Free Reply to Response to Motion - District Court of Federal Claims - federal

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No. 96-408C (Senior Judge Smith) IN THE UNITED STATES COURT OF FEDERAL CLAIMS

INNOVAIR AVIATION LIMITED, Plaintiff, v. UNITED STATES, Defendant.

DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANT'S MOTION FOR RECONSIDERATION

GREGORY G. KATSAS Assistant Attorney General JEANNE E. DAVIDSON Director

SHERYL L. FLOYD Senior Trial Counsel Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 616-8278 Facsimile: (202) 514-8624 Attorneys for Defendant JULY 18, 2008

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TABLE OF CONTENTS ARGUMENT ................................................................................................................................. 2 I. The Factual Similarities Between AmeriSource And This Case Require The Court To Dismiss Innovair's Complaint .......................................... 2 A. The Factual Differences Between AmeriSource And This Case Regarding Why The Government Seized The Property And What It Did With The Property After Seizure Are Not Significan .......... 3 The Fact That The Arizona District Court Concluded That Innovair Was An "Innocent Owner" And That No Such Determination Was Made With Respect to AmeriSource Does Not Justify Treating The Two Cases Differently For The Purpose of Fifth Amendment Takings Analysis ...................................................................................... 5

B.

II.

As The Federal Circuit Correctly Concluded In AmeriSource, Plaintiffs Whose Property Is Seized And Disposed Of Pursuant To The Government's Law Enforcement Powers Fail To State A Takings Claim .................................... 7 A. The Government's Reading Of AmeriSource Is Consistent With Supreme Court And Federal Circuit Precedent ............................... 7 Innovair Has Failed To State A Fifth Amendment Takings Claim ........... 9

B. III.

The Facts Demonstrate That The Government Acted Lawfully And That It Should Not Precluded From Asserting A Defense Based Upon Bennis .......... 12 A. Innovair Fails To Demonstrate That The Facts Preclude The Government From Demonstrating No Taking Occurred ........................ 12 The Supreme Court's Reasoning In Bennis Applies Here ...................... 15

B.

CONCLUSION ............................................................................................................................ 18

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TABLE OF AUTHORITIES CASES Acadia Technology, Inc. v. United States, 458 F.3d 1327 (Fed. Cir. 2006) .......................................................................... 2, 5, 8, 16 AmeriSource Corp. v. United States, 75 Fed. Cl. 743 (2007) ............................................................................................. passim AmeriSource Corp. v. United States, 525 F.3d 1149 (Fed. Cir. 2008) ............................................................................... passim Bennis v. Michigan, 516 U.S. 442 (1996) ................................................................................................. passim Berman v. Parker, 348 U.S. 26 (1954) ............................................................................................................ 8 Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663 (1974) .................................................................................................... 8, 16 Crocker v. United States, 37 Fed. Cl. 191 (1997), aff'd, 125 F.3d 1475 (Fed. Cir. 1997) ............................................................................. 17 DiBella v. United States, 369 U.S. 121 (1962) ........................................................................................................ 17 Floyd v. United States, 860 F.2d 999 (10th Cir. 1988) ........................................................................................ 17 Goldblatt v. Hempstead, 369 U.S. 590 (1962) ........................................................................................................ 16 Hawaii Housing Auth. v. Midkiff., 467 U.S. 229 (1984) .......................................................................................................... 8 Innovair Aviation Ltd. v. United States, 72 Fed. Cl. 415 (2006) ................................................................................................ 1, 15 Loftin v. United States, 6 Cl. Ct. 596 (1984) ......................................................................................................... 16

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Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982) .......................................................................................................... 9 Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992) ........................................................................................................ 8 In re Matter of Seizure of Four (4) DC-3 Aircraft, 134 F.R.D. 251 (1991) .............................................................................................. 17, 18 Miller v. Schoene, 276 U.S. 272 (1928) .................................................................................................... 8, 16 Mugler v. Kansas, 123 U.S. 623 (1887) .................................................................................................... 8, 16 Noel v. United States, 16 Fed. Cl. 166 (1989) .................................................................................................... 16 United States v. Eight Thousand Eight Hundred and Fifty Dollars ($8,850), 461 U.S. 555 (1983) ........................................................................................................ 17 United States v. One 1979 Cadillac Coupe De Ville, 833 F.2d 994 (Fed. Cir. 1987) ........................................................................................... 6 United States v. Martinson, 809 F.2d 1364 (9th Cir. 1987) .................................................................................. 17, 18 United States v. United States Currency $83,310.78, 851 F.2d 1231 (9th Cir. 1988) ........................................................................................ 17 Vereda, LTDA v. United States, 271 F.3d 1367 (Fed. Cir. 2001) ...................................................................................... 15 Wright v. United States, 14 Cl. Ct. 819 (1988) ....................................................................................................... 16

STATUTES and REGULATION 18 U.S.C. § 981 (a)(1)(A) ............................................................................................................. 4 18 U.S.C. § 1956(a)(1)(A)(I) ........................................................................................................ 3 19 U.S.C. § 1606 ......................................................................................................................... 14

