United States v. Charles Hallinan ( 2023 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
Nos. 21-1362, 21-2623, 22-1953 & 22-2328
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UNITED STATES OF AMERICA
v.
CHARLES M. HALLINAN
LINDA B. HALLINAN,*
Appellant in No. 21-1362
LINDA B. HALLINAN and L.B.S.,*
Appellants in Nos. 21-2623, 22-1953 & 22-2328
*
(Under Fed. R. App. P. 12(a))
_______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2:16-cr-00130-001)
District Judge: Honorable Eduardo C. Robreno
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Submitted: April 24, 2023
Before: KRAUSE, BIBAS, and RENDELL, Circuit Judges
(Filed: July 19, 2023)
_______________
James T. Giles
BLANK ROME LLP
130 N 18th Street
One Logan Square
Philadelphia, PA 19103
Lance Rogers
ROGERS COUNSEL
26 East Athens Avenue
Ardmore, PA 19003
Jed Silversmith
LAW OFFICES OF JED SILVERSMITH LLC
P.O. Box 2762
Philadelphia, PA 19118
Counsel for Appellant
Mark B. Dubnoff
Elizabeth M. Ray
OFFICE OF UNITED STATES ATTORNEY
615 Chestnut Street
Suite 1250
Philadelphia, PA 19106
Counsel for Appellee
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OPINION OF THE COURT
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BIBAS, Circuit Judge.
Ill-gotten wealth is never stable. The government can
forfeit and go after criminal earnings wherever they may be
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stashed—even in the hands of third parties. Though the
criminal defendants themselves have myriad procedural rights,
those rights do not transfer to whoever may be holding the
tainted property. Instead, “innocent” third parties can hang on
to the property only if they show that they really did get it
innocently, either by paying good money for it or getting it
before it was criminally tainted. They cannot challenge
whether the property was rightly forfeited; only the defendant
can do that.
Linda Hallinan tries to challenge the forfeiture orders
against her father, the defendant. Because she cannot raise her
father’s challenges, we will affirm in part. And because the
discovery orders that she challenges are not final, we will
dismiss in part for lack of jurisdiction.
I. THE PAYDAY-LENDING ASSETS
For more than fifteen years, Charles Hallinan ran twenty-
six payday-lending companies. They flouted state criminal
laws against usury, charging fees roughly equal to 780%
interest per year. In total, these companies grossed nearly half
a billion dollars. Eventually, a federal grand jury indicted
Charles on seventeen counts, including two for RICO
conspiracy. After a two-month trial, the jury convicted him on
all seventeen. He was sentenced to fourteen years in prison and
fined $2.5 million.
On top of all that, Charles had to forfeit $64 million in illicit
gains from the RICO conspiracy. To recover that amount, the
District Court’s first forfeiture order covered a wide array of
accounts, properties, and other assets. It also broadly ordered
the forfeiture of “any interest in” the “Hallinan Payday
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Lending Enterprise.” JA 50–51 ¶ 3. The District Court then
amended that order to include assets uncovered later in the
investigation. Charles did not object to these follow-up
forfeitures.
But he had already given some of the forfeited property to
his daughter Linda and his minor granddaughter L.B.S. So
after the follow-up forfeiture orders, Linda filed ancillary
claims to recover her interest in the assets. The District Court
denied them. We review its findings of fact for clear error and
its legal conclusions de novo. United States v. Lacerda, 958
F.3d 196, 216 (3d Cir. 2020).
II. LINDA CANNOT CHALLENGE CHARLES’S FORFEITURES
A. The ancillary proceeding’s scope
To sue in federal court, a plaintiff must have both
constitutional standing and a cause of action. Lexmark Int’l,
Inc. v. Static Control Components, Inc., 572 U.S. 118, 125–28
(2014). Constitutional standing comes from an injury; a cause
of action gives the injured party the right to sue for redress.
Federal causes of action are almost always created by statute.
So we use “traditional tools of statutory interpretation” to
discern a cause of action’s elements and decide whether it
“encompasses a particular plaintiff’s claim.” Id. at 127. (Courts
sometimes call this inquiry “statutory standing” or “prudential
standing.” Id. at 127–28 & n.4. But unlike constitutional
standing, a cause of action is not jurisdictional, so those terms
are “misleading.” Id. at 128 n.4.)
