Opinion
Case No. 1:99 CR 1
September 14, 1999
ORDER
In accordance with the Opinion entered this date; IT IS HEREBY ORDERED that the Defendant's Motion for the Return of Personal Property, filed July 6, 1999 (dkt. # 139) is GRANTED and the Government must return to the Defendant the amount of $46,862.63 which was seized from the Defendant's Bisys Mutual Fund account No. 28248995.
OPINION
This matter is before the Court on the Defendant's Motion for the Return of Personal Property pursuant to Federal Rule of Criminal Procedure 41(e). For the reasons which follow, the motion is granted.
BACKGROUND
On March 31, 1999, a Seizure Warrant was issued by the Honorable Hugh W. Brenneman Jr., United States Magistrate Judge, for the seizure of Bisys Mutual Fund account No. 28248995 ("Mutual Fund account") in the amount of $46,862.63. This account was in the name of the Defendant, Jimmy Ray Valentine. The affidavit accompanying the application for the Seizure Warrant alleged that the Mutual Fund account "represents in part illegitimate proceeds from drug sales forfeitable to the United States pursuant to 21 U.S.C. § 853 for violations of 21 U.S.C. § 841 and 846, and/or that this asset represents substitute assets forfeitable to the United States pursuant to 21 U.S.C. § 853(p)." (Application and Affidavit for Seizure Warrant, 4/2/99 at 11.)
On July 6, 1999, the Defendant filed a Rule 41(e) motion for the return of personal property alleging in pertinent part that: (1) the Mutual Fund account was not tied to any criminal activity and therefore could not be seized; and (2) the Mutual Fund account could not be seized before trial as a substitute asset because the statute did not allow this type of pre-trial seizure. (Motion of Jimmy Ray Valentine to Release Mutual Fund Accounts and for Evidentiary Hearing ("Valentine Motion").)
LEGAL ANALYSIS
A. There is not probable cause to believe that the Mutual Fund account is related to criminal activity Defendant's motion for return of the $46,862.63 found in the Mutual Fund account is grounded in his argument that the account was not related to criminal activity and that it was primarily funded by a workers compensation settlement award of $34,617.15. (Valentine Motion at 2-3.) The Defendant argues that the account is not subject to pretrial seizure, and must be returned, because it is not forfeitable property under 21 U.S.C. § 853(a). In its brief, the Government responded that the Grand Jury Indictment, combined with the affidavit in support of the Seizure Warrant, demonstrate that there was probable cause to believe that the funds in the Mutual Fund account were related to criminal activity and that the account was therefore properly subject to pretrial seizure under 21 U.S.C. § 853(e) and (f). (Response of the United States to Defendant's Motion ("United States Response") at 2-3.)
Ordinarily this Court is hesitant to disturb the seizure of assets made pursuant to a Grand Jury Indictment and a validly executed seizure warrant. See generally U.S. v. Payden, 613 F. Supp. 800, 809 (S.D.N.Y. 1985) 1984 H. Rep. No. 98-1030 at 202 (1984) reprinted in 1984 U.S.S.C.A.N. at 3385-86 ("the probable cause established in the indictment or information is, in itself, to be a sufficient basis for issuance of a restraining order"). In this case, however, the Government conceded during hearing that a large portion of the funds used to invest in the Mutual Fund could not be tied to criminal activity. (Hearing Transcript of August 26, 1999 at 4-6.) The Government explained that it was unaware at the time that the seizure warrant was requested, and the Court assumes when the Grand Jury issued its Indictment, that the Defendant had received a workers compensation settlement which had been used in large part to invest in the Bisys Mutual Fund account. (Tr. at 21.) As a result, the Government explained at hearing that it could not, in good faith, argue that there was probable cause to believe that all of the funds seized from the Bisys Mutual Fund account were related to criminal activity. (Tr. at 4-6, 18-21.)
The fact that the Government was willing to concede its error in this case is commendable, but expected.
Therefore, although this Court will not normally inquire into the sufficiency of evidence supporting a seizure when that seizure is supported by an Indictment, the Court must do so where, as here, the Government acknowledges that it has seized funds which bear no relationship to criminal activity. As a result, the question for the Court is the extent to which there is probable cause to believe that any of the funds used to invest in the Bisys Mutual Fund account are related to criminal activity. U.S. v. Thier, 801 F.2d 1463, 1470 (5th Cir. 1986) (holding that a court must assess whether there is probable cause to believe that property is related to criminal activity in order to support the issuance of a protective order under Section 853) U.S. v. Crozier, 777 F.2d 1376, 1384 (9th Cir. 1985) (holding that a court should determine whether there is sufficient evidence to support the Government's application for a protective order under Section 853) U.S. v. Rogers, 602 F. Supp. 1332, 1345 (D.Colo. 1985) (holding that the Government must provide some evidence beyond the indictment, to support a permanent injunction under a parallel statute [21 U.S.C. § 1963]).
