United States v. Lots 275, 276, & 277 ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED FEBRUARY, 11, 2004 January 13, 2004
IN THE UNITED STATES COURT OF APPEALS Charles R. Fulbruge III
Clerk
FOR THE FIFTH CIRCUIT
____________________
No. 02-30743
____________________
UNITED STATES OF AMERICA
Plaintiff - Appellee
v.
MELROSE EAST SUBDIVISION, THIRD FILING,
EAST BATON ROUGE PARISH LOUISIANA; Et Al.
Defendants
----------------------------------------
LYMAN D WHITE
Claimant - Appellant
_________________________________________________________________
Appeal from the United States District Court
for the Middle District of Louisiana
_________________________________________________________________
Before KING, Chief Judge, DENNIS, Circuit Judge, and LYNN,
District Judge.*
KING, Chief Judge:
The United States filed a civil forfeiture complaint in the
district court and on the same day obtained a pretrial
restraining order under 18 U.S.C. § 983(j)(1)(A) enjoining the
*
District Judge for the Northern District of Texas,
sitting by designation.
transfer of the defendant property. A claimant to the property,
who was indicted on federal charges as part of the same
investigation that led to the civil forfeiture complaint, filed a
motion in the district court seeking to modify the restraining
order to release funds needed to retain an attorney in the
related criminal case. After an evidentiary hearing, the
district court denied the motion, finding that the government had
established probable cause to restrain the assets. The claimant
appeals.
We decide that the standard of proof to be employed in
ruling on such a motion is probable cause, and we agree with the
district court that the government satisfied that standard. We
accordingly affirm the district court’s denial of the motion to
modify the restraining order.
I. BACKGROUND
This civil forfeiture proceeding arises from a Medicaid
fraud investigation into the activities of Drug and Alcohol
Counseling, Inc. (“DAC”), a corporation owned and operated by
Claimant-Appellant Lyman D. White. In addition to spawning this
forfeiture action, the investigation has led to the indictment of
White and three others connected to DAC.
Located in Baton Rouge, DAC received Medicaid reimbursements
for providing substance abuse treatment to local youths.
Medicaid paid DAC a total of approximately $175,000 for all of
2
1998. DAC’s activities therefore aroused suspicion when, by
September 1999, DAC’s billings had risen to over $1 million for
the year to date, with many of DAC’s monthly billings rivaling
the total for the whole of the previous year. The Louisiana
Department of Health and Hospitals (“DHH”), which administers the
state’s Medicaid program, instructed Unisys, the private company
that serves as DHH’s claims intermediary, to examine DAC’s
billing activity. Unisys determined that an on-site review was
warranted. At that review, held in October 1999, Unisys analysts
noted that DAC employees were inordinately slow in providing the
patient charts that the analysts requested. The government has
since suggested, based on interviews with DAC employees, that the
suspicious delay resulted from the employees needing time to
falsify the charts that were requested by the Unisys analysts.
By early November 1999, Unisys decided that the situation at DAC
was sufficiently serious to justify withholding future Medicaid
payments. This determination was upheld after a hearing
conducted later that month.
The investigation then continued at higher levels.
Beginning in late December 1999, DHH’s Program Integrity Staff
began calling some of the clients reflected on DAC’s Medicaid
billings. Of the twenty-five clients selected, only thirteen
could be located. Seven of those contacted were unaware of DAC,
five said that they attended DAC but only for tutoring or
recreational programs (activities which, while laudable, did not
3
entitle DAC to Medicaid payments), and only one mentioned a drug
addiction. Based on these phone calls, together with the on-site
review, the case was referred to the Medicaid Fraud Control Unit,
which launched a criminal investigation in January 2000. The FBI
soon joined the effort as well. Federal and state investigators
eventually interviewed a total of thirty-nine youths who had
supposedly received substance abuse counseling at DAC. Ten
denied any knowledge of DAC, and the rest referred to DAC as a
camp or youth program where they went for tutoring and
recreational activities. None of them said they received
substance abuse treatment at DAC of the type for which DAC was
billing Medicaid.
The investigation later spread beyond DAC and White. Agents
learned that White had formed a personal relationship with Marion
Slaton, a manager in a department of Unisys responsible for fraud
detection. They learned that, at some point in February 1999,
she had given White a list of juvenile Medicaid recipients in
East Baton Rouge Parish. Slaton knew that it was illegal to give
White this list, which contained all of the identifying
information necessary to file Medicaid claims in the juveniles’
names. The spike in DAC’s Medicaid billings, noted earlier,
began shortly after Slaton gave White the list. Slaton used her
position at Unisys to shield DAC’s questionable billings from
review. She later accepted several thousand dollars from White,
though at least some of this money might be attributable to
4
Slaton’s status as White’s “girlfriend,” rather than to
kickbacks.
Investigators also learned that White contacted Dana White
(no relation) in April 1999 about an opportunity to expand the
business of Dana White’s company, Healthcare Laboratory Services,
LLC (“HLS”). HLS soon began filing false Medicaid claims using
patient information supplied by White, and Dana White in turn
paid kickbacks to DAC. At White’s behest, Dana White also made
payments to Slaton to ensure that HLS’s increased Medicaid
billings would not come under scrutiny.
As part of the growing investigation, agents examined DAC’s
financial records. During the early part of 1999, Unisys
electronically deposited DAC’s Medicaid reimbursements into DAC’s
account at Liberty Bank. At some point in April, White opened an
account at Dryades Bank, and the deposits began to flow there
instead. The agents formed a basis to believe that White had
funneled DAC’s increased (and fraudulent) Medicaid revenues from
those bank accounts into purchases of real estate and annuities.
As a result, on August 22, 2001, the government filed a civil
complaint for forfeiture, under 18 U.S.C. § 981 and § 985,
against six parcels of real property and three annuities
purchased with funds allegedly derived from the DAC scheme.
