McKinney v. State of Maryland Deposit Insurance Fund Corp.

WILNER, Chief Judge. Appellant is upset with an order entered by the Circuit Court for Montgomery County, pursuant to Md. Rule 2-651, requiring her to deposit certain funds with the court if and when she receives them from the Clerk of the United States District Court. She believes that the court had no authority to enter such an order and asks us, therefore, to strike it. We find no impropriety in the order.

Background This case is a lingering consequence arising from the collapse of Community Savings & Loan, Inc. (Community) and, more particularly, from the shenanigans on the part of those who once were in control of Community. In addition to Federal criminal charges brought against some of those persons, including appellant and Tom Billman, both of whom were officers and directors of Community and some of its related entities, civil actions were instituted against them by appellee, Maryland Deposit Insurance Fund Corporation (MDIF), as receiver of Community, to recover losses incurred by virtue of alleged breaches of their duties of care and loyalty to Community. One of the claims in both the civil actions and in the Federal indictments was that Billman had managed to transfer $22 million in funds belonging to Community to Swiss bank accounts. On October 6, 1988, after full trial in the Circuit Court for Montgomery County, judgments were entered in favor of MDIF against Billman for over $112 million, against Crysopt Corporation for over $94 million, and against appellant for over $101 million.

The judgments against Billman and Crysopt were affirmed on appeal. See State Deposit v. Billman, 321 Md. 3 , 580 A.2d 1044 (1990), on remand, 88 Md.App. 79, 593 A.2d 684 , cert. denied, 325 Md. 94 , 599 A.2d 447 (1991). After the judgments were entered, and apparently during the pendency of the Federal criminal trial, Billman disappeared. He remained a fugitive until March, 1993, when he ¹²⁷ was finally apprehended in France and extradited to the United States.

On December 23, 1988, appellant and MDIF entered into a Settlement Agreement in compromise and satisfaction of the judgment against her. In its recital clauses, the agreement noted that the judgment against appellant was for compensatory damages only and was not based on any claim of fraudulent conduct on her part, that appellant had incurred considerable expense in defending the action, and that her insurer, American Casualty Company of Reading, Pa., had refused to defend appellant, pay any part of the expenses incurred by her, or pay any part of the judgment. The agreement called for appellant to pay to MDIF $300,000, of which $75,000 was to be paid in cash -within 30 days and the balance pursuant to a promissory note secured by a deed of trust on her Virginia home. It also required her to assign to MDIF all of her rights under the American Casualty policy.

Paragraph 3 of the agreement provided, in pertinent part, that “the judgment shall be satisfied in full as against [appellant] (assuming full compliance by [her] with all the terms and conditions of this Settlement Agreement).” Paragraph 11 stated: “MDIF and [Community] hereby covenant and agree not to look to any of [appellant’s] future sources of income or funds to in any manner increase [appellant’s] obligations hereunder or to in any manner amend or void this Settlement Agreement. Furthermore, MDIF and [Community] agree that in the event any other defendant in the Billman, Action, corporate or individual, agrees to pay some or all of [appellant’s] attorneys’ fees or some or all of the sums required under paragraph 1 of this Settlement Agreement, MDIF and [Community] will take all reasonable actions to permit such payments to be made and in the event that the same are made toward the amounts due pursuant to paragraph 1 of this Settlement Agreement, shall credit [appellant’s] obligation hereunder therefor to the same extent as if [appellant] made such payments.” ¹²⁸ In ¶ 13, MDIF undertook to prosecute a claim against American Casualty to recover all covered losses that that company was obligated to pay on behalf of appellant. Appellant agreed to cooperate in the prosecution of that claim and also: “to cooperate reasonably with MDIF and [Community] ... in MDIF’s efforts to recover on its judgment in the Billman Action. If [appellant] fails to comply in good faith with this paragraph, MDIF and [Community] at their sole option may rescind this Settlement Agreement.” Paragraph 14 allowed MDIF to obtain “one sworn statement relating to [appellant’s] assets or any other matter in connection with the collection of the Judgment against other defendants” and provided that if she “does not honestly and completely answer questions put to her, this Settlement Agreement shall be null and void.” Finally, in ¶ 23, appellant consented to the jurisdiction of the Circuit Court for Montgomery County “for all purposes in connection with this Settlement Agreement.” MDIF had taken a deposition of appellant in aid of executing on its judgment on December 8, 1988—prior to entering into the settlement agreement; it never sought another sworn statement as provided for in ¶ 14.

