United States v. Jones ( 1998 )

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
NOV 16 1998
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
SHIRLEY A. JONES, MEGA-
UNIVERSAL OXYGEN AND HOME
CARE SERVICES, INC.,
Nos. 98-2131, 98-2133
Defendants-Appellants.
------------------------------------------------
NATIONAL ASSOCIATION OF
CRIMINAL DEFENSE LAWYERS,
Amicus Curiae.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
(D.C. No. CR-98-251-MV)
John D. Cline (Nancy Hollander with him on the briefs), Freedman, Boyd, Daniels,
Hollander, Guttmann & Goldberg, P.A., Albuquerque, New Mexico, for Defendant-
Appellant Shirley A. Jones.
Richard C. Minzner, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, New
Mexico, on the briefs for Defendant-Appellant Mega-Universal Oxygen and Home Care
Services, Inc.
Stephen R. Kotz, Assistant U.S. Attorney (John J. Kelly, United States Attorney, and
Mary L. Higgins, Assistant U.S. Attorney, with him on the brief), Albuquerque, New
Mexico, for Plaintiff-Appellee.
Graeme W. Bush and Nathan D. Finch, Caplin & Drysdale, CHTD, Washington, D. C.;
and Barbara Bergman, University of New Mexico, UNM School of Law, Albuquerque,
New Mexico, on the brief for Amicus Curiae.
Before SEYMOUR, Chief Judge; PORFILIO and BRORBY, Circuit Judges.
PORFILIO, Circuit Judge.
In these consolidated appeals we consider whether due process requires a district
court to conduct a post-restraint, pre-trial adversarial hearing before continuing to freeze
assets that a defendant allegedly needs for legal and living expenses. The federal criminal
forfeiture statutes serve as our backdrop. We conclude that due process may require such
a hearing if certain conditions are present.
I
The circumstances leading to the present appeals stem from an indictment returned
against Mega-Universal Oxygen & Home Care Services, Inc., a corporation that provides
medical supplies and services, and Shirley Jones, its president and majority shareholder.
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Defendants are charged with, among other things, submitting false claims for Medicaid
disbursement in violation of the health care fraud statute. 18 U.S.C. § 1347. In a separate
count in the indictment, the grand jury also alleged that certain real and personal
properties are subject to forfeiture under 18 U.S.C. § 982(a)(6)1 as constituting or having
been derived from gross proceeds traceable to the health care fraud offense.
After the indictment issued, the government moved ex parte under 21 U.S.C.
§ 853(e)(1)(A) to freeze some of the forfeitable assets pending trial. The district court
granted the government’s request and restrained over $1.5 million of defendants’ assets.
Defendants moved for a post-restraint, pre-trial hearing under United States v. Monsanto
to challenge the restraint and to obtain release of the assets for legal and living expenses.
924 F.2d 1186 (2d Cir.) (en banc), cert. denied, 502 U.S. 943, 112 S. Ct. 382, 116 L. Ed.
2d 333 (1991). They argued that the Due Process Clause of the Fifth Amendment
requires a pre-trial hearing at which the government must establish probable cause to
believe defendants committed health care fraud and the assets named in the indictment
are traceable to the offense.
The district court rejected that argument and concluded that section 853(e)(1)(A)
did not permit, and procedural due process did not require, a post-restraint, pre-trial
1
Section 982(a)(6) provides: “The court, in imposing sentence on a person
convicted of a Federal health care offense, shall order the person to forfeit property, real
or personal, that constitutes or is derived, directly or indirectly, from gross proceeds
traceable to the commission of the offense.” 18 U.S.C. § 982(a)(6) (Supp. II 1996).
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adversarial hearing. The court denied the motions and declined to release the restrained
funds for any purpose. Defendants obtained a stay of the proceedings and timely
appealed. Our jurisdiction arises under the collateral order doctrine. United States v.
Musson, 802 F.2d 384, 385 (10th Cir. 1986).