According to the government, the property was subject to
forfeiture under both § 981(a)(1)(A) as property involved in a
money laundering offense and § 981(a)(1)(C) as property that
5
“constitutes or is derived from proceeds traceable to” a federal
health care offense. The complaint was accompanied by a
declaration by one of the investigating FBI agents, which
recounted facts that avowedly showed probable cause to believe
that the government’s forfeiture claim was meritorious. The
government simultaneously requested, and the district court on
the same day issued, an ex parte pretrial restraining order under
§ 983(j)(1)(A). The restraining order generally enjoined the
sale, pledge, or any other means of disposing of the property
without the court’s approval. The order further provided that
any person wishing to transfer the property could do so, with the
government’s permission, as long as the proceeds were put into an
escrow account which would itself be forfeited to the government
if the government prevailed on the merits of the case. According
to the terms of the order, it remained in force “until judgment
is rendered on the civil forfeiture complaint . . . or until
further order of the Court.”
White was indicted a few months later, on October 31, 2001,
for offenses arising from the same events described in the civil
forfeiture complaint. On November 26, White filed a motion
seeking either an adversary hearing on the restraining order or
the release of restrained funds to the extent that he needed the
funds to pay for his defense attorney in the criminal case. The
government opposed the motion. The government contended that
funds needed to pay counsel are not exempt from forfeiture, and,
6
moreover, the government argued that White was not even entitled
to a hearing on the restraining order unless he first showed both
that he lacked any other funds with which to pay counsel and that
there was no probable cause to believe that the restrained assets
were subject to forfeiture.1 The district judge held a hearing
on March 22, 2002. The hearing transcript shows that the parties
and the court were at times uncertain as to the standards and
procedures that should be employed in ruling on White’s motion.
The court appears to have orally ruled that White need not make
the threshold showings requested by the government and that the
government would instead bear the initial burden of showing that
it was substantially likely to prevail on the merits of its
forfeiture claim. To satisfy that burden, the government
tendered the declaration that accompanied the forfeiture
complaint, White’s indictment, the factual statements adopted by
Dana White and Slaton as part of their plea bargains, and several
charts tracing the connections between DAC’s Medicaid receipts
and the restrained assets. The court did not receive any live
testimony during the hearing, although White asked to question
1
White’s November 26 motion referred to an affidavit in
which White swore that the restrained funds were needed to pay
counsel, but the affidavit was apparently not included in the
government’s copy of the motion. The government later received a
copy of the affidavit, but the government continued to assert
that White had other assets that he could use to pay his
attorney. At the subsequent hearing on White’s motion, the
government accordingly asked the district court to examine White
about the availability of other funds before entertaining the
motion to release funds from the restraining order.
7
some of the government witnesses. Both sides filed post-hearing
briefs arguing whether the government had met the burden set
forth by the district court, and the government additionally
filed a motion asking the court to reconsider its procedural
rulings on the allocation of the burden of proof.
In a written order dated April 17, 2002, the district court
ruled that the government had met its initial burden and that it
was therefore necessary for White to “adduce evidence and present
his case” at an evidentiary hearing, which was set for May 1.
The court denied the government’s motion to reconsider as moot.
At the May 1 hearing, the court suggested that its rulings
at the March 22 hearing had been “a little too hard” on the
government. After reflecting on the Supreme Court’s decision in
United States v. Monsanto, 491 U.S. 600 (1989), the court now
believed that the pretrial restraining order should be continued
as long as there was probable cause to believe that the property
was subject to forfeiture. Over the government’s protestations,
the court permitted White’s attorneys to contest the existence of
probable cause by examining three government witnesses: the two
lead investigating agents and Slaton. At the conclusion of the
hearing, the court expressed its view that the examinations had
only bolstered the government’s showing of probable cause. A
written ruling later formalized the court’s denial of White’s
motion to modify the restraining order to release funds needed to
pay counsel in his criminal case.
8
White now appeals the decision to continue the pretrial
restraining order.2 He argues that the district court should
have applied a standard higher than that of probable cause or, if
probable cause is the proper standard, that the evidence failed
to meet that standard.
II. STANDARD OF REVIEW
Although the district court’s ultimate decision to grant,
deny, or continue injunctive relief is reviewed only for abuse of
discretion, Castillo v. Cameron County, 238 F.3d 339, 347 (5th
Cir. 2001), the district court abuses its discretion if it
grounds its decision on an erroneous view of the governing legal
standards, Cargill, Inc. v. United States, 173 F.3d 323, 341 (5th
Cir. 1999). The question whether the district court applied the
proper standard of proof is a question of law that we review de
novo. See Stevens Shipping & Terminal Co. v. Japan Rainbow II
MV, 334 F.3d 439, 443 (5th Cir. 2003). In addition, “[a]lthough
we review the district court’s finding of facts for clear error,
the question of whether the facts are sufficient to constitute
probable cause is a question of law, which we review de novo.”
2
We entertain this appeal under 28 U.S.C. § 1292(a)(1),
which confers jurisdiction over appeals of “[i]nterlocutory
orders . . . granting, continuing, modifying, refusing or
dissolving injunctions, or refusing to dissolve or modify
injunctions.” See United States v. Floyd, 992 F.2d 498, 499-500
(5th Cir. 1993) (holding that § 1292(a)(1) provides jurisdiction
to review decisions regarding pretrial asset restraining orders
issued under 21 U.S.C. § 853(e), the criminal analogue to 18
U.S.C. § 983(j)); see also United States v. Kirschenbaum, 156
F.3d 784, 788 (7th Cir. 1998) (citing cases).
9
United States v. 1988 Oldsmobile Cutlass Supreme 2 Door, 983 F.2d
670, 673 (5th Cir. 1993).
