United States v. Hill ( 2003 )

United States Court of Appeals
For the First Circuit
No. 01-2160
UNITED STATES OF AMERICA,
Appellee,
v.
STEPHEN A. SACCOCCIA, ET AL.,
Defendants, Appellants.
No. 01-2170
UNITED STATES OF AMERICA,
Appellee,
v.
STEPHEN A. SACCOCCIA, ET AL.,
Defendants, Appellants.
No. 01-2393
UNITED STATES OF AMERICA,
Appellee,
v.
STEPHEN A. SACCOCCIA, ET AL.,
Defendants, Appellants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ernest C. Torres, U.S. District Judge]
Before
Howard, Circuit Judge,
Campbell and Cyr, Senior Circuit Judges,
Lauren E. Jones, with whom Mark L. LaBollita and Jones
Associates were on brief for appellants Hill and O'Donnell.
Stephen J. Finta, with whom Law Offices of Stephen J. Finta,
P.A. was on brief for appellant Finta.
Michael P. Iannotti, Assistant United States Attorney, with
whom Margaret E. Curran, United States Attorney, and Michael E.
Davitt, Deputy Chief, United States Department of Justice, were on
brief for appellee.
December 22, 2003
2
CYR, Senior Circuit Judge. Three attorneys who
represented Stephen A. Saccoccia — a convicted drug dealer and
money launderer — appeal from a district court order directing that
they forfeit some of their attorney fees to the government.
I
BACKGROUND
The grand jury returned an indictment against Stephen A.
Saccoccia in November 1991, charging him with one count of
conspiracy under the Racketeering Influenced and Corrupt
Organizations Act, 18 U.S.C. § 1963(d) (RICO), as well as several
counts of laundering proceeds from an illegal drug trafficking
operation. See United States v. Saccoccia, 58 F.3d 754 (1st Cir.
1995). The government also sought the forfeiture of all the
business and personal property directly or indirectly derived from
Saccoccia's racketeering activities, explicitly including almost
$137,000,000 in currency, and, in the alternative, sought the
surrender of all non-tainted property of equivalent value (if any)
should Saccoccia's tainted property have become unavailable. See
18 U.S.C. §§ 1963(a), (m). The district court promptly enjoined
the transfer of the forfeitable property designated in the
indictment. See id. § 1963(d)(1)(A).
Saccoccia retained Jack Hill, Esquire, and Kenneth
O'Donnell, Esquire, to defend him in the RICO prosecution; he
retained Stephen Finta, Esquire, to defend him against money
3
laundering charges pending in California. We turn now to a more
detailed description of the district court proceedings below.
Beginning in March 1992, under rather suspicious
circumstances, Saccoccia caused $504,985 to be delivered to Hill,
$410,000 to O'Donnell, and $469,200 to Finta, all for legal fees.
Approximately one year later, Saccoccia was convicted and ordered
to forfeit the $137,000,000 in currency specified in the
indictment. We subsequently affirmed both the conviction and the
forfeiture. Saccoccia, 58 F.3d at 754; see also United States v.
Hurley, 63 F.3d 1 (1st Cir. 1995). Once the government discovered
that Saccoccia had paid large legal fees to Hill, O'Donnell, and
Finta, it submitted a motion to compel them to turn over the fees
as property subject to forfeiture.
