cal. June 17, 2014). There, by oral and written statement, the employer terminated the plaintiff for acts amounting to embezzlement. Id. at *2, *3. The plaintiff alleged that the “written termination statement was placed in [his] personnel file with the knowledge that it would be repeated by [him] to potential employers as part of [his] attempt to find new employment.” Id. at *2. And he alleged that he had indeed “been required to republish these false and defamatory statements...to explain the grounds for his termination to potential employers.” Id. These allegations fell squarely within the compelled self-publication doctrine and the claim survived. Id. at *3.
Here, unlike Howerton, Ms. Estrada does not plausibly allege a theory of compelled self-publication.
Id at p.9 (Some Citations Omitted).
One last case worth mentioning, although arguably from this Fall, rather than this past summer, is the case of Berman v. Kafka, 2016 WL 5349211 (September 26, 2016) (link). The legal opinion can be reduced to a nutshell:
…Plaintiff sought a new trial after the jury returned a verdict in favor of Defendant Thomas Kafka in Plaintiff’s pro se civil action for defamation.
…This case arises out of statements made by Defendant to the Florida Department of Economic Opportunity (“DEO”) in which Defendant indicated that Plaintiff was involved in embezzling money from Defendant’s company.
…Plaintiff brought this civil action against Defendant for libel per se, seeking compensatory and punitive damages. Following a three-day jury trial, the jury returned a verdict in favor of Defendant: finding that the alleged defamatory statements were “substantially true and made with good motives.”
…We review a district court’s denial of a motion for new trial for abuse of discretion.
…Here, the jury’s findings that Defendant’s statements were substantially true is supported by evidence in the record….Defendant need not prove, beyond a reasonable doubt, that Plaintiff was in fact guilty of embezzlement. The district court abused no discretion in denying Plaintiff’s motion for a new trial on this ground.
Id. at p 1-3 (Citations Omitted).
In sum, accusations of embezzlement spawn a multitude of legal actions. If you are accused of any such illegal conduct, or are about to level any such accusation, please consult with an attorney immediately. Food for thought.