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19 U.S.C. § 1614 ..................................................................................................................... 5, 13 21 U.S.C. §§ 801-971 (the "CSA") ............................................................................................... 1 21 U.S.C. §§ 881(a)(4), (6) ............................................................................................................ 4 21 U.S.C. § 881(d) ...................................................................................................................... 13 21 U.S.C. § 959, 960(b)(1) ........................................................................................................... 4 26 U.S.C. §§ 6050(I), 7302 ............................................................................................................ 4 28 U.S.C. § 2412 .......................................................................................................................... 16 31 U.S.C. § 5317 ............................................................................................................................ 4 21 C.F.R. 1316.98 (1991) ............................................................................................................ 14 RULES OF PROCEDURE Fed. R. Crim. P. 41(e) ........................................................................................................... 17, 18

INDEX TO APPENDIX United States v. Basler Turbo-67 Conversion DC-3 Aircraft, et al., CIV 90-1827-PHX-RCB, First Amended Verified Complaint, dated January 7, 1992 ....................................... Tab F

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS INNOVAIR AVIATION LIMITED, Plaintiff, v. UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 96-408C (Senior Judge Smith)

DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANT'S MOTION FOR RECONSIDERATION Defendant, the United States, respectfully submits this reply in support of our motion for reconsideration. For the reasons explained previously, and below, our motion should be granted and the complaint dismissed for failure to state a claim. In its opposition to our motion for reconsideration, plaintiff, Innovair Aviation Ltd. ("Innovair"), uses a scattergun approach as it tries to persuade the Court that the decision, AmeriSource Corp. v. United States, 525 F.3d 1149 (Fed. Cir. 2008), has no relevance to this case. Innovair contends that (1) the Government reads the decision, too broadly, and (2) contrary to the Government's contentions, the factual similarities between this case and AmeriSource do not justify the Court to reconsider its earlier decision, Innovair Aviation Ltd. v. United States, 72 Fed. Cl. 415 (2006). Innovair not only misunderstands the significance of the AmeriSource decision, but it also reads that decision too narrowly. In seeking to distinguish this case from AmeriSource, Innovair ignores the context within which the Government seized the Technology License Agreement ("TLA") by suggesting that the Government stole the TLA. Innovair is simply wrong. The TLA was transferred from Innovair to Basler Turbo Conversions, Inc. ("BTC") pursuant to and in accordance with the applicable rules and regulations of the Controlled Substance Act, 21 U.S.C. §§ 801-971 (the

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"CSA"). The factual distinctions that Innovair draws between AmeriSource and this case are insignificant and misleading. AmeriSource instructs us that, in the context of the Fifth Amendment takings clause, the term, "public use," does not encompass "any [G]overnment use of private property aimed at promoting the common good, including the enforcement of the criminal laws." The Fifth Amendment takings clause must be read in harmony with the Government's "police powers," including its law enforcement powers. AmeriSource, 525 F.3d at 1152-53. Accordingly, AmeriSource reinforces the holdings of Bennis v. Michigan, 516 U.S. 442 (1996), and Acadia Technology, Inc. v. United States, 458 F.3d 1327 (Fed. Cir. 2006), that innocent owners may be unable to receive compensation for the complete loss of their property when it has been seized as part of a criminal prosecution. AmeriSource, 525 F.3d at 1155-57. As we demonstrate below, based upon the rationale articulated in AmeriSource, this Court should reconsider its liability decision in this case and conclude that Innovair has failed to state a Fifth Amendment takings claim. ARGUMENT I. The Factual Similarities Between AmeriSource And This Case Require The Court To Dismiss Innovair's Complaint

In focusing upon the factual differences between AmeriSource and this case, Innovair contends that the rationale the Federal Circuit applied in AmeriSource does not apply here because there are differences in: (1) the reasons why the Government seized the property; (2) what the Government did with the property after it was seized, and (3) what the property owners

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purportedly knew at the time of the seizure. Pl. Br. 2-3, 14-17.1 The differences cited by Innovair between AmeriSource are not significant, and none of them justifies the Court's reaching a different result in this case from that in AmeriSource. A. The Factual Differences Between AmeriSource And This Case Regarding Why The Government Seized The Property And What It Did With The Property After Seizure Are Not Significant

As to the reasons for the seizure, the United States, pursuant to a warrant, seized AmeriSource Corporation's ("AmeriSource") pharmaceuticals as part of its investigation into various criminal activities of Anita Yates and Anton Pusztai, who purchased but did not pay for AmeriSource's drugs prior to being indicted by a Federal grand jury in Alabama. AmeriSource Corp. v. United States, 75 Fed. Cl. 743, 744 (2007). Ms. Yates and Mr. Pusztai "were changed with conspiracy, unlawful distribution of prescription pharmaceuticals, dispensing misbranded pharmaceuticals, operating an unregistered drug facility, and conspiracy to commit money laundering." Id. So, too, in this case, the United States seized the TLA as part of its investigation into the criminal activities of numerous individuals who were indicted by a Federal grand jury in Arizona. Complaint No. CIV-90-1827-PHX-RCB, dated January 7, 1992 ("Amended Forfeiture Compl."), ¶¶ 8, 127-138 ; App. F, at 5, 45-48. The TLA was implicated in the crimes committed by the Cali Cartel2 who were charged with "laundering funds to promote unlawful activity in