III. DISCUSSION
White contends that the district court erred both by
employing the probable cause standard and in determining that the
evidence satisfied that standard. We first decide the
evidentiary standard that the district court should employ in
ruling on a motion to modify a pretrial restraining order under
18 U.S.C. § 983(j)(1)(A). This precise question is a matter of
first impression, though the Supreme Court has provided guidance
in a closely related context.
A. Standard Under 18 U.S.C. § 983(j)(1)(A)
The government seeks the civil forfeiture of the defendant
properties under the authority of 18 U.S.C. § 981. The statutory
provision authorizing pretrial restraining orders in civil
forfeiture proceedings is found in 18 U.S.C. § 983, and it
provides in relevant part:
(1) Upon application of the United States, the court may
enter a restraining order or injunction . . . or take any
other action to seize, secure, maintain, or preserve the
availability of property subject to civil forfeiture——
(A) upon the filing of a civil forfeiture complaint
alleging that the property with respect to which
the order is sought is subject to civil forfeiture;
or
(B) prior to the filing of such a complaint, if,
after notice to persons appearing to have an
interest in the property and opportunity for a
hearing, the court determines that——
10
(i) there is a substantial probability that
the United States will prevail on the issue of
forfeiture and that failure to enter the order
will result in the property being destroyed,
removed from the jurisdiction of the court, or
otherwise made unavailable for forfeiture; and
(ii) the need to preserve the availability of
the property through the entry of the
requested order outweighs the hardship on any
party against whom the order is to be entered.
18 U.S.C. § 983(j) (2000) (emphasis added). This provision,
along with all of the civil forfeiture procedures set forth in
§ 983, is a product of the Civil Asset Forfeiture Reform Act of
2000 (CAFRA), Pub. L. No. 106-185, 114 Stat. 202. As the
restraining order in this case was requested contemporaneously
with the filing of the forfeiture complaint, issuance of the
restraining order was authorized under paragraph (A) above.
Paragraph (A) makes no mention of a hearing, either before or
after issuance of the restraining order. The absence of any
mention of a hearing is notable because paragraph (B), which
concerns pre-complaint restraining orders, says that such orders
may issue only after notice and an opportunity for a hearing. In
this case, the district court did not hold a hearing before
issuing the restraining order, and White does not contend that it
should have held a pre-restraint hearing.3
3
This case therefore does not implicate the question
whether the district court may in its discretion hold a pre-
restraint hearing, or indeed whether it must hold a pre-restraint
hearing as a matter of due process. There is authority for the
proposition that due process does not require a pre-restraint
hearing in the context of post-indictment restraining orders
11
The government recognizes, however, that considerations of
due process can require the court to hold a post-restraint
pretrial hearing in certain circumstances. Although there does
not seem to be a reported holding to this effect regarding the
still fairly new provision at issue here, 18 U.S.C. § 983(j),
authorities interpreting its criminal analogue, 21 U.S.C.
§ 853(e), are in broad agreement that due process requires the
district court to hold a prompt hearing at which the property
owner can contest the restraining order——without waiting until
trial to do so——at least when the restrained assets are needed to
pay for an attorney to defend him on associated criminal charges.
See United States v. Jones, 160 F.3d 641, 645-48 (10th Cir.
1998); Monsanto, 924 F.2d at 1203; United States v. Moya-Gomez,
860 F.2d 706, 729-30 (7th Cir. 1988); United States v. Harvey,
814 F.2d 905, 928-29 (4th Cir. 1987), superceded as to other
issues, In re Forfeiture Hearing as to Caplin & Drysdale,
Chartered, 837 F.2d 637 (4th Cir. 1988) (en banc), aff’d, 491
U.S. 617 (1989).4 Other courts have held that due process
under 21 U.S.C. § 853(e)(1)(A), the criminal analogue of
§ 983(j)(1)(A). See United States v. Monsanto, 924 F.2d 1186,
1192-93 (2d Cir. 1991) (en banc), on remand from 491 U.S. 600
(1989); United States v. Musson, 802 F.2d 384, 387 (10th Cir.
1986). But cf. United States v. James Daniel Good Real Prop.,
510 U.S. 43, 52-57, 62 (1993) (holding that due process requires
a hearing before the government may seize real property pending
the resolution of a civil forfeiture action).
4
The Eleventh Circuit, on the contrary, holds that no
pretrial hearing is required under 21 U.S.C. § 853(e) even when
the restrained assets are needed to pay counsel. See United
12
requires that a claimant to assets that have been civilly seized
be afforded a prompt opportunity to challenge the seizure when
the assets are needed to pay counsel in a related criminal case.
See United States v. Farmer, 274 F.3d 800, 805 (4th Cir. 2001);
United States v. Michelle’s Lounge, 39 F.3d 684, 700-01 (7th Cir.
1994).
Note that neither due process, nor the Sixth Amendment right
to counsel, requires that assets needed to pay an attorney be
exempted from restraining orders or, ultimately, from forfeiture.
Caplin & Drysdale, Chartered v. United States, 491 U.S. 617, 623-
35 (1989); Monsanto, 491 U.S. at 616. Rather, the constitutional
requirement set forth in the circuit court cases cited above is
States v. Bissell, 866 F.2d 1343, 1354 (11th Cir. 1989); see also
United States v. Register, 182 F.3d 820, 835 (11th Cir. 1999)
(“We appear to be the only circuit holding that, although
pre-trial restraint of assets needed to retain counsel implicates
the Due Process Clause, the trial itself satisfies this
requirement.”). The government concedes that the better view is
that embraced by the other authorities.
This court has held that the requirements of Federal Rule of
Civil Procedure 65, including Rule 65’s hearing requirements and
time limits on ex parte restraining orders, apply to ex parte
restraining orders and injunctions issued under 21 U.S.C.
