United States v. Kerri L. Kaley, Brian P. Kaley

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 10-15048 APRIL 26, 2012
________________________ JOHN LEY
CLERK
D.C. Docket No. 9:07-cr-80021-KAM-1
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
KERRI L. KALEY,
BRIAN P. KALEY,
Defendants - Appellants.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(April 26, 2012)
Before EDMONDSON and MARCUS, Circuit Judges, and FAWSETT,* District
Judge.
*
Honorable Patricia C. Fawsett, United States District Judge for the Middle District of
Florida, sitting by designation.
MARCUS, Circuit Judge:
In this interlocutory criminal appeal, Kerri L. Kaley and Brian P. Kaley
challenge a district court’s order denying their motion to vacate a pretrial
protective order restraining their assets. This is the second time the case has come
before us. In United States v. Kaley, 579 F.3d 1246 (11th Cir. 2009) (“Kaley I”),
we reversed the district court’s prior order which had concluded that the Kaleys
were not entitled to a pretrial evidentiary hearing on their motion to vacate the
protective order, and we remanded for further proceedings. On round two, the
district court determined that the Kaleys were entitled to a pretrial, post-restraint
hearing, but that the only question to be addressed at the hearing was whether the
restrained assets were traceable to or involved in the conduct charged in the
indictment. At the hearing, the Kaleys did not present any evidence regarding
traceability, and the district court declined to set aside the protective order.
The Kaleys once again appeal, arguing that, in addition to traceability, they
should have been allowed to challenge the factual foundation supporting the grand
jury’s probable cause determinations (the very validity of the underlying
indictment) at a pretrial, post-restraint hearing. Because, as we see it, the
defendants are not entitled to try the entire case twice, once before trial and then
again before a judge and jury, we affirm the district court’s order denying the
2
Kaleys’ motion to vacate the protective order.
I.
In Kaley I, we summarized the basic facts and procedural history of the case
in this way:
In January 2005, Kerri Kaley, then a sales representative with
Ethicon Endo-Surgery, was informed she was the target of a grand jury
investigation in the Southern District of Florida. Kaley was suspected
of stealing prescription medical devices (“PMDs”) from hospitals and
then selling them on the black market. Kaley retained . . . counsel in the
investigation. Kaley’s husband, Brian Kaley, who was also under
investigation . . . retained a separate attorney . . . . Together, the two
attorneys informed the Kaleys that their legal fees to take the case
through trial would be approximately $500,000. To obtain funds to pay
those fees, the Kaleys applied for and obtained a home equity line of
credit of $500,000 on their residence and used the proceeds to buy a
certificate of deposit (“CD”).
On February 6, 2007, the grand jury returned a seven-count
indictment against the Kaleys.[FN1] Count One charged a conspiracy
to transport PMDs in interstate commerce while knowing them to have
been stolen, in violation of 18 U.S.C. § 371. Counts Two through Six
charged five substantive [18 U.S.C.] § 2314 offenses, and Count Seven
charged obstruction of justice, in violation of 18 U.S.C. § 1512(b)(3).
The indictment also sought criminal forfeiture of all property traceable
to the § 2314 offenses, including the CD . . . .
FN1: The indictment was also returned against Jennifer Gruenstrass,
whose case has since been severed from the Kaleys’.
On February 7, 2007, the Government moved the district court ex
parte for a protective order restraining the Kaleys from transferring or
otherwise disposing of the property listed in the forfeiture count, and a
magistrate judge, concluding that the indictment established probable
3
cause that the property was “traceable to” the Kaleys’ commission of the
§ 2314 offenses, granted the motion the same day. . . .
On March 5, 2007, the Kaleys moved the district court to vacate
the February 7th protective order. They contended that the order
prevented them from retaining counsel of their choice in violation of
their Sixth Amendment right to the representation of counsel. A
magistrate judge heard this motion too on April 6th and sustained the
protective order; however, he limited the protective order’s scope
(insofar as it applied to the CD) to $140,000.
On April 10, 2007, the grand jury returned a superseding
indictment. This indictment replicated the first seven counts of the first
indictment and added an additional count -- a charge that the Kaleys had
conspired to launder the proceeds of the § 2314 offenses, in violation of
18 U.S.C. § 1956(h). This indictment also sought the criminal forfeiture
of the CD and the Kaleys’ residence on the theory that those assets were
“involved in” the Kaleys’ commission of the § 1956(h) offense. On
April 17th, the Kaleys renewed their motion to vacate the February 7th
protective order (as amended by the order of April 6th), and expressly
requested a pretrial, post-restraint evidentiary hearing.
The magistrate judge heard the motion on April 27th. He
questioned whether the indictment alone provided probable cause to
restrain the defendants’ assets and ordered the prosecutor to submit an
affidavit supporting probable cause. The prosecutor responded by
filing, in secret and under seal, an affidavit executed by the FBI case
agent.
On May 1, 2007, the magistrate judge issued two orders. In the
first order, he found probable cause -- based on the indictment and the
case agent’s affidavit -- that the CD and the Kaleys’ residence were
“involved in” the violations of § 1956(h) and § 2314. In the second
order, he amended the February 7th protective order to include within
its scope the full value of the CD and the Kaleys’ residence. On May
2nd, the magistrate judge issued a third order denying the Kaleys’
motion to vacate the protective order and to hold a pretrial, post-restraint
4
evidentiary hearing. . . .
On May 7, 2007, the Kaleys appealed the magistrate judge’s May
1st and 2nd orders to the district court. On June 25th, the district court
affirmed the magistrate judge’s issuance of the protective order . . . .
The trial court also affirmed the magistrate judge’s denial of a pretrial
evidentiary hearing, concluding that postponing the hearing until the
trial itself satisfied due process. On June 27, 2007, the Kaleys lodged
[an] interlocutory appeal, challenging the district court’s decision.
Kaley I, 579 F.3d at 1249-53 (footnotes omitted).
In Kaley I, this Court reversed the district court’s denial of the Kaleys’
request for an evidentiary hearing and remanded for further proceedings. We held
that under controlling case precedent the district court was correct to apply the
four factors enumerated in United States v. Bissell, 866 F.2d 1343 (11th Cir.
