UNITED STATES DISTRICT COURT 

 FOR THE DISTRICT OF ARIZONA 

 _________________ 

United States of America, ) 

 ) 

 Plaintiff, ) CR-18-0422-PHX-SPL 

 ) 

 vs. ) Phoenix, Arizona 

 ) November 16, 2018 

Michael Lacey, ) 9:06 a.m. 

James Larkin, ) 

Scott Spear, ) 

John Brunst, ) 

Andrew Padilla, ) 

Joye Vaught, ) 

 ) 

 Defendants. ) 

 ) 

______________________________) 

 

BEFORE: THE HONORABLE STEVEN P. LOGAN, JUDGE 

REPORTER'S TRANSCRIPT OF PROCEEDINGS

MOTIONS HEARING

Official Court Reporter: 

Elva Cruz-Lauer, RMR, CRR 

Sandra Day O'Connor U.S. Courthouse, Suite 312 

401 West Washington Street, Spc. 33 

Phoenix, Arizona 85003-2151 

(602) 322-7249 

Proceedings Reported by Stenographic Court Reporter

Transcript Prepared by Computer-Aided Transcription

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UNITED STATES DISTRICT COURT

A P P E A R A N C E S 

For the Government: 

 U.S. Attorney's Office 

 By: PETER SHAWN KOZINETS, ESQ. 

 KEVIN M. RAPP, ESQ. 

 40 North Central Avenue, Suite 1200 

 Phoenix, AZ 85004 

 U.S. Attorney's Office 

 By: JOHN JACOB KUCERA, ESQ. 

 312 North Spring Street, Suite 1200 

 Los Angeles, CA 90012 

For the Defendant Lacey: 

 Lipsitz Green Scime Cambria 

 By: PAUL JOHN CAMBRIA, JR., ESQ. 

 42 Delaware Avenue, Suite 120 

 Buffalo, NY 14202 

For the Defendants Lacey and Larkin: 

 Davis Wright Tremaine 

 By: JAMES C. GRANT, ESQ. 

 1201 3rd Avenue, Suite 2200 

 Seattle, WA 98101 

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For the Defendant Larkin: 

 Bienert Miller & Katzman 

 By: THOMAS HENRY BIENERT, JR., ESQ.(Telephonic) 

 WHITNEY Z. BERNSTEIN, ESQ. 

 903 Calle Amanecer, Suite 350 

 San Clemente, CA 92673 

 Schulte Roth & Zabel 

 By: SEETHA RAMACHANDRAN 

 919 Third Avenue 

 New York, NY 10022 

For the Defendant Spear: 

 Feder Law Office 

 By: BRUCE S. FEDER, ESQ. 

 2930 East Camelback Road, Suite 205 

 Phoenix, AZ 85016 

For the Defendant Brunst: 

 Kimerer & Derrick 

 By: MICHAEL D. KIMERER, ESQ. 

 1313 East Osborn Road, Suite 100 

 Phoenix, AZ 85014 

 Bird Marella Boxer Wolpert Nessim 

 Drooks Lincenberg & Rhow 

 By: ARIEL A. NEUMAN, ESQ. 

 1875 Century Park E, Suite 2300 

 Los Angeles, CA 90067 

For the Defendant Padilla: 

 Piccarreta Davis Keenan Fidel 

 By: MICHAEL L. PICCARRETA, ESQ. 

 2 East Congress Street, Suite 1000 

 Tucson, AZ 85701 

For the Defendant Vaught: 

 Karp & Weiss 

 By: STEPHEN M. WEISS, ESQ. 

 3060 North Swan Road 

 Tucson, AZ 85712 

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UNITED STATES DISTRICT COURT

For Henze Cook Murphy, PLLC: 

 Mitchell Stein Carey Chapman 

 By: ANNE MICHELLE CHAPMAN, ESQ. 

 2 North Central Avenue, Suite 1450 

 Phoenix, AZ 85004 

 

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UNITED STATES DISTRICT COURT

P R O C E E D I N G S

THE CLERK: Criminal case 18-422, United States of

America versus Michael Lacey and others. 

This is time set for hearing on pending motions.

MR. KUCERA: Good morning, Your Honor. John Kucera on

behalf of the United States. With me at counsel table is

Assistant United States Attorneys Kevin Rapp and Peter

Kozinets.