§ 853(e)(1)(A). See United States v. Thier, 801 F.2d 1463, 1468-
69 (5th Cir. 1986), modified, 809 F.2d 249 (5th Cir. 1987);
accord United States v. Crozier, 777 F.2d 1376, 1384 (9th Cir.
1985). Contra United States v. Jamieson, 189 F. Supp. 2d 754,
756 (N.D. Ohio 2002). Thier’s hearing requirement would
evidently apply without regard to whether the restrained assets
are needed to pay counsel. In today’s case, which involves the
added element of the Sixth Amendment right to counsel, the
district court did hold a post-restraint hearing. Thus, we have
no need to consider the issue whether post-restraint hearings are
more generally appropriate under 18 U.S.C. § 983(j)(1)(A), as
Thier apparently envisioned they would be under 21 U.S.C.
§ 853(e)(1)(A).
13
simply a requirement that the district court in certain
circumstances hold a hearing on the restraining order and make a
determination that the assets are properly subject to forfeiture.
Because the district court held a hearing in this case, and
because the government does not dispute that due process can
require such hearings, we can assume without deciding that due
process can mandate a post-restraint hearing under
§ 983(j)(1)(A), at least in certain circumstances. But in order
to resolve White’s appeal, we do need to decide the question of
the standard of proof that should be used in such a post-
restraint hearing. In particular, we must decide whether the
district court erred in continuing the restraining order based on
a showing of probable cause to believe that the assets were
subject to forfeiture.
According to White, the government should not be permitted
to restrain assets that he needs to pay his criminal counsel
unless the government can make a post-restraint showing that it
is likely to succeed on the merits of the forfeiture action.
Essentially, the government would be required to meet the burden
generally imposed on parties seeking preliminary injunctions,
which is presumably somewhat higher than a mere showing of
probable cause. In support of that proposition, White relies on
our decision in United States v. Thier, 801 F.2d 1463 (5th Cir.
1986), modified, 809 F.2d 249 (5th Cir. 1987), which applied the
substantial-likelihood-of-success-on-the-merits standard in the
14
context of 21 U.S.C. § 853(e)(1)(A), which authorizes post-
indictment, pretrial restraining orders in criminal forfeiture
cases. White further explains that the ultimate showing required
for the government to succeed on the merits of a civil forfeiture
action recently changed with the passage of CAFRA in April 2000.
Before CAFRA, the government could prevail on the merits of a
civil forfeiture action merely by showing probable cause to
believe that the subject property was forfeitable. After CAFRA,
however, the government can prevail on the merits only by
establishing forfeitability by a preponderance of the evidence.
18 U.S.C. § 983(c)(1) (2000). Combining CAFRA’s higher standard
of proof with Thier’s statements regarding the standard for
pretrial restraining orders, White concludes that the government
should be required to defend its § 983(j)(1)(A) pretrial
restraining order by showing that it is substantially likely to
succeed at trial in proving by a preponderance of the evidence
that the assets are subject to forfeiture. Again, in White’s
view, what is required is basically the familiar inquiry into
whether a plaintiff is entitled to a preliminary injunction.
According to the government, a pretrial restraining order
issued under § 983(j)(1)(A) should be continued if the government
shows probable cause to believe that the assets are subject to
forfeiture. To the extent that White would read Thier to say
otherwise, the government contends that the issue is instead
controlled by the Supreme Court’s post-Thier decision in United
15
States v. Monsanto. In Monsanto, which involved a restraining
order under a criminal forfeiture statute, the Supreme Court held
that due process permitted the government to restrain assets
needed to pay attorneys’ fees as long as the government showed
that there was probable cause to believe that the assets were
subject to forfeiture. 491 U.S. at 615-16. Regarding the impact
of CAFRA, the government argues that while CAFRA increased the
standard of proof on the merits of a civil forfeiture case, CAFRA
does not affect the standard at a due process hearing challenging
a pretrial restraining order. On that issue, according to the
government, Monsanto still controls.5
5
Although the government believes that the district
court applied the proper standard of proof (i.e. probable cause)
and correctly concluded that probable cause was present, the
government also argues that the district court should not have
held a hearing in the first place because White did not make a
sufficient threshold showing that the restrained funds were
necessary to pay counsel. White presented an affidavit stating
that he had no other funds with which to pay for a defense
attorney, and there were suggestions, which the district judge
apparently credited, that White had been found to qualify for
appointed counsel in the related criminal prosecution. This
showing appears quite similar to the showings described in cases
that, according to the government’s own argument, set forth the
proper threshold showing. See, e.g., Farmer, 274 F.3d at 802,
804. Since the district court decided to hold a hearing and the
government still prevailed, we think it would be imprudent to use
this case to elaborate the precise details of the circumstances
and showings necessary to trigger a due process hearing——a
constitutional question that we are not required to decide here.
Cf. Monsanto, 491 U.S. at 615 n.10 (“[G]iven that the Government
prevailed in the District Court notwithstanding the hearing, it
would be pointless for us now to consider whether a hearing was
required by the Due Process Clause.”).
16
Having weighed the parties’ contentions, we are persuaded
that probable cause is the proper standard of proof for
continuing a pretrial restraining order under § 983(j)(1)(A).
Under pre-CAFRA law, property could be civilly forfeited to the
government under 18 U.S.C. § 981 based merely on a showing of
probable cause to believe that the property was implicated in
certain offenses, unless the claimant could establish, by a
preponderance of the evidence, that some defense was applicable
or that the property was otherwise not subject to forfeiture.
See United States v. $9,041,598.68, 163 F.3d 238, 246 (5th Cir.
1998); United States v. 1988 Oldsmobile Cutlass Supreme 2 Door,
983 F.2d 673-74 (5th Cir. 1993).6 Courts consistently held that
this scheme comported with due process. See United States v. One
Beechcraft King Air 300 Aircraft, 107 F.3d 829, 829-30 (11th Cir.