The district court granted the motion to compel, United
States v. Saccoccia, 165 F. Supp. 2d 103 (D.R.I. 2001), holding
that (i) the government established that the legal fees paid to the
appellants must have derived from Saccoccia’s racketeering
activity, given that Saccoccia had no legitimate sources of income,
and the legal fees were paid “under especially suspicious
circumstances” (viz., by “covert deliveries of large quantities of
cash, made by anonymous intermediaries”), id. at 111-12; (ii)
appellants met their burden of proving that they had no reasonable
cause to believe that the monies Saccoccia used to pay their fees,
prior to Saccoccia’s conviction, were subject to forfeiture, given
4
that an Assistant United States Attorney’s pre-conviction
assurances to appellants — that the government would not seek
forfeiture of their legal fees — implied some government
uncertainty regarding whether Saccoccia might possess sufficient
non-tainted assets with which to pay his attorneys, id. at 112
(citing 18 U.S.C. § 1963(c)); (iii) following the trial at which
Saccoccia was convicted, appellants could not have held a
reasonable belief that Saccoccia's assets were not subject to
forfeiture, given that the trial record made it clear that
virtually all of Saccoccia’s assets had been derived through
illegitimate means, id. at 112-13; (iv) appellants were ordered to
turn over only the portion of their legal fees received following
Saccoccia’s conviction, id. at 113; and (v) the government could
not reach their pre-conviction legal fees by means of the district
court's contempt power due to the fact that the government had
initiated no such proceeding and the district court had already
determined that appellants lacked reasonable cause to believe that
the pre-conviction legal fees were subject to forfeiture, hence
appellants could not have violated the post-indictment injunction
willfully, id. at 113-14.
Appellants now challenge the district court order which
determined that their post-conviction legal fees are subject to
5
forfeiture.1
II
DISCUSSION
Appellants Hill and O’Donnell contend, as they did in
opposing the government’s motion to compel below, that the
forfeiture statute does not permit the government to reach the
legal fees they received from Saccoccia, due to the fact that those
fees have been expended. We subject statutory interpretations to
plenary review. See Bryson v. Shumway, 308 F.3d 79, 84 (1st Cir.
2002).2
The operative statutory language requires that a
defendant forfeit “tainted” property, viz., property (i) acquired
by committing the offense, and (ii) “constituting, or derived from,
any proceeds . . . obtained, directly or indirectly” from its
commission. 18 U.S.C. § 1963(a)(1),(3).3 Once an indictment
1
For its part, the government has not cross-appealed from the
district court ruling that the legal fees appellants received prior
to the Saccoccia conviction are not subject to forfeiture.
2
As the forfeiture provisions prescribed by RICO are
substantially similar to the criminal forfeiture provisions in 21
U.S.C § 853, we cite cases interpreting § 853 as persuasive
analogous authority. See United States v. Hooper, 229 F.3d 818,
821 n.7 (1st Cir. 2000).
3
For instance, the profits Saccoccia derived from the drug
conspiracy would be subject to forfeiture under subsection (1).
Were Saccoccia to use some of the drug profits to purchase a boat
for $50,000, the boat would be forfeitable, under subsection (3),
as property “derived from” tainted proceeds, even though not
utilized in the conspiracy.
6
issues, the district court may enjoin the transfer of all property
“subject to forfeiture under [section 1963].” Id. § 1963(d)(1).
In the event that tainted property is unavailable for forfeiture
(as when it has been transferred to a third party),4 the government
may recover “substitute” property, viz., defendant’s other
untainted property of equivalent value. See id. § 1963(m); United
States v. Lester, 85 F.3d 1409, 1411 n.3 (9th Cir. 1996)
(“‘[S]ubstitute property,’ . . . by its very nature is ‘not
connected to the underlying crime.’”) (citation omitted).5
The operative statute enables the government to recover
from the defendant “tainted” or “substitute” property in a
defendant’s possession, or “tainted” property held by a third party
by virtue of a voidable fraudulent transfer. Id. § 1963(c).6 A
third party may petition the court for a hearing to determine the
validity of its legal interest in tainted property, id. §
1963(l)(2), and may defeat a forfeiture petition by establishing,
4
Tainted property may be unreachable if it “(1) cannot be
located upon the exercise of due diligence; (2) has been
transferred or sold to, or deposited with, a third party; (3) has
been placed beyond the jurisdiction of the court;(4) has been
substantially diminished in value; or (5) has been commingled with
other property which cannot be divided without difficulty.” 18
U.S.C. § 1963(m).
