Kaley v. United States

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C O N S T I T U T I O N A L L AW Does the Constitution Require a Pretrial Hearing at Which the Defendant May Challenge the Indictment After the Government Freezes Assets the Defendant Needs to Retain Counsel of Choice? CASE AT A GLANCE
The government indicted defendants Kerri and Brian Kaley for health care fraud and obtained an ex parte protective order freezing assets it sought to forfeit from the Kaleys. The Kaleys sought to vacate the order, asserting the order prevented them from retaining counsel of their choice in violation of their constitutional rights. The district court denied their motion, but the Eleventh Circuit reversed with instructions to reconsider certain factors. On remand, the Kaleys argued they were entitled to challenge the indictment itself. The district court disagreed, holding the only relevant question was whether the restrained assets were traceable to the alleged criminal conduct. Because the Kaleys did not challenge traceability, the court denied their renewed motion. The Eleventh Circuit affirmed. The circuits are split on the issue.

Kaley v. United States Docket No. 12-464 Argument Date: October 16, 2013 From: The Eleventh Circuit
by Rachel K. Paulose

Do the Fifth and Sixth Amendments require a hearing at which a criminal defendant may challenge the underlying indictment after the government obtains a post-indictment, ex parte order freezing assets needed by the defendant to retain counsel of choice?

Wife and husband Kerri and Brian Kaley learned they were the target of a federal grand jury investigation in the Southern District of Florida in January 2005. To retain their counsel of choice, the Kaleys used certain assets to obtain a $500,000 certificate of deposit (CD). On February 6, 2007, the grand jury returned a seven-count indictment against the Kaleys, charging them with a conspiracy to transport stolen prescription medical devices in interstate commerce, obstruction of justice, and criminal forfeiture of all property traceable to their alleged offenses, including the CD. The next day, the government requested an ex parte order from the district court freezing the Kaleys’ assets listed in the forfeiture count. The court granted the motion the same day, finding the indictment established probable cause that the property the government sought to freeze was “traceable to” the Kaleys’ alleged offenses. On March 5, 2007, the Kaleys filed a motion to vacate the district court’s protective order, arguing the order violated their Sixth Amendment right to representation of counsel. The magistrate judge denied the motion on April 6, 2007. On April 10, 2007, the grand jury returned a superseding indictment that added a money laundering conspiracy count against the Kaleys.

The government also specifically sought forfeiture of the CD and the Kaleys’ home, alleging those assets were “involved” in the Kaleys’ alleged offenses. One week later, the Kaleys renewed their motion to vacate the protective order freezing their assets, and they also requested a pretrial evidentiary hearing on the matter. On April 27, the magistrate judge ordered the government to submit an affidavit showing probable cause to restrain the Kaleys’ assets. The FBI case agent provided an affidavit to the court, under seal. On May 1, 2007, the magistrate judge found the indictment and affidavit established probable cause showing the Kaleys’ CD and home were “involved in” their alleged offenses. The next day, the magistrate judge issued an order denying the Kaleys’ renewed motion to vacate the protective hearing and to hold a pretrial evidentiary hearing. The Kaleys appealed the magistrate judge’s orders to the district court on May 7, 2007. The district court affirmed the magistrate judge on June 25, 2007. The Kaleys filed an interlocutory appeal with the Eleventh Circuit on June 27, 2007. The appellate court reversed the district court, finding the judge had erred in weighing the relevant factors to determine whether the Kaleys were entitled to a pretrial, post-restraint evidentiary hearing. On remand, the district court held a hearing on July 29, 2010, during which the primary focus was the appropriate scope of an evidentiary hearing. The Kaleys attacked the underlying basis of the indictment itself as unsubstantiated, but they did not question the traceability of their assets. The government contended the proper scope of the hearing was the more narrow question of whether the Kaleys’
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frozen assets were traceable to or otherwise involved in their alleged crimes. The district court agreed, concluding the Kaleys could not make a pretrial challenge to the probable cause determination the grand jury made in issuing the indictment. The district court issued an order on October 24, 2010, denying the Kaleys’ motion to vacate the protective order after the Kaleys failed to submit any evidence on the traceability of their assets. The Kaleys filed a second interlocutory appeal with the Eleventh Circuit on October 27, 2010. The question presented to the circuit court was whether the Kaleys had a right to a pretrial hearing after their assets were restrained, and if so, the precise nature of that hearing. The Eleventh Circuit held: “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 Kaleys’ motion to vacate the protective order.” The Eleventh Circuit determined the forfeiture statute, 21 U.S.C. § 853, authorizes a court to restrain property subject to criminal forfeiture without a hearing after the government obtains a criminal indictment. 21 U.S.C. § 853 provides in relevant part: Criminal Forfeitures (a) Property subject to criminal forfeiture Any person convicted of a violation of this subchapter or subchapter II of this chapter punishable by imprisonment for more than one year shall forfeit to the United States, irrespective of any provision of State law— (1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation; (2) any of the person’s property used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, such violation. … (e) Protective orders (1) 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 the section. Despite the absence of a statutory requirement for a hearing, the court interpreted Supreme Court and Eleventh Circuit caselaw to require a hearing under the Due Process Clause when a restraint on the defendant’s assets prevents the defendant from retaining counsel of choice under certain circumstances laid out in Barker v. Wingo, 407 U.S. 514 (1972), and United States v. Bissell, 866 F.2d 1343 (11th Cir. 1989). Both the appellate court and the district court determined the Kaleys were entitled to a hearing under the BarkerBissell test. Critically, however, the district court found, and the circuit court agreed, the basis for the hearing would be limited:
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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. Thus, the court would not permit the Kaleys to challenge the evidentiary support for the underlying indictment against them. Rather, the only question would be traceability of assets alleged to be involved in the crime. Acknowledging the circuit split, the Eleventh Circuit marshaled several justifications for its holding. First, it cited the legislative history of the forfeiture statute, which it interpreted to be silent on any requirement of a hearing at all, much less a hearing requiring a defendant to challenge his criminal indictment after an asset freeze. Second, the court cited Supreme Court precedent barring pretrial challenges to a grand jury’s determination of probable cause. In the court’s view, the only forum in which to challenge the validity of the indictment would be the trial itself. Third, the court reiterated that no defendant would be barred from ultimately challenging the merits of the indictment. The timing of that challenge, however, would be restricted to trial, because “to rule otherwise would effectively require the district court to try the case twice.” Ultimately, the court ruled: 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 crime, but not the sufficiency of the evidence supporting the underlying charge. The Eleventh Circuit denied rehearing en banc on November 4, 2009. The Kaleys filed a petition for certiorari, which the United States Supreme Court granted on March 18, 2013.