1997) (per curiam) (collecting cases). Moreover, the government
could seize property pending the resolution of the forfeiture
case, and this too required no more than probable cause. See 18
U.S.C. § 981(b)(2) (1994); Marine Midland Bank, N.A. v. United
States, 11 F.3d 1119, 1124-26 (2d Cir. 1993); United States v.
6
Section 981 is a generic provision that provides for
civil forfeiture of property involved in a host of offenses. See
18 U.S.C. § 981(a)(1) (2000) (listing offenses). Federal law
also contains a number of specific civil forfeiture provisions
tied to particular regulatory regimes. The discussion here
focuses on the background of § 981 because it is the provision
that authorizes the forfeitures at issue in this case.
17
One 1978 Mercedes Benz, Four-Door Sedan, 711 F.2d 1297, 1302-03
(5th Cir. 1983).7
Congress enacted CAFRA in 2000 in order to “provide a more
just and uniform procedure for Federal civil forfeitures.” Pub.
L. No. 106-185 pmbl., 114 Stat. 202, 202.8 CAFRA added 18 U.S.C.
§ 983, which sets forth a uniform (though not comprehensive) set
of procedures and standards applicable to most civil forfeiture
proceedings. Among other changes, CAFRA increased the
government’s required showing on the merits: “In a suit or action
brought under any civil forfeiture statute for the civil
forfeiture of any property . . . the burden of proof is on the
Government to establish, by a preponderance of the evidence, that
7
One 1978 Mercedes Benz might be taken to suggest that
the Attorney General could use admiralty procedures to seize
property even without probable cause. See 711 F.2d at 1302.
Other courts held that probable cause must be present in all
cases, regardless of the procedure, as a matter of constitutional
law. See United States v. Daccarett, 6 F.3d 37, 49-50 (2d Cir.
1993). If One 1978 Mercedes Benz did not require probable cause
for the seizure, it is unclear whether the case would still be a
correct statement of the law, as both the civil forfeiture
statutes and Rule C of the Supplemental Rules for Certain
Admiralty and Maritime Claims have since been amended to afford
greater procedural protections. See 12 CHARLES ALAN WRIGHT ET AL.,
FEDERAL PRACTICE AND PROCEDURE § 3222 (2d ed. 1997) (discussing
amendments to admiralty warrant rules). Compare 18 U.S.C.
§ 981(b)(2) (1994) with id. (2000). For present purposes, the
important point is simply that pretrial seizure in civil
forfeiture cases has traditionally been available upon a
relatively low showing by the government.
8
The purposes behind CAFRA are also recounted in two
committee reports that discuss previous versions of the bill.
See H.R. REP. NO. 106-192 (1999); H.R. REP. NO. 105-358 (1997).
Neither report discusses the precise provision at issue here, as
it was added as part of an amendment on the Senate floor.
18
the property is subject to forfeiture.” 18 U.S.C. § 983(c)(1).
CAFRA also added § 983(j), which authorizes pretrial restraining
orders and other measures to preserve property pending resolution
of the case. The particular provision at issue in this appeal is
§ 983(j)(1)(A), which concerns post-complaint restraining orders.
As we observed above, § 983(j)(1)(A) does not mention a
hearing, let alone fix the standard of proof in such a hearing.
When due process requires a hearing, as both sides agree that it
sometimes does, we think that the standard of proof applied at
such a hearing should likewise be a function of what due process
requires. In deciding what due process requires, we find
compelling guidance in the Supreme Court’s decision in Monsanto,
which involved 21 U.S.C. § 853(e)(1)(A). In that case, like the
case before us today, the government had obtained a pretrial
restraining order that froze assets that the government contended
were subject to forfeiture. The owner objected that the assets
were necessary to pay for an attorney to defend him on the
related criminal charges. The court of appeals had originally
held that, although funds needed to pay for an attorney were
subject to forfeiture and pretrial restraint, due process
required a post-restraint, pretrial hearing at which the
government would be required to show a likelihood of succeeding
in the criminal forfeiture case. United States v. Monsanto, 836
F.2d 74, 83-84 & n.9 (2d Cir. 1987). On rehearing, the en banc
court went further and held that funds needed to pay for a
19
criminal defense attorney were not subject to forfeiture or
pretrial restraint at all. United States v. Monsanto, 852 F.2d
1400, 1402 (2d Cir. 1988) (en banc). The Supreme Court reversed,
holding that funds needed to pay for a criminal defense were not
exempt from forfeiture and that such assets could properly be
restrained under § 853(e)(1)(A) pending trial “based on a finding
of probable cause to believe that the assets are forfeitable.”
491 U.S. at 615 (emphasis added). The Court supported its
decision by noting that its precedents required the government to
make only a showing of probable cause before physically seizing
property alleged to be subject to forfeiture, a more severe form
of interference than a restraining order. Id. Moreover, the
Court pointed out that the government may restrain a person
(i.e., arrest him or her) based on a finding of probable cause.
Id. at 615-16. The Court concluded by observing that “if the
Government may, post-trial, forbid the use of forfeited assets to
pay an attorney, then surely no constitutional violation occurs
when, after probable cause is adequately established, the
Government obtains an order barring a defendant from frustrating
that end by dissipating his assets prior to trial.” Id. at 616.