Here, the forfeiture statutes’ text and structure eliminate
any “guesswork.” Id. at 131. The statutes wall off the
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defendant’s legal rights in forfeited property from those of
third parties through a two-stage process. At stage one, the only
relevant party is the criminal defendant. For a RICO
conviction, the defendant “shall forfeit” any “interest in” or
“proceeds … from” the conspiracy. 18 U.S.C. § 1963(a). If the
District Court finds that the property fits that description, it
“must enter the [forfeiture] order without regard to any third
party’s interest in the property.” Fed. R. Crim. P. 32.2(b)(2)(A)
(emphasis added). Third parties may neither intervene in that
forfeiture proceeding nor bring separate suits to assert their
interests. 18 U.S.C. § 1963(i); 21 U.S.C. § 853(k). Instead, their
interests “must be deferred until any third party files a claim in
an ancillary proceeding.” Fed. R. Crim. P. 32.2(b)(2)(A).
That ancillary proceeding is stage two. Only there can
“[a]ny person, other than the defendant, asserting a legal
interest” in the forfeited property bring a claim. 18 U.S.C.
§ 1963(l)(2); 21 U.S.C. § 853(n)(2). The court can amend the
forfeiture order if the third party shows that she either (1) was
a bona fide purchaser for value or (2) has an interest in the
forfeited property that was vested or superior at the time of the
crime. 18 U.S.C. § 1963(l)(6); 21 U.S.C. § 853(n)(6).
Otherwise, the third party cannot “relitigat[e]” the underlying
forfeiture order against the defendant. Fed. R. Crim. P. 32.2
adv. comm. n., subdiv. (b); cf. In re NFL Players Concussion
Inj. Litig., 775 F.3d 570, 576 n.6 (3d Cir. 2014) (noting the
weight courts give to advisory committee notes).
So to recover the property Charles forfeited, Linda must
show either that she was a bona fide purchaser or that her
interest is superior to the government’s. United States v. 101
Houseco, LLC, 22 F.4th 843, 849–50 (9th Cir. 2022) (collecting
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cases); United States v. Lavin, 942 F.2d 177, 185 n.9 (3d Cir.
1991) (noting that we interpret § 1963(l) and § 853(n) alike).
B. Linda has not proven the cause of action’s required
elements
Linda does not say she was a bona fide purchaser. Nor does
she make much of an effort to prove that her interest was or is
superior to the government’s. Under the “relation back” rule,
all property rights vest in the government “upon the
commission” of the crime. 18 U.S.C. § 1963(c); 21 U.S.C.
§ 853(c). The District Court credited the government’s tracing
expert and found that Charles’s criminal enterprise got the
assets before he gave them to Linda. Linda claims that no one
used criminal funds to buy those assets. But that argument goes
to the property’s forfeitability, which is beyond the ancillary
proceeding. She never contests the timeline showing that the
criminal enterprise got them first. So the government took title
before she did, making its interest superior. See 18 U.S.C.
§ 1963(l)(6)(A); 21 U.S.C. § 853(n)(6)(A).
There is one wrinkle. Linda says the underlying forfeiture
orders did not directly forfeit the property that she seeks to
recover. Instead, she says, the District Court forfeited it as
substitute property. And that distinction could matter: the
parties agreed that the government’s interest in substitute
property relates back to the time of the indictment, not the
crime. (We take no position on whether that reading of the law
is right; the circuits are split on that question. United States v.
Erpenbeck, 682 F.3d 472, 477–78 (6th Cir. 2012) (Sutton, J.)
(describing the circuit split).)
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Linda may not challenge the method used in the underlying
forfeiture order. But because it affects the superiority of her
interest, she may seek to interpret that order. Yet she faces a
steep climb. We review the District Court’s reading of its own
order for abuse of discretion, giving it “great deference.” In re
Asbestos Prods. Liab. Litig. (No. VI), 718 F.3d 236, 244 (3d
Cir. 2013) (internal quotation marks omitted).