The Kaleys challenge the ex parte protective order entered pursuant to 21 U.S.C. § 853(e)(1)(A) in the government’s criminal case against them. While the Kaleys agree the statute does not provide for any hearing, they argue the Fifth and Sixth Amendments entitle them to a pretrial adversarial hearing during which they may challenge the basis for the indictment. The government denies that the Constitution guarantees a pretrial challenge to the grand jury’s determination of probable cause. The government portrays the Kaleys’ challenge as an affront to the role of the grand jury, which it declares “lies at the core of the criminal justice system.” The government asserts one hundred years of precedent places beyond challenge the grand jury’s issuance of an indictment. This is true even when a defendant claims he needs the restrained funds to hire counsel for his defense. The government also cites in support of its argument the Senate Report relevant to § 853. While the Senate Report grants a court the authority to


modify a clearly improper asset freeze order issued post indictment, it also forbids a court from revisiting the validity of the underlying indictment because “for the purposes of issuing a restraining order, the probable cause established in the indictment … is to be determinative of any issue regarding the merits of the government’s case on which the forfeiture is to be based.” The Kaleys challenge the legal framework under which the Eleventh Circuit dismissed their constitutional challenges. Citing the companion cases of Caplin & Drysdale, Chtd. v. United States, 491 U.S. 617 (1989), and United States v. Monsanto, 491 U.S. 600 (1989), the Kaleys acknowledge the Court has already rejected challenges to the constitutionality of 21 U.S.C. § 853 and has approved the pretrial restraint of assets upon a probable cause finding that the assets are forfeitable. The Kaleys argue, however, Monsanto explicitly left open the next question: “whether the Due Process Clause requires a hearing before a pretrial restraining order can be imposed.” The Kaleys contend that is the precise question presented in the instant case, and the answers of the courts of appeals have splintered along several lines in the decades since Monsanto was decided. Courts have disagreed about what framework applies, what showing a defendant must make to successfully obtain a pretrial hearing, which party bears the burden of proof, and what standard of proof is required. As to each of these questions, the Kaleys argue the Eleventh Circuit came to the incorrect conclusion. The government points out the courts of appeals have largely agreed on the fundamental questions posed by the Kaleys. For example, the government notes no appellate court has granted a defendant a right to a pre-restraint hearing. Most courts have denied a defendant the right to a post-restraint hearing, unless he can show the only assets he possesses available to retain counsel of choice are frozen assets. The government acknowledges that no court has barred a defendant from challenging the frozen assets’ nexus to the indictment’s alleged crimes. Some courts have also permitted a defendant to challenge the grand jury’s finding of probable cause when the indictment also seeks forfeiture of the defendant’s assets purportedly tied to the alleged crime. The Kaleys seek precisely such relief in this case. The government notes in this case, the lower courts gave the Kaleys the opportunity to challenge the narrow question of whether their frozen assets could be traced to the activity charged in the indictment. The Kaleys chose not to present any evidence on this matter. That silence should not be answered by granting the Kaleys relief on the far more significant question of probable cause for the underlying indictment, the government claims. The Kaleys frame their petition as a due process claim controlled by Mathews v. Eldridge, 424 U.S. 319 (1976), where the Court held, “The fundamental requirement of due process is the opportunity to be heard at a meaningful time and in a meaningful manner upon the deprivation of liberty and property.” Here, the Eleventh Circuit applied the test in Barker, which the Kaleys and supporting amici characterize as a speedy trial case inapplicable to the case at hand and relevant only when a party seeks dismissal of the indictment. In applying Barker, the lower courts incorrectly limited the scope of their hearing to traceability, rather than the fundamental flaws of