II
Before inquiring into the applicability of the Fifth Amendment to this case, we
must first determine whether there is a reasonable construction of section 853(e)(1)(A)
that would avoid the constitutional question. Tull v. United States, 481 U.S. 412, 417
n.3, 107 S. Ct. 1831, 1835 n.3, 95 L. Ed. 2d 365 (1987) (courts must avoid deciding cases
on constitutional grounds when statutory grounds are available). We review the district
court’s interpretation of the statute de novo, Southern Ute Indian Tribe v. Amoco Prod.
Co., 151 F.3d 1251, 1256 (10th Cir. 1998) (en banc), and conclude that no reasonable
construction of section 853(e)(1)(A) permits a post-restraint, pre-trial hearing under the
circumstances of this case.
In determining the scope of a statute, we must first look to its language. United
States v. Turkette, 452 U.S. 576, 580, 101 S. Ct. 2524, 2527, 69 L. Ed. 2d 246 (1981).
The language of section 853(e)(1)(A) 2 is inconclusive. Although the statute does not
2
Section 853(e)(1)(A), which is applicable through 18 U.S.C. § 982(b)(1)(A),
provides in pertinent part:
(continued...)
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expressly provide for a post-restraint hearing, it does not prohibit one, leaving the statute
susceptible to more than one reasonable interpretation. “In some cases, Congress intends
silence to rule out a particular statutory application, while in others Congress’ silence
signifies merely an expectation that nothing more need be said in order to effectuate the
relevant legislative objective.” Burns v. United States, 501 U.S. 129, 136, 111 S. Ct.
2182, 2186, 115 L. Ed. 2d 123 (1991).
Congress’ omission need not detain us long, however, because the legislative
history provides the answer:
[The post-indictment restraining order] provision does not exclude . . . the
authority to hold a hearing subsequent to the initial entry of the order and
the court may at that time modify the order or vacate an order that was
clearly improper (e.g., where information presented at the hearing shows
that the property restrained was not among the property named in the
indictment). However, it is stressed that at such a hearing the court is not
to entertain challenges to the validity of the indictment. For the purposes of
issuing a restraining order, the probable cause established in the
indictment or information is to be determinative of any issue regarding the
merits of the government’s case on which the forfeiture is to be based.
2
(...continued)
(e) Protective orders
(1) Upon application of the United States, the court may enter a restraining order or
injunction . . . or take any other action to preserve the availability of property described
in [18 U.S.C. § 982(a)(6)] for forfeiture under this section–
(A) upon the filing of an indictment or information charging a violation . . . for
which criminal forfeiture may be ordered . . . and alleging that the property with
respect to which the order is sought would, in the event of conviction, be subject to
forfeiture under this section . . . .
21 U.S.C. § 853(e)(1)(A) (1994).
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S. Rep. No. 98-225, at 203, 213 (1984), reprinted in 1984 U.S.C.C.A.N. 3182, 3386,
3396 (emphasis added). Although the legislative history suggests that a post-restraint
hearing may sometimes be proper, it clearly prohibits the sort of inquiry sought by
defendants here. A court may not revisit any matter to which probable cause is
established in the indictment.
A defendant’s probable guilt on the underlying offense is of course a matter
subject to the grand jury’s determination and is inherent in the indictment. It is seldom
reviewed before trial because we presume the grand jury has faithfully performed the
duties assigned to it. Hamling v. United States, 418 U.S. 87, 139 n.23, 94 S. Ct. 2887,
2918 n.23, 41 L. Ed. 2d 590 (1974). And despite the fact that criminal forfeiture is
ordinarily not a part of the substantive offense, but is instead a part of the sentence,
Libretti v. United States, 516 U.S. 29, 40, 116 S. Ct. 356, 363, 133 L. Ed. 2d 271 (1995)
(interpreting 21 U.S.C. § 853); United States v. Bornfield, 145 F.3d 1123, 1138 n.12
(10th Cir. 1998) (interpreting 18 U.S.C. § 982), a grand jury is necessarily called upon in
this context to find probable cause to believe the assets named in the indictment are
traceable to the underlying offense. Musson, 802 F.2d at 387; United States v. Nichols,
841 F.2d 1485, 1505 (10th Cir. 1988).
For these reasons, we hold that issues of underlying guilt and forfeitability of
assets are beyond purview under the statute. Accord United States v. Real Property in
Waterboro, 64 F.3d 752, 756 (1st Cir. 1995); Monsanto, 924 F.2d at 1203-04 (Oakes, J.,
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concurring); id. at 1206-07 (Cardamone, J., dissenting); United States v. Moya-Gomez,
860 F.2d 706, 728 (7th Cir. 1988), cert. denied, 492 U.S. 908, 109 S. Ct. 3221, 106 L. Ed.
2d 571 (1989). That having been said, we next address whether due process nevertheless
requires a pre-trial hearing at which defendants may challenge the grand jury’s findings.
