United States v. Law Offices of Cleveland, Inc.

• Court: Court of Appeals for the Eleventh Circuit
• Decided: May 17, 2022
• Docket: 21-10696
• Status: Unpublished

Opinion

USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 1 of 11

[DO NOT PUBLISH] In the United States Court of Appeals For the Eleventh Circuit

____________________

No. 21-10696 Non-Argument Calendar ____________________

UNITED STATES OF AMERICA, Plaintiff-Appellee, versus REAL PROPERTY LOCATED AT 55 PUBLIC SQUARE, CLEVELAND, OHIO,

Defendant,

URIEL LABER, et al.,

Claimants, USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 2 of 11

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LAW OFFICES OF CLEVELAND, INC.,

Claimant-Appellant.

Appeal from the United States District Court for the Southern District of Florida D.C. Docket Nos. 1:20-cv-23278-MGC, 1:20-cv-25313-MGC ____________________

Before ROSENBAUM, JILL PRYOR, and GRANT, Circuit Judges. PER CURIAM: This case arises out of an in rem civil-forfeiture action filed by the government against an office building in Cleveland, Ohio, allegedly bought as part of an international money-laundering scheme. When the government filed its complaint, the building was under contract to be sold by the building’s owners (and alleged money-launderers) to an unaffiliated third party. The government agreed to go forward with the sale while the forfeiture case pro- ceeded, and it filed a motion requesting the court’s approval for an uncontested interlocutory sale under Rule G(7)(b) of the Supple- mental Rules for Admiralty or Maritime Claims and Asset Forfei- ture. The court authorized the sale, which closed in February 2021, USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 3 of 11

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and the sale proceeds were substituted for the building as the res in the forfeiture proceeding. Appellant Law Offices of Cleveland (“Cleveland Law”), a tenant at the office building and a claimant in the forfeiture case, timely appealed the interlocutory sale order, seeking to set aside the sale as “void” for lack of compliance with, in its view, necessary procedural requirements. After careful review, we conclude that Cleveland Law was not harmed by and so lacks standing to appeal the sale order. We therefore dismiss the appeal. I. In December 2020, the United States filed an in rem civil- forfeiture action against the building located at 55 Public Square in Cleveland, Ohio. In essence, the complaint alleged that 55 Public Square was purchased as part of a scheme to launder hundreds of millions of dollars misappropriated from PrivatBank, a Ukrainian bank, by two Ukrainian oligarchs, Ihor Kolomoisky and Gennadiy Boholiubov. The government filed two other forfeiture actions arising out of the same scheme. Several individuals and businesses claimed an interest in 55 Public Square. On January 19, 2021, four entities and persons al- legedly involved in the money-laundering scheme filed claims: Op- tima 55 Public Square LLC, the record owner of the building; Op- tima Ventures LLC, which owned Optima 55 Public Square; and Mordechai Korf and Uriel Laber, who partially owned Optima Ventures (collectively, the Optima entities). On January 26, 2021, USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 4 of 11

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Cleveland Law, a tenant at 55 Public Square that subleases office space to small law firms and solo practitioners, filed a claim assert- ing a leasehold interest in the property. A few days later, several other claimants who had been in litigation against the Optima en- tities filed a joint claim. On Tuesday, February 9, 2021, the district court held a status hearing, at which counsel for Cleveland Law was present. At the hearing, counsel for the Optima entities stated that there was “an anticipated closing on the sale of [55 Public Square] scheduled for . . . this week,” and that the funds from the sale would be held pend- ing the outcome of the litigation. The court asked the government if it objected, and counsel for the government responded that it did not object and would soon file a motion to approve the sale. At no point during the hearing did counsel for Cleveland Law raise an objection to the sale. Later that same day, the government filed an “Agreed Mo- tion to Authorize Interlocutory Sale” under 18 U.S.C. § 981(a)(1) and Supplemental Rule G(7), with supporting documentary evi- dence. In certain circumstances, Supplemental Rule G(7) permits the district court to authorize the sale of real property before the forfeiture case is resolved. Supp. Rule G(7)(b). Ordinarily, such a sale “is governed by 28 U.S.C. §[] 2001,” among other provisions, which requires notice, a hearing, and appraisals before the court may approve a private sale. Supp. Rule G(7)(b)(iii); 28 U.S.C. § 2001(b). But the court may use other procedures for the sale if “all parties . . . agree to the sale, aspects of the sale, or different USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 5 of 11

