SAN FRANCISCO (CN) - The government lost its chance to seize a medical marijuana dispensary when it accepted $150,000 in lieu of the property, a federal judge ruled.
Uncle Sam filed a federal forfeiture complaint in May 2013 against the property at 2441 Mission St. in San Francisco. That action accused the tenant, Shambhala Healing Center, of selling marijuana within 1,000 feet of a public playground in violation of the Controlled Substances Act.
Shambhala's landlords, Ebrahim and Valentin Poura, agreed last April to pay $150,000 or forfeit their interest in the property early this year, admitting that the "property is being used to facilitate the distribution of marijuana" and is therefore subject to forfeiture.
U.S. District Judge Susan Illston today agreed with Shambhala that the court no longer has jurisdiction over the defendant real property because in an in rem action, the court lost jurisdiction over the original res when it was substituted out for a sum of money.
According to the ruling, "a court maintains jurisdiction only as to the res that is before it. Thus, if under the terms of the settlement agreement, the $150,000 became the new res in this action upon the Pouras' payment of the $150,000 to plaintiff, then this court only has jurisdiction over claims to ownership of the $150,000 - of which there are none."
The government claimed that the Pouras have to do more than just pay $150,000 in order for the res to become the $150,000 sum, implying that the res would continue to be the real property until the Pouras successfully satisfy the "remaining terms" of the settlement agreement.
Though the government did not specify what remaining terms it meant, Illston presumed the government was referring to paragraph five of the agreement, which states the Pouras shall "assist the United States in good faith, as needed against the remaining claimants involved" in this action.
"However, the court finds that under the terms of the settlement agreement the original res was substituted out for the $150,000 sum as 'substitute res in lieu of defendant real property' upon the Pouras' timely payment of the $150,000 to plaintiff - nothing more was required." [Emphasis in ruling.]
The Pouras paid the $150,000 in September, according to the ruling.
Henry Wykowski, Shambhala's attorney, told Courthouse News, "We are happy that the court dismissed the action against Shambhala and we think it's the appropriate decision and we hope that this is a catalyst for the U.S. Attorney's Office in San Francisco to re-examine their position with respect to the other forfeiture cases and hopefully dismiss them also."
Those cases include the government's attempt to seize Harborside Health Center in San Jose and Oakland, a case that resulted in the city of Oakland taking the unusual step of suing the federal government to stop the seizure.
While that suit was dismissed for lack of standing, the city convinced the judge to stay the seizure proceedings while it appealed.
In the present ruling, Illston noted that since the government never physically seized the property, the lis pendens was the "the only effective means by which plaintiff controlled the real property" and by withdrawing the lis pendens the government showed that it intended to release the property from the action upon payment of the substitute res.
While the government tried to point to a sentence in the settlement agreement that said it would forego any other action against the Pouras upon payment of the substitute res and "satisfaction of the remaining terms of this agreement," the judge refused to read the sentence "in isolation," as the government suggests, but instead read it in context of the "entire settlement agreement" which "clearly establish that the real property was released upon the Pouras' timely payment of the $150,000.
The judge concluded that without any party asserting a claim over the res, there is no controversy and "this action must be dismissed for lack of subject matter jurisdiction on grounds of mootness."
The judge noted that the Justice Department's own asset forfeiture policy guidelines "establish that the government is well aware that releasing a defendant real property from a civil forfeiture action and replacing it with a substitute res in the form of money 'effectively moots any unsettled forfeiture claims against the released property.'"
The government also failed to prove the Pouras did not assist it as required by the settlement agreement when Valentin Poura refused to produce documentation of rental payments, because the Pouras agreed to stipulate to the amount of rent received during any time period and Valentin Poura made himself available to be deposed.
The judge found the Pouras' willingness to be disposed in lieu of producing documents constitutes "assistance in good faith" under the settlement agreement.
Illston ordered the government to release the lis pendens by Dec. 19 and ordered the Pouras to produce the records related to the rental payments by the same day.
The U.S. Attorney's office did not reply to a request for comment from Courthouse News.
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