the charges against them, contend the Kaleys. The Kaleys argue, “The rule thus applied by the Eleventh Circuit allows a grand jury’s ex parte and untested finding of ‘probable cause’ to financially handicap a criminal defendant’s ability to mount a defense to the charges that threaten the defendant’s liberty. That harsh result cannot be correct.” The government disagrees, noting the question in Mathews, a civil case, was whether a recipient of social security benefits threatened with termination of those benefits was entitled to an evidentiary hearing. The government also characterizes the other civil cases on which the Kaleys rely as wholly inapplicable in the criminal context. The government argues the applicable proper due process test is found in Medina v. California, 505 U.S. 437 (1992), a criminal case which held a rule of criminal procedure does not violate due process unless it offends a fundamental right. The government argues the Kaleys’ claim fails the Medina test. Citing the Bill of Rights, the government contends the grand jury is the body appropriately charged with determining probable cause for violations of serious federal crimes. The Kaleys urge the Court to find the “general approach” of Mathews the appropriate vehicle to test due process challenges to government procedures. The Kaleys characterize the Mathews framework as that applied by every circuit court but for the Eleventh Circuit. Under Mathews, the relevant considerations are the private interest affected by the official action, the risk of an erroneous deprivation of that private interest, and the government’s interest. Applying these factors, the Kaleys insist they must prevail. First, the Kaleys argue their private interests are fundamental. They claim they possessed long-standing title to their home and the CD and are entitled to the unrestricted use of their own property. Stressing their presumption of innocence, they argue the government has no legitimate claim to their property. Moreover, their funds are urgently needed to retain counsel of their own choosing and to pay daunting legal costs. “Delaying the due process hearing until trial, although only temporarily depriving the Kaleys of their property rights, will completely eviscerate their right to counsel of choice”; here, the Kaleys’ counsel of choice are the attorneys who have represented them since the grand jury investigation began in January of 2005. The government insists that even under Mathews, which the government denies is the proper test in any event, the Kaleys cannot prevail. The government claims the Kaleys have overstated their own interests and understated the government’s interest. The government argues the public’s interest in preserving possibly stolen assets outweighs a defendant’s property interests when a grand jury has issued an indictment against that defendant. For example, the community maintains an interest in full recovery of ill-gotten gains. Moreover, victims of fraud maintain an interest in recovering assets of which they were defrauded. Further, the government maintains an interest in using forfeited funds to support law enforcement. The government contends all of these interests would be harmed, in some cases irreparably, by allowing the dissipation of funds and property otherwise subject to a post-indictment asset freeze order. The government concludes such a result is