"App. ___" is an abbreviation for the appendix that was attached to the Government's motion for reconsideration, dated June 16, 2008, and to this brief. (Appendices A through E are attached to the Government's June 16, 2008 brief. Appendix F is attached to this brief.) "Pl. Br. ___" is an abbreviation for Plaintiff Innovair Aviation Limited's Opposition to Defendant's Motion for Reconsideration, dated July 9, 2008. Innovair contends in paragraph 10 of its Complaint ("Compl.") in this case that the Colombians were members of the Medellin Cartel, but they were actually members of the -32

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violation of 18 U.S.C. § 1956(a)(1)(A)(I), laundering funds to conceal and disguise proceeds of unlawful activity in violation of 18 U.S.C. § 1956(a)(1)(B)(I), and Conspiracy to Distribute Controlled Substance for the Purpose of Unlawful Importation in violation of 21 U.S.C. § 959, 960(b)(1) and 963." Amended Forfeiture Compl., ¶ 5; App. F, at 5, ¶ 5. Because the Government seized the TLA in this case and the pharmaceuticals in the AmeriSource case as part of a criminal investigation into crimes committed by third parties and pursuant to the Government's law enforcement powers, no basis exists to distinguish these two cases based upon the purposes for which the property was seized. Innovair correctly points out that what the Government did with the drugs that it seized in AmeriSource was different from what the Government did with the TLA after it was seized. Pl. Br. 3, 14. However, the differences are not material for the purpose of this Fifth Amendment takings analysis. In AmeriSource, the Government retained the drugs purportedly to use them as evidence in connection with the criminal prosecution of Ms. Yates and Mr. Pusztai. AmeriSource, 75 Fed. Cl. at 749. The district court for the Middle District of Alabama determined that the Government could retain the property, notwithstanding AmeriSource's contention that they should be returned to their owner. Id. at 743; see AmeriSource, 525 F.3d at 1151. In this case, the Government chose to try to forfeit the property pursuant to various criminal statutes, 18 U.S.C. § 981 (a)(1)(A), 21 U.S.C. §§ 881(a)(4), (6), 31 U.S.C. § 5317, 26 U.S.C. §§ 6050(I), 7302. Compl. ¶¶ 1-5. The United States Attorney's office entered into negotiations with Innovair and, subsequently, with BTC, to release the TLA, in return for the

Colombian Cali Cartel. -4-

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posting of a substitute res bond, so that the TLA could be used to convert DC-3 aircraft into BT67s pending the forfeiture proceedings. App. B, at 6-10, 19-20. The Arizona district court approved the substitute res bond agreement between BTC and the Government in accordance with Rule E(5) of the Supplemental Rules for Admiralty and Maritime Claims ("FRCP SUPP AMC" Rule E(5)(c)) and 19 U.S.C. § 1614. Id. at 12-13. The fact that the Government retained the drugs as evidence in AmeriSource and that it released the TLA pending the outcome of forfeiture proceeding in connection with this case does not justify distinguishing AmeriSource from this case for the purposes of the Fifth Amendment takings clause, because, in both cases, the Government followed the applicable criminal law, and the pertinent district courts approved the actions of the Government. AmeriSource, 75 Fed. Cl. at 744-45; App. B. In neither case did the Government acquire the property "for public use," pursuant to its power of eminent domain. See Acadia, 458 F.3d at1332.3 B. The Fact That The Arizona District Court Concluded That Innovair Was An "Innocent Owner" And That No Such Determination Was Made With Respect to AmeriSource Does Not Justify Treating The Two Cases Differently For The Purpose of Fifth Amendment Takings Analysis

Contrary to Innovair's contention, this case is not distinguishable from AmeriSource because AmeriSource "was at least partially to blame for the loss of its property." Pl. Br. 2. Neither the trial court, nor the appellate court cited any evidence that AmeriSource knew or had

Innovair's suggestion that the result in AmeriSource turns upon the fact that the company "could not even identify its property among the whole of the seized pharmaceuticals" is not supported by the AmeriSource decision. See Pl. Br. 7. Although AmeriSource could not identify all of the drugs it had shipped to Norfolk Pharmacy, it could identify "several items under the seized evidence that it [had] shipped,"and AmeriSource wanted those drugs back. AmeriSource, 75 Fed. Cl. at 745. Nevertheless, the district court declined to grant AmeriSource's request to return all but a few representative samples, even when AmeriSource noted that the "use by" date on the drugs would soon pass. AmeriSource, 525 F.3d at 1151. -5-