1989), to determine whether a pretrial, post-restraint hearing was required, but that
the district court had erred in weighing those factors. Kaley I, 579 F.3d at 1256-
57. We remanded the case for the district court to reweigh the Bissell factors in
light of our ruling. Id. at 1260. On remand, the district court found that the
Bissell factors favored holding an evidentiary hearing.
In pre-hearing memoranda, the Kaleys argued that the question for the
district court to consider at the hearing was whether the government would be
likely to prevail at trial. They asserted that the government would be unlikely to
prevail because the theory underlying its prosecution was baseless and the
5
underlying facts could not support the charges. The Kaleys explained that they
were accused of receiving unwanted prescription medical devices (“PMDs”) from
hospitals that previously had purchased them from Ethicon, Kerri Kaley’s
employer, and then reselling those PMDs themselves rather than returning them to
Ethicon. According to the Kaleys, the government’s theory of prosecution was
that Kerri Kaley held the returned PMDs in a “constructive trust” for Ethicon, and
so, by selling the PMDs, the Kaleys unlawfully converted Ethicon’s property. The
Kaleys contended that there could be no constructive trust because they did not
owe any fiduciary duties to Ethicon, and because Ethicon had never asserted any
property rights in the unwanted PMDs. The Kaleys also noted that the
government had offered this constructive trust theory at the separate trial of a
codefendant, Jennifer Gruenstrass, who was acquitted of all charges, and they
asserted that this Court had rejected a similar theory of prosecution in United
States v. Goodrich, 871 F.2d 1011 (11th Cir. 1989).
At an evidentiary hearing conducted on July 29, 2010, the district court
heard arguments from the parties regarding the hearing’s proper scope. The
Kaleys explained that they were not contesting whether the restrained assets were
traceable to or involved in the conduct charged in the indictment, but instead were
taking the position that the protective order should be vacated because the
6
underlying facts did not support the charged crimes in the first place. The
government responded that, in light of this Court’s decisions in Bissell and Kaley
I, it was not required to offer substantive evidence from its case against the Kaleys
in order to establish the evidentiary foundation of the criminal charges, and that
the only purpose of the hearing was to determine whether the restrained assets
were traceable to or involved in the conduct charged in the indictment.1
On October 24, 2010, the district court issued an order denying the Kaleys’
motion to vacate the protective order. Citing language taken from Bissell and
Kaley I, the district court concluded that the only relevant inquiry at the hearing
was whether the restrained assets were traceable to or involved in the alleged
criminal conduct. Because the Kaleys did not attempt to challenge traceability in
any way -- arguing only that the government’s underlying case had no merit -- the
district court denied their motion to vacate the protective order. On October 27,
2010, the Kaleys lodged this second interlocutory appeal from the district court’s
order.
1
The Kaleys had previously acknowledged that if the district court were to agree with the
government, then the district court would have no choice but to uphold the restraints on the Kaleys’
assets.
7
II.
In Bissell, a panel of this Court laid out the factors that courts must weigh in
determining whether an indicted defendant whose assets have been restrained
pretrial is entitled to an evidentiary hearing. In Kaley I, we determined that the
district court erred in weighing the Bissell factors. On remand, the district court
reweighed the factors and determined that the Kaleys were entitled to a pretrial
hearing. We are now called upon to address the nature and scope of that hearing.
The district court concluded that the Kaleys could not challenge whether the
alleged conduct actually supported the probable cause determination made by the
grand jury. We agree.
We begin by emphasizing again that the Sixth Amendment right implicated
here -- the qualified right to counsel of choice -- is a weighty concern. See, e.g.,
Powell v. State of Ala., 287 U.S. 45, 53 (1932) (“It is hardly necessary to say that
the right to counsel being conceded, a defendant should be afforded a fair
opportunity to secure counsel of his own choice.”). A pretrial restraining order
may make unavailable assets that a criminal defendant needs to pay for his counsel
of choice. As we recognized in Kaley I, this is a serious consequence for the
defendant: “Being effectively shut out by the state from retaining the counsel of
one’s choice in a serious criminal case is a substantial source of prejudice . . . .”
8
Kaley I, 579 F.3d at 1258.2
Despite this weighty concern, the forfeiture statute at issue, 21 U.S.C. § 853,
does not require a hearing for the issuance or continuation of a post-indictment
restraining order. And the statute makes it abundantly clear that Congress knew
how to provide for such a hearing if it had wanted to do so. Section 853(e)
authorizes a court to restrain property that would be subject to criminal forfeiture
upon conviction. 21 U.S.C. § 853(e). Under subparagraph (1)(B), to obtain such a
restraining order before the filing of an indictment requires “notice to persons
appearing to have an interest in the property and opportunity for a hearing.” Id. §
853(e)(1)(B). But, in sharp contrast, subparagraph (1)(A), dealing with post-
indictment restraining orders, contains no such requirement. See id. §
2
The Supreme Court has made clear, however, that the right to counsel of choice does not
include the right to use illegitimate, forfeitable assets to pay for counsel. Caplin & Drysdale v.
United States, 491 U.S. 617, 626-32 (1989). As the Court explained:
A robbery suspect, for example, has no Sixth Amendment right to use funds he has
stolen from a bank to retain an attorney to defend him if he is apprehended. The
money, though in his possession, is not rightfully his; the Government does not
violate the Sixth Amendment if it seizes the robbery proceeds and refuses to permit
the defendant to use them to pay for his defense.
Id. at 626. The more difficult issues are whether due process requires a hearing to maintain a pretrial
restraining order on assets alleged but not yet proven to be forfeitable and, if so, what such a hearing
would entail. The Supreme Court has not yet addressed these issues. See United States v.
Monsanto, 491 U.S. 600, 615 & n.10 (1989) (holding that assets can be restrained pretrial “based
on a finding of probable cause to believe that the assets are forfeitable,” but noting that “[w]e do not
consider today, however, whether the Due Process Clause requires a hearing before a pretrial
restraining order can be imposed”).