THE COURT: Good morning to all of you.

MR. NEUMAN: Good morning, Your Honor. Ariel Neuman

and Mike Kimerer on behalf of Defendant Brunst, who is present

in court. 

THE COURT: Good morning.

MR. FEDER: Bruce Feder for Scott Spear, who is also

present. 

THE COURT: Good morning.

MR. CAMBRIA: Good morning, Your Honor. Paul Cambria

on behalf of Michael Lacey, who is present as well.

THE COURT: Good morning.

MR. GRANT: Good morning, Your Honor. Jim Grant on

behalf of Michael Lacey and Jim Larkin.

THE COURT: Good morning to you.

MS. BERNSTEIN: Good morning, Your Honor. Whitney

Bernstein on behalf of Mr. Larkin, who is present in court. On

the phone is Mr. Bienert and Ms. Ramachandran.

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THE COURT: And, ma'am, you are prepared to make

arguments on behalf of your client?

MS. BERNSTEIN: I am, Your Honor.

THE COURT: Thank you.

MR. WEISS: Your Honor, good morning. Steve Weiss on

behalf of Joye Vaught, and I will waive her presence. 

THE COURT: Good morning.

MR. PICCARRETA: Good morning, Judge Logan. Mike

Piccarreta on behalf of Andrew Padilla, who is not present. I

waive his presence.

THE COURT: Good morning. 

MS. CHAPMAN: Good morning, Your Honor. Anne Chapman

on behalf of various movants identified in the docket.

THE COURT: Good morning, Ms. Chapman. 

This is the time set for the motions hearing. I need

to hear from the government first. I'm just a little confused. 

Please approach the lectern.

Sir, in your Document Number 282, you argue that your

forfeiture matter should be addressed by this Court.

Do you recall that?

MR. KUCERA: I recall making that statement at various

points, Your Honor. I don't recall it in 282 specifically.

THE COURT: Well, what's your position now?

MR. KUCERA: The government still agrees with that.

To the extent Your Honor is getting into why it is

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that we are asking that certain matters be brought before the

CDCA court and certain matters be brought before this Court, I

am happy to address that. 

In going through defendants' motions, it's hard to

suss out exactly what they are asking for and where and what

relief they are asking for. 

But in focusing on just their request for relief, they

are asking to stay the execution of the seizure warrants that

were obtained in CDCA.

Our position is that any attack on the warrants, the

affidavits themselves, should be brought before the CDCA court.

Those attacks are properly brought before that. Whether it is

in a Franks hearing or whatever motions they feel appropriate.

To attack those affidavits are appropriate there.

Any request for relief in the forfeiture matter by way

of a Monsanto-type hearing, which is what the government

believes is appropriate, given the type of relief the defense

is requesting, that is more appropriate here. All of the type

of relief that implicate the ultimate decisions this Court is

going to have to make, those decisions should be made here in

Arizona.

THE COURT: Thank you very much.

MR. KUCERA: Certainly.

THE COURT: I want to address Docket Number 360 right

now, which is the Emergency Motion to Stay Seizures of

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Attorneys' Fees and Request for Immediate Hearing. It's an

eight-page document. 

Which counsel would like to make an argument?

And for the record, since we have so many lawyers in

the courtroom, please announce who you are before you start

arguing. 

Go ahead, sir.

MR. PICCARRETA: Mike Piccarreta representing

Mr. Padilla. 

Judge, in order to what we thought would be best to

move it smoothly is we have divided the argument by areas and

levels of expertise.

I will make the main argument, and with the Court's

permission, Mr. Grant and Mr. Cambria will discuss the First

Amendment implications and Ms. Bernstein will discuss

particulars of forfeiture. I will provide the Court with

background and discuss the Sixth Amendment issues with the

Court.

THE COURT: You know, I am fine with that, but I just

want to make sure it is done in an orderly way. This is the

way we need to do it.

I am going to address Document Number 360, which I

stated before, this emergency motion, and we'll also talk about

the government's response, which is Document Number 371. The

defendants' joint reply, which is Document Number 382. The

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joinders and supplements to those joinders, which are Document

Numbers 363, 365, 366, and 370, and then we will go on to the

next matter.

Because the next matter will be Docket Number 365,

which is the motion to stay the seizure, the different one, and

then the last item we will take up is Document Number 376. So

just to make sure we keep everything in order.