III
The procedural aspect of the Fifth Amendment Due Process Clause guarantees that
government action may not deprive a person of life, liberty or property unless the
government affords a fair procedure to contest the deprivation. U.S. Const. amend. V.
The fundamental requirement of due process is the opportunity to be heard “at a
meaningful time and in a meaningful manner.” Armstrong v. Manzo, 380 U.S. 545, 552,
85 S. Ct. 1187, 1191, 14 L. Ed. 2d 62 (1965). We review de novo the extent of
constitutional rights and their effect on federal statutes. United States v. Hampshire, 95
F.3d 999, 1001 (10th Cir. 1996), cert. denied, ___ U.S. ___, 117 S. Ct. 753, 136 L. Ed. 2d
690 (1997).
Both parties recognize that a restraining order issued under section 853(e)(1)(A)
deprives one of property even though the assets named in the indictment are only frozen
and may eventually be returned. Monsanto, 924 F.2d at 1192; Moya-Gomez, 860 F.2d at
725-26. The parties part ways, however, on what process is due when assets are
restrained under the statute. Defendants suggest that due process requires a post-restraint,
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pre-trial adversarial hearing at which the government has the burden of establishing
probable cause to believe that defendants committed the health care offenses and the
funds subject to restraint are traceable to those offenses. The government contends the
grand jury’s determination of probable cause and the subsequent trial on the merits are all
the process the Constitution requires. Although we ultimately agree with defendants, we
temper our conclusion with qualifications.
To determine whether due process requires some form of a post-restraint, pre-trial
hearing we consider the private interest affected by the restraint; the risk of an erroneous
deprivation of that interest through the procedures used, as well as the probable value of
an adversarial hearing; and the government’s interest, including the administrative burden
that an adversarial hearing would impose. See Mathews v. Eldridge, 424 U.S. 319, 335,
96 S. Ct. 893, 903, 47 L. Ed. 2d 18 (1976); United States v. James Daniel Good Real
Property, 510 U.S. 43, 53, 114 S. Ct. 492, 501, 126 L. Ed. 2d 490 (1993) (applying
Mathews in civil forfeiture context); Monsanto, 924 F.2d at 1193 (applying Mathews in
criminal forfeiture context); Moya-Gomez, 860 F.2d at 726 (same).3 Ultimately, “due
3
Citing United States v. $8,850 in United States Currency, 461 U.S. 555, 103 S.
Ct. 2005, 76 L. Ed. 2d 143 (1983), the government urges us instead to consider the length
of the delay between the initial restraint and trial on the merits, the reason for the delay,
defendants’ assertion of their rights, and whether the delay prejudiced defendants. We
decline to do so. The due process issue raised in $8,850 was a “narrow one,” id. at 562,
103 S. Ct. at 2010, rooted in claims of government dilatoriness, id. at 561, 103 S. Ct.
2010. Defendants here complain that the statutory scheme deprives them of a property
interest without due process, not that dilatory conduct on the part of the government has
deprived them of the right to a hearing at a meaningful time. Moreover, given the
(continued...)
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process is flexible and calls for such procedural protections as the particular situation
demands.” Morrissey v. Brewer, 408 U.S. 471, 481, 92 S. Ct. 2593, 2600, 33 L. Ed. 2d
484 (1972).
The private interests raised in this case are important. Defendants’ qualified right
to counsel of choice is an essential component of the Sixth Amendment right to counsel.