It is true that Monsanto arose in connection with a criminal
forfeiture proceeding, but we see no reason why due process
should require a different standard of proof when the assets
20
needed to pay an attorney to provide a criminal defense are
restrained as part of a related civil forfeiture proceeding.9
The recent passage of CAFRA does not mean that we should now
require more than what Monsanto required. CAFRA raised the
government’s ultimate burden of proof on the merits in a civil
forfeiture case from probable cause (subject to rebuttal by a
preponderance) to a preponderance of the evidence. But it is
important to remember that since Monsanto was a criminal
forfeiture case under 21 U.S.C. § 853(a), the government’s
ultimate burden on the merits was to prove the crime beyond a
reasonable doubt and prove the forfeitability of the property by
a preponderance of the evidence.10 Given that ultimate standard
9
This is not to deny that there are important
differences between the civil and criminal contexts, including
differences that might bear on the circumstances in which due
process requires a speedy post-restraint hearing. In the
criminal context, an ex parte pretrial restraining order under 21
U.S.C. § 853(e)(1)(A) is at least supported by a grand jury
finding of probable cause, but that need not be the case in civil
forfeitures. Moreover, the ultimate resolution of a civil
forfeiture case may be longer in coming, as such a case is not
governed by the speedy trial considerations operative in a
criminal case. While a claimant in a civil forfeiture case might
hope to regain restrained property quickly by filing a motion for
summary judgment, the government can block this tactic by moving
to stay the civil forfeiture proceeding pending the criminal
trial. See 18 U.S.C § 981(g)(1) (2000); Michelle’s Lounge, 39
F.3d at 699-700. These differences might bear on the need for a
post-restraint hearing, but the differences do not seem to us to
affect Monsanto’s resolution of the standard of proof to be
applied at such a hearing.
10
That appears to be the view embraced by most courts at
around the time of the Supreme Court’s decision. See, e.g.,
United States v. Elgersma, 971 F.2d 690 (11th Cir. 1992) (en
banc); United States v. Hernandez-Escarsega, 886 F.2d 1560, 1576-
21
of proof, Monsanto held that the pretrial restraining order could
continue in effect based on a showing of probable cause. With
the passage of CAFRA, the ultimate standard on the merits in
civil cases has been raised, but it has not been raised beyond
the ultimate standard that was applicable in Monsanto, a criminal
case. That CAFRA raised the merits standard in civil cases is
therefore no reason to go beyond what Monsanto required at the
pretrial stage.
While Monsanto is the primary basis for our decision, we
note as well that employing the probable cause standard in the
context of § 983(j)(1)(A) has the additional virtue of aligning
with the standard for obtaining the alternative device for
preserving assets subject to forfeiture: outright seizure.
Property subject to forfeiture can in many cases be seized by the
government, pending trial, upon no more than an initial showing
of probable cause. See 18 U.S.C. §§ 981(b)(2), 985(d) (2000).
When the seizure is later challenged in a due process hearing,
the standard has likewise been held to be probable cause. See
Farmer, 274 F.3d at 805; Michelle’s Lounge, 39 F.3d at 700-01.
Both Congress and the Constitution see pretrial restraining
77 (9th Cir. 1989); United States v. Sandini, 816 F.2d 869, 874-
76 (3d Cir. 1987). But see Monsanto, 852 F.2d at 1412 & n.1
(Mahoney, J., dissenting) (stating that the majority of courts
held that forfeitability must be shown beyond a reasonable
doubt). Whether the standard for criminal forfeiture was beyond
a reasonable doubt or a preponderance of the evidence, the
important point is that CAFRA does not require a higher showing
on the merits than was required in Monsanto.
22
orders as preferable, somewhat less restrictive alternatives to
outright seizure. See § 985(d)(2); James Daniel Good Real Prop.,
510 U.S. at 58-59, 62. It would frustrate that preference were
the government able to seize property more easily than it could
restrain it.
Against these considerations, White presses our decision in
Thier. Some aspects of Thier appear to be in tension with
Monsanto, and future cases may need to consider whether certain
portions of Thier were overruled. Today’s case, however, only
requires that we decide the relatively narrow question whether
continuing a pretrial restraining order under § 983(j)(1)(A)
demands a government showing of probable cause or instead a
(presumably somewhat higher) showing of a substantial likelihood
of success on the merits. Thier held, in a case involving a
separate but textually very similar statute, that the government
should be required to make the latter showing, as that is the
showing typically required for preliminary injunctions. The
opinion in Thier was ostensibly based on an interpretation of the
statute itself, not on due process directly, but the opinion
nonetheless makes clear that the court’s interpretation of the
statute was guided by the need to make the statute comport with
due process. 801 F.2d at 1468. The Supreme Court, however, did
reach the constitutional question in Monsanto, and there the
Court concluded that due process permitted the government to
restrain assets needed to pay counsel upon a showing of probable
23
cause. 491 U.S. at 615-16. Whether or not all of Thier remains
good law in the context of 21 U.S.C. § 853(e)(1)(A),11 this new
guidance from the Supreme Court convinces us that in the context
of § 983(j)(1)(A)——a statute enacted after Monsanto——Thier should
not be carried over to the extent that it would require the
government to show more than probable cause in order to restrain
assets. On that particular question, we find the Supreme Court’s
decision in Monsanto controlling.12 Accordingly, we hold that
probable cause is the proper standard of proof.
B. Application of the Standard
The forfeiture complaint named the following property: three
parcels of real property in the Melrose East Subdivision in East
Baton Rouge Parish (“the Melrose lots”), two parcels of real
11
In the wake of the Supreme Court’s decision, several
courts have rejected or questioned pre-Monsanto rulings that
required a showing beyond probable cause in the context of 21
U.S.C. § 853(e)(1)(A). See Michelle’s Lounge, 39 F.3d at 695-96
& n.9; Monsanto, 924 F.2d at 1195. The Ninth Circuit, which
early on had adopted a view similar to that expressed in Thier,
has in the wake of Monsanto reaffirmed its earlier cases to the
extent that they generally apply Rule 65, but the court appears
to require only a showing of probable cause in order to continue
a restraining order. See United States v. Roth, 912 F.2d 1131,
1133-34 (9th Cir. 1990).
