FRESNO, CA -- A federal jury decided last week that a Modesto-based medical marijuana dispensary, the California Healthcare Collective, was a criminal enterprise. The jurors also found that defendants Luke Scarmazzo and Ricardo Montes were guilty of running this enterprise, a conviction that carries a mandatory minimum sentence of twenty years in prison and a maximum of lifetime incarceration. But the prosecutors weren’t satisfied with this victory, nor were they satisfied with some $200,000 in cash and in bank funds seized from the defendants during their 2006 bust. As it turns out, the government wants much more money from Scarmazzo and Montes…and, as it argued yesterday, it expects to be paid double for some portions.
It’s all working out like a corny joke. What does the government like better than getting paid? Getting paid twice.
Except that the defendants aren’t laughing. Yesterday they were led into the courtroom shuffling in shackles and wearing bright red jail-issue jumpsuits, only to hear Assistant U.S. Attorney Kathleen Servatius recite the total forfeiture figure: $9.2 million dollars. This number was derived from a mountain of sales receipts seized from the CHC, and it represents the dispensary’s gross earnings, not its profit. This means, essentially, that the defendants will pay twice for the marijuana that they sold – once to the product vendors and once to the government. The same goes for all the costs of running a business, including rent payments and employee salaries. Whatever money came into the dispensary, the prosecutor claims, must be repaid to the government.
Defense attorney Anthony P. Capozzi
Most interesting, however, is that payments already made in taxes to the IRS are not excluded from this $9.2 million dollar figure. The defendants will, therefore, end up paying the government twice for this portion of the forfeiture demand. That was the argument that Scarmazzo’s attorney Anthony P. Capozzi tried to make in front of Judge Oliver Wanger yesterday.
Nonetheless, he was shot down by the government’s citation of a forfeiture precedent…one that, oddly enough, the prosecutors admitted did not mention funds from taxation. U.S. v. Casey, a 1996 case involving ecstasy distribution, was the precedent the government relied upon. Even though that ruling didn’t talk about taxation specifically, prosecutors argued that this case set forth what’s called a “gross proceeds standard” for calculating forfeiture totals.
And the judge agreed. “That is part of the cost of doing business,” he said about the defendants’ tax payments. “The law is clear that gross income is not offset by expenses from the business.”
Capozzi also attempted to claim that approximately $130,000 seized from two safe deposit boxes represented earnings through Militia Musick, Scarmazzo’s music label. The defense attorney said this money came from concert performances and sales of the hip-hop DVD music video “Business Man,” which was given a highly controversial screening in front of the jury during trial.
Servatius at first countered that CD and DVD sales would have presumably be made by check, whereas the funds seized from the safe deposit boxes was all in cash. After whispering for a minute with his chained client, Capozzi shot back that most of the sales were done at Scarmazzo’s performances and therefore were transacted in cash. Faced with this assertion, Servatius then argued that there was no basis for believing that the defendant generated so much money from sales in such a short time – the CD was released in August 2006, she recounted, and the defendant was arrested the next month. Following another whisper-session with Scarmazzo, Capozzi then began talking about an advance release of the CD…but Servatius wasn’t hearing it. According to the prosecutor, it was a moot point.
Servatius said that it didn’t matter how the money was earned – if it was generated by the defendants during the time frame of the criminal conspiracy, no matter what the source, it was subject to forfeiture. “There’s a presumption that money earned during the time frame of the criminal enterprise would be from drug sales,” she said with vigor.
Presumption or not, Judge Wanger agreed that there was no mechanism for determining whether Scarmazzo was receiving money through his music business. The bank account for Militia Musick, he noted, was nearly empty and its funds had not been seized. “No other source of income was found for what was in the safety deposit boxes,” the judge resolved.
Defense attorney Robert Forkner
Only one part of the government’s forfeiture figure will get another day in court for dispute – a $5000 sum claimed by the defendant’s mother, Maria Montes, which was seized during the search of her home. Defense attorney Robert Forkner asked the judge to look back at statements made by Maria Montes on the witness stand during trial. “Ms. Montes testified that the money was hers,” Forkner declared. He backed up this assertion by referencing trial testimony by Maria Montes that she had withdrawn money from a 401K fund. Such a source, he argued, could not be tied to the criminal enterprise and therefore not subject to forfeiture.
The prosecutor tried to block this move by announcing that she had sworn statements by the defendants to the contrary, which indicated the funds at issue were generated by the CHC. Judge Wanger, however, did not find this proclamation to be sufficient. “Those claims were not in evidence,” he said about the supposed sworn statements, “but [Ms. Montes] does say in trial that the money is hers, and there was no rebuttal.”
Ricardo Montes with his mother Maria
Maria Montes, the judge ruled, would be permitted to submit a third party claim on the $5000 in dispute. The matter will be decided at an ancillary proceeding, during which prosecutors promise to introduce sworn statements from the defendants to contradict the claimant. Even though this sum represents just a small fraction of the total forfeiture figure, the government refuses to concede without a battle…and it will fight down to the last penny.
In the meantime, defense attorneys will be hard at work on a motion for a new trial. At Capozzi’s request, Judge Wanger extended the deadline for filing until July 21st, a move that bumped Scarmazzo and Montes’s sentencing date back a week. As it stands, August 11th is the new day of reckoning, and now it has an added significance. At that time, Judge Wanger will hear the motion, and then proceed based on his rulings. If the defense attorneys get their way, a new trial will be ordered and the defendants’ case will be presented to a jury a second time around. If the arguments for retrial don’t pass muster, then Scarmazzo and Montes will be left facing the mandatory minimum sentences of twenty years in prison.
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