In that deposition, appellant stated that there was no one in the world keeping any asset for her, that apart from a claim against American Casualty for coverage, she was asserting no claim against anyone “that would bring moneys back to [her],” that, with the exception of a Crysopt account that she believed had been closed, she was not aware of any transfers of assets outside the United States by Billman, Crysopt, or any related entity, and that she was unaware of any asset of Billman that was not in either Maryland or Virginia. She acknowledged her continuing duty to cooperate. Appellant paid the $75,000 and gave MDIF the note and other documents called for by the agreement, and so, on February 16, 1989, MDIF released its judgment against her in ¹²⁹ the Virginia court in which it had been recorded. 1 Appellant paid the note in November, 1989; on December 11, 1990, MDIF released its lien on her home. While all of this was transpiring, the Government was actively seeking to locate Billman and, as part of that effort, obtained a court order to tap appellant’s telephone.

The tap revealed frequent calls from Billman, a fact which appellant had acknowledged in her December, 1988 deposition. On May 9, 1989, appellant received an overseas call from Michael Byrd, a London solicitor retained by Billman, in which the two arranged for the wire transfer of funds from Billman to an account in the name of appellant’s mother in Detroit, Michigan. In that conversation, both Byrd and appellant avoided referring to Billman by name, preferring to call him “a mutual client.” On May 17, 1989, Billman, through Byrd, transferred nearly $500,000 to appellant via her mother’s bank account. On May 18, Billman called appellant to confirm the delivery of the money.

In that conversation, they used code phrases and indirect references to confirm the delivery of the money and to plan a future contact at what they believed to be a “safe” line in Virginia. Billman inquired as follows: “It’s my understanding that the eagle has flown and landed on your end. Is that correct?”—apparently referring to the wire transfer. Billman later referred to “normal tomorrow,” to which appellant responded, “I think I understand the word normal,” to which Billman stated, “Yeah, 703”—apparently referring to the “safe” line in Virginia. 2 Billman said he would call again the next day. ¹³⁰ On May 19, 1989, appellant’s mother withdrew the funds from the account to which they had been wired and distributed them among other accounts and certificates of deposit in two Michigan banks.

The same day, Billman called appellant again, as he had promised. During that conversation, it became evident that appellant had spoken with her parents, although it was not until the 20th that, in coded language, they confirmed that they had distributed the wired funds. Appellant and Billman, who obviously were romantically involved, spoke of possibly meeting in Canada; they discussed the possibility that their calls were being monitored: “BILLMAN: ... Did you get the money?

MCKINNEY: [3] Yes. BILLMAN: Good. MCKINNEY: I got, I got word this morning. BILLMAN: Good.

Hope your mother didn’t call you on an open line. MCKINNEY: No. They didn’t call at all. I called from someplace else. BILLMAN: Well, the value of that, of that place is, is that there’s absolutely no way they can pick anything up.

MCKINNEY: That’s right. BILLMAN: This one with a single line, who knows? MCKINNEY: Yeah. BILLMAN: And, ah, you know, I mean, I, I just don’t know.

It, the whole thing just scares the shit out of me. The phones, in fact, I mean, frankly, at some point I’m planning just to discontinue phone use.” Appellant also forwarded telephone messages for Billman that had been left on an answering machine. On May 20, officials intercepted a conversation between appellant and her parents regarding the transfer of the money sent by Billman from them to appellant. ¹³¹ On August 15, 1989, the Government instituted an action in U.S. District Court against appellant, contending that the transferred funds were subject to forfeiture under the Racketeer Influenced and Corrupt Organization Act (RICO), which Billman had been charged with violating. It was successful in obtaining from the court a temporary restraining order prohibiting appellant and her parents from disposing of the funds.

