Justices Wrestle with Forfeiture of Untainted Property

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By Jessica DaSilva

Nov. 10 — U.S. Supreme Court justices were unyielding in their incessant questioning of attorneys on both sides of a criminal forfeiture case during oral argument Nov. 10.

The justices will determine whether the government can seize defendants' assets when merely accused of crimes, even if the defendants planned to use untainted assets to hire an attorney of their choosing.

It was clear from their tenacity that the justices are considering the significant impact that this decision will have on the criminal justice system.

The outcome of the case will likely turn on how the court will construe its prior decision from 1989, United States v. Monsanto, 491 U.S. 600 (1989), in which it upheld the government's pretrial freezing of a defendant's tainted assets that resulted from drug sales. In Monsanto, the court found the Fifth and Sixth Amendments “do not require that a defendant be afforded a pretrial hearing to challenge the grand jury's finding of probable cause” before a defendant's tainted assets are frozen.

In today's case, petitioner Sila Luis was accused of conducting a Medicare fraud scheme through her two businesses that administered in-home medical care by charging for services the businesses did not administer. The government froze $45 million of her assets, despite her proof that her businesses generated $15 million outside of Medicare services and that the court’s order included personal effects unconnected to the allegations of fraud, such as family jewelry, according to Luis's attorney, Howard Srebnick, of Black, Srebnick, Kornspan & Stumpf P.A. in Miami.

The U.S. Court of Appeals for the Eleventh Circuit ruled that the government’s right to freeze assets, including those that may not have been acquired as a part of a crime, trumped the defendant’s right to choose her counsel using her personal funds.

In light of these facts, the court faces a challenge in deciding whether the inability to access untainted assets for the purpose of hiring a private attorney violates defendants' right to counsel of their choosing under the Sixth Amendment. As a result, the justices wrestled with two powerful consequences of the decision, peppering both parties’ arguments with questions and hypothetical scenarios.

Tainted Versus Untainted Funds

Chief Justice John G. Roberts Jr. immediately asked Srebnick how to address the court's ruling from Monsanto. Justice Elena Kagan piggybacked on the question and posed a hypothetical presented in Monsanto, in which a bank robber steals the exact amount of money he owns, but spends the stolen money and uses his lawfully owned money to pay his expenses. She asked why should his untainted assets receive protection in that case.

Srebnick explained the court created a distinction in Monsanto between tainted and untainted funds and no amount of government interest could overpower the individual's interest in his or her lawfully owned property.

Roberts did not take kindly to such a bright-line rule, suggesting the statute under which the government sought to freeze Luis's untainted assets—18 U.S.C. § 1345, injunctions against fraud—seemed to allow for a reasonable substitution of stolen assets to protect the interests of victims.

Srebnick agreed, but drew another bright-line rule—an individual's property interests take priority until he or she is convicted of the crime. The response drew instant criticism from Justices Anthony M. Kennedy and Samuel A. Alito Jr., with Alito lobbing another hypothetical at Srebnick: Two twin brothers robbed a bank of $10,000 and split the proceeds between them. Then they receive the same amount in birthday money from a rich uncle. If one brother uses the robbery money to party and the other uses his birthday money, is the first brother out of luck?

“Yes,” Srebnick began.

“What sense does that make?” Alito interrupted.

Srebnick suggested the second brother's property rights cannot be negated on mere probable cause.

“You want this court to say, ‘Spend the bank robbery money first'?” Alito asked, eliciting laughter from the courtroom.

Srebnick held his ground, arguing that the purpose forfeiture served was punishment. By spending any ill-gotten proceeds, he said a defendant would face harsher sentencing and potentially more restitution by the sentencing phase.

Yet the real issue, Srebnick refocused the court, is on the violation of his client's Sixth Amendment right to choose her counsel and to use her funds to exercise that choice. Justice Sonia Sotomayor pointed out that the logic of petitioner's argument would result in the government's inability to freeze a defendant's funds for any purpose.

“Well, we don't go that far—” Srebnick started.

“I know you don't,” Sotomayor stopped him. “But once we announce a rule, we have to carry it to its logical conclusion. And if the rule is it's untainted assets and it belongs to me, how do we then limit it?”

Srebnick appeared to back off, suggesting that without a Sixth Amendment violation preventing defendants from hiring counsel of their choosing, nothing would prohibit the government from freezing those assets.

First Amendment Implications?

Justice Antonin Scalia offered a hypothetical in which the First Amendment might be implicated by a government freeze on personal, untainted funds in the situation of devout Muslims who believe that to exercise their freedom of religion, they must use their potentially tainted funds to make an annual pilgrimage to Mecca, the holy city.