Determining the source of the funds used to purchase stock in the Mutual Fund account is no easy task. The record indicates that on July 9, 1998, the Defendant withdrew $40,000 from his Savings account and one day later, on July 10, 1998, he deposited that money into the Mutual Fund account. (Defendant's Exhibit 5, 6.) The record does not indicate that any additional deposits were made into the Mutual Fund account. Id. Therefore, the crucial inquiry is whether there is probable cause to believe that any of the $40,000 transferred from the Savings account to the Mutual Fund account can be traced to criminal activity? In the opinion of this Court, the answer to this question is no.
The Defendant's Savings account was funded through a variety of sources. At the outset, both parties agree that from June of 1995 when the Savings account appears to have been opened, until March of 1999 when the Savings account was seized by the Government, many of the deposits into the Savings account were from legitimate activities. (Tr. at 4-6, 18-21.) The Government concedes, for example, that the $34,617.15 deposited into the Savings account on October 1, 1997 was from a workers compensation settlement check that the Defendant had received from his employer's insurance provider. (Tr. at 4-5.) It is important to note in relation to this deposit that: (1) this deposit was by far the largest deposit ever made into the Savings account, (2) this deposit was made less than one year before the $40,000 was transferred from the Savings account to the Mutual Fund account, and (3) between the time this deposit was made, and the time that the $40,000 was transferred to the Mutual Fund account, only $3,848.10 was withdrawn from the Savings account. (Defendant's Exhibit 5 and 6.) These factors, combined with the fact that the Government concedes that the vast majority of the other deposits into the Savings account were from legitimate sources (Hearing at 18-21), indicate that the overwhelming majority of funds deposited into the Savings account, and by extension the overwhelming majority of funds transferred from the Savings account to the Mutual Fund account in July of 1998, were from legitimate sources.
The Government argues that it is entitled to retain at least $28,048.08 because that is the amount of cash deposits made into the Savings account and there is probable cause to believe that these cash deposits were related to criminal activity and were part of the funds that were transferred from the Savings account to the Mutual Fund account. (Tr. at 18-20). There are two problems with this argument. First, these cash deposits were made from June of 1995 through March of 1999. (Defendant's Exhibit 6). The Government's argument assumes that once the Defendant deposited this cash into the Savings account, it stayed there even though the Defendant was making withdrawals throughout that entire period. A review of the evidence indicates that these cash deposits were unlikely to have been included in the funds transferred from the Savings account to the Mutual Fund account.
Unlike the workers compensation settlement deposit, which was made eleven months before money was transferred from the Savings account to the Mutual Fund account, and which was followed by relatively small withdrawals, the vast majority of the cash deposits ($22,090.00 of the total $28,048.08) were made twenty-three months before any money was transferred from the Savings account to the Mutual Fund account and were followed by relatively large withdrawals. (See Defendant's Exhibit 6). This indicates that the funds transferred from the Savings account to the Mutual Fund account were primarily deposited as part of the workers compensation settlement and were not funds attributable to the cash deposits. Second, and more importantly, the Government is unable to offer any evidence, beyond mere conclusory statements, that specifically connects any of the cash deposits to criminal activity. (See Tr. at 1-29)
Therefore, given the fact that the Mutual Fund account was financed entirely by a $40,000 transfer from the Savings account, given that the vast majority of the Savings account was funded by legitimate sources (including the workers compensation settlement), and given that the Government is unable to tie any of the cash deposits in the Savings account to criminal activities, the Court finds that the Government has failed to bear its burden of demonstrating probable cause to believe that any of the funds used to purchase stock in the Mutual Fund account are related to criminal activity.
See 21 U.S.C. § 853(a) (defining property subject to forfeiture as "directly or indirectly" related to criminal activity) United States v. Riley, 78 F.3d 367, 371 (8th Cir. 1996) (holding that [under 21 U.S.C. § 1963] the Government must demonstrate relationship between criminal activity and the property sought to be restrained before conviction, that a Court should make specific findings regarding this relationship in order to determine whether the property is forfeitable, and refusing to allow pretrial restraint of property simply because it was commingled with allegedly tainted property).
B. The Mutual Fund account Cannot be Seized as a Substitute Asset Although the Government acknowledges that it cannot tie the Mutual Fund account to criminal activity, it takes the fallback position that it should be allowed to retain the funds from the seized Mutual Fund account because they are forfeitable under the Substitute Assets provision of 21 U.S.C. § 853(p). (United States Response at 4-6.) The Defense disagrees with the Government's interpretation of the statute, but both parties agree that the Court's determination of this issue should decide the outcome of Defendant's motion. (Tr. at 9-10, 21).