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reason to suspect that Norfolk or its principals had violated any laws or that AmeriSource failed to take adequate precautions when it entered into contract with Norfolk or shipped the drugs to Norfolk. In that regard, AmeriSource was just as innocent as the Arizona district court found Innovair to be. Innovair's contention that this case is distinguishable from AmeriSource because the Arizona district court declared Innovair to be an "innocent owner," pursuant to the forfeiture laws is irrelevant. As the Federal Circuit ruled in AmeriSource, the "innocence of the property owner does not factor into the determination" of whether the plaintiff has failed to state a claim for compensation under the Fifth Amendment. AmeriSource, 525 F.3d at 1154 (citing Bennis, 516 U.S. at 453; United States v. One 1979 Cadillac Coupe De Ville, 833 F.2d 994, 1000 (Fed. Cir. 1987)). "[T]he inquiry remains focused on the character of the [G]overnment action, not the culpability or innocence of the property holder." AmeriSource, 525 F.3d at 1154. Moreover, the issue of Innovair's "innocence" is irrelevant to adjudication of this matter. When the Arizona district court determined that the United States was not entitled to forfeit the TLA based upon its determination that Innovair was an "innocent owner" in accordance with the CSA, Innovair was eligible to recover the value of the substitute res bond that BTC had posted to secure the release of the TLA. Innovair's due process rights were appropriately protected by the CSA. It recovered the value of the TLA. As we demonstrated earlier in this case,4 had Innovair believed that the substitute res bond did not represent the fair market value of the TLA, it could

See Defendant's Response to Court Order Dated July 22, 2002 (filed on September 13, 2002 ("Def. Br. dated 9/13/02"), pp. 8, 12-14; Defendant's Response to Brief of Innovair Aviation Limited in Response to the Court's July 22, 2002 Order Directing the Parties to Brief Certain Issues, dated November 6, 1992, pp. 7-10; Defendant's Reply to Plaintiff's November 6, 2002 Brief Submitted in Response to Defendant's Brief Filed on September 13, 2002, dated November 26, 2001, pp. 8-10. -6-

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have challenged the bond amount as being too low. Innovair is foreclosed from receiving any additional compensation for the TLA because it did challenge the value of the bond that BTC posted, at the trial level and on appeal to the Ninth Circuit.5 II. As The Federal Circuit Correctly Concluded In AmeriSource, Plaintiffs Whose Property Is Seized And Disposed Of Pursuant To The Government's Law Enforcement Powers Fail To State A Takings Claim

Innovair further contends that the Government's reading of AmeriSource is inconsistent with Fifth Amendment takings law and that this case falls outside of the tradition of Bennis v. Michigan, 516 U.S. 442 (1996). Innovair is wrong on both counts. A. The Government's Reading Of AmeriSource Is Consistent With Supreme Court And Federal Circuit Precedent

Innovair contends that the Government misreads AmeriSource in light of Supreme Court precedent and other Federal Circuit cases. Pl. Br. 5-9. Innovair is incorrect. The AmeriSource decision rests upon the general principle that, where the Government's action was clearly within the bounds of the exercise of its police powers to condemn contraband or noxious goods, the property was "`not seized for public use within the meaning of the Fifth Amendment,'" and plaintiffs cannot recover under the takings clause. AmeriSource, 525 F.3d at at 1154. Both the trial court and the appellate court in AmeriSource explained that this general approach should be utilized by the courts to determine whether a taking occurred in any circumstance in which property has been seized based upon the Government's exercise of its

One important difference between this case and AmeriSource that Innovair fails to mention is that, although AmeriSource recovered nothing with respect to the drugs seized by the Government, Innovair has recovered $1,783,879, which was the amount of the bond that BTC posted to secure the release of the TLA, plus interest. App. D, at 2. -7-

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"police powers," especially those which relate to protection of public health or public safety. AmeriSource. 525 F.3d at 1152-55; AmeriSource, 75 Fed. Cl. at 749-51. This broad reading of AmeriSource is consistent with the Federal Circuit's decision in Acadia, 458 F.3d at 1331-33. Moreover, as the Federal Circuit pointed out, the Supreme Court concluded, in a long line of cases, that the Government's exercise of its police power to condemn contraband or noxious goods "[should not be] regarded as a taking for public use for which compensation must be paid." Id. at 1332; see Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1029-30 (1992); see e.g., Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 680, 687 (1974); Miller v. Schoene, 276 U.S. 272, 279-80 (1928); Mugler v. Kansas, 123 U.S. 623 (1887). Thus, the Federal Circuit's reasoning in AmeriSource is clearly consistent with Supreme Court's reasoning in Lucas, 505 U.S. at 1029-30, Calero-Toledo, 416 U.S. at 680, 687, Miller, 276 U.S. at 279-80, and Mugler, 123 U.S. 623 (1887). Innovair fails to demonstrate that our position is inconsistent with the Supreme Court's decisions in Hawaii Housing Auth. v. Midkiff. 467 U.S. 229 (1984), and Berman v. Parker, 348 U.S. 26 (1954). Both Midkiff and Berman are cases in which the Government sought to exercise its power of eminent domain. The question in these cases was whether, in enacting legislation that condemns certain real property for development purposes, does the legislature act consistently with the Public Use Clause? Midkiff, 467 U.S. at 239-44; Berman, 348 U.S. at 3136. Midkiff and Berman decisions simply have no bearing upon AmeriSource or this case. Neither AmeriSource, nor this case deals with eminent domain issues. Contrary to Innovair's suggestion, Pl. Br. 8, the Federal Circuit in AmeriSource did not conclude that the police power "trumped" the Takings Clause. The Federal Circuit in AmeriSource concluded that the Government operated within the "bounds of the police power" -8-