9
853(e)(1)(A). Rather, it states that the court may enter a restraining order upon the
filing of an indictment that alleges that the property would be subject to forfeiture
in the event of conviction. Id.3 The difference between these two subparagraphs
unambiguously demonstrates that Congress contemplated the issue of a hearing,
but decided not to require one post-indictment.4
Since the statute itself imposes no hearing requirement, the only pretrial
hearing required is one provided under the Due Process Clause. In Bissell, this
Court held that, when a restraint on the defendant’s assets prevents him from
retaining counsel of choice, due process requires a pretrial hearing if the four-
factor balancing test enunciated in Barker v. Wingo, 407 U.S. 514 (1972), weighs
3
Specifically, the statute provides in pertinent part:
Upon application of the United States, the court may enter a restraining order or
injunction, require the execution of a satisfactory performance bond, or take any
other action to preserve the availability of property described in subsection (a) of this
section for forfeiture under this section--
(A) upon the filing of an indictment or information charging a violation of this
subchapter or subchapter II of this chapter for which criminal forfeiture may be
ordered under this section 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).
4
The statute also provides for a pre-indictment temporary restraining order without a hearing
if certain requirements are met, but it requires that, upon request, a hearing “shall be held at the
earliest possible time.” 21 U.S.C. § 853(e)(2). Thus, Congress was also aware that it could require
a hearing after the entry of an ex parte restraining order, but it plainly declined to impose any such
requirement for the continuation of post-indictment restraints.
10
in favor of a hearing. Bissell, 866 F.2d at 1353. The four Bissell/Barker factors
are: “(1) the length of the delay before the defendants received their post-restraint
hearing; (2) the reason for the delay; (3) the defendants’ assertion of the right to
such a hearing pretrial; and (4) the prejudice the defendants suffered due to the
delay weighed against the strength of the United States’s interest in the subject
property.” Kaley I, 579 F.3d at 1254.
In this case, the Kaleys are entitled to a pretrial hearing under the Bissell
test, as the district court ultimately concluded after our Kaley I remand. The
district court found that the first two factors weighed in favor of the government,
because the projected delay until trial was short and the government had a
substantial interest in not revealing its case before trial.5 But the third and fourth
factors weighed in the Kaleys’ favor and were enough to entitle the Kaleys to an
evidentiary hearing. As we explained in Kaley I, the third factor must weigh in the
defendants’ favor when they “have taken every available step to contest the
restraints.” Id. at 1257-58. And as for the fourth factor, although the government
has a strong interest in restraining the property, it is outweighed by the significant
prejudice the Kaleys would suffer without a hearing: the potentially wrongful
5
In Kaley I, we held that the district court’s determinations on these first two factors did not
amount to an abuse of discretion. 579 F.3d at 1256.
11
deprivation of the resources needed to retain their counsel of choice. The Kaleys
were thus entitled to a pretrial, post-restraint hearing.
The question now before this Court is exactly what the hearing requires.
Kaley I suggested that the defendants cannot challenge the underlying indictment
itself. Kaley I’s holding that the district court had incorrectly applied the Bissell
test was based on the district court’s error in evaluating the third factor -- the
defendants’ assertion of the right to a pretrial hearing. We explained:
[I]n evaluating the third factor, the district court concluded that, under
Bissell, once probable cause has been determined, the only way that a
defendant can show that assets are not forfeitable is to establish that the
crime charged in the indictment did not occur. This, however, was not
the holding of Bissell and could not have been the opinion’s intent,
because, as the district court correctly noted, a challenge to the
indictment cannot be made pretrial. A pretrial challenge to the
indictment would require the district court to hold an evidentiary hearing
to determine whether the crime occurred. . . . In many cases, such a
hearing would go so far as to render the trial on the merits of the
criminal charge unnecessary. . . . But the Bissell court undeniably
contemplated some circumstances in which, despite the presence of
probable cause, a pretrial hearing would be required.
The principle of law Bissell advances is that, after weighing the
four Barker factors, the district court may grant the defendant’s request
for a pretrial evidentiary hearing in order to determine whether assets
described in the forfeiture count of the indictment were wrongly seized
(or placed under the restraint of a protective order). . . . The purpose of
the hearing would not be to determine guilt or innocence but, rather, to
determine the propriety of the seizure. Moreover, in such a hearing, the
defendant, as the movant, would have the burden of proof, and the
prosecution would thus be saved from having to preview its entire case.
12
Id. at 1257-58. Kaley I concluded that the district court had erred in its analysis of
the third Bissell factor because it misconstrued the nature of the hearing to which
the Kaleys would be entitled. The district court had assumed that the only way to
challenge the restraint was by conducting a global pretrial hearing challenging the
factual sufficiency of the underlying indictment. Kaley I explained that, although
such a challenge is not permissible, a more modest hearing addressing the
“propriety of the seizure” would be lawful in an appropriate case. Id. at 1257.
Admittedly, because the issue before this Court in Kaley I was simply
whether the Kaleys were entitled to some kind of hearing, we did not have
occasion to discuss the hearing’s exact nature and contours. That is the only issue
raised by the Kaleys in this second appeal: whether the scope of the hearing is
limited to the issue of traceability or instead permits the defendants to challenge
both traceability and the grand jury’s probable cause determinations for the
charged offenses. To the extent that Kaley I did not settle the issue, we now hold
that at a pretrial, post-restraint hearing required under the Bissell test, the
petitioner may not challenge the evidentiary support for the underlying charges.
Several reasons counsel for this limitation on the scope of the hearing. In
the first place, as we’ve noted, the statute itself does not provide for a hearing, and
13
to the extent that Congress contemplated a hearing, it determined that a defendant
should not be allowed to challenge the indictment itself. The legislative history
surrounding the codification of 28 U.S.C. § 853(e) couldn’t be clearer or more
unambiguous on the point:
Paragraph (1)(A) provides that a restraining order may issue
‘upon the filing of an indictment or information charging a violation . .