It “stems from a defendant’s right to decide what kind of defense he wishes to present,”
United States v. Collins, 920 F.2d 619, 625 (10th Cir. 1990), cert. denied, 500 U.S. 920,
111 S. Ct. 2022, 114 L. Ed. 2d 108 (1991), for the selection of one attorney over another
can profoundly affect the course and outcome of trial, Nichols, 841 F.2d at 1502. To
improperly impede this interest would likely work a permanent deprivation on a
defendant–a defendant “needs the attorney now if the attorney is to do him any good.”
Moya-Gomez, 860 F.2d at 726; accord United States v. Michelle’s Lounge, 39 F.3d 684,
697-98 (7th Cir. 1995); Monsanto, 924 F.2d at 1193. Also of paramount importance is
Ms. Jones’ interest in paying for ordinary and necessary living expenses (food, shelter,
and the like) until the conclusion of her trial. United States v. Harvey, 814 F.2d 905, 928
(4th Cir. 1987), rev’d en banc on other grounds, 837 F.2d 637 (4th Cir. 1988), aff’d
Caplin & Drysdale, Chartered v. United States, 491 U.S. 617, 109 S. Ct. 2646, 105 L.
(...continued)
3
procedural posture of this case, we find the $8,850 approach unworkable. Defendants’
case is before us on interlocutory appeal, placed in a state of suspended animation at an
early stage of the district court proceedings. There is no trial date to speak of and no
delay to analyze.
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Ed. 2d 528 (1989). A restraining order that prevents a defendant from supporting herself
and her family pending and during trial would likely work an injustice with constitutional
implications. United States v. Thier, 801 F.2d 1463, 1477 (5th Cir. 1986) (Rubin, J,
concurring) (suggesting that such a result “shocks the judicial conscience”), amended by
809 F.2d 249 (5th Cir. 1987).
The risk of an erroneous deprivation through the procedures afforded in section
853(e)(1)(A) is also significant. Although the statute requires a grand jury to determine
that the assets are probably traceable to the underlying offense, the nature of grand jury
proceedings makes that finding susceptible to error. A grand jury investigation is not an
adversarial process. For all practical purposes the prosecution directs the proceedings,
United States v. Sells Eng’g, Inc., 463 U.S. 418, 430, 103 S. Ct. 3133, 3141, 77 L. Ed. 2d
743 (1983), and potential indictees have no ability to correct inadvertent or deliberate
distortions during the grand jury’s fact-finding process, United States v. Williams, 504
U.S. 36, 47-55, 112 S. Ct. 1735, 1742-46, 118 L. Ed. 2d 352 (1992). “[F]airness can
rarely be obtained by secret, one-sided determination of facts decisive of rights.” Joint
Anti-Fascist Refugee Comm. v. McGrath, 341 U.S. 123, 170, 71 S. Ct. 624, 647-48, 95
L. Ed. 2d 817 (1951) (Frankfurter, J., concurring).
Because the statute contemplates a trial by jury to test the forfeiture allegations, the
government would have us hold that any risk of erroneous deprivation is effectively
eliminated. But that cure often comes too late to aid a defendant where complex criminal
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cases can take several months or longer to proceed to trial. “And even if the ultimate
judicial decision is that the claimant [or defendant] was an innocent owner, or that the
Government lacked probable cause, this determination, coming months after the
[restraint], ‘would not cure the temporary deprivation that an earlier hearing might have
prevented.’” James Daniel, 510 U.S. at 56, 114 S. Ct. 502 (quoting Connecticut v.
Doehr, 501 U.S. 1, 15, 111 S. Ct. 2105, 2115, 115 L. Ed. 2d 1 (1991)). An adversarial
hearing that occurs shortly after freezing assets would serve to diminish the risk of an
erroneous deprivation at a meaningful time. There an impartial judge could weigh and
consider each party’s case and more reliably determine whether there exists a factual
basis for forfeiture. See McGrath, 341 U.S. at 171-72, 71 S. Ct. at 649 (Frankfurter, J.,
concurring) (“No better instrument has been devised for arriving at truth than to give a
person in jeopardy of serious loss notice of the case against him and opportunity to meet
it.”).