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when it seized the pharmaceuticals in order to enforce criminal laws. Nevertheless, the Government did not seize the property for public use within the meaning of the Fifth Amendment. AmeriSource, 525 F.3d at 1153-54 (citing Acadia, 458 F.3d at1329). AmeriSource is also not inconsistent with Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982). The Loretto decision, in which the New York City approved a regulation that permitted a cable television company to place cable components on buildings in the city without providing any compensation to the owner, is a paradigm example of a physical taking based upon the "permanent physical occupation of another's property," "without regard to whether the action achieves an important public benefit or has only minimal impact on the owner." Id. at 434-35. Given that AmeriSource and this case deal with whether a taking occurred within the context of the Government's enforcement of its criminal laws, Loretto has no bearing upon either of these cases. See AmeriSource, 525 F.3d at 1154 (citing Bennis, supra) ("the inquiry [in cases in which the Government seizes property based upon its law enforcement authority] remains focused on the character of the government action, not the culpability or innocense of the property holder"). B. Innovair Has Failed To State A Fifth Amendment Takings Claim

Innovair attempts to analogize the Government's seizure of the TLA and its transfer to BTC, pursuant to Court order, with the Government's hanging of a Monet painting in the

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National Gallery of Art after the thief has been prosecuted.6 Pl. Br. 8, n.7. Innovair's analogy is misleading and irrelevant. This is not what happened here. The Government seized the TLA in this case because Innovair had used the illicit proceeds from Cali drug cartel crimes to pay $1.375 million of the $1.675 million purchase price for the TLA from BTC. The Government offered Innovair the opportunity to post a substitute res bond to secure the release of the TLA pending the disposition of the forfeiture proceedings. It determined that Innovair's initial proposed substitute bond was not adequate and, in early September 1991, after the Wisconsin district court denied Innovair's request for a preliminary injunction to force BTC to turn over the BT-67 conversion technology and drawings to Innovair, Innovair told the Government it was no longer interested in posting a substitute res bond to secure the release of the TLA. App. B, at 6-8. The Government was aware that a significant dispute existed between Innovair and BTC concerning the TLA "concerning the rights and obligations of Innovair and BTC with regard to performance under the TLA. Id. at 18. It was not in a position to adjudicate between Innovair and BTC concerning who possessed what rights under the TLA. It subsequently initiated negotiations with BTC to allow it to post a substitute res bond to obtain the release of the TLA pending forfeiture proceedings. Id. at 9. The Government and BTC reached agreement upon the terms of the Substitute Res Bond Agreement, and the Government requested the Arizona district court to approve BTC's offer to post a $1.375 million bond to secure the release of the TLA

Innovair states its example as follows: "Suppose a thief steals a privately owned Monet and is caught. The government presumably may keep the painting as evidence during the art thief's prosecution. But the government surely cannot just hang it in the National Gallery of Art when the case is over. Here the government never gave the TLA back. Instead, it gave it away." Pl. Br. 8, n.7. This analogy is erroneous. - 10 -

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pending the forfeiture proceeding. Id at 9-10. Innovair objected to BTC's posting of a bond, it filed a brief in the Arizona district court which explained its objections, and the Arizona court heard oral argument from the parties. App. B. In its ruling issued in May 1992, the Arizona district court rejected all of the reasons Innovair presented to the court for declining to approve the substitute res bond agreement. Id. at 11-24. One of the primary reasons the Arizona court approved the substitute res bond agreement was that the Government had to obtain a substitute res bond in the Arizona litigation "before Innovair would be able to obtain any rights under the TLA." Id. at 19. Both Innovair and BTC were concerned that the value of the TLA would continue to decline while the marketing rights it controlled remained unused. Id. at 20. Innovair's and BTC's rights under the TLA had to be resolved by the Wisconsin district court or through settlement. In addition, The Arizona court recognized that, by approving the substitute res bond agreement, "[t]he competing claims of BTC and Innoviar to the TLA [would] then be free of [its] jurisdiction and [could] be decided by the Wisconsin court as one of the many claims arising out of the parties' complex relationship." Id. Innovair and BTC eventually did resolve their dispute through settlement. App. C, at 20. In so doing, Innovair voluntarily relinquished its right to the TLA and it acquired the right to pursue BTC's rights to the substitute res bond in Arizona district court. Id. Clearly, in contrast to the Monet painting, the United States never gave the TLA away. Innovair never appealed the district court's May 1992 decision that approved the transfer of the TLA to BTC. Rather, Innovair pursued the right it acquired through settlement to obtain the substitute res bond amount posted by BTC. Innovair prevailed in the forfeiture proceeding with regard to the TLA, and once the parties exhausted their appeals, the Arizona district court - 11 -