. 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.’ Thus, the probable cause established in the indictment or
information is, in itself, to be a sufficient basis for issuance of a
restraining order. While the court may consider factors bearing on the
reasonableness of the order sought, it is not to ‘look behind’ the
indictment or require the government to produce additional evidence
regarding the merits of the case . . . .
In contrast to the pre-indictment restraining order authority set out
in paragraph (1)(B), the post-indictment restraining order provision does
not require prior notice and opportunity for a hearing. . . . This
provision does not exclude, however, 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.
S. Rep. No. 98-225, at 168-69 (1983), reprinted in 1984 U.S.C.C.A.N. 3182, 3385-
86 (emphasis added). It is not too much to say that allowing a challenge to the
14
factual underpinnings of the underlying charges at a pretrial, post-restraint hearing
would be at war with this legislative history.
Moreover, this kind of pretrial challenge to the evidence supporting an
indictment would be wholly inconsistent with the Supreme Court’s repeated
pronouncements in Costello v. United States, 350 U.S. 359 (1956), and its
progeny. In these cases, the Court has shown a profound reluctance to allow
pretrial challenges to a grand jury’s probable cause determination. As the Court
observed in Costello: “An indictment returned by a legally constituted and
unbiased grand jury, . . . if valid on its face, is enough to call for trial of the charge
on the merits. The Fifth Amendment requires nothing more.” Id. at 363. This
holding has been repeatedly reaffirmed. See United States v. Williams, 504 U.S.
36, 54-55 (1992) (“Our words in Costello bear repeating: Review of facially valid
indictments on [the] grounds [of inadequate evidence] ‘would run counter to the
whole history of the grand jury institution, and neither justice nor the concept of a
fair trial requires it.’” (alterations omitted) (quoting Costello, 350 U.S. at 364));
Bank of Nova Scotia v. United States, 487 U.S. 250, 261 (1988) (explaining that a
facially valid indictment is not subject to “a challenge to the reliability or
competence of the evidence presented to the grand jury,” because “a court may not
look behind the indictment to determine if the evidence upon which it was based is
15
sufficient”); United States v. Calandra, 414 U.S. 338, 344-45 (1974) (“[T]he
validity of an indictment is not affected by the character of the evidence
considered. Thus, an indictment valid on its face is not subject to challenge on the
ground that the grand jury acted on the basis of inadequate or incompetent
evidence . . . .”); Lawn v. United States, 355 U.S. 339, 349 (1958) (“[An]
indictment returned by a legally constituted nonbiased grand jury, . . . if valid on
its face, is enough to call for a trial of the charge on the merits and satisfies the
requirements of the Fifth Amendment.”).
In Costello, the defendant sought to challenge his facially valid indictment
because it was not supported by competent evidence, inasmuch as the only
evidence presented to the grand jury was in the form of hearsay. Costello, 350
U.S. at 361. The Supreme Court refused to allow the challenge. The Court
observed that a rule allowing defendants to challenge indictments on the basis of
inadequate or incompetent evidence “would run counter to the whole history of the
grand jury institution,” and “would result in interminable delay but add nothing to
the assurance of a fair trial.” Id. at 364. Under such a rule, “a defendant could
always insist on a kind of preliminary trial to determine the competency and
adequacy of the evidence before the grand jury,” but, as the Court explained,
“[t]his is not required by the Fifth Amendment.” Id. at 363.
16
Subsequent case law clearly establishes that an otherwise valid indictment
may not be invalidated even if the grand jury has considered evidence obtained in
violation of a defendant’s constitutional rights. Calandra, 414 U.S. at 351-52;
Lawn, 355 U.S. at 349 (noting that a facially valid indictment is not subject to
challenge on the ground that the grand jury relied on evidence obtained in
violation of a defendant’s Fifth Amendment privilege against self-incrimination).
In Calandra, the Supreme Court declined to extend the exclusionary rule to grand
jury proceedings. 414 U.S. at 351-52. Thus, the grand jury’s consideration of
evidence obtained in violation of the Fourth Amendment does not invalidate an
otherwise facially sufficient indictment. After discussing the historic role of the
grand jury and its responsibility to make the probable cause determination, id. at
342-43, the Court reasoned that applying the exclusionary rule would “seriously
impede” the role of the grand jury by “delay[ing] and disrupt[ing] grand jury
proceedings,” id. at 349. The Court explained that it was “disinclin[ed] to allow
litigious interference with grand jury proceedings,” observing that application of
the exclusionary rule would “effectively transform[] them into preliminary trials
on the merits.” Id. at 350.
Similarly, the Court has held that an indictment cannot be invalidated based
on the government’s failure to present known exculpatory evidence to the grand
17
jury. Williams, 504 U.S. at 55. In Williams, the district court had dismissed the
indictment, reasoning that the withheld exculpatory evidence “created a reasonable
doubt about [the defendant’s] guilt” and “thus rendered the grand jury’s decision
to indict gravely suspect.” Id. at 39 (alterations and internal quotation marks
omitted). But the Supreme Court squarely rejected this kind of “[j]udicial
supervision of the quantity and quality of the evidence relied upon by the grand
jury.” Id. at 51. Since courts must “abstain from reviewing the evidentiary
support for the grand jury’s judgment” under Costello and its progeny, the Court
reasoned that “[i]t would make little sense” to require courts to “scrutiniz[e] the
sufficiency of the prosecutor’s presentation.” Id. at 54. Thus, so long as the grand
jury finds that there is probable cause, the prosecutor’s failure to present even
“substantial” exculpatory evidence does not invalidate the indictment. See id. at
39.
Underlying all of these cases is the Supreme Court’s recognition of the
unique nature of the grand jury as an independent body, not an arm of the
prosecution. See, e.g., Calandra, 414 U.S. at 343 (noting the grand jury’s
responsibility to protect citizens against “arbitrary and oppressive governmental
action” in the form of “unfounded criminal prosecutions”); Costello, 350 U.S. at
362 (summarizing the historical independence of the grand jury). In Williams, the
18
Court explained that the grand jury “belongs to no branch of the institutional
Government, serving as a kind of buffer or referee between the Government and
the people.” Williams, 504 U.S. at 47. As the Court had previously explained, the
grand jury “serves the invaluable function in our society of standing between the
accuser and the accused . . . to determine whether a charge is founded upon reason
or was dictated by an intimidating power or by malice and personal ill will.”