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procedures.” Supp. Rule G(7)(b)(iii). Once the sale closes, the “[s]ale proceeds are a substitute res subject to forfeiture in place of the property that was sold.” Supp. Rule G(7)(b)(iv). The government’s motion sought the district court’s ap- proval to proceed with the sale under the terms of the private pur- chase agreement, and without regard to § 2001, by agreement of the parties. The government’s evidence showed that, before the forfeiture action, Optima 55 Public Square had entered into a con- tract with KD 55 Public Square LLC to sell the office building for approximately $17 million. At that time, the building was in fore- closure and subject to outstanding taxes and penalties. The gov- ernment agreed to the sale because the buyer had no affiliation with the Optima entities and, in its view, a “prompt sale [was] the only way to protect the value of the equity in the building.” According to a copy of the purchase agreement submitted by the government, the sale included the transfer of all leases at 55 Public Square, including “any and all amendments, modifications or supplements.” The buyer further agreed to “assume[] and . . . be bound by and to perform and observe all of the obligations, cov- enants, terms and conditions to be performed or observed under the Assigned Property.” It appears, in other words, that the buyer assumed and agreed to be bound by all existing leases without al- teration. On February 10, 2021, one day after the government filed its motion, Cleveland Law answered the forfeiture complaint. That filing did not suggest any opposition to the sale. Rather, Cleveland USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 6 of 11

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Law stated that, as an “innocent owner” of a leasehold interest un- der 18 U.S.C. § 983(d)(6), its permissible remedies included com- pensation “to the extent of Claimant’s ownership interest once a final order of forfeiture has been entered and the property has been reduced to liquid assets.” The next day, February 11, 2021, the district court granted the “unopposed” motion to approve the interlocutory sale accord- ing to the terms of the purchase agreement. In the weeks that fol- lowed, Cleveland Law did not submit any filing to prevent the sale from occurring. Instead, after the sale closed, Cleveland Law filed a notice of appeal of the sale order on March 1, 2021. 1 II. Cleveland Law maintains that the private sale of 55 Public Square was “governed by” § 2001 because “all parties” did not “agree to the sale . . . or different procedures” under Supplemental Rule G(7). It notes that the government never sought or obtained its agreement to the sale, despite its status as a claimant in the

1 The parties agree, as do we, that an interlocutory order authorizing the im- mediate sale of real property in a forfeiture case is a collateral order subject to immediate appeal. See, e.g., United States v. Real Prop. & Residence Located at 4816 Chaffey Lane, 699 F.3d 956, 959 (6th Cir. 2012) (exercising jurisdiction over an interlocutory sale order in a forfeiture case under the collateral-order doctrine). Cf. Citibank, N.A. v. Data Lease Fin. Corp., 645 F.2d 333, 336–38 (5th Cir. May 1981) (holding that “an order in a foreclosure proceeding that directs the immediate sale of specified property is in all respects a final order for purposes of appeal.”) USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 7 of 11

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forfeiture case. And it contends that the failure to comply with § 2001’s notice, hearing, and appraisal requirements rendered the sale “void” under the former Fifth Circuit’s decision in Acadia Land Co. v. Horuff, 110 F.2d 354, 355 (5th Cir. 1940) (holding that the failure to comply with statutory notice, hearing, and appraisal re- quirements rendered a private sale “void because the court was lacking in jurisdiction to confirm it”). 2 The government responds that Cleveland Law tacitly agreed to the sale or waived the issue by failing to object below, and that the appeal is moot because the sale to a good-faith pur- chaser cannot be undone. It further argues that Cleveland Law was not actually harmed by the sale order, and that the sale would have gone forward in the same way had the government simply waited to initiate a forfeiture case until the sale closed. Cleveland Law re- plies that it lacked a meaningful opportunity to object and that this Court can still grant effective relief. III. After this case was fully briefed, we asked the parties to sub- mit supplemental briefs addressing Cleveland Law’s standing to ap- peal the interlocutory sale order. Because standing implicates our jurisdiction, “we are obliged to consider standing sua sponte,”

2 This Court adopted as binding precedent all Fifth Circuit decisions prior to October 1, 1981. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc). USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 8 of 11