As Srebnick began addressing the ability of the court to exercise discretion in allocating funds for that example, Kagan stated the court originally rejected in Monsanto the exact rationale he offered.

“There's a very powerful intuition behind your argument,” Kagan said. “But it's a powerful intuition that was explicitly rejected by us. And this case doesn't seem to present any different circumstances than that one.”

Srebnick brought her back to the distinction between the tainted assets of Monsanto and the untainted assets at issue in Luis's case. The state in Monsanto established by clear and convincing evidence that the money in question was, in fact, drug money. The ability to forfeit assets should depend on tracing the assets back to the criminal behavior, he argued.

Erring on the side of not freezing defendants' assets falls in line with the original intent of the Sixth Amendment, Srebnick further argued. At the amendment's inception, the right to appointed counsel did not exist; defendants' entire right to counsel depended on their financial ability to hire counsel. Allowing the government to seize untainted assets expands their ability to seize defendants' pension funds or inheritances, he said.

Additionally, Srebnick pointed out the low bar of probable cause is all that is needed for an indictment. The standard to seize untainted property before a judgment should be higher, he contended.

“What you're saying is the government can take away all your money if it's tainted, if there is probable cause to believe that it's tainted, right? It can take away all of your money if there is a judgment, but it can't take away all of your money if there's simply probable cause to believe that you're going to owe this money,” Scalia summarized. “You're complaining about property law, not the Sixth Amendment.”

Srebnick disagreed.

“While the court has accommodated the indigent by providing them with appointed counsel, that is not a license for the government to render people who are not indigent, indigent. It's not a license to impoverish them by virtue of the accusation alone,” he said.

“And so if we are going to say that merely being accused in this country because a grand jury has found probable cause is now sufficient to lock down all of your assets, assets you may have owned for decades, perhaps, because at some future time maybe a jury will convict and maybe a judge will enter a judgment, and then maybe the court will then have to enforce that judgment, really is to write out the Sixth Amendment,” Srebnick continued.

“How does the district court ensure she doesn't use every penny for defense costs when the district court thinks that that's not reasonable?” Sotomayor asked.

The district court would have discretion in paying out funds for counsel and both the court and attorneys would remain under the American Bar Association's rules of professional conduct, Srebnick answered.

Does Safety Trump the Sixth Amendment?

The Justice Department's Michael R. Dreeben, arguing for the government, opened his counterpoint with quoting the hotly contested ruling of Monsanto: “If the government may, post-trial, forbid the use of forfeited assets to pay an attorney, then surely no constitutional violation occurs when after probable cause is adequately established, the government obtains an order barring a defendant from frustrating that end by dissipating his assets prior to trial.”

Kennedy instantly pointed out the context of that ruling focusing on tainted property. Justice Stephen G. Breyer balked at the implication that the government could seize defendants' property without proving the crime, comparing it to bail.

“It's pretty hard for me to think in a country which says that before he's convicted, you have to release him on bail except in unusual circumstances, that nonetheless, you can take all his money away so he can't hire a lawyer,” Breyer stated.

Dreeben followed Breyer's lead by comparing seizure of assets as protecting against flight as an “exception” to bail.

Breyer said he saw Dreeben's point, but offered a compromise in finding that the court could establish a temporary restraining order on the funds under the statute until a hearing occurs and the judge can determine whether the assets in question were tainted.

Dreeben refused to budge.

“Justice Breyer, this is basically a zero-sum game,” Dreeben said. “Either there will be money available at the end of the case for the victims or the money will have been spent on lawyers.”

Kennedy jumped on the point, asking if only requiring probable caused allowed courts to freeze assets in every crime for victims' medical bills for pain and suffering.

Dreeben answered in the affirmative, citing to the reasoning of Monsanto.

“Suppose the court is just uncomfortable with the path we started down in Monsanto?” Kagan asked, posing the question that seemed to be on all the justices' minds. “And you might be right that it just doesn't make sense to draw a line here, but it leaves you with a situation in which more and more and more we're depriving people of the ability to hire counsel of choice in complicated cases. And so what should we do with that intuition that Monsanto sent us down the wrong path?”

In response, Dreeben stated that the legal reasoning of Monsanto was sound, even if the court questioned its application to the case.

Yet Breyer continued to doggedly ask Dreeben how the government’s right to criminal forfeiture could ever trump Sixth Amendment rights to counsel, a point Sotomayor joined.

“Does the right to counsel mean anything anymore?” she asked.

By Jessica DaSilva

To contact the reporter on this story: Jessica DaSilva at jdasilva@bna.com

To contact the editor responsible for this story: C. Reilly Larson at rlarson@bna.com

Transcript at http://www.supremecourt.gov/oral_arguments/argument_transcripts/14-419_h3ci.pdf.