In a subsequent proceeding on the Government’s motion for an extended injunction and appellant’s motion to vacate the temporary restraining order, the court considered two issues: whether the $500,000 in question could be traced to the proceeds of any RICO violation by Billman, and whether those funds continued to belong to Billman after the wire transfer. It answered both questions in the negative: “As to the first question, the Court finds that the evidence simply fails to establish any direct link to the $22 million in RICO violation proceeds which Billman allegedly transferred to Swiss bank accounts in 1985 and 1986.... Given the fact that Billman appears to have had sources of income completely unrelated to his alleged criminal activities, the Court is unable to find that the proceeds of the May 17, 1989 transfer may be directly linked to his RICO violations, and thus frozen through [18 U.S.C. § ] 1963(c). Moreover, the Court finds it unnecessary to determine whether Subsection (m) authorizes pre-trial injunctions as to substitute assets because the evidence of record fails to establish that respondent was merely holding funds which, in reality, still belonged to Billman.” As to the latter finding, the District Court noted that, from the tapped conversation, it appeared that Billman “was no longer claiming control over the transferred funds.” It thus indicated that “[wjhether [appellant] had earned them in some way, or had simply received them from Billman as a gift, is completely irrelevant, since Subsection (m), at most, authorizes injunctions as to Billman’s property.” Upon these findings, the court denied the Government’s motion for injunction and granted appellant’s motion to dismiss the injunctive proceeding. ¹³² The Fourth Circuit Court of Appeals, upon the Government’s appeal, expressed serious reservations as to the critical finding by the District Court that the Government had failed to show a tracing of the funds but nonetheless regarded itself as bound by that finding.

In re Billman, 915 F.2d 916 (4th Cir.1990), cert. denied, 500 U.S. 952 , 111 S.Ct. 2258 , 114 L.Ed.2d 711 (1991). At 919-20, it stated: “There can be no doubt that Billman was the source of the funds sent to [appellant] through his solicitor and through the Euro-plan transaction. The manner in which the funds were laundered, the use of codes and phones perceived to be safe, and the further laundering of the money for the Brickley settlement are facts that would justify the inference that the funds were part of the $22,-000,000 deposited in Swiss banks. These facts would also justify the inference that the tainted funds were not Bill-man’s to give away.

Nevertheless, the district court drew contrary inferences and we are bound by its findings.... Therefore, we are compelled to conclude for the purpose of this case that the source of the funds was money which Billman did not steal from Community.” Despite this compelled conclusion, the appellate court declared that the funds could be restrained under RICO—that the Government was not required to trace the proceeds of the RICO offense into a specific bank account in order to execute a forfeiture judgment but that such a judgment could be satisfied out of any of the defendant’s assets, including “substitute assets” in the hands of a third party who did not qualify as a bona fide purchaser for value and without knowledge. Responding to appellant’s claim that an indefinite restraint violated her right to due process, the Court pointed out that Billman’s flight could not be attributed to the Government, but rather that appellant aided him by assisting in the transfer of Community’s funds abroad and “presently sustains him as a fugitive by forwarding messages left for him on an answering device.” Id. at 922. ¹³³ In August, 1991, the District Court dismissed the RICO charge against one of Billman’s co-defendants, Crysopt, on the ground that it failed properly to charge an enterprise or pattern of racketeering. Contending that the RICO count against Billman was equally defective, appellant, who in the meanwhile had been acquitted of the Federal charges against her, again sought the release of the transferred funds.

In January, 1992, the District Court agreed with appellant that the RICO count against Billman was defective and that, as that charge was the sole basis for impounding the $500,000, she was entitled to the release of the money. Its actual ruling, insofar as revealed in the record extract before us, is best described by the Fourth Circuit Court of Appeals which, upon the Government’s appeal, again reversed the District Court: “Subsequently, the district court held that the original indictment against Billman and another defendant, which served as probable cause to restrain the substitute assets, was defective. The government attempted to correct the flaws with a superseding indictment. The district court dismissed the superseding indictment as time-barred.

It also dismissed the original indictment as to the other defendant, but not Billman.” In Re: Assets of Tom J. Billman, No. 92-1050, 1992 WL 237301 (Unpublished Opinion filed Sept. 25, 1992). The appellate court continued the restraint on two bases: (1) notwithstanding the apparent defect, the District Court had not, in fact, dismissed the RICO count against Billman, and (2) the superseding indictment was not time-barred, because the statute of limitations does not