Branzburg v. Hayes, 408 U.S. 665, 687 n.23 (1972) (alteration in original)
(quoting Wood v. Georgia, 370 U.S. 375, 390 (1962)) (internal quotation marks
omitted). Indeed, “[t]he very purpose of the requirement that a man be indicted by
grand jury is to limit his jeopardy to offenses charged by a group of his fellow
citizens acting independently of either prosecuting attorney or judge.” Stirone v.
United States, 361 U.S. 212, 218 (1960).
In light of the important historical role of the grand jury as an independent
accusatory body, Costello and its progeny evince a powerful reluctance to allow
pretrial challenges to the evidentiary support for an indictment. Of course, a
defendant may challenge an indictment on a variety of other grounds, including
failure to state an offense, lack of jurisdiction, double jeopardy, improper
composition of the grand jury, and certain types of prosecutorial misconduct. See
Fed. R. Crim. P. 6(b) (allowing a defendant to move to dismiss the indictment on
19
the basis that the grand jury “was not lawfully drawn, summoned, or selected,” or
that an individual juror was not legally qualified); Fed. R. Crim. P. 12(b)(3)(B)
(allowing a defendant to challenge an indictment for “fail[ure] to invoke the
court’s jurisdiction or to state an offense”); Bank of Nova Scotia, 487 U.S. at 257
(noting prior cases holding that racial or gender discrimination in the selection of
grand jurors requires dismissal of the indictment); id. at 255-56 (holding that a
district court may dismiss an indictment based on prosecutorial misconduct, but
only if the defendant can show prejudice); United States v. Salman, 378 F.3d
1266, 1267 n.3 (11th Cir. 2004) (recognizing that “a district court may dismiss an
indictment . . . when immunity, double jeopardy, or jurisdictional issues are
implicated”).
But under this long line of case authority, a defendant cannot challenge
whether there is a sufficient evidentiary foundation to support the grand jury’s
probable cause determination. Yet that is exactly what the Kaleys propose to do at
a pretrial hearing, laying out an elaborate theory that they cannot be charged with
transporting stolen goods in interstate commerce because the goods (the
prescription medical devices) were not stolen in the first place. In support of this
claim, the Kaleys sought to introduce various pieces of evidence apparently never
heard by the grand jury in an effort to convince the district court that the
20
government could not prove that the Kaleys had committed the charged offenses.6
In that sense, the Kaleys sought to do precisely what the Supreme Court prohibited
in Williams: adduce additional evidence not presented to the grand jury in order to
show that it would be unreasonable to find probable cause. In other words, the
Kaleys presumably would have the district court consider all of the new evidence
they had offered at their hearing and weigh it together with either the evidence
previously presented to the grand jury or whatever evidence the prosecutor
presented at the hearing, in order to determine whether there was probable cause to
support the charges. In Williams, the Court rejected this kind of pretrial direct
assault on the indictment. We, too, decline the defendants’ invitation to lodge
such a challenge to the grand jury’s probable cause determination at a post-
restraint due process hearing.
This case does fairly raise a Sixth Amendment issue, but we decline to
resolve it in the manner proposed by the Kaleys. Due process does not require that
a defendant be allowed to challenge at a pretrial, post-restraint hearing whether
there is probable cause to believe that he committed the underlying offenses. This
6
For the hearing, the Kaleys sought to introduce into evidence: policy manuals and other
materials from Ethicon; a bill of particulars filed by the government in the Gruenstrass case;
transcripts of the Gruenstrass trial; and the transcript of the sentencing hearing of Frank Tarsia,
another alleged coconspirator.
21
kind of challenge would require the district court to review the grand jury’s
probable cause determination, undermining the grand jury system and
contravening the Supreme Court’s repeated observation that a facially valid
indictment “is enough to call for trial of the charge on the merits.” Costello, 350
U.S. at 363.7 In the face of the Supreme Court’s repeated admonitions against
allowing pretrial challenges to the evidence supporting a facially valid indictment,
the congressional design of the statute, and the undeniable fact that a defendant
may still fully confront the evidentiary support for the charge at trial, we conclude
that a defendant who is entitled to a pretrial due process hearing with respect to
restrained assets may challenge the nexus between those assets and the charged
7
It is true that a prosecutor could theoretically still proceed to trial even after a defendant
successfully challenged the restraint on his assets by attacking the sufficiency of the evidence
purporting to show that he committed the crime for which forfeiture is sought. A successful
challenge at the post-restraint hearing would lead only to the removal of the restraint, not to the
dismissal of the indictment itself. But in practice, if the defendant has successfully challenged the
restraint by undermining the evidentiary support for the indictment, it is quite unlikely that the
prosecutor would proceed to trial. In some cases, the prosecution might have additional evidence
to present at trial -- if, for instance, it decided not to disclose crucial evidence at the pretrial, post-
restraint hearing. But if the government has disclosed the guts of its case, it is hard to see how the
prosecutor could proceed to trial after the district judge has already determined that there is
insufficient evidence to support the underlying charges. In fact, proceeding to trial under such
circumstances might implicate ethical constraints imposed on the prosecutor. See, e.g., Town of
Newton v. Rumery, 480 U.S. 386, 409 (1987) (Stevens, J., dissenting) (noting that a prosecutor “is
ethically obligated . . . to drop charges when he believes that probable cause as established by the
available, admissible evidence is lacking”); see also Ala. Rules of Prof’l Conduct, Rule 3.8(1)(a)
(“The prosecutor in a criminal case shall . . . refrain from prosecuting a charge that the prosecutor
knows is not supported by probable cause . . . .”); Fla. Rules of Prof’l Conduct, Rule 4-3.8(a) (same);
Ga. Rules of Prof’l Conduct, Rule 3.8(a) (same).
22
crime, but not the sufficiency of the evidence supporting the underlying charge.
Accord United States v. Jones, 160 F.3d 641, 648 (10th Cir. 1998) (“The district
court must take those allegations of the indictment as true and assume at the
[pretrial, post-restraint] hearing that the underlying offense has been committed.”).
