Federal Court Considers Status of Gay Couple Under Federal Forfeiture Statute

Richard Peterson pled guilty to wire fraud and engaging in the business of insurance after having been convicted of a felony involving dishonesty or breach of trust on July 19, 2005.  He subsequently executed a Post-Plea Sentencing Stipulation, under which he agreed to forfeit to the federal government his ownership interest in two properties: a building on Clayton Street in San Francisco containing three apartments (in one of which he had resided with his same-sex partner, Gregory Crew), and a condominium in Windsor Village, Grand Cayman Islands, British West Indies, which he had acquired through a company he formed for that purpose.  U.S. District Judge Denny Chin sentenced Peterson to ten years in prison and preliminarily ordered the forfeiture of the identified properties, but Gregory Crew then filed a petition claiming an ownership interest in those properties.  To the extent of such interest, Gregory Crew could be entitled to compensation or perhaps to avoid forfeiture entirely, depending on the proof.

In a decision announced on October 28, 2011, in U.S. v. Peterson, 2011 Westlaw 5110246 (S.D.N.Y.), Judge Chin, now a judge of the U.S. Court of Appeals for the 2nd Circuit but continuing to rule on cases from his former district court docket, ruled on Crew's claim.  Although Peterson and Crew had registered as domestic partners under California law in 2005, when the Domestic Partnership Law extending virtually full marital rights to registered partners went into effect, Judge Chin concluded that this registration was irrelevant to the instant case, because it post-dated the indictment of Peterson, and the time of identifying ownership interest for purposes of forfeiture would begin running from the indictment.

Crew alternatively premised his claim on transfers of ownership rights undertaken by Peterson to Crew.  Peterson had transferred his ownership of the San Francisco building to Crew in exchange for $100 cash, and had his company transfer ownership of the Grand Caymans condo to Crew, apparently as a gift because no consideration was recited.  Judge Chin found that ill-gotten proceeds from Peterson's criminal activities were involved in the acquisition or improvement of these properties (to pay for renovation of the San Francisco building, and to acquire the condo in Grand Caymans), and that these attempted transfers were "fraudulent transfers" that would not be recognized as valid for purposes of federal forfeiture law.

But Crew's final alternative argument met a happier fate.  Under the California Supreme Court's 1976 ruling in Marvin v. Marvin, 557 P.2d 106, an agreement by an unmarried couple based on a long-term cohabiting partnership in which the parties have an understanding of shared interest in property acquired may give rise to an implied contract, resulting in the property being considered "community property" of the couple with shared ownership in it.  Judge Chin found that the uncontested facts about the relationship between Peterson and Crew fit into the framework of Marvin v. Marvin.

The men met socially in 1980, began dating, and less than a year later Crew moved in with Peterson, who was a tenant in one of the apartments in the San Francisco building.  Within two years, they had reached an agreement that "we would share in everything" and "what was his was mine and vice versa."  They lived and held themselves out as a committed couple.  When Crew's employer began to offer partnership benefits, he registered Peterson to receive them, and he also designated Peterson as a beneficiary on his retirement account and insurance policies.  As soon as the expanded Domestic Partnership Law went into effect in 2005, the men registered as domestic partners. 

Peterson bought the San Francisco building in 1982, and although Judge Chin found that Crew did not contribute to the downpayment, the men shared the cost of mortgage payments above the amount covered by the rental income from the two other apartments, and they shared expenses of renovation.  Crew supervised the renovations, which ultimately made it possible for them to sharply increase their rental income.  Crew assumed primary responsibility for the upkeep of the building, while Peterson engaged in his business activities. 

Peterson established a company in the Grand Caymans through which he purchased the property there.  Crew did not contribute to that purchase, although from time to time he paid certain fees to the extent that they weren't covered by rental income from the property.  This was evidently a business investment by Peterson, as the opinion does not indicate that the men used that condo as a vacation home.

Crew fell seriously ill in late 2002 with a life-threatening illness (not specific in the court's opinion), and the men became concerned about providing for Crew if anything happened to Peterson.  About this time, Peterson instructed his representative in Grand Cayman to transfer ownership of the property there to Crew.

Peterson was subpoenaed by a grand jury in the Southern District of New York in October 2003 for documents relating to insurance policies he had issued.  That same month he executed the deed transferring ownership of the San Francisco building to Crew in exchange for a recited consideration of $100.  The transfer triggered a reassessment by the city of San Francisco, substantially increasing the property taxes, reflecting the renovations the men had made since the last assessment and increased residential rents in the city.  The renovations then under way were completed in 2004, and the units newly-rented, with rental payments being made directly to Crew, who then paid expenses and the mortgage.  As noted above, Peterson pled guilty to federal offenses in 2005 and was sent off to prison.  Crew still lives in the building and continues to manage the finances there.

After summarizing the California doctrine that has arisen under the Marvin v. Marvin precedent, Judge Chin concluded that, as to the San Francisco building, "The services Crew provided, combined with his financial contributions and the promises Crew and Peterson made to each other, establish a community property interest under Marvin." 

However, as to the Grand Cayman property, Judge Chin found no intent by Peterson to create a community interest.  Indeed, forming a company under his ownership to buy the property as an investment suggested that "he did not intend for the condominium to be shared property."  At the hearing Judge Chin held on Crew's petition, Crew "acknowledged he took little or no interest in the ownership of the Grand Cayman Property," and confessed ignorance about the company or why the condo's ownership was transferred to him.  Thus, under Marvin, the condo was not community property.

Having found that Peterson invested $156,857.04 of his fraudulent proceeds in the San Francisco property, Judge Chen ruled that upon sale of the property, that amount was forfeited to the government, leaving Crew with "a community property interest in the remaining equity in the San Francisco Property, but no such interest in the Grand Cayman Property."  Since federal forfeiture law authorizes partial forfeiture in the case of property that is jointly owned, in this case Judge Chin ordered that Crew be recognized as having a one-half interest in "the remaining equity in the property."  After the property is sold, he would be compensated accordingly.

Steven Kessler, Esq., of New York City, represented Crew on his Petition.

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