The District Court read its own orders to forfeit the relevant
assets directly. In doing so, it did not abuse its discretion. True,
the orders mentioned substitute property as an alternative
theory. But the court reasoned primarily that these assets were
simply later-discovered assets of the initially forfeited
enterprise. Cf. Fed. R. Crim. P. 32.2(e)(1)(A). So the
government’s interest relates back to the time of the crime,
trumping Linda’s interest.
The rest of Linda’s arguments challenge the forfeiture
orders procedurally and substantively: Linda says the property
was not forfeitable, the forfeiture was excessive, the district
court bungled forfeiture procedure, Charles did not get due
process, and so on. But only the defendant may challenge the
forfeitures themselves. So these arguments are irrelevant to
Linda’s limited cause of action.
And though Linda gestures at her own due-process rights,
she got all the process that she was due: notice and a hearing
to prove that she was the rightful owner. Plus, she can petition
the Attorney General for discretionary relief. 18 U.S.C.
§ 1963(g)(1); 21 U.S.C. § 853(i)(1). Those protections are
enough. Libretti v. United States, 516 U.S. 29, 44 (1995)
(holding that § 853(n) suffices to protect third parties’ rights).
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III. WE LACK JURISDICTION OVER THE SUBPOENAS
Linda also challenges the subpoenas issued to her, her
lawyers, and her bank. We lack jurisdiction over all three. As
for the bank subpoena, a “court ruling denying” a bank
customer’s motion to quash is “not … a final order” and the
customer may take “no interlocutory appeal” of it. 12 U.S.C.
§ 3410(d). Rather, the customer may appeal the ruling only
either (1) as part of an “appeal from a final order in any legal
proceeding initiated against [the customer] arising out of or
based upon the financial records” subpoenaed, or (2) after
being “notif[ied] that no legal proceeding is contemplated
against [the customer].” Id. (emphasis added). These
procedures are “the sole judicial remedy available to a
customer to oppose disclosure of financial records.” § 3410(e).
The District Court’s ruling fits neither category. The
proceedings below were not “against” Linda. The forfeiture
proceedings were against Charles, and she brought the
ancillary proceeding. Nor did the government ever notify
Linda that it is not contemplating proceeding against her. So
the denial of her motion to quash the bank subpoena is not a
final order, and we lack jurisdiction over it. 28 U.S.C. § 1291;
see Irani v. United States, 448 F.3d 507, 511 (2d Cir. 2006).
Ditto for the subpoenas to her lawyers and herself. Linda
says the District Court wrongly denied her motions to quash
those subpoenas. But those denials are not final orders. See
Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100, 103 (2009);
Leonard v. Martin, 38 F.4th 481, 485–88 (5th Cir. 2022); Ott
v. City of Milwaukee, 682 F.3d 552, 554–55 (7th Cir. 2012). So
to appeal right away, Linda and her lawyers needed to defy the
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subpoenas and be held in contempt. United States v. Sciarra,
851 F.2d 621, 628–29 (3d Cir. 1988); Leonard, 38 F.4th at 488.
Yet they never did.
Resisting this conclusion, Linda argues that the denials
became final when the District Court entered judgment in the
ancillary proceedings. But the denials did not merge into those
judgments. Rather, they merged (if at all) into the partial final
orders of forfeiture, which Charles never appealed. Indeed,
Linda complains that the government used the subpoenas “to
locate assets to satisfy a forfeiture.” First Appellants’ Br. 61
(lowercased). She does not complain that they were used to
dispute her lawful ownership during the ancillary proceeding.
Because the orders denying the motions to quash did not
“affect the final judgment” from which she appeals, they are
not part of this appeal. In re Westinghouse Sec. Litig., 90 F.3d
696, 706 (3d Cir. 1996); see 16A Charles Alan Wright, Arthur
R. Miller & Catherine T. Struve, Federal Practice & Procedure
§ 3949.4 (5th ed. 2023). Thus, we cannot review them.
*****
The time to challenge the forfeitures of Charles Hallinan’s
property is over. Now, affected property owners may recover
their property only by showing that they were good-faith
buyers or had superior interests. Charles’s daughter Linda has
shown neither, so the District Court properly denied her claims.
And its denials of her motions to quash are not final orders, so
we lack jurisdiction to review them.
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