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reviewing de novo. AT&T Mobility, LLC v. Nat’l Ass’n for Stock Car Auto Racing, Inc., 494 F.3d 1356, 1359–60 (11th Cir. 2007). “Litigants must establish their standing not only to bring claims, but also to appeal judgments.” Wolff v. Cash 4 Titles, 351 F.3d 1348, 1353 (11th Cir. 2003). “To have appellate standing, a litigant must establish that he has suffered a concrete and particu- larized injury that is fairly traceable to the challenged conduct, and is likely to be redressed by a favorable judicial decision.” United States v. Pavlenko, 921 F.3d 1286, 1289 (11th Cir. 2019). The injury requirement means that “the appealed order must affect the liti- gant’s interests in an adverse way.” Id.; see Knight v. State, 14 F.3d 1534, 1556 (11th Cir. 1994). In other words, “[o]nly a litigant who is aggrieved by the judgment or order may appeal.” Wolff, 351 F.3d at 1354 (cleaned up). Cleveland Law says it has standing because the sale order “modified [its] ownership interest in the property,” “disrupted its business operations,” and violated its due-process rights in the for- feiture proceeding. It asserts that, while the sale order “purport- edly” transferred its lease agreement, the order “fail[ed] to ensure all lease provisions went undisturbed.” After the sale closed, ac- cording to Cleveland Law, the buyer attempted to terminate the lease agreement and then began converting the building to residen- tial housing, causing significant disruption and violating a lease pro- vision that limited use of the building to commercial purposes only. The government responds that Cleveland Law lacks stand- ing because the sale order kept Cleveland Law’s rights and USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 9 of 11

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remedies under the lease fully intact. In the government’s view, Cleveland Law’s problems with its new landlord stem from the in- dependent actions of a third party, not the sale order itself, and are “outside the ambit of this case.” It notes that the court abandoned jurisdiction over the building once the sale proceeds were substi- tuted for the building as the res. It also contends that Cleveland Law received due process and was not prejudiced by any proce- dural deprivation because even if due process as Cleveland Law en- visions it was entitled to had been afforded, the same result would have occurred. Cleveland Law replies that the Supreme Court has rejected similar reasoning. We agree with the government that Cleveland Law lacks standing to appeal. The sale order did not adversely affect Cleve- land Law’s leasehold interest in the property. That order permitted the sale to go forward under the terms of the purchase agreement, which transferred all existing leases to the buyer. The record contradicts Cleveland Law’s claim that the sale order failed to incorporate addenda to its lease or to document a few other lease provisions. Under the purchase agreement, the lease transfer included “any and all amendments, modifications or supplements” to leases, and the buyer “agree[d] to be bound by and to perform and observe all of the obligations, covenants, terms and conditions to be performed or observed.” So while Cleveland Law’s landlord changed, its lease did not. Indeed, Cleveland Law did not raise any objection to the sale until after it had closed, indi- cating that its problem was with the new landlord, not the sale USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 10 of 11

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itself. Cleveland Law therefore has not shown that the sale order affected its property interests in an adverse way. See Pavlenko, 921 F.3d at 1289. Nor are Cleveland Law’s grievances with its new landlord sufficient to provide standing to appeal the sale order. To be sure, Cleveland Law appears to have been injured by the new landlord’s attempt to terminate the lease and disruptive renovations for resi- dential housing, alleged to be in violation of a lease provision lim- iting use of the building to commercial purposes only. But those injuries were caused by “the independent action of some third party not before the court,” and are not fairly tracea- ble to the sale order itself. See United States v. Windsor, 570 U.S. 744, 757 (2013) (“[T]he injury has to be fairly traceable to the chal- lenged action . . . , and not the result of the independent action of some third party not before the court.” (cleaned up)). The sale or- der did not affect Cleveland Law’s property interest or authorize the buyer to take the actions of which Cleveland Law complains. And Cleveland Law’s injuries to its use and enjoyment of the prop- erty are redressable through an action against that third party. Cleveland Law fails to explain how undoing the sale and requiring additional procedures under § 2001, related to ensuring a fair sale price, would remedy these injuries. 3 See Pavlenko, 921 F.3d at 1289.

3 In its initial briefing, Cleveland Law also cited the protection of 18 U.S.C. § 985, which states that “the owners or occupants of the real property shall not USCA11 Case: 21-10696 Date Filed: 05/17/2022 Page: 11 of 11

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Finally, Cleveland Law’s alleged due-process injury is not enough on its own to create standing to appeal. Because Cleveland Law has not shown that the sale order adversely affected its prop- erty interest in 55 Public Square, it likewise has not shown that it was harmed by any procedural deficiencies in relation to that order. For these reasons, we conclude that Cleveland Law lacks standing to appeal the district court’s order authorizing the inter- locutory sale of 55 Public Square. We therefore dismiss the appeal for lack of jurisdiction.4 DISMISSED.

be evicted from, or otherwise deprived of the use and enjoyment of, real prop- erty that is the subject of a pending forfeiture action.” But as the government points out, that protection “does not apply to forfeitures of the proceeds of the sale of [real property or interests in real property].” 18 U.S.C. § 985(f)(2). In other words, § 985 no longer applied once the sale of the property closed and the proceeds were substituted as the res. 4 The government’s motion for summary affirmance or to dismiss on grounds of mootness is DENIED AS MOOT.