Criminal forfeiture laws need to be reformed too

(c) 2014 Brenda Grantland
Truth and Justice Blog, 11/4/2014

In recent months the mainstream news media has rediscovered the abuses of civil asset forfeiture as an issue of concern.  On October 11, the Washington Post published an excellent series of articles on forfeiture abuse “Asset seizures fuel police spending.”  Other print media have begun jumping on the bandwagon, publishing their own original stories.  See the Forfeiture Endangers American Rights Foundation’s website’s What’s New page for summaries of recent forfeiture articles.

Television has rediscovered the forfeiture issue too, with the most hilarious skewering of civil asset forfeiture ever, by John Oliver on Last Week Tonight, on October 5, 2014.  Already, as of today, 3,709,577 people have watched the YouTube video of the episode.

We are grateful for all of the bad publicity civil forfeiture is getting and that people are beginning to clamor for reform, but reforming civil forfeiture (again!) will only cure half the problem.

Criminal forfeiture has become even more abusive than civil forfeiture.

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While we were lobbying for passage of the Civil Asset Forfeiture Reform Act of 2000, the government had already begun urging Congress and the courts to reduce the protections of criminal forfeiture, and to expand its reach.  CAFRA raised the government’s burden of proof in civil forfeiture cases to preponderance of the evidence.  Around the same time the government’s burden of proof in criminal forfeiture cases was reduced to preponderance of the evidence.  The criminal defendant still must be convicted of the forfeiture triggering crime, and they still have to prove the defendant’s guilt beyond a reasonable doubt.

Because of the conviction requirement, it is often said that criminal forfeiture is more protective than civil forfeiture, but it is only more protective of the criminal defendant and his property.  In several ways, third parties who own interests in property named for forfeiture in a criminal forfeiture case are treated even worse than civil forfeiture litigants.

1.      No ability to participate in the court proceedings – which can last several years or even a decade or more

Although the property may be restrained or even seized, the third party doesn’t have to do anything to defend his/her property unless and until the criminal defendant is convicted.  Unlike civil forfeiture, there is no requirement that they file claims immediately after the forfeiture case begins.  They don’t have to file anything until after the criminal defendant’s conviction.  But the downside of this is they can’t do anything at all until the defendant is convicted.  Even if the property in which the third party owns an interest is seized and detained the entire time, it is virtually impossible to get the criminal court to grant interim relief for third parties.

I had a case in which the criminal defendant owned only a 1% share in the trust which held title to the family home.  The majority ownership legitimately belonged to other family members – the funds came from an inheritance unconnected to the criminal defendant. When the defendant was indicted, a lis pendens was placed on the property, preventing it from being sold or refinanced pending the outcome of his criminal forfeiture case – even though he owned only 1%.  While the case was pending, the family received an abatement order from the county requiring them to remove the bottom story of the house, which had been built illegally by the prior owner.  Removing the bottom story left them with only 900 square feet of living space – not enough room for a family of four. They were already having difficulty keeping the mortgage current, and needed to move to a cheaper place.  Resolution of the criminal case was likely years away.

We contacted the prosecutor and proposed an interlocutory sale of the property that would allow them to buy a less expensive property elsewhere with the money and move the lis pendens (a recorded document restraining  property transfers, ensuring the property would be available for forfeiture) to that new property. The government would be no worse off, and probably better off because otherwise the property could go into foreclosure.

The prosecutor refused, insisting that if the property were sold the money would have to go into the Seized Assets Forfeiture Fund pending the outcome of the case. We filed a motion.  The government opposed it, arguing third parties cannot intervene in criminal cases. Unfortunately, case law says third parties can’t intervene in a criminal case – their remedies are limited to the third party hearing process after forfeiture is ordered.  It would be too late then.

After much effort we were able to get a hearing. The judge was unsure that he had jurisdiction to rule on the third parties’ motion, and strongly urged the government to stipulate to the interlocutory sale. After further litigation and briefing the court finally pressured the government into stipulating to it.  It cost thousands of dollars in unnecessary legal fees and stress for the innocent family members who were tied up in the case over the defendant’s 1% share of the property.