5
The original district court forfeiture order against
Saccoccia was amended to include his substitute assets based on
evidence that Saccoccia was in the process of transferring tainted
assets. See Saccoccia, 58 F.3d at 783.
6
Subsection 1963(k) accords the government extraordinary
discovery rights in identifying and locating forfeitable property.
7
inter alia, that it is a bona fide purchaser for value, “reasonably
without cause to believe” that the property was subject to
forfeiture at the time it was purchased, id. § 1963(l)(6)(B).
Nonetheless, the “substitute property” provision is
exclusively applicable to “any other property of the defendant.”
Id. § 1963(m) (emphasis added). The statutory language plainly
does not afford an avenue through which the government may reach a
third party’s untainted assets as a substitute for tainted assets
which the third party had already transferred prior to the date of
forfeiture. See Bryson, 308 F.3d at 84 (“If the meaning of a
statute is clear, we enforce that meaning.”); United States v.
Meade, 175 F.3d 215, 219 (1st Cir. 1999) (noting that when “the
plain language of a statute unambiguously reveals its meaning, and
the revealed meaning is not eccentric, courts need not consult
other aids to statutory construction.”); see also Lohnes v. Level
3 Communications, Inc., 272 F.3d 49, 61 (1st Cir. 2001) (“[T]he
maxim expressio unius est exclusio alterius instructs that, ‘when
parties list specific items in a document, any item not so listed
is typically thought to be excluded.’") (citation omitted).7
7
The government’s contrary argument relies primarily upon one
unpublished decision as “persuasive authority.” United States v.
McCorkle, No. 6:98-CR-52-ORL-19C, 2000 WL 133759 (M.D. Fla. Jan.
14, 2000) (holding that government could recoup attorney's other
property where he had already dissipated the tainted legal fees);
see also 1st Cir. Local R. 32.3(b). However, McCorkle contains
neither an analysis of the pertinent statutory provisions, nor any
other authority supporting its conclusory holding. Indeed,
McCorkle erroneously cites United States v. Moffitt, Zwerler &
8
The government does not contend that it can recover the
"tainted" property already transferred to Hill and O'Donnell by
Saccoccia (i.e., the in-cash legal fees), nor does it maintain that
either Hill or O'Donnell presently holds any property fairly
traceable to, or acquired with the proceeds of, their legal fees.
Rather, it argues that its right to recover derives from the
knowing violations, by Hill and O'Donnell, of the post-indictment
injunction entered pursuant to § 1963(d)(1), which constrained
Saccoccia and his counsel from transferring any funds subject to
forfeiture under subsection 1963(a). Cf. United States v. Moffitt,
Zwerling & Kemler, 864 F. Supp. 527, 530-31 (E.D. Va. 1994)
(finding assets non-forfeitable where transfers to counsel occurred
prior to injunction); id. at 544 n.46 (“Where an attorney accepts
payment in violation of such a restraining order, the government
can recover regardless of the fact that the attorney has dissipated
the funds.”), rev’d on other grounds, 83 F.3d 660 (4th Cir. 1996).
The absence of language in subsection 1963(m), relating
to the forfeitability vel non of a third party’s substitute assets,
simply forecloses one form of remedy, not all. Relief from a
Kemler, 83 F.3d 660, 667-70 (4th Cir. 1996), for the proposition
that the forfeiture statute “does not abrogate the government’s
right to recover attorneys’ fees that have been dissipated by a
third party law firm,” McCorkle, 2000 WL 133759, at *3 (citing
Moffitt, 83 F.3d at 666-69), even though Moffitt found the basis
for the government’s potential recovery not in the forfeiture
statute’s “substitute asset” provision, but in an extra-statutory
claim for common-law conversion, see infra.
9
willful violation of a subsection 1963(d)(1) injunction may be
obtained in a contempt proceeding. See United States v.