The government has identified three interests it claims weigh against a post-
restraint, pre-trial hearing: preserving forfeitable assets, avoiding premature disclosure of
its case, and preservation of prosecutorial resources. There is no question that the first of
these concerns weighs heavily in the calculus. “The government certainly has a valid
interest in assuring that funds illegally obtained are not laundered or secreted between the
time a defendant is indicted and the time when his criminality is determined by actual
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conviction.” Thier, 801 F.2d at 1475 (Rubin, J., concurring). This interest was in fact the
impetus for the legislation, and we are thus reluctant to dismiss it as insignificant:
[D]efendants [often] become aware of the government’s development of a
case against them and as a consequence have both the incentive and
opportunity to move to transfer or conceal forfeitable assets . . . . [¶] The
sole purpose of the bill’s restraining order provision . . . is to preserve the
status quo, i.e., to assure the availability of the property pending disposition
of the criminal case. . . . In the Committee’s view, the availability of
restraining orders is essential in the area of criminal forfeiture . . . .
S. Rep. No. 98-225, at 202, 204, 1984 U.S.C.C.A.N. at 3385, 3387.
The government’s remaining concerns, however, add little to tip the balance
against a pre-trial hearing. Worries of premature disclosure ring hollow in a system
where the government is permitted few surprises. See, e.g., Fed. R. Crim. P. 16. To be
sure, in some cases early disclosure of witnesses may jeopardize their safety and thus
dissuade them from testifying. S. Rep. No. 98-225, at 203-04, 1984 U.S.C.C.A.N. at
3387-88. But this does not appear to be one of those cases, and the government has not
advanced that position on appeal. In any event, exempting a post-restraint, pre-trial
hearing from the constraints of the Federal Rules of Evidence would permit the
government to conceal timid witnesses through the use of hearsay and proffer. Id.;
Monsanto, 924 F.2d at 1198. We agree in principle with the government’s third
contention that conserving prosecutorial resources is an important interest. Every dollar
and minute saved not litigating challenges of dubious merit can of course be spent on
matters more deserving of attention. Nevertheless, the government’s failure to explicate
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the costs it expects to incur at a hearing in this case drains much of this argument’s
strength.
We think the proper balance of private and government interests requires a post-
restraint, pre-trial hearing but only upon a properly supported motion by a defendant.
Due process does not automatically require a hearing and a defendant may not simply ask
for one. As a preliminary matter, a defendant must demonstrate to the court’s satisfaction
that she has no assets, other than those restrained, with which to retain private counsel or
provide for herself and her family. See Nichols, 841 F.2d at 1506 n.11. The need for this
requirement is obvious. If a defendant fails to persuade the court on this point, then the
private interest of the Mathews calculus drops out of the picture, tipping the balance of
interests against a post-restraint hearing. Harvey, 814 F.2d at 927. A defendant must
also make a prima facie showing of a bona fide reason to believe the grand jury erred in
determining that the restrained assets “constitute[] or [are] derived, directly or indirectly,
from gross proceeds traceable to the commission of the [health care] offense.” 18 U.S.C.
§ 982(a)(6). By requiring as much from a defendant we protect the government and its
resources from frivolous challenges. We stress that although an accused bears the burden
of persuasion on the first requirement, the second entails only a burden of production.
Once a defendant satisfies these initial burdens, due process requires a district court to
conduct an adversarial hearing at which the government must establish probable cause to
believe that the restrained assets are traceable to the underlying offense. As we alluded to
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before, at this hearing the court may receive and consider evidence and information that
would otherwise be inadmissible under the Federal Rules of Evidence.
We do not require, as defendants urge, that the government reestablish probable
cause to believe that defendants are guilty of the underlying health care offense. See
Monsanto, 924 F.2d at 1196-97. This additional burden would add nothing to protect
defendants’ interests and does more damage than necessary to section 853(e)(1)(A) and
the role of the grand jury.
If indictments were to be held open to challenge on the ground that there
was inadequate or incompetent evidence before the grand jury, the resulting
delay would be great indeed. . . . An indictment returned by a legally
constituted and unbiased grand jury, like an information drawn by a
prosecutor, if valid on its face, is enough to call for trial of the charge on the
merits. The Fifth Amendment requires nothing more. . . . [¶] Defendants
are not entitled . . . to a rule which would result in interminable delay but
add nothing to the assurance of a fair trial.