Remedial measures to address this problem:  There needs to be a statutory presumption that assets in which any innocent third party owns an interest must be released to the primary owners pending trial, unless the government can show a compelling need to detain it, such as that the item would be wasted.  When the asset is real estate restrained by a lis pendens, third party owners should have the right to sell and/or refinance their property if a hardship occurs, with the government bearing the burden of showing necessity for any restraint.  If bank accounts are seized in which third parties own interests, a prompt post-seizure hearing should be held to determine what amount is owned by the criminal defendant and the balance should be released to its third party owner.

2.       Fed. Rules of Crim. Proc. Rule 32.2 takes away due process for third party owners

In the year 2000, when it became apparent CAFRA was going to pass, the DOJ had its people working overtime making criminal forfeiture more onerous for third parties by amending a federal rule of criminal procedure.   Fed. Rules of Crim. Proc. Rule 32.2, approved by Congress at about the same time as CAFRA, modified the procedure for third parties whose property is named for forfeiture in an indictment, but who are not charged with any crime.  Upon a guilty plea or jury verdict forfeiting property, the court was directed to order the property forfeited “without regard to any third party’s interest in the property.”  Rule 32.2(b)(2)(A).  The determination of the extent of any third party’s interest in the property is then postponed until after the property is ordered forfeited.  Third parties must come forward and file a third party petition and prove they own an interest superior to the criminal defendant’s interest.  Third parties who obtained their interest after the act which tainted the property have an additional hurdle – they must also show that they are bona fide purchasers for value and that at the time they purchased their interest they were without reason to believe it was subject to forfeiture.  21 U.S.C. § 853(n)(6)(B).

In theory that sounds like the innocent owner defense in civil forfeiture cases – but there is a big difference.  In civil forfeiture cases, an owner who was given the property as a gift or who knew of the tainting act would still be able to raise defenses other than the innocent owner defense – for example, proportionality, or illegal search and seizure.

Forfeiture prosecutors have exploited Rule 32.2 in cases like the one I mentioned earlier, where the criminal defendant owned a mere 1% of the property, yet the majority owners were strung along and forced to litigate for years.

Even worse, in three cases I have seen lately, the government has used criminal forfeiture to go after property in which the criminal defendant owned no interest at all.  In two of those cases, the criminal defendant pleaded guilty and agreed to forfeit the property– a piece of real estate in which he owned no interest.  The government never had to prove it was forfeitable.  What criminal defendant wouldn’t gladly give away someone else’s property to reduce his own punishment?

This violates the most basic principle of jurisdiction.  For centuries, the law has been clear that criminal forfeiture is an in personam action against the criminal defendant and his property, used to punish the criminal for his crime, and that only the property of the convicted criminal defendant can be criminally forfeited. That is still the law, but it is not being applied as written these days.

3.       No right to court appointed counsel for third parties, and tougher standards for attorneys fee shifting; owners who can’t afford to retain counsel are out of luck

Innocent third parties whose primary residence is seized under civil forfeiture statutes, and who are unable to afford to hire counsel, are entitled to a court appointed attorney under CAFRA.  In cases in which the Legal Service Corporation would readily make arrangements for the appointment of counsel under this CAFRA provision, LSC says their hands are tied when the government charges the property in the criminal defendant’s indictment instead. Under current law, third party owners of their primary residence have no right to court appointed counsel in criminal forfeiture cases, when CAFRA doesn’t apply.

Because CAFRA doesn’t apply to criminal forfeiture, CAFRA’s provision requiring the court to order the government to pay the attorney’s fees of claimants who substantially prevail also doesn’t apply to third parties who prevail in criminal forfeiture cases.  In order to get an award of attorney’s fees, third parties in criminal forfeiture cases would have to qualify for an award under the Equal Access to Justice Act, which imposes a higher burden.  In addition to showing the claimant “substantially prevailed,” under the EAJA, the third party claimant must show the government’s position was not substantially justified, and the claimant must meet several maximum net worth requirements.

4.       Even when third parties win at the third party hearing and get their property back, often the value of the property declined while the case was pending.