But, go ahead, sir.

MR. PICCARRETA: Okay. Judge, this issue here is

unique for me. I have been practicing law 40-plus years and

never been placed or had my client placed in this position, and

I think it's unique to most if not all of the other counsel,

and the Court can rest on its own experience to understand how

often these things come up.

But I think it's important to recognize that this

issue involves very serious constitutional issues relating to

the Sixth Amendment, the First Amendment, the Fifth Amendment

and a quintello with the Fourth Amendment, and possibly later

on including the Eighth Amendment. So these are issues that

need to be raised before this Court for case management

functions and for the orderly flow of the case.

Now, in terms of history, this investigation began in

2013 in Washington and eventually was subsumed here in Arizona.

We began representing Mr. Padilla in January of 2017 and began

to get up on the case.

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Mr. Padilla's agreement, and as an employee of

Backpage and related entities, he was essentially an editor,

which is what we call a moderator. His job was to enforce

third-party postings on their web platform to make sure they

conform with the terms of use of the website.

He was not agreed and never agreed to be the monitor

of unknown people's behavior at some unknown date at some

unknown location, and never wanted or accepted that

responsibility.

As part of his employment, the agreement is that legal

fees, if civil or criminal matters arose, would be advanced to

the employee. And in this case, legal fees were advanced to

the employee in 2017.

The funds came from a Backpage-related entity and were

placed in my trust account, and I always viewed those funds,

although coming from the employer, were essentially my

obligations were to Mr. Padilla and viewed those funds as part

of his employment compensation.

Now, a case goes on, we meet with the government.

Mr. Padilla listens to the government's theory of prosecution.

We found it unpersuasive and declined to resolve the case.

We did offer to make a proffer if it was immunized and

tell them everything we know and explain where we felt they

were off on the wrong tangent. That did not -- and offered to

voluntarily surrender ourselves because he has medical issues.

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Instead there's early morning raids, arrest warrants,

he's incarcerated for the weekend, and then essentially

released to supervision to Pretrial Services.

The indictment comes in March of 2018. I was advised

by two defense counsel that the government had represented to

them that they would not be seizing trust accounts. I had no

such conversations with the government.

The indictment, we have a status conference in April

--

THE COURT: Sir, just to make sure you are aware and

everyone else, I am very, very familiar with the history of the

case. So you can just cut through all of that, if you will.

I need to know positions as it relates to interfering

with warrants issued by a different federal court, Article III

court in California.

MR. PICCARRETA: Yes, Your Honor. 

All right. Well, the point is, we are representing,

and literally the first time the government mentions fees is in

May. And we -- and we exchange letters and we handle the case.

There's no mention after an exchange of letters of seizure of

fees and we proceed accordingly.

You will note in the order of forfeiture for

defendants who cooperated, their attorneys are permitted to

keep the same fees from similar sources since they have

apparently worked out an agreement.

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We then learn for the first time in November, with a

phone call saying that they had executed seizure warrants.

Then for the court's warrants, we were not parties to the Los

Angeles civil forfeiture matters, however -- because it didn't

impact our rights.

Mr. Padilla's home is threatened with seizure after

conviction, so -- and we haven't really had to do much for

that. But now we are in a position where the government

literally seven months indictment, almost two years after my

representation began, has now executed an ex parte seizure

warrant to seize the fees. 

And we come to you because we are -- you are the judge

in the criminal case. You are the case where it appears. You

are the case that has equitable jurisdiction over this. You

are the person who has control over case management. And as

the government has indicated, they are agreeable, although they

try and parse their words to having the forfeiture matters

handled here.

And I think it is important in that, Judge, to look at

the order in the United States District Court for the Central

District when the Judge stayed all of those matters relating to

the seizure warrant.

In that case, the matters were stayed and he did not

want to rule on the motion to challenge the seizure of the

warrant. So the government knows that if this goes back, this

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matter will be stayed. We will file motions to withdraw,

eventually other lawyers will all file motions to withdraw, and

the whole shape of the case and tenor of raising all the issues

that need to be raised will be over for myself, Mr. Weiss, and

likely the other counsel.

Now, when you look at the Judge's order, and I urge

the Court to look at that, the Court there indicated, A, that

the District Court citing the Landis case, has the power to

stay proceedings incidental to the power inherent in every

court to control the disposition of the causes on its docket

with economy and time and effort from counsel and litigants.