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awarded Innovair $1.375 million (the amount BTC posted to secure the release of the TLA), plus $408,879 in interest, for a total of $1,783,879. App. E. The analysis that the Federal Circuit used in AmeriSource to evaluate whether the plaintiff could state a Fifth Amendment takings claim is clearly applicable here given that the Government seized the TLA and the Arizona district court approved the transfer of the TLA to BTC in accordance with applicable criminal law procedures. As we demonstrated in our initial brief and here, the Government clearly acted within the bounds of its law enforcement powers in seizing the TLA and arranging for its transfer to BTC, with approval from the Arizona district court. Therefore, Innovair fails to state a Fifth Amendment takings claim. See AmeriSource, 525 F.3d at 1152-55. III. The Facts Demonstrate That The Government Acted Lawfully And That It Should Not Precluded From Asserting A Defense Based Upon Bennis

In arguing that this case falls outside the scope of Bennis, Pl. Br. 9-13, Innovair contends that the Government here "permanently destroyed the non-forfeitable property interests of a person who by the government's own admission it knew to be an innocent owner and then refuse to pay just compensation." Pl. Br. 12. Innovair's contention is unsupported and erroneous. Moreover, Innovair is unable to show that the seizure of the TLA and its subsequent transfer to BTC was a taking for "public use" in violation of the Fifth Amendment. A. Innovair Fails To Demonstrate That The Facts Preclude The Government From Demonstrating No Taking Occurred

Innovair is unable to establish that the Government "knew [Innovair] to be an innocent owner." Innovair had made a similar allegation during the course of the Arizona district court

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proceedings, but the trial court flatly rejected it. See App. A, at 18,7 24-25. The Arizona district court noted that "the only requirement for seizure of the TLA was probable cause tracing drug proceeds to the TLA," and the "[G]overnment [had] established probable cause in this regard." App. A, at 25.8 In order to satisfy the probable cause requirement, the Government was not

The Arizona district court found no merit to Innovair's allegations that, "even if the [G]overnment had probable cause to believe the assets were traceable to drug proceeds, the [G]overnment did not have probable cause to seize Innovair's interest in the assets because the [G]overnment knew that Innovair was an innocent owner before the seizures took place." App. A, at 18. Early in its brief, in quoting from paragraph 11 of the complaint, Innovair suggests that the Government admitted in its answer that it knew prior to seizing the TLA that Innovair and Basler did not know that they had been dealing with a Colombian drug cartel when the Colombians purchased the converted DC-3 aircraft. Pl. Br. 3, n.4. Innovair's implication is misleading. In the first sentence of paragraph 11 of Innovair's complaint, Innovair contends: "Innovair and Basler had carefully investigated the Colombian buyer with the American Embassy in Bogota and other sources and had no reason to doubt that it operated a legitimate freight operation." The Government's response to the first sentence of paragraph 11 was: "Denies the allegations contained in the first sentence of paragraph 11 for lack of knowledge and information sufficient to form a belief as to their truth." In the second sentence of paragraph 11 of its complaint, Innovair contends: "The United States has never contended that Innovair and Basler were aware that they were dealing with the Colombian Cartel or that they had any involvement with drug dealing or money laundering or that they had any reason to know that the money they received from the Colombians was `tainted.'" The Government's response to paragraph 11 was: "Admits the allegations contained in the second sentence of paragraph 11." It is clear that, when the Government's response to the second sentence of paragraph 11 is read within the context of paragraph 11 as a whole, the Government did not that it knew that Innovair was an "innocent owner." The Government did not know one way or another whether Innovair and Basler had carefully investigated the Colombian buyer when it seized the TLA. Answer, ¶ 11 (first sentence). In its response to the second sentence of paragraph 11, the Government admitted that it had never contended that Innovair and Basler were aware that they were dealing with the Colombian Cartel who were involved with drug dealing and money laundering, but it did not admit that it knew Innovair was an "innocent owner." In order to seize certain property, the Government must establish that it has "probable - 13 8