Kirschenbaum, 156 F.3d 784, 795 (7th Cir. 1998). On the other
hand, the government’s initiation of contempt proceedings would
significantly alter its burden in litigation. Whereas subsections
1963(c) and (l)(6) require the third party to establish that it was
without reasonable cause to believe that the transferred property
was subject to forfeiture under subsection 1963(a), in a criminal
or civil contempt proceeding the government would bear the burden
of persuasion on that issue. In a criminal contempt proceeding,
moreover, the government’s burden of proof would be beyond-a-
reasonable-doubt, see Fed. R. Crim. P. 42; United States v. Mourad,
289 F.3d 174, 180 (1st Cir.), cert. denied, 123 S. Ct. 337 (2002);
and in a civil contempt proceeding, clear and convincing evidence
would be required, see AccuSoft Corp. v. Palo, 237 F.3d 31, 47 (1st
Cir. 2001). See generally United States v. Marquado, 149 F.3d 36,
39-40 (1st Cir. 1998) (describing salient differences between
criminal and civil contempt proceedings). The district court
noted, however, that “the government is not seeking to hold the
attorneys in contempt.” Saccoccia, 165 F. Supp. 2d at 114.
Additionally, subsection 1963(m) would not preempt
various remedies otherwise available to the government outside the
forfeiture statute, which would maximize its monetary recovery from
the substitute assets of culpable third parties. See United States
10
v. Moffitt, Zwerling & Kemler, 83 F.3d 660, 667-70 (4th Cir. 1996)
(holding that § 1963(m) does not preempt state common-law claims
that enable the government to reach a third-party transferee’s
substitute assets). For instance, since the government’s right,
title, and interest in all tainted property “relates back” to the
date Saccoccia committed the relevant acts, see 18 U.S.C. § 1963(c)
(“All right, title, and interest in property described in
subsection (a) vests in the United States upon the commission of
the act giving rise to the forfeiture.”), presumably it could
initiate a state-law proceeding against Hill and O’Donnell for
conversion of such property, and recover compensatory damages from
their non-tainted assets. See Fuscellaro v. Indus. Nat’l Corp.,
368 A.2d 1227, 1230 (R.I. 1997) (“[T]he gravamen of an action for
conversion lies in the defendant’s taking the plaintiff’s
personalty without consent and exercising dominion over it
inconsistent with the plaintiff’s right of possession.”). However,
had the government brought such a tort claim in the district court,
the claim presumably would be adjudicated under substantially
different standards than a claim under subsection 1963(a) or (m),
since the government would bear the burden of proof, and appellants
might be entitled to additional procedural safeguards under state
law, such as a right to jury trial. See, e.g., Ross v. Bernhard,
396 U.S. 531, 533 (1970); Evergreen Marine Corp. v. Six
Consignments of Frozen Scallops, 4 F.3d 90, 95 (1st Cir. 1993);
11
Russell v. City of Bryan, 919 S.W.2d 698, 704 (Tx. App. 1996);
Meyers Way Dev. Ltd. P’ship v. Univ. Sav. Bank, 910 P.2d 1308, 1320
(Wash. Ct. App. 1996).
At first blush, the present holding may appear to diverge
from the stated legislative intent to accord the government
extremely aggressive forfeiture remedies so as to preclude
criminals from realizing the monetary benefits of their crimes.
See Caplin & Drysdale, Chartered v. United States, 491 U.S. 617,
631 (1989). On the other hand, the very potency of the forfeiture
power demands that it be reasonably contained within ascertainable
limits. Thus, for example, Congress provided that a non-defendant
third party with rights in forfeitable property may redeem its
interest by establishing either (i) that it predated the
defendant’s crime, see United States v. Lester, 85 F.3d 1409, 1414
(9th Cir. 1996) (holding that non-defendant spouse had non-
forfeitable pre-existing interest in jointly-held property), or
(ii) that it subsequently acquired a non-forfeitable interest under
a bona fide purchase for value, see 18 U.S.C. § 1963(l)(6).