So their order cites a Supreme Court case granting district

courts have power.

Secondly, he says determinations made by that court

there would ultimately have conclusion effect here. So they

indicate there that the Court saw no reason why the pending

motions relating to the seizure warrants could not be brought

in the criminal action.

The Court stayed it, and by court order, suggested

this is the place to deal with the seizure warrants. And now

you are in that position because it's going to impact the case,

the litigants, and Mr. Padilla's Sixth Amendment right to

counsel of choice.

THE COURT: Just one moment, sir. My apologies for

interrupting you.

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UNITED STATES DISTRICT COURT

Mr. Rapp, is that the government's position on the

Central District's order?

MR. KUCERA: No, Your Honor. That is -- John Kucera

on behalf of the United States. That is not the government's

position. I am happy to address that more fully, if you would

like.

THE COURT: No, I will allow you to once the defense

has finished, but I just wanted to clarify that issue.

I'm sorry, sir. Go ahead.

MR. PICCARRETA: Would the Court like a copy?

THE COURT: I have a copy. It is right in front of

me.

MR. PICCARRETA: Okay. So you are faced with a

situation where a defendant comes to you and says, unless this

seizure order is stayed, I can't have the lawyer of my choosing

who has been with me for two years, and for a moment, I try to

put myself in my client's shoes as to what that feels like.

And the Court, I think, has -- well, discretion to

handle matters that have been presented to it for decision that

affect the constitutional rights and potentially outcome of the

case that's pending before it.

And, Your Honor, I think the other issue is the Court

has the power also, under laches as to the government's delay

in doing this until all of us have spent considerable time and

energy, including this Court, trying to work through issues.

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And you can't look at this in isolation, Your Honor.

And that's why we are suggesting to the Court that -- I thought

we said that in our pleadings -- that the Court continue the

stay order and set a briefing schedule. Because all of us did

this as best we can under tight circumstances, including the

government. 

As to what type of hearing should the Court hold, as

to what sanction, if any, is going to be appropriate, whether

or not to resolve the legal issues relating to the First

Amendment seizure of -- excuse me, the seizure of First

Amendment proceeds and how the Court wishes to handle that as

it does.

I think once the stay order is in effect and the funds

unseized, then the Court can proceed with how to handle the

situation.

Now, in terms of history. I know the Court is aware

of it, but from our perspective, there has been overreaching in

this case, from the execution of the search warrants, to the

seizure of personal property, to the seizure of unrelated

assets and other things related to Mr. Padilla, related to

others, to -- after motions are filed in California, federal

seizures of the trust account of our First Amendment counsel,

there, attempts to conflict counsel, get them off the case, we

held a whole hearing, we spent a lot of energy and the Court

wisely permitted him to stay, and then lo and behold, within a

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week or two of the Court's order, there's seizure warrants for

IOLTA trust accounts of a variety of lawyers, some of those

were held in trust to be used to defend these defendants in

these cases.

So I think, Your Honor, this is not an isolated, what

we view, as attack on our clients' Sixth Amendment rights. And

I mentioned last time that there were issues that were

occurring, occurring, occurring, occurring, but this now, has

elevated it to a matter that impacts your case before your

court for these defendants and particularly, my client.

And we view it, essentially as a motion to remove

Mr. Padilla's counsel of choice and Ms. Vaught's counsel of

choice, and if successful, eventually all of the counsel of

choice.

Now -- and I think in terms of case law, we are

getting close to the issue that was raised in U.S. v. Stein,

where the Court -- where the government had interference with

advancement of legal fees for a variety of defendants. And

here, that is what is going on. 

And the Stein court, in the Second Circuit, felt the

remedy was dismissal of the prosecution.

Now, we haven't filed that motion, but Stein is very

good authority for the Court to review and decide it.

So, Your Honor, I think what you have here is a

presumed innocent defendant. A defendant who has asserted his

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innocence. A defendant who has rejected plea bargains, who has

litigated the case, I think fairly but vigorously with these

seven months, and after raising issues with the government,

some successful, some unsuccessful, trust accounts get seized,

which would remove counsel.

And I think under those circumstances, we have -- we

have alleged a prima facie case for the Sixth Amendment.