It’s worth emphasizing that the prosecution cannot unilaterally restrain a
defendant’s assets between the time of indictment and trial. In the first place, a
prosecutor may seek a pretrial restraint only because Congress has specifically
authorized the government to proceed in this manner. See 21 U.S.C. § 853(e). To
effect a pretrial restraint, the prosecution must obtain a restraining order from a
court. Id. § 853(e)(1). And the restraining order will issue only if a lawfully
constituted grand jury has found probable cause that the assets would be subject to
forfeiture upon conviction. Id. § 853(e)(1)(A). Without the grand jury’s probable
cause determination and the court’s approval, the prosecution is not free to restrain
anything.
It’s also worth remembering that a defendant whose assets have been
restrained will ultimately receive a thorough hearing -- the trial itself -- that goes
to the merits of the underlying charge. And at that trial, the defendant will have
counsel (appointed, if necessary), and the right to confront and cross examine
witnesses, and to present evidence and call witnesses in his own defense. The
23
question is simply whether the Due Process Clause requires that the defendant get
two such hearings. We conclude that the answer is no. To rule otherwise would
effectively require the district court to try the case twice. See Kaley I, 579 F.3d at
1257 (“A pretrial challenge to the indictment would require the district court to
hold an evidentiary hearing to determine whether the crime occurred. . . . In many
cases, such a hearing would go so far as to render the trial on the merits of the
criminal charge unnecessary.”). Again, at their post-restraint hearing, the Kaleys
sought to argue that their actions did not constitute a crime because Ethicon did
not have any ownership interest in the allegedly converted PMDs. This very fact-
specific inquiry would amount to a mini-trial on the merits. But this is precisely
the kind of mini-trial that concerned the Supreme Court in Costello and Calandra.
See Calandra, 414 U.S. at 350 (explaining that to apply the exclusionary rule in
grand jury proceedings would “effectively transform[] them into preliminary trials
on the merits,” and that “[i]n some cases the delay might be fatal to the
enforcement of the criminal law”); Costello, 350 U.S. at 363 (noting that if the
Court adopted the defendant’s proposed rule, “a defendant could always insist on a
kind of preliminary trial to determine the competency and adequacy of the
evidence before the grand jury,” creating long delays). Simply put, the Kaleys are
not entitled to try this case twice -- once before trial, and then again in the main act
24
before judge and jury.8
We add that allowing a defendant to convert a post-restraint hearing into a
mini-trial on the merits would often interfere with the real interest expressly
recognized by Congress in the pretrial preservation of assets. The legislative
history surrounding the statute reveals that 21 U.S.C. § 853(e) was intended to
avoid just such a result. As the Senate Report explained:
Although current law does authorize the issuance of restraining
orders in the post-indictment period, neither . . . statute articulates any
standard for the issuance of these orders. Certain recent court decisions
have required the government to meet essentially the same stringent
standard that applies to the issuance of temporary restraining orders in
the context of civil litigation . . . . In effect, such decisions allow the
courts to entertain challenges to the validity of the indictment, and
require the government to prove the merits of the underlying criminal
case and forfeiture counts and put on its witnesses well in advance of
trial in order to obtain an order restraining the defendant’s transfer of
property alleged to be forfeitable in the indictment. Meeting such
requirements can make obtaining a restraining order -- the sole means
available to the government to assure the availability of assets after
conviction -- quite difficult. In addition, these requirements may make
pursuing a restraining order inadvisable from the prosecutor’s point of
view because of the potential for damaging premature disclosure of the
government’s case and trial strategy and for jeopardizing the safety of
witnesses and victims . . . who would be required to testify at the
8
The Kaleys’ proposed rule would also lead to an anomalous result: defendants with assets
that the government seeks to restrain would get a chance to attack the validity of the indictment
before trial, but defendants without such assets would not, no matter how severe the potential
implications for their liberty interests. It would be odd indeed to conclude that a charge supported
by a grand jury’s probable cause determination requires additional proof at a collateral hearing when
assets are restrained, but that a defendant without any assets gets no opportunity for a similar sneak
preview of the government’s case, even if he faces capital charges.
25
restraining order hearing.
S. Rep. No. 98-225, at 162, 1984 U.S.C.C.A.N. at 3378-79 (footnote omitted).
This legislative history is persuasive. Cf. United States v. Moya-Gomez, 860 F.2d
706, 729 (7th Cir. 1988) (quoting this same passage and noting that “[t]hese
considerations, the product of a careful and deliberate judgment of Congress[,] . . .
require our careful and respectful acceptance”); United States v. Monsanto, 924
F.2d 1186, 1206 (2d Cir. 1991) (en banc) (Cardamone, J., dissenting) (“The
prosecution’s ability to prepare its case without being forced to ‘tip its hand’
prematurely was of paramount importance to the drafters and provides a
persuasive reason for delaying a full adversarial hearing on the merits of the
government’s case during the post-restraint, pretrial period.”).
At least one of our sister circuits, however, has concluded that allowing
such a challenge imposes no real burden on the government, because the United
States may always choose to forgo the pretrial restraint. The Second Circuit has
suggested that “the hearing . . . is not being forced upon the government,” and that
“[i]f the government determines in any case that an adversary hearing in advance
of a criminal trial is inadvisable, it always has the option of forgoing the restraint
and obtaining forfeiture after conviction.” Monsanto, 924 F.2d at 1198 (majority
opinion). But this does not resolve the issue. Rather, it just shapes the dilemma
26
the government would face.
To force the United States to choose between prematurely revealing its
evidence in support of charges a grand jury has already found by probable cause
and forgoing altogether a congressionally created right to seek a pretrial restraint
would impose a powerful burden on its interest -- a burden neither imposed nor
intended by Congress. In fact, Congress provided for pretrial restraints on
forfeitable assets precisely because postconviction forfeiture alone was thought to
be inadequate. As the legislative history surrounding the codification of 21 U.S.C.