About the most egregious third party situation I’ve ever seen were the hapless third parties who invested in partnership that owned a very profitable card club, The Bicycle Club Casino in Bell Gardens, California.

In the early 1980s Benjamin Barry Kramer, Michael Gilbert and others were involved in importing and distributing marijuana.  Kramer and Gilbert used some of their drug profits to buy a partnership interest in an entity named LCP Associates, Ltd., which entered into a joint venture with another entity, Park Place Associates, to build and operate The Bicycle Club – a legal gambling establishment.  Though the criminal defendants’ money was invested in the original building of the club, by the time they were all indicted, they had all sold their ownership interests in the limited partnership, except Michael Gilbert, who remained 6.67% owner and limited partner of LCP.  Under the joint venture agreement, LCP Associates owned 65% of the Club, and Park Place owned 35%.

In 1987, Kramer and Gilbert were indicted, among others.  Completely ignoring the fact that the Bicycle Club itself was never owned by Gilbert or Kramer, the indictment named the Bicycle Club for criminal forfeiture, and the government seized the club and installed court appointed receivers to run it and collect the profits.  At that time The Bicycle Club had “an estimated net value of $ 150 million, over 2,000 employees, and monthly proceeds to the [LCP investors other than the defendants] of over $ 1 million a month.”  United States v. Kramer, 912 F.2d 1257, 1258 (11th Cir. 1990).  Despite the fact that they were not involved in the crime at all the third parties who owned the majority interest in LCP, and all of the owners of Park Place, were held at bay for many years, with no recourse from the court, and with all the income from the Bicycle Club going to the government or being spent by the receiver.

Flash forward to 2001.  The case was still bouncing around in the courts after 14 years, but finally this time the third parties got some relief.  In United States v. Gilbert, 244 F.3d 888 (2001) the 11th Circuit held:

At most, then, what Benjamin Kramer owned was a silent partnership interest in LCP general partnership, which later became LCP, Ltd. Thus, it was Benjamin Kramer’s silent interest in LCP, Ltd. that should have been targeted for forfeiture in the indictment, jury instructions, and special verdict forms, not the Bell Gardens Bicycle Club. Unfortunately for the Government, this was only made clear during the ancillary proceedings. Because the jury — and the district court, by its initial order of forfeiture — forfeited property that Kramer did not own, the Government holds nothing by virtue of the order of forfeiture against Benjamin Kramer.

Unfortunately for the Government?  The Government couldn’t care less.  The unfortunate ones were the hapless innocent investors whose property was taken from them and detained illegally and depleted of income for 14 years, with the courts not even recognizing that the criminal defendants didn’t own the Bicycle Club.  It should never have been seized.

Clearly, at the very least, third parties whose interests in property are restrained by a criminal forfeiture case should have the right to a prompt post seizure hearing to adjudicate their interests and get their property released from the litigation.  It is absurd that the courts did not notice that the property seized was not owned by the criminal defendants, forcing innocent people to litigate for 14 years to get relief.

Brenda Grantland

Brenda Grantland is a lawyer in Mill Valley, CA, who handles primarily asset forfeiture defense, crime victims’ rights, and federal civil and criminal appeals. She is also the author of several books on asset forfeiture and other subjects.

4 thoughts to “Criminal forfeiture laws need to be reformed too”