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required to make any representations about what Innovair knew or didn't know about the illegal activities of the Colombian drug cartel. No basis exists for the conclusion that the Government admitted Innovair was an innocent owner. Innovair also incorrectly asserts that the Government has refused to pay Innovair what it is owed for the TLA. The Arizona district court awarded it the substitute res bond in the amount of $1,375,000, plus interest. App. E. Hence, Innovair received all that it was entitled to receive for the TLA. Innovair is foreclosed from challenging this amount as being too low,9 because, during the forfeiture proceeding, it had an opportunity to contest the Government's motion to transfer the TLA to BTC in exchange for its posting of a substitute res bond, yet it failed to do so.10 The Government complied with all of Admiralty procedures and customs laws to insure that the bond which was posted to secure the release of property subject to forfeiture proceedings represented the value of the TLA. See 21 U.S.C. § 881(d); FRCP SUPP AMC Rule E(5)(c); 19 U.S.C. § 1614; 19 U.S.C. § 1606; and 21 C.F.R. 1316.98 (1991). To the extent that Innovair

cause that the seized property is substantially connected to illegal drugs." App. C, at 21 (citing 19 U.S.C. § 1615; 21 U.S.C. § 881(d)). It is plaintiff's burden to rebut the "[G]overnment's evidence of substantial connection or to prove that he was unaware of the connection." Id. (citing 21 U.S.C. § 881(a)(6)). The Arizona district court correctly found no merit to Innovair's contention that the Government did not have probable cause to seize the TLA. App. A, at 18. "No challenge to the [G]overnment's probable cause to seize the TLA [] was ever raised in [the Arizona district court] litigation." Id. As we pointed out in Def. Br. dated 9/13/02, Innovair objected that the value of the bond was too high, not too low. See Appendix to Def. Br. dated 9/13/02, page 67, ¶ 7 (the amount of the bond "ha[d] been miscalculated and artificially inflated"). Earlier in this proceeding, we explained in great detail why Innovair is foreclosed recovering any additional amounts for the TLA. See Def. Br. dated 9/13/02, pp. 8, 12-14; Defendant's Response to Brief of Innovair Aviation Limited in Response to the Court's July 22, 2002 Order Directing the Parties to Brief Certain Issues, dated November 6, 1992, pp. 7-10; Defendant's Reply to Plaintiff's November 6, 2002 Brief Submitted in Response to Defendant's Brief Filed on September 13, 2002, dated November 26, 2001, pp. 8-10. - 14 10 9

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still disputes this fact, the proper forum for challenging such procedures was the Arizona district court, not this Court. Vereda, LTDA v. United States, 271 F.3d 1367, 1375 (Fed. Cir. 2001). B. The Supreme Court's Reasoning In Bennis Applies Here

Innovair contends that this case is distinguishable from Bennis on its facts and, thus, the Government is foreclosed from demonstrating that Innovair has failed to state a Fifth Amendment takings claim. Pl. Br. 9-13. Innovair errs. We do not dispute the fact that the TLA was never forfeited. However, that does not mean that the reasoning the Court applied in Bennis is not applicable here. The Supreme Court in Bennis concluded that the plaintiff failed to state a Fifth Amendment takings claim because the government11 had lawfully acquired the property through forfeiture "under the exercise of governmental authority other than the power of eminent domain." Bennis, 516 U.S. at 452-53. Here, the Government lawfully seized the TLA and would have held it pending the Government's forfeiture proceeding, but for the fact that, in full compliance with the applicable criminal laws and procedures and with approval by the Arizona district court, the TLA was released to BTC in exchange for BTC's posting of a bond that represented the value of the TLA. The critical issue is not what was done with the property, i.e., whether it was forfeited or not; rather, it is whether the Government acted pursuant to and in accordance with the applicable rules and regulations which establish limits upon the Government's law enforcement powers.

The Court in this case stated that the Government's "reliance of state law takings cases is misplaced." Innovair, 72 Fed. Cl. at 424 (emphasis added). It is not clear from its decision what significance the Court placed upon the fact that Bennis was decided within the context of a state law enforcement action, rather than in a Federal action. However, the reasoning the Supreme Court applied in Bennis appears to apply in both state and Federal contexts. - 15 -

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See AmeriSource, 525 F.3d at 1154-55 ("As expansive as the police power may be, it is not without limit. The limits, however, are largely imposed by the Due Process Clause."). Innovair fails to demonstrate that the Government acted unlawfully either in seizing its property or in transferring it to BTC in exchange for its posting of the substitute res bond.12 Accordingly, under the principles discussed in Bennis, Acadia, and AmeriSource, "so long as the [G]overnment's exercise of authority was pursuant to some power other than eminent domain, then the plaintiff has failed to state a claim for compensation under the Fifth Amendment." Bennis, 516 U.S. at 452-53; AmeriSource, 525 F.3d at 1153-55; Acadia, 458 F.3d at 1331-33. Given the wide variety of cases13 in which this principle has been applied, Innovair is unable to demonstrate that this principle should not preclude it from recovering under the Fifth Amendment takings clause in this case. Innovair incorrectly asserts that it did all that it should have done to protect itself when the Government lawfully seized the TLA. That is not the case. As we demonstrated above, if, as Innovair contends now, Innovair believed that the bond BTC posted to secure the release of the TLA did not represent the value of the TLA, it could have and should have made that objection