The implicit limitation in § 1963(m) — the “substitute
assets” provision — that the government may reach only the
defendant’s substitute assets and not those of a third party – is
similar in nature. Forfeiture is an in personam criminal remedy,
targeted primarily at the defendant who committed the criminal
offense. See Lester, 85 F.3d at 1414 n.8 (noting crucial
12
distinction between in personam judgment in criminal forfeiture
proceeding and in rem judgment in civil forfeiture proceeding).
Finally, the implicit limitation in § 1963(m) does not
trammel the basic statutory policy by foreclosing all other
remedies available to the government, nor does it enable culpable
attorneys to dissipate tainted fees with impunity. Rather, the
government may utilize its enforcement powers under subsection
1963(k) to “trace” tainted funds, see supra note 6, thereby
disproving the contention that appellants’ cash-on-hand is neither
the tainted fees, nor other property directly or indirectly derived
from the tainted fees. Furthermore, absent such evidence, the
government may reach other non-tainted cash of the attorneys by
sustaining the somewhat weightier, though not insurmountable,
burden of establishing the elements of either contempt or
conversion.
As our construction of the language utilized in the
forfeiture statute is one of first impression, the forfeiture award
against Hill and O’Donnell must be vacated and the case must be
remanded to the district court for further proceedings consistent
with this opinion. Upon remand, the government is to be accorded
a reasonable opportunity to determine whether it intends to
institute contempt proceedings or submit conversion claims against
13
appellants.8
Accordingly, the district court order directing
appellants Hill and O'Donnell to surrender their post-conviction
legal fees is hereby vacated, and the case is remanded for further
proceedings consistent with this opinion. The order to compel
8
Unlike Hill and O'Donnell, Finta failed to raise the
“substitute assets” issue on appeal. Further, Finta's arguments on
appeal are meritless. First, he argues that we lack appellate
jurisdiction because the district court did not reduce its final
judgment of forfeiture to a separate document, as required by
Federal Rule of Civil Procedure 58. Assuming arguendo that Rule 58
would apply to a criminal forfeiture proceeding against non-
defendants, but see Fed. R. Crim. P. 32.2(c), Finta unquestionably
waived the "separate document" rule by appealing from the district
court’s July 31, 2001 judgment without objection from the
government. See Bankers Trust Co. v. Mallis, 435 U.S. 381, 385
(1978) (“If, by error, a separate judgment is not filed before a
party appeals, nothing but delay would flow from requiring the
court of appeals to dismiss the appeal. Upon dismissal, the
district court would simply file and enter the separate judgment,
from which a timely appeal would then be taken. Wheels would spin
for no practical purpose.”); Fiore v. Washington County Cmty.
Health Ctr., 960 F.2d 229, 235 (1st Cir. 1992).
Second, Finta contends that the district court decision
violated his Fifth Amendment rights to notice and to confront
witnesses, by relying upon evidence introduced at the Saccoccia
criminal trial in which Finta did not participate. This argument
has been forfeited by Finta's failure to raise it below. See
Brigham v. Sun Life of Can., 317 F.3d 72, 85 (1st Cir. 2003).
Moreover, given Finta's close involvement with and representation
of Saccoccia during the relevant time periods, as well as his
decision not to adduce further evidence to undermine the trial
record at his forfeiture hearing, we discern no plain error.
Finally, Finta contends that, without the evidence derived
from the alleged Fifth Amendment violations, there was insufficient
evidence from which the district court could conclude that he had
reasonable cause to believe that the legal fees he received
following Saccoccia’s conviction were tainted. Not only does this
contention fail like his second claim, but Finta, not the
government, bore the burden to adduce sufficient evidence on this
pivotal issue. See 18 U.S.C. § 1963(l)(6)(B).
14
appellant Finta to surrender $242,000 in post-conviction legal fees
is hereby affirmed. SO ORDERED.
15