Costello v. United States, 350 U.S. 359, 363-64, 76 S. Ct. 406, 408-09, 100 L. Ed. 2d 397(1956) (footnote omitted); accord United States v. Kilpatrick, 821 F.2d 1456, 1470 (10th
Cir. 1987) (“[T]he district court is prohibited from looking behind the indictment to
determine if it was based on inadequate or incompetent evidence.”), aff’d Bank of Nova
Scotia v. United States, 487 U.S. 250, 108 S. Ct. 2369, 101 L. Ed. 2d 228 (1988).
By limiting the scope of the post-restraint inquiry to the traceability of the assets,
we do not mean, however, to preclude any discussion of the underlying offense. The
government may describe and explain the underlying charge, it simply bears no burden of
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persuasion on the issue. The district court must take those allegations of the indictment as
true and assume at the hearing that the underlying offense has been committed.
IV
Our holding today is not at odds with the Supreme Court’s decisions in Caplin &
Drysdale, Chartered v. United States, 491 U.S. 617, 109 S. Ct. 2646, 105 L. Ed. 2d 528(1989), and United States v. Monsanto, 491 U.S. 600, 109 S. Ct. 2657, 105 L. Ed. 2d 512(1989). Those companion cases only held that a criminal defendant has no Sixth
Amendment right to use forfeitable assets to employ counsel. Neither case decided
whether due process requires a hearing at which a defendant could challenge the
forfeitability of assets. Monsanto, 491 U.S. at 615 n.10, 109 S. Ct. at 2666 n.10 (“We do
not consider today, however, whether the Due Process Clause requires a hearing before a
pretrial restraining order can be imposed.”).4
United States v. Musson, 802 F.2d 384 (10th Cir. 1986), is also not to the contrary.
There we interpreted 18 U.S.C. § 1963(e)(1)5 and 21 U.S.C. § 853 and concluded that due
4
Our decision in United States v. Nichols, 841 F.2d 1485 (10th Cir. 1988), which
foretold the results of Caplin and Monsanto, is inapposite for the same reasons. Id. at
1491 n.4 (“[W]e have no occasion to decide whether the statutory procedures for granting
an ex parte restraining order comply with due process.”).
5
Section 1963(e)(1), which is presently codified at 18 U.S.C. § 1963(d)(1), is
identical in all pertinent respects to 21 U.S.C. § 853(e)(1), and “may be used to construe
§ 853 due to the similarity of the two statutes.” United States v. Libretti, 38 F.3d 523,
528 n.6 (10th Cir. 1994), aff’d 516 U.S. 29, 40, 116 S. Ct. 356, 363, 133 L. Ed. 2d 271(continued...)
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process did not require a hearing before restraining assets. We balanced the potentially
infringed interests of the defendant with the interests of the government and concluded
that at the pre-restraint stage of the proceedings the interests of the government weighed
more heavily. Musson, 802 F.2d at 386-87; accord Monsanto, 924 F.2d at 1192-93;
United States v. Bissell, 866 F.2d 1343, 1352 (11th Cir.), cert. denied, 493 U.S. 876, 110
S. Ct. 213, 107 L. Ed. 2d 166 (1989); Moya-Gomez, 860 F.2d at 727-28. Musson left
open, however, whether a post-restraint hearing would be required. 802 F.2d at 386. Our
decision also did not involve assets sought for legal and living expenses. This distinction
is of course a sticking point. It is the potential erroneous deprivation of these important
private interests that tips the Mathews balancing test in favor of requiring a hearing.
V
For the reasons set forth above, we conclude that due process requires a district
court to conduct a post-restraint, pre-trial hearing before continuing to freeze assets if a
defendant needs the assets for reasonable legal and living expenses and makes a prima
facie showing that the grand jury erred in determining the assets are traceable to the
underlying offense.
The district court’s order denying a pre-trial hearing is VACATED and the cause
is REMANDED for proceedings consistent with this opinion.
5
(...continued)
(1995).
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