Moreover, in denying Innovair's request under the Equal Access to Justice Act, 28 U.S.C. § 2412, for attorney's fees above the statutory ceiling, the Arizona district court rejected Innovair's contention that the Government acted in bad faith "in seizing the TLA and transferring it to BTC in exchange for the substitute res bond." App. A, at 30. In fact, the district court noted that it had "approved the substitution of the res bond for the TLA after considering objections raised by Innovair." Id. Bennis, 516 U.S. at 452-53; Calero-Toledo, 416 U.S. at 680; Goldblatt v. Hempstead, 369 U.S. 590 (1962); Miller v. Schoene, 276 U.S. 272, 279-80 (1928); Mugler v. Kansas, 123 U.S. 623 (1887); AmeriSource, 525 F.3d at 1153-55; Acadia, 458 F.3d at 1331-33; Crocker v. , 37 Fed. Cl. 191, 195 (1997), aff'd, 125 F.3d 1475 (Fed. Cir. 1997); Noel v. United States, 16 Fed. Cl. 166, 170 (1989); Wright v. United States, 14 Cl. Ct. 819, 824 (1988); Loftin v. United States, 6 Cl. Ct. 596, 611-12 (1984). - 16 13

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during the proceedings when the Arizona district court was considering whether to approve the substitute res bond agreement. In addition, Innovair erroneously contends that Innovair could not have filed a motion under Rule 41 of the Federal Rules of Criminal Procedure because the Government's action with respect to the seizure of the TLA was a civil action, not a criminal one. Pl. Br. 15-16. In fact, as of the time that the TLA was seized, it was well-recognized that "Rule 41(e) motions may exist apart from criminal actions." Floyd v. United States, 860 F.2d 999, 1006 (10th Cir. 1988) (citing DiBella v. United States, 369 U.S. 121 (1962)); see United States v. Eight Thousand Eight Hundred and Fifty Dollars ($8,850), 461 U.S. 555 (1983). In fact, the Ninth Circuit held that "[a] district court has jurisdiction to entertain motions to return property seized by the [G]overnment when there are no criminal proceedings pending against the movant," United States v. Martinson, 809 F.2d 1364, 1366-67 (9th Cir. 1987), and no civil forfeiture proceeding has been filed by the Government. United States v. United States Currency $83,310.78, 851 F.2d 1231, 1233 (9th Cir. 1988). Courts treated such motions as "civil equitable proceedings even if styled as being pursuant to Fed. R. Crim. P. 41(e)." Martinson, 809 F.2d at 1367. The purpose of the Rule 41(e) motion was not only to seek the return of the seized property, but also "to trigger rapid filing of a forfeiture action. . . ." Floyd, 860 F.2d at 1004, n.5; United States Currency $83,310.78, 851 F.2d at 1234. Nevertheless, courts declined to exercise Rule 41(e) jurisdiction if the claimant had an adequate remedy at law or could not show irreparable harm. Floyd, 860 F.2d at 1003; see In re Matter of Seizure of Four (4) DC-3 Aircraft, 134 F.R.D. 251, 255 (1991). Thus, Innovair could have filed a Rule 41(e) motion to obtain the return of the TLA after the Government seized the TLA and prior to the time the Government amended its forfeiture - 17 -

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complaint to include the TLA. Innovair's contention to the contrary, Pl. Br. 15-16, is seriously undermined by the decision, In re Matter of Seizure of Four (4) DC-3 Aircraft, cited above. In that matter, BTC, Innovair, and BTC's insurance company, Insurance Company of North America, filed a Rule 41(e) motion in the Wisonsin district court to secure the return of four aircraft seized by the Government in connection with the criminal indictments of the Cali Colombian drug cartel defendants who were accused of paying for the planes with the proceeds from illegal drug activities. Given Innovair's participation in the filing of that Rule 41(e) motion, this Court should reject Innovair's contention that it could not have filed a Rule 41(e) motion to secure the release of the TLA in this case. See Pl. Br. 15-16.14 Clearly, the reasoning that the Federal Circuit applied in AmeriSource also applies here. The Government seized and transferred the TLA to BTC pursuant to its police powers and with the approval of the Arizona district court. Accordingly, Innovair fails to demonstrate that this Court possesses jurisdiction to entertain its Fifth Amendment takings claim because the Government did not take the TLA for "public use." CONCLUSION For the reasons explained here and in our motion for reconsideration and for the reasons discussed in greater detail in the briefs to which we have referred, we respectfully request that the Court grant the Government's motion for reconsideration. Respectfully submitted, GREGORY G. KATSAS Assistant Attorney General

Arguably, either the Wisconsin district court or the Arizona district court would have possessed jurisdiction to entertain Innovair's Rule 41(e) complaint. Martinson, 809 F.2d at 1367; Seizure of Four (4) DC-3 Aircraft, 134 F.R.D. at 253. - 18 -

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/s/ Jeanne E. Davidson JEANNE E. DAVIDSON Director

/s/ Sheryl L. Floyd SHERYL L. FLOYD Senior Trial Counsel Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 616-8278 Facsimile: (202) 514-8624 Attorneys for Defendant JULY 18, 2008

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CERTIFICATE OF FILING I hereby certify that on this 18th day of JULY, 2008, a copy of this "DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANT'S MOTION FOR RECONSIDERATION " was filed e1ectronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing, through the Court's system.

/s/ Sheryl L. Floyd

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