The Court clearly has jurisdiction over the

forfeitures as indicated by the government. They want to

bounce us back and forth like a ping pong ball going back to

California so there they can get a stay and get the same result

that they got for the other ones.

And interestingly, when they got a stay, it didn't

stay them, they continued with more and more seizure warrants

of lawyers' IOLTA accounts.

THE COURT: And, sir, my apologies again for

interrupting you, but it is my understanding that the arguments

being advanced this morning have already been fully briefed in

the Central District of California. Is that correct?

MR. PICCARRETA: Not the Sixth Amendment, I believe --

actually, I wasn't a party to that.

THE COURT: But you are very familiar with the

litigation.

MR. PICCARRETA: Yes. But the Sixth Amendment issue

that I am discussing relates to the criminal case. I don't

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believe that there's Sixth Amendment issues in forfeiture

cases, but I haven't studied them quite yet. But what I am

raising has not been briefed and studied by the judge in

California. But I do think that issues were raised and other

people who are familiar with that will speak to that, that

resulted in the order that we -- that I referred to earlier.

THE COURT: Do you know of any other districts where

the proceedings on the same warrants have already been decided?

MR. PICCARRETA: The only -- I don't think it has been

decided really anywhere. I think the Central District, which

is the home to Mr. Kucera, which seems to be why that district

was chosen for these as opposed to here, litigated that and

there's the issue where essentially no result, we can't get a

hearing which implicates all of the First Amendment issues,

which I would like to have -- Mr. Grant will address on my

behalf.

Finally, Judge, I urge you to continue the stay. The

Court clearly has discretionary jurisdiction for the reasons

that I've already indicated. Release the seizure warrant and

set a briefing schedule where we can brief all of the issues

that are subsumed by this and are presented to this Court.

Because if not here, where? If not now, when? And as

of right now, we can't in the Central District, which is why

they are suggesting let's take it to the Central District, I

have no reason to believe that it won't be the same order where

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the Central District writes what they wrote and indicates that

it might be best heard over here, and then we'll come back here

again. So we have spent a lot of time and drained a lot of

money on collateral issues, conflicts, disclosure, document

dumps, now seizure of attorneys' fees, and in the interim, we

haven't even really gotten to the merits of the case. And if

we start over with new counsel, this thing gets pushed further,

further away.

It might -- you know, it may not be done for tactical

advantage, but the result is identical from our point of view

that these pleadings and these motions and these seizures of

IOLTA counsel in the middle of our case, do give them great

tactical advantage, disrupts the process, and implicate

Mr. Padilla's Sixth Amendment right, and I will let --

Mr. Grant can fill you in on the First Amendment issues. 

Thank you, Judge.

THE COURT: Thank you very much.

Mr. Grant.

MR. GRANT: Sir. Jim Grant on behalf of Mr. Larkin

and Lacey.

Let me start with trying to address the question the

Court had asked about why we are here in this court raising

these issues, as we have raised similar issues in the Central

District of California.

And, Your Honor, the answer is because the seizures

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Case 2:18-cr-00422-DJH Document 401 Filed 11/16/18 Page 19 of 66
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that occurred here related to the attorney trust accounts stem

from a profound constitutional violation. That is true of

other seizures as well that the government has effected.

But the question in the first instance is, can the

government seize First Amendment protected assets, and by doing

so, in this case, inhibit, restrict, or prohibit the

defendant's right to defend the case?

So here we have a combination not only of the First

Amendment issues, but also the Sixth Amendment issues, as well

as the Fourth and the Fifth. And they are issues that directly

affect this Court and its ability to proceed with this case,

and directly affect the defendants' ability to defend this

case. That's why we are here.

Constitutional issue and constitutional violation

should be raised in any court in which it is affecting the

proceedings of that court. That's why we are here.

We sort of have given the Court a preview of the First

Amendment issues in this case, and yes, they have been briefed

as well in the Central District of California. And I wanted to

touch on that. Because the point of our motion today is to

continue the stay to allow the Court to fully consider whether

the government had any power to effect these seizures in the

first place. And under the First Amendment, the government did

not have the power to effect these seizures.

The premise of the First Amendment and the premise of

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Fort Wayne Books, is that the government cannot seize First

Amended related materials, First Amendment related assets,

cannot do that absent an adversary proceeding that finds that

the materials are illegal speech or that there is illegal

conduct that derives from those materials as to specific

materials and specific defendants. We don't have that in this

case. All we have is a probable cause determination of a --

based on a warrant that's been issued by the Central District

of California.