12
We do not here decide whether other aspects of Thier
should be carried over to the context of § 983(j)(1)(A). In
particular, we do not rule on whether the statute incorporates
all or any of the procedural protections of Rule 65. See supra
note 4. As a general matter, the Federal Rules presumptively
apply except to the extent that they actually conflict with a
subsequent statute. See Jackson v. Stinnett, 102 F.3d 132, 134-
36 (5th Cir. 1996); 1 JAMES WM. MOORE ET AL., MOORE’S FEDERAL PRACTICE
§ 1.06 (3d ed. 2003).
24
property in the Fairwoods subdivision in East Baton Rouge Parish,
a parcel of real property in Ascension Parish, a $30,000 USG
annuity in the name of one of White’s children, a $100,000
American National Insurance Co. annuity in White’s name, and a
$100,000 USG annuity in White’s name.
The government seeks forfeiture of the above property under
two separate theories. First, under the proceeds theory, the
government contends that the subject property “constitutes or is
derived from proceeds” of a “specified unlawful activity,” namely
health care fraud. See 18 U.S.C. § 981(a)(1)(C) (2000); see also
id. § 1956(c)(7)(F) (defining “specified unlawful activity” to
include federal health care offenses). Second, under the money
laundering theory, the government contends that the property is
“involved in” a money laundering offense. See id.
§ 981(a)(1)(A). Since the proceedings below focused on the
proceeds theory, we begin there.
White contends that the government’s evidentiary showing was
weakest with respect to the Melrose lots. The Melrose lots were
purchased with three cashier’s checks, totaling $130,000, drawn
on DAC’s account at Liberty Bank and dated April 6, 1999. From
January until some point in April 1999, Unisys had deposited
approximately $390,000 of Medicaid funds into the Liberty Bank
account. White does not dispute that there is probable cause to
believe that some of the billings were fraudulent, nor has he
suggested that the funds in the Liberty Bank account came from a
25
source other than DAC’s Medicaid billings.13 He argues, rather,
that the government has not shown that all of DAC’s billings in
the relevant time period were fraudulent. And, he continues, if
not all of the billings were fraudulent, then the government is
not entitled to forfeiture of all of the property traceable to
DAC’s Medicaid receipts, unless the government shows that the
particular funds used to purchase the defendant property are
among that portion of DAC’s Medicaid receipts that actually are
tainted. In so arguing, White relies on our decision in United
States v. One 1980 Rolls Royce, 905 F.2d 89, 90 (5th Cir. 1990),
for the proposition that an asset does not become subject to
forfeiture in its entirety simply because it was purchased in
part with tainted funds.
As we held above, the proper standard for judging the
government’s showing is probable cause. Previous forfeiture
cases have defined probable cause as “a reasonable ground for
belief . . . supported by less than prima facie proof but more
than mere suspicion.” 1988 Oldsmobile Cutlass Supreme, 983 F.2d
at 674 (alteration in original and internal quotation marks
omitted).14 The probable cause determination in forfeiture cases
13
Since White does not contend that no fraud occurred,
this case does not involve the question whether the district
court can “look behind” the grand jury’s indictment, which is
based on a finding that probable cause exists as to the
commission of the indicted fraud offenses.
14
This definition of probable cause is typical of the
definitions given in our many pre-CAFRA forfeiture cases. In
26
looks to all of the circumstances and “must be judged . . . with
a common sense view to the realities of normal life.” United
States v. One Gates Learjet, 861 F.2d 868, 870 (5th Cir. 1988)
(internal quotation marks omitted).
The government presented persuasive evidence that DAC was
engaged in pervasive Medicaid fraud during the months immediately
preceding the purchase of the Melrose lots.15 The list of local
Medicaid recipients that White obtained from Slaton in February
1999 would allow DAC to submit bills for people who had never
attended DAC. Right after White obtained the list, DAC’s
billings skyrocketed from approximately $25,000 in January 1999
and $39,000 in February 1999 to $163,000 in March 1999, with
those cases, of course, probable cause was the ultimate showing
necessary for the government to prevail in a civil forfeiture
action, subject to the claimant’s rebuttal by a preponderance of
the evidence. Here, by contrast, we are conducting the probable
cause inquiry in the distinct context of a pretrial restraining
order under § 983(j)(1)(A). Although it is possible that the
phrase “probable cause” could mean something slightly different
in this context, we expect that the large body of probable cause
law that developed under the pre-CAFRA forfeiture statutes will
frequently be useful to courts that are faced with the post-CAFRA
task of determining whether certain facts constitute probable
cause to continue a pretrial restraining order. In any event,
the definition of probable cause used in our pre-CAFRA law
generally comports with the concept of probable cause as it is
used elsewhere. See, e.g., BLACK’S LAW DICTIONARY 1219 (7th ed.
1999) (defining “probable cause” as, inter alia, “more than a
bare suspicion but less than evidence that would justify a
conviction”).
15
Although we refer to the government’s “evidence,” much
of the material relied upon by the government would not be
admissible under the Federal Rules of Evidence. Such material
can be considered at a hearing on a pretrial restraining order,
however. See 18 U.S.C. § 983(j)(4) (2000).
27
DAC’s billings remaining over $150,000 per month for much of the
rest of the year. (By comparison, DAC had received only $175,000
from Medicaid for all of 1998.) In other words, DAC’s Medicaid
receipts for March exceeded the receipts from previous months by
roughly the same amount——$130,000——as White used to purchase the
Melrose lots on April 6. Investigators would later interview a
sample of thirty-nine of DAC’s supposed patients from 1999,
billings for whom amounted to approximately $240,000, a sum that
is roughly equivalent to a fifth of DAC’s total 1999 Medicaid
receipts.16 Admittedly, the government did not present evidence
that traced billings for those patients to particular deposits
into DAC’s account, and it appears that the thirty-nine people
received services at various times in 1999, both before and after
the purchase of the Melrose lots. Still, the pattern of
responses from this sample was indicative of widespread fraud.