  1. You have this absolutely right. I am (now) a third party claimant in a criminal forfeiture case. We are about to slip into my 8th year of trying to get my property back. The property was seized from me in 2008. So I have been trying for 2008, 2009, 2010, 2011, 2012, 2013, 2014…and my 2nd round to the Court of Appeals will hopefully be submitted in January of 2015…who knows how long the ruling will take.
    The property was first seized for civil forfeiture. Got the civil forfeiture case stayed because I was told I was a target of a Federal investigation. As is noted on a blog entry here…that can be an issue. Despite my defense attorney begging, I was indicted in 2009…and actually went thru a 3 week trial in 2011.
    The charges against me were money laundering…which means I HAD to know there was a crime. I was acquitted of ALL counts against me.
    This meant I got my property back, right? No.
    My co-defendant was convicted…so some parts of some assets were
    now connected to the crime (nexus)
    Some of the assets were “proceeds”…and I understood that I was not entitled to those. (My co-defendant planned to appeal his conviction)
    The Government offered to let me keep my residence…if I’d give up everything else. (This is the ONLY offer they’ve ever made)
    This was not acceptable.
    Per the criminal forfeiture statutes…I thought I’d promptly get my day in court…based on the fact that…
    Rule 32.2 REQUIRES the court to enter the “Preliminary Order of Forfeiture” promptly (both so that the defendant can make suggestions AND so that 3rd parties can promptly come forward)
    But guess what?
    There’s nothing you can do to MAKE a Federal Judge follow the rule.
    The POF was not entered for a year.
    Then…you’re only supposed to prove you have superior title to that of the defendant. At trial, the GOVERNMENT proved that I was the owner of most of the assets…
    but yet the Court gave the Government six months (+) of discovery time…to…prove I WASN’T the owner of the assets (?)…
    after that…it was even more months before the court set a hearing. (Nearly two YEARS after my acquittal)
    We’d told the court repeatedly I was not getting due process.
    At the hearing…I described how I owned every item.
    AND THEN…
    I had to wait nearly ANOTHER YEAR! to get a ruling…
    and then guess what?
    On financial accounts, the court ruled that although the accounts were in my name (and despite the Gov’s proof at trial that I opened the accounts and did financial transactions with them)
    that they weren’t REALLY my accounts…because I had “too many accounts” (??!!) AND that because I DIDN’T KNOW that fraud proceeds were getting into my accounts…I wasn’t really controlling my accounts…and therefore I didn’t own them.
    SO…
    On one hand, I could have been convicted for a crime and faced a significant prison sentence if I HAD known that $ (never cash, always checks) in my accounts came from a crime…now because I apparently DIDN’T know the money came from a crime, I will be stripped of all my assets. Talk about your catch-22!
    For the accounts strictly in my name, I’m the one who deposited the “poison” checks that I had NO IDEA came from a crime… I “involved” the account (and what both the Gov and the Court have said is “clean” money) in “money laundering” that money is now forfeitable to the Government…through my own innocent action!
    In Criminal forfeiture, you don’t have to prove you’re innocent…you only have to prove superior/vested ownership. Besides the Gov had the FULL BENEFIT of 14 months of discovery before indictment and a full three week trial to prove I knew about the crime…and yet…they couldn’t do it (Because I really didn’t know!) Here I’ve lost valuable assets because the court says: either I’m a witless patsy and don’t own/control my accounts (even the the Gov said I did and knowingly did transactions)
    OR I should have figured out the crime…and because I didn’t….I lose my property.

    I am in some kind of “Alice in Wonderland” scenario…

    and to make matters EVEN CRAZIER…the criminal appeal of my co-defendant got completed FIRST (despite numerous delays) and as I was finishing up my appeal, the panel basically said: The jury could have found that you (the defendant) had control over the transactions! (in refusing to remand his money laundering convictions for transactions I was 100% responsible for)
    How do I beat that ruling? This is a proceeding from which I am at ALL TIMES BARRED…and a decision has already been made about ME…that the jury found that I don’t CONTROL (!) my accounts?
    How is that even on the table?
    What the jury found was that: I did not do financial transactions KNOWING that I was handling criminal proceeds. The only proof put on at trial was that I DID own these accounts, and I DID do these transactions…which I DID…the criminal elements is solely KNOWING that it was a crime.
    In my appeal, I’m submitting that I did own all of these assets…that both the court and the Gov have acknowledged I am not claiming proceeds, that I was denied due process, that I faced double jeopardy, and that the 8th Amendment was violated.
    Did this cost a lot in attorney fees? Absolutely. But I felt I had no choice but to keep going. Exhausting.

    1. What a nightmare! What court are you in?

      I hope you win your appeal and make good case law. I think my next blog will be about this issue. I have a pending case where the government is trying to criminally forfeit an innocent third party couple’s residence. The convicted criminal defendant never owned an interest in it, and yet they are trying to take it away from them anyway.

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