Fort Wayne Books tells us that a probable cause

determination is not sufficient for seizure of First Amendment

related materials and assets.

And that makes abundant sense. Because the law is,

that it is always the government's burden to prove the

illegality of speech. It is never permissible for the

government to presume that speech is unconstitutional or

violates the First Amendment.

And so the presumption is that in all instances, the

speech is constitutionally protected, first until the

government proves otherwise, and the government must do so by a

conclusive finding, not simply a determination of probable

cause. That's what Fort Wayne Books holds.

We don't have any determination to that effect here.

What we have merely is the government saying that we allege

that the speech somehow led to some sort of illegal conduct.

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The government's presumption is that every ad ever to

have run on Backpage was illegal, that therefore, every dollar

that was ever derived and revenues from Backpage is illegal and

therefore the government can seize every dollar related in any

way, directly or indirectly, to Backpage.

Your Honor, I suggest that that is such an overbroad

interpretation of any version of seizure that it would be

struck down and should be struck down in a heartbeat.

So the problem we face is, we need to present that

constitutional issue. We need to present the violation of the

First Amendment to this court here in order to protect not only

the rights of the defendants under the Fifth Amendment or the

Sixth Amendment, but to protect her abilities to defend this

case at all. That's the reason that we are here in this case.

As I say, Your Honor, we have given you sort of a

preview of the First Amendment issues here. In effect, the

government's response to that has all been about, this should

be heard in another court, it shouldn't be heard at all until

after there's some sort of criminal conviction, that we have

essentially no right to challenge the seizures in the first

instance. And I suggest that's entirely wrong. 

Because the constitutional flaw, which has occurred at

the outset here of the seizures occurring in the first

instance, the constitutional flaw trumps whatever statutory

gamesmanship they want to play about, we should be in the

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Central District of California, we should be in the District of

Arizona. The statute should preclude us from bringing any kind

of challenges until later. The constitutional flaw here is

that they couldn't accomplish the seizures in the first

instance.

The gist of what the government has effectively

accomplished is to shut down a website, to pursue the

defendants and every dollar the defendants have, to do that all

based on a presumption of theirs that some speech, somewhere

perhaps was illegal and that something maybe was directly

related to that illegality. Your Honor, I suggest that that's

not permissible. That's not a basis that they can pursue.

I think where we are in the process at this stage is

the Court unfortunately has stayed the ongoing seizures of the

government as to the attorney retainer accounts, I urge the

Court should maintain that status quo for present purposes,

that we should turn to a more complete briefing. It is

effectively like the Court has entered a TRO for the time

being. Now we should move for preliminary injunction to

continue that stay and to fully address the First Amendment

issues, the Fourth Amendment issues, Sixth Amendment issues as

well. I can go further as to the constitutional flaws, or if

the Court has questions, I can respond as well.

THE COURT: Mr. Grant, I don't have any questions.

MR. GRANT: All right.

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THE COURT: Thank you very much.

Who is next?

MR. WEISS: Your Honor, Steve Weiss on behalf of Joye

Vaught. I will be very brief. I concur with the remarks made

by Mr. Piccarreta, particularly with respect to the Sixth

Amendment issue here.

I differ in terms of my relationship with Ms. Vaught,

in terms of the time, because I have only been representing her

since the end of March of this year.

In fact, I was meeting with her in April, early April,

when by happenstance we learned that there was arrest warrants

out and I then voluntarily surrendered her and she was released

to the custody and supervision of Pretrial Services. And I

will come back to that in a moment as to why I think it is

important.

If the money that I hold in trust for her for fees is

seized, Ms. Vaught is, and I will state to the Court, unable to

afford attorney of her choice, which is the essence of the

Sixth Amendment.

And it seems to me, in the government's papers, there

was some reference to the fact that we, when I say "we,"

Mr. Padilla and Ms. Vaught, had not made any showing that they

would be unable to retain counsel.

So what I say to the Court is that I think it is

apparent as to Joye Vaught, from her Pretrial Services Report,

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that she would be unable to obtain, afford counsel, I think

even just in a felony case, let alone a case, a monumental case

of this nature. The government has a copy of that, and so they

know that she is unable to retain counsel.