§ 853(e) explains, criminal forfeiture is important because it can remove the
economic incentives for crime and strip criminals of their ill-gotten gains. S. Rep.
No. 98-225, at 158, 1984 U.S.C.C.A.N. at 3374. But, as the Senate Report
observed, defendants can easily “defeat[] forfeiture by removing, transferring, or
concealing their assets prior to conviction.” Id. at 162, 1984 U.S.C.C.A.N. at
3378. Thus, Congress concluded that pretrial restraining orders may be necessary
“to guard against [the] improper disposition of forfeitable assets.” Id. at 160, 1984
U.S.C.C.A.N. at 3377; see also id. at 162, 1984 U.S.C.C.A.N. at 3378 (explaining
that, without a pretrial restraining order, a defendant subject to postconviction
forfeiture “has not only an obvious incentive, but also ample opportunity, to
transfer his assets or remove them from the jurisdiction of the court prior to trial”).
27
By our count, at least three of our sister circuits have reached the same
conclusion we reach. The Tenth, Sixth, and Seventh Circuits have all held that a
defendant at a pretrial, post-restraint hearing may challenge only the connection
between the restrained assets and the alleged criminal activity. Jones, 160 F.3d at
647-48 (holding that due process requires a pretrial hearing at which “the
government must establish probable cause to believe that the restrained assets are
traceable to the underlying offense,” but need not “reestablish probable cause to
believe that [the] defendants are guilty of the underlying . . . offense”); United
States v. Jamieson, 427 F.3d 394, 406-07 (6th Cir. 2005) (determining that the
district court did not err in applying the Jones framework); Moya-Gomez, 860
F.2d at 728-31 (requiring a post-restraint hearing “at which the government is
required to prove the likelihood that the restrained assets are subject to forfeiture,”
but holding, based on the legislative history, that “the court may not inquire as to
the validity of the indictment and must accept that ‘the probable cause established
in the indictment or information is . . . determinative of any issue regarding the
merits of the government’s case on which the forfeiture is to be based’”). As the
Tenth Circuit explained, allowing a defendant at a pretrial, post-restraint hearing
to challenge the grand jury’s probable cause finding for the underlying offense
would “do[] more damage than necessary to section 853(e)(1)(A) and the role of
28
the grand jury.” Jones, 160 F.3d at 648 (citing Costello, 350 U.S. at 363-64).9
In short, the Kaleys’ motion to vacate the protective order on their assets
was properly denied. We agree with the district court that a defendant may not
challenge the evidentiary support for the underlying charge at a hearing to
determine the propriety of a post-indictment pretrial restraining order. Having
declined to present any evidence about whether the restrained assets were
traceable to or involved in the charged conduct, the Kaleys failed to show that the
restraint on their assets was improper.
9
The Third and Eighth Circuits have held otherwise, concluding that a court must hold a full
hearing at which “the government must demonstrate that it is likely to convince a jury, beyond a
reasonable doubt, . . . that the defendant is guilty of [the statutory violation] and . . . that the profits
or properties at issue are subject to forfeiture.” United States v. Long, 654 F.2d 911, 915 (3d Cir.
1981); United States v. Lewis, 759 F.2d 1316, 1324 (8th Cir. 1985) (following Long). However,
these cases involve an old pretrial restraint provision, which was replaced by 21 U.S.C. § 853(e).
See Comprehensive Forfeiture Act of 1984, Pub. L. No. 98-473, §§ 303, 305, 98 Stat. 2040, 2044-50
(1984) (adding 21 U.S.C. § 853 and striking out what had been subsection (d) of 21 U.S.C. § 848).
It is unclear whether the Third and Eighth Circuits would impose the same standard today, especially
given that the Supreme Court has since held that pretrial restraints can be based on a finding of
probable cause. See Monsanto, 491 U.S. at 615. Indeed, the Third Circuit, albeit in an unpublished
opinion, has more recently adopted the Tenth Circuit’s analysis in Jones, concluding that “[t]he post-
restraint inquiry at the adversarial hearing is limited to the traceability of the restrained assets, and,
thus, the government need not reestablish probable cause to believe that defendants are guilty of the
underlying offense.” United States v. Yusuf, 199 F. App’x 127, 132-33 (3d Cir. 2006) (citing Jones,
160 F.3d at 648).
The D.C. and Ninth Circuits, like the Second Circuit in Monsanto, have held that the post-
restraint hearing must address whether there is probable cause to believe that the defendant is guilty
of the crime that makes the assets forfeitable. United States v. E-Gold, Ltd., 521 F.3d 411, 419 (D.C.
Cir. 2008); United States v. Roth, 912 F.2d 1131, 1134 (9th Cir. 1990).
29
AFFIRMED.
30
Edmondson, Circuit Judge, concurring in the result:
I concur in today’s result. I concur because I cannot say with strong
confidence that my colleagues on the panel are incorrect in the way they see the
law working. But I concur with deep doubts. And if I were deciding the case
alone, I expect I would reach a different result and write something largely in line
with United States v. Monsanto, 924 F.2d 1186 (2d Cir. 1991) (en banc), and
United States v. E-Gold, Ltd., 521 F.3d 411 (D.C. Cir. 2008).
In a case like this one, the use of a pretrial restraining order to freeze a
defendant’s property is an entirely discretionary function, dependent on a decision
initially made by the Executive Branch’s prosecutors. Congress has not
commanded that such restraints be used in this kind of criminal case. Congress
has merely given its permission to prosecutors to use the tool of pretrial restraints
on property.
By its letter, the statute that applies in this case requires no adversarial
hearing in the present circumstances. But this Court -- correctly, I believe -- has
earlier decided that the Constitution (the combination of the Fifth Amendment and
Sixth Amendment) does require some kind of pretrial evidentiary hearing. This
appeal presents the question of how broad a hearing is required by the
Constitution. This question is important, and one on which the circuits are split.
31
The Supreme Court has never considered the question presented in this appeal.
By freezing a citizen’s property at a time when he is presumed innocent of
crime, the citizen (and, as a practical matter, his family and perhaps others) is
subjected to severe hardship. The hardship includes in this case the inability to
employ counsel of Defendants’ choice to defend them in court from the mighty
power of the federal government in a criminal proceeding. In the criminal
proceeding ultimately, both their liberty and their property will be at stake. The
chips are down.