Ten of the thirty-nine had never heard of DAC, and, while most
said that they had attended certain programs at DAC, all of them
denied receiving the drug treatment services for which DAC billed
Medicaid. Investigators learned that DAC billed Medicaid for
services rendered to persons who were in jail or in the hospital
at the time that the services were supposedly rendered. At the
16
It is unclear what percentage of DAC’s clientele this
thirty-nine-person sample represents. White has at times
suggested that DAC served as many as 500 people during the
relevant period, though there does not appear to be any record
evidence to that effect. For its part, the government says that
DAC served substantially fewer clients, roughly 300.
28
hearing, there was testimony that investigators spoke to some DAC
employees and, at least according to those employees, DAC was not
providing the type of individualized addiction counseling for
which DAC was billing Medicaid.
Against this, White’s evidence was an affidavit from a
person who had seen, at an unspecified date, children attending
individual and group counseling sessions at DAC. White did not
present evidence that the Liberty Bank account contained funds
from any source other than Medicaid receipts. His lawyers
examined the government’s witnesses and attempted to show that
the government could not link the receipts attributable to the
thirty-nine clients with the funds used to buy the Melrose lots,
but White did not present any affirmative evidence that the
Melrose lots were purchased with clean funds, if there were
any.17
17
Although the government contends that the district
court ultimately reached the correct conclusion that probable
cause existed, the government has strenuously argued that the
district court employed an improper procedure, particularly by
permitting White to preview the government’s criminal case by
examining its witnesses. Pretrial discovery in criminal cases is
of course much more limited than discovery in civil cases, and so
the district court must be careful, when exercising its
considerable discretion over pretrial procedural matters, to give
proper weight to the government’s legitimate interests in
protecting certain evidence and witnesses from pretrial exposure.
Although the government bears the burden at a pretrial hearing of
persuading the court that probable cause exists, we agree with
the government that the district court generally should not
permit a person in White’s position to examine the government’s
witnesses without first producing some evidence suggesting that
the restrained assets were untainted. Cf. Jones, 160 F.3d at
647.
29
Examining all of the circumstances as a whole, we conclude
that the government satisfied its burden, under the probable
cause standard, of establishing that the Melrose lots were
purchased with funds that constituted the proceeds of Medicaid
fraud. The results of the thirty-nine interviews, combined with
the other significant evidence of fraudulent billings, provide a
reasonable basis to believe that DAC was not performing any of
the services for which it was billing Medicaid during the
relevant time period. While the record does not clearly
establish whether some of the funds in the Liberty Bank account
might have been left over from a time when DAC was legitimately
billing Medicaid, the district court was entitled to draw the
inference, as a matter of probable cause, that the purchase of
the Melrose lots for $130,000 on April 6, which came on the heels
of a spike in Medicaid billings of approximately the same amount,
was accomplished with tainted funds. While we do not express an
opinion as to whether the government would ultimately succeed on
the merits with this evidence, it is enough to establish probable
cause.18
18
We pause to explain why we are not persuaded by White’s
argument that some of the factual inferences that we have
permitted in past forfeiture cases, which involved drug crimes,
are not appropriate in the case of a fraudulent business scheme.
If there is a basis to believe that a person has no source of
income other than selling illicit drugs, then we can often
presume, because drug dealing is illegal, that all of the drug
dealer’s significant purchases are accomplished with tainted
funds and are therefore subject to forfeiture. When drug-dealing
is apparently the only source of income, our cases have therefore
30
White has focused his arguments on appeal on the Melrose
lots and does not make any contentions specific to any of the
remaining restrained properties. As discussed above, his general
argument regarding all of the restrained assets is that the
government has not shown with any particularity that the specific
funds used to purchase the assets were tainted. Aside from the
Melrose lots and the $30,000 USG annuity, all of the restrained
property was purchased from July to December 1999 with funds
traceable to Medicaid deposits into DAC’s account at Dryades
Bank.19 Apart from the initial $5000 used to open that account,
relieved the government of the burden of demonstrating a
connection between the money used to buy a particular item and a
particular drug transaction; we instead have required the drug
dealer to point to a non-drug source for the funds used in the
purchase. See, e.g., United States v. One 1987 Mercedes 560 SEL,
919 F.2d 327, 331 (5th Cir. 1990); see also 21 U.S.C. § 853(d)
(2000) (creating a similar presumption in criminal drug
forfeiture cases). White argues that such inferences are
inappropriate in his case, as operating a drug treatment business
is not inherently illegal, and thus even when some fraud is
occurring, there can be lawful receipts mixed in. The
government, in his view, should therefore be required to show in
a more particularized way that the restrained properties were
purchased with receipts that actually are tainted. In its
strongest form, the argument asks us to limit the restraining
order to assets that can be shown to have been purchased with
funds traceable to the thirty-nine interviewees. The flaw in
White’s argument is that the government has established probable
cause, based upon persuasive circumstantial evidence, to believe
that all of DAC’s receipts during the relevant period were
fraudulent. And there is also probable cause to connect the
restrained assets to those same receipts. Therefore, while
White’s argument may have some truth to it as a general matter,
it is no help in this case.
19
The $30,000 USG annuity was apparently purchased with a
kickback check from Dana White of HLS.
31
all of the money in the Dryades Bank account came from Medicaid
deposits, which began flowing into the account in April 1999,
when DAC switched banks. Since we concluded above that there was
a sufficient basis to conclude that all of DAC’s billings during
this time frame were fraudulent, there is probable cause to
continue to restrain these properties, which are derived from the
billings.
Because we conclude that the government made a sufficient
showing to justify the restraint of White’s assets under the
proceeds theory, which was the focus of the proceedings below, we
need not discuss the money laundering theory.
IV. CONCLUSION
For the foregoing reasons, the district court’s denial of
White’s motion to modify the pretrial restraining order is
AFFIRMED.
32