However, if the Court feels it appropriate or

necessary, I am prepared under seal and ex parte with the

Court's permission to file an affidavit with the court to

establish that, and I believe that's the same as to

Mr. Piccarreta's client, that he is prepared to submit an

affidavit to substantiate their inability to retain counsel,

which is the essence of the Sixth Amendment issue.

I mention the recency of my representation only to

underscore the fact that the government could have taken this

action months ago and did not, and it would have been, I

believe, potentially less disruptive to this Court's

functioning and overseeing of this case.

I don't know why they waited seven months to do this,

and -- I don't know. Perhaps they will tell us.

In any event, I also will say to the Court that

Ms. Vaught has filed a claim for money of the fees in the

ancillary proceedings. She believes that as an employee -- and

she was a low-level employee. She was for a couple of years an

editor, essentially, called a moderator, and then she became a

liaison with the national association -- National Center for

Missing and Exploited Children.

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She believes that she has a legal right to the fees

that she has received. And that's obviously, though, a matter

for another day.

So I join in the request made by Mr. Piccarreta to

stay the seizure of the fees until there's a definitive ruling

on the legality of the seizure. Thank you. 

THE COURT: Thank you.

MR. CAMBRIA: Morning, Your Honor. If I may, Paul

Cambria on behalf of Mr. Lacey.

Your Honor, we would urge you to continue the stay for

several simple and clear reasons.

There's no doubt, number one, that this is a First

Amendment case. These are publishing activities. We have had

case after case of litigation, both state and federal,

indicating that these are First Amendment activities.

And the second thing is, since they are First

Amendment activities, any forfeiture of the proceeds of First

Amendment activities under the Supreme Court's decision in the

Simon & Schuster case, are protected and a special, if you

will, set of rules apply before there can be a lawful seizure

of those proceeds.

And the government has never denied, and I submit to

you today that they cannot deny and if -- and I know Your Honor

is familiar with the Fort Wayne Books case now, but that case

makes it clear that when we are talking about First Amendment

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proceeds, there are special rules.

You cannot have a lawful seizure unless there has been

a adversary proceeding. There has been no adversary proceeding

that has occurred as a result of any seizure of any of the

funds. So the government clearly has violated the Fort Wayne

Books rules with regard to First Amendment proceeds, because

they have never engaged in an adversary proceeding.

They say in their papers repeatedly, well, there's

probable cause. There was probable cause before the grand

jury. They allege there was probable cause and that the

District Court in California found probable cause.

When we read the Fort Wayne Books case, the case

clearly says probable cause alone is not sufficient to seize

First Amendment proceeds.

THE COURT: Sir, let me just stop you for a minute.

Mr. Kucera, is that your read on Fort Wayne Books?

MR. KUCERA: No, Your Honor.

THE COURT: Tell me what your thoughts are.

MR. KUCERA: Your Honor, I will defer to AUSA Rapp,

but in general the government's position is that all the cases

that defense counsel have been citing relate to specifically

books themselves or speech itself and the facilitating funds

that are used to allow that very speech, not the profits that

have been derived from any type of alleged First Amendment --

THE COURT: Since Mr. Rapp is the resident expert for

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the government, I will let him speak.

MR. RAPP: Well, so, the Fort Wayne Books, Inc. versus

Indiana, if it is the same Fort Wayne case that Mr. Cambria is

referring to, that talks about the pretrial seizure of

thousands of books and films. It doesn't apply to the seizure

of the proceeds of a criminal enterprise after the CEO has pled

guilty.

The case he is citing is inapposite. The case --

THE COURT: Mr. Rapp, when it's the government's turn,

I will let you finish up. That's all I needed.

Go ahead, sir.

MR. CAMBRIA: Yes, sir. What Mr. Rapp was leaving out

is the Simon & Schuster case. That case makes it clear that

proceeds generated from publishing activities, which is what we

have here, are 100 percent protected by the First Amendment.

And what the government is failing to see is number

one, they are not acknowledging, and I think it's quite

interesting and telling that every single time we have alleged

a First Amendment violation, they have never discussed it or

met it or tried to convince a judge somewhere that that rule

didn't apply.

But it's as follows, Simon & Schuster covers proceeds.

Here the monies that they have seized are proceeds of First

Amendment activity. The publishing, et cetera, by Backpage.