In this criminal prosecution, the government is the aggressor. The
government initiates the criminal action by bringing charges. The Executive
Branch’s prosecutors are in the driver’s seat, choosing the nature and number of
the charges to be brought and here choosing, in addition, to restrain the accused
citizens’ property before trial. This later step is something extra, beyond ordinary
prosecution; and in this case, the step is said to disable Defendants, in fact, from
employing counsel to defend themselves.
That this add-on to ordinary prosecution -- in effect, the seizure of property
in advance of trial -- would trigger extra and significant procedural safeguards for
the citizen and his property is in no way odd to me. And by a probable cause
hearing following the seizure, I do not understand the government to be forced to
32
do anything, much less to try its criminal case twice. The government can simply
choose to release the property. If the government does not wish to release the
property, an evidentiary hearing should be conducted about probable cause on
both the predicate criminal offense and the forfeitability (traceability of assets to
supposed crime) of the specified property. At that hearing, the government can
decide for itself precisely how much evidence it wishes to present about the
criminal offense. If the government does not wish to reveal certain evidence
before trial, the government can rightly withhold that evidence.
To ask the government to respond to a challenge on probable cause that the
charged crime actually occurred is not to place on the government a heavy burden;
everything needed for a conviction at trial is most likely not needed for probable
cause. But, in any event, the government can decide for itself what cards to show
before the actual trial; the worst that will happen is that the pretrial restraint on
property will not continue. The criminal trial still looms ahead.
For the government to participate in an adversary hearing after seizure and
before trial is inconvenient, of course. But the government’s inconvenience ought
not to determine the outcome of this kind of case. The government takes this
inconvenience upon itself by making its own choice about how it will proceed in a
criminal case. At the outset, the choice to go for pretrial restraint is the
33
prosecutors’ to make. Before deciding to employ a strategy that includes a pretrial
restraint on a defendant’s property, the prosecutors can weigh (1) the extra time
and trouble associated with an evidentiary pretrial hearing to keep up the restraint
on a defendant’s property against (2) the benefit (as the prosecutors see it) to the
country that would flow from prohibiting the defendant from using his property
before trial. Cost-benefit choices are a necessary and normal part of life, including
litigation.
Furthermore, the outcome of the ultimate trial itself need not be jeopardized
by a probable cause hearing; if the government thinks that it is best to keep some
evidence secret until the actual trial, the government can keep it secret. Moreover,
the probable cause hearing very possibly can be tailored by the presiding judge in
such a way as to make the hearing be significantly different from any kind of
criminal trial.1 Besides, even if the government loses at the probable cause
hearing, all the property itself might not ultimately be lost to the government -- if a
1
This tailoring of the evidentiary hearing functions not just to protect evidence for trial. “In
such an adversary hearing, the court could use limitations on the disclosure of evidence, such as in
camera hearings and appropriate application of the normal rules of evidence to protect the grand jury
proceedings against unwarranted invasion.” United States. v. E-Gold, Ltd., 521 F.3d 411, 419 (D.C.
Cir. 2008); see also United States v. Monsanto, 924 F.2d 1186, 1198 (2d Cir. 1991) (en banc)
(Fed.R.Evid. do not apply to hearings on whether a pretrial restraint on property can continue).
34
conviction is later actually obtained at the criminal trial.2
The Constitution’s Bill of Rights, including the Fifth and Sixth
Amendments, was intended by the Framers to protect citizens from the high power
of the federal government. The Constitution is to guarantee each citizen a fair deal
when the federal government takes aim at him. More specifically about property,
we ought to bear in mind this fact: “Liberty, property, and no stamps! It had been
the first slogan of the American Revolution.” Catherine Drinker Bowen, Miracle
at Philadelphia: The Story of the Constitutional Convention May to September
1787, at 70 (1966). Property rights, in themselves, deserve to be amply guarded
by American courts. But when a citizen’s liberty (as in the present case) depends
to a high degree on his property, the stakes are particularly high.
For the Federal Executive, in effect, to seize a citizen’s property; to deprive
him thereby of the best means to defend himself in a criminal case; and then, by
means of the criminal case, to take his liberty strikes me as a set of circumstances
about which our nation’s history and its Constitution demands that the process at
each step be fully fair. The potential for the dominating power of the Executive
2
The government retains the option of obtaining forfeiture of property after the government
obtains a conviction. Forfeitable property in the hands of transferees commonly is recoverable by
the government. I put aside the question of whether money paid to defense counsel as reasonable
fees could be recovered, in a case like this one.
35
Branch to be misused by the arbitrary acts of prosecutors is real. The courts must
be alert. To hear from the other side at a time when it matters (in this instance,
before the criminal trial: a trial without counsel of Defendants’ choice) is the basic
and traditional way that American judges assure things are fair. So, I do think that
Monsanto and E-Gold, as law decisions, are very possibly on the right tack:
stressing judicial responsibility and requiring a broader hearing to keep up a
pretrial restraint on property when the restraint interferes with a citizen’s abilities
to employ legal counsel of his choice to defend him in a criminal proceeding.
Like many appellate judges (probably most), I do not write separately or
dissent every time that I find myself in disagreement with the majority of the
judges on a case upon which we are working: almost always, the majority has
taken a hard look at the case; and their position (in my view) is a reasonable one;
and the resulting precedent will make an impression on the body of law that will
be neither deep nor wide. I stop to write separately today because the case touches
on the fundamentals and, thus, impresses me as being unusually important.
I am satisfied that the panel of judges of which I am a part has genuinely
and seriously studied this case. Judge Marcus has written a thoughtful opinion in
which Judge Fawsett has fully concurred. I have voiced my doubts, but I cannot
firmly conclude that the legal position my experienced, able colleagues have taken
36
is definitely erroneous. Therefore, I do not dissent, although I am uneasy that the
limits that we set today for the hearing essential to continue a pretrial restraint on
property might well be too limiting under the Constitution.
37