Under 21 U.S.C. § 853(a), property which is owned by a defendant following conviction, which has some relationship with the Defendant's criminal activity, can be forfeited to the Government. In order to ensure that a Defendant does not dispose of these assets before or during trial, Subsection (e) grants courts the power to issue protective orders over the property. The statute goes on to provide in Subsection (f) that a court may issue a seizure warrant if the protective orders described in Subsection (e) are deemed insufficient to assure the availability of the forfeitable property after trial.
This Court assumes, and the parties do not dispute, that the type of property subject to seizure under subsection § 853(f) is the same as the property subject to protective restraints under subsection § 853(e).
On its face, Subsection (e) is clear when it comes to the type of property that is subject to pretrial restraint or seizure. That subsection reads in part:
"Upon application of the United States, the court may enter a restraining order or injunction, require the execution of a satisfactory performance bond, or take any other action to preserve the availability of property described in subsection (a) of this section for forfeiture under this section . . . ".21 U.S.C. § 852(e). The plain meaning of the statute is undeniable. Only those types of property described in subsection (a) are subject to pretrial restraint or seizure. Subsection (a) reads:
Any person convicted of a violation of this subchapter or subchapter II of this chapter punishable by imprisonment for more than one year shall forfeit to the United States, irrespective of any provision of State law —
(1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation;
(2) any of the person's property used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, such violation; and
(3) in the case of a person convicted of engaging in a continuing criminal enterprise in violation of section 848 of this title, the person shall forfeit, in addition to any property described in paragraph (1) or (2), any of his interest in, claims against, and property or contractual rights affording a source of control over the continuing criminal enterprise . . . .21 U.S.C. § 853(a). As the text indicates, this subsection only refers to those assets that are directly forfeitable to the Government because of their relationship to the alleged criminal activity.
Nowhere in subsection (a) is there any mention of substitute assets and any definition or description of substitute assets is left to subsection (p). As a result, based upon the plain meaning of subsections (e) and (a), it is clear that only assets that are related to the alleged criminal activity are subject to pretrial restraint under Section 853.
While the Government argues that this Court should follow a Fourth Circuit holding that substitute assets are subject to pretrial restraint, the majority of circuit courts to consider the issue have concluded otherwise. Compare In re Assets of Billington, 915 F.2d 916, 921 (4th Cir. 1990) (holding under 21 U.S.C. § 1963 substitute assets are subject to pretrial restraint), with U.S. v. Gotti, 155 F.3d 144, 147 (2nd. Cir. 1998) (holding that the "unambiguous language" of 21 U.S.C. § 1963 provides no authority for the pretrial seizure of substitute assets), and U.S. v. Ripinsky, 20 F.3d 359, 363 (9th Cir. 1994) (concluding that the plain meaning of the 21 U.S.C. § 853 prohibits pretrial seizure of substitute assets), and U.S. v. Floyd, 992 F.2d 498, 502 (5th Cir. 1993) (holding that 21 U.S.C. § 853 "plainly states what property may be restrained before trial" and that substitute assets are not subject to pretrial restraint), and In re Assets of Martin, 1 F.3d 1351, 1359 (3rd. Cir. 1993) (holding that the plain language of 21 U.S.C. § 1963 is dispositive and that substitute assets are not subject to pretrial restraint). Therefore, given the clear statutory language, and the weight of circuit court authority, the Court finds that substitute assets cannot be seized or restrained prior to a finding of the Defendant's guilt at trial.
Setting aside the issues of legal construction, the Government's real argument here is a practical or policy concern. The Government argues that if the funds from the Mutual Fund account are returned to the Defendant, and the Defendant is later found guilty and subject to substitute asset forfeiture under the statute, that those funds may not be available after trial. (Tr. at 21). In this event, argues the Government, the ultimate purpose of the statute will be frustrated if the Government is forced to return the funds now. While the Court sympathizes with the Government's concern, the plain meaning of the statute is, and must be, controlling. Allowing the Government to seize the assets of a defendant, when those assets bear no relationship to the criminal activity that is charged, represents a tremendous governmental power. This Court will not imply such a power in the absence of clear statutory language. In this case, no such clear language exists.
CONCLUSION
Because the Government cannot establish probable cause that the Mutual Fund account is related to criminal activity, and because substitute assets cannot be restrained or seized before a finding of guilt at trial, Defendant's motion is granted and the $46,862.63 seized from the Mutual Fund account is ordered returned to the Defendant.