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inconsistent with congressional intent to recover assets traceable to criminal activity. Second, the Kaleys maintain the risk of erroneous deprivation is very high in their case. Citing the government’s own publications calling for increased use of forfeiture tools, the Kaleys contend the government has used forfeiture to fill its coffers. Moreover, the ex parte processes used in this case only heighten the unfair advantage the Kaleys ascribe to the government, at their expense. The Kaleys and amici also dismiss the notion of the grand jury as a proper check on prosecutorial power, describing the grand jury as simply an extension of the government. The government answers that no Supreme Court case has ever explicitly allowed a pretrial attack on a grand jury’s determination of probable cause. The government stresses that the economic hardship of which the Kaleys complain “has not occurred in a vacuum.” To the contrary, the indictment itself establishes the basis for depriving the Kaleys of money allegedly tainted by its origin in crime. The government insists, far from granting the Kaleys a right to challenge their indictment, in fact the Constitution grants to the grand jury the unreviewable prerogative to determine probable cause. The long history of Anglo-American law establishes that a grand jury’s indictment is sufficient to mandate a trial on the merits without allowing any further inquiry behind the four corners of the indictment, according to the government. Citing Supreme Court precedent, the government also characterizes the grand jury as uniquely qualified to “serve[] the invaluable function 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.” The government insists the grand jury is equally empowered to exonerate the innocent as well as to punish the guilty. The government also reiterates that the grand jury is institutionally isolated from both the prosecutor and the judge as an independent body. Thus, the grand jury is an impartial investigative body uniquely positioned to determine probable cause. Third, the Kaleys describe the government’s interests as miniscule compared to theirs. The Kaleys characterize the government’s interest as merely “punitive—preserving the asset for forfeiture upon conviction.” The government’s other identified interest, in preventing pretrial disclosure of its evidence and strategy, is also illegitimate, say the Kaleys. In fact, the federal rules entitle the Kaleys to broad discovery through which the Kaleys say they will uncover the government’s evidence and discern strategy. If the government does not wish to disclose its evidence, then it has the option of declining to pursue restraint of a defendant’s assets. But having taken the aggressive step of seizing their assets, the Kaleys argue, the government cannot use forfeiture as both a sword and a shield, denying them access to evidence they need to defend themselves. The government insists a pretrial adversarial evidentiary hearing on the merits of the government’s case exposes the government’s evidence at an inappropriately early stage, risks the safety of witnesses, and threatens the integrity of the trial.

Moreover, the government argues indictments have consequences. A defendant may face arrest, experience pretrial detention, lose firearms rights, lose his job, or otherwise realize the loss of liberty or property after an indictment until the time of trial. All of these deprivations may be imposed without the safeguards of a trial, including the defendant’s right to cross examine witnesses or present favorable evidence. The government argues liberty interests are at least as strong, if not stronger, than property interests. If a defendant may lose his liberty pretrial based on the grand jury’s indictment, surely a defendant may also lose his property based on that same process, reasons the government.

This case may have a great impact on the practice of the criminal defense bar. Should the Court reverse the Eleventh Circuit, wealthy defendants charged with white collar crimes may obtain access to significant funds, which in turn will encourage high-profile defense attorneys to take on cases they would otherwise have to decline or take on pro bono due to the high costs of litigation. But if the Court affirms the Eleventh Circuit, the result will embolden a government the defense bar characterizes as already uncomfortably aggressive. The Kaleys and a veritable army of amici argue these decisions will impact the quality of a defendant’s representation when his very life and liberty may be at stake. This case also has serious implications for the grand jury process. If the Court rules that access to counsel is a basis to allow a challenge to the grand jury process, it may open the door to other constitutional challenges to an indictment pretrial. Allowing a legal challenge to the four corners of the indictment would, in turn, force the government to present its case well in advance of the actual trial on the defendant’s guilt or innocence. Allowing these mini-trials in advance of trial could deplete government resources by forcing the government to try its case twice, expose the government’s trial strategy prematurely, and undermine the grand jury system.

Rachel K. Paulose is a graduate of Yale Law School. She worked as an associate at Williams & Connolly LLP. She has also served extensively in government, including as a law clerk to Eighth Circuit Court of Appeals Judge James B. Loken; trial attorney in the Voting Section, Civil Rights Division of the U.S. Department of Justice; assistant U.S. attorney; and a presidentially nominated, Senate confirmed U.S. attorney. She may be reached at [email protected] hotmail.com PREVIEW of United States Supreme Court Cases, pages 14–18. © 2013 American Bar Association.

For Petitioners Kerri L. Kaley and Brian P. Kaley (Howard Srebnick, 305.371.6421) For Respondent United States (Donald B. Verrilli Jr., Solicitor General, 202.514.2217)

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In Support of Petitioners Kerri L. Kaley and Brian P. Kaley American Bar Association (Laurel G. Bellows, 312.988.5000) California Attorneys for Criminal Justice (John B. Owens, 213.683.9100) Cato Institute (Ilya Shapiro, 202.842.0200) Florida Association of Criminal Defense Lawyers (Courtney J. Linn, 916.447.9200)

Gun Owners Foundation; U.S. Justice Foundation; Gun Owners of America, Inc., Downsize DC Foundation; DownsizeDC.org; Institute on the Constitution; Lincoln Institute for Research and Education; Conservative Legal Defense and Education Fund; Abraham Lincoln Foundation; and Policy Analysis Center (William J. Olson, 703.356.5070) Institute for Justice (Darpana M. Sheth, 703.682.9320) National Association of Criminal Defense Lawyers (Ricardo J. Bascuas, 305.284.2672) New York Counsel of Defense Lawyers (Jonathan P. Bach, 212.479.6000)


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