Fort Wayne makes it clear that anything that's related to the

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First Amendment requires a prior adversary hearing.

So we have never had a prior adversary hearing. We

clearly have proceeds under Simon & Schuster. They have not

distinguished Simon & Schuster. It doesn't matter if

Mr. Ferrer or somebody else pleads guilty as part of a plea

bargain, the Supreme Court made it clear, in order to take

First Amendment proceeds, you must have more than probable

cause and it must be an adversary proceeding. That's what

those two cases say.

And I would submit, Your Honor, that has not happened.

And so each seizure here is unlawful.

And, Your Honor, we are in front of you -- my client

is here indicted in this courtroom. You stand between my

client and the government. We come here for your assistance.

When we were in California, they said we should be

here. When we are here, they say we should be there. They

picked California. We didn't pick California. We are

satisfied being here and asking you to apply Fort Wayne Books

and Simon & Schuster. And we see that each of these seizures

are unlawful.

As we sit here today, they are unlawful and they

should be reversed, and we should be able to come to a court

and have relief when there's a clear constitutional violation,

which there is here under those two cases.

Thank you.

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THE COURT: Thank you very much.

MS. BERNSTEIN: Whitney Bernstein, Your Honor. 

I think the issues of the asset forfeiture are well

addressed in all of the pleadings that the Court has mentioned

it's taking under submission this morning as well as in the

response.

The government's opposition, and in other filings the

government has made, the government attempts to continue to

shoehorn and mischaracterize defendants' motions as a 41(g) and

request for the return of property. That's not what it is, and

that's never what we have alleged.

The government has engineered this entire situation to

relegate defendants to the realm of third-party claimants. The

government went and forfeited, seized and is attempting to

forfeit these attorney fees that were intended for the defense

of Mr. Larkin, Mr. Lacey, Mr. Brunst, and Mr. Spears.

Even if 41(g) would be a remedy that might have been

able to apply, it is certainly not the only one. And as a

matter of constitutional rights, the government cannot seize

all of the money and the attorneys' fees intended for the

defense of these defendants that the government has seized

without making the requisite showings as been laid out by my

colleagues.

Whether there's another avenue under 41(g) is not the

issue here, and the government continues to raise the strawman

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argument to mischaracterize our pleadings because that's what

they want to fight about instead of addressing the issues that

have been raised.

No one has raised 41(g) other than the government. It

is inapplicable as an equitable remedy. Because there are

remedies at law available. The remedies at law available might

be an ancillary hearing, and the government has taken the

position in at least three pleadings, in their response in this

case, as well as their response to our motion to stay the

ancillary hearing and the related dockets of 18-CR-465 and

18-CR-464, the government has taken the position that the

remedy at law is also indefinitely unavailable.

Like my colleagues that have come before me, Your

Honor, we are here asking this Court to permit us to access

money, both money that is clean, which I assume the Court wants

to take up later, and that relates directly to Mr. Larkin's

motion at 377, we are asking this Court to permit us to access

money that is unrelated to Backpage and money that is in the

attorney retainer accounts that is designated and intended for

the use of these defendants.

I'm happy to respond to further questions or take up

377 now if the Court would like.

THE COURT: We will take up 377 later.

Thank you very much.

MS. BERNSTEIN: Thank you.

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MR. FEDER: Bruce Feder.

While I was listening to the arguments, and then I

heard Mr. Rapp start talking about how the First Amendment

doesn't apply to the proceeds that they claim, I was reading

their response, which is 371, and nowhere in that response is

there any discussion about the First Amendment and how Fort

Wayne Books or Simon & Schuster does not apply to this

situation.

And I would ask the Court, as has already been

requested, that if the Court has any question at all about

whether or not those two Supreme Court decisions apply to this

situation, and require the government to prove in an

adversarial hearing that they have lawfully seized these

assets, we can have a briefing schedule that the Court would

think -- and we could at least have the benefit of hearing,

other than Mr. Rapp's assertion, the benefit of the

government's position in writing with case law cited.

And but for the interim, the Court should continue the

stays of the fees.

MR. NEUMAN: Good morning, Your Honor. Ariel Neuman

for Mr. Brunst.

And I just want to briefly address the perspective

that the Court hasn't heard. And why we joined in Mr. Padilla

and Vaught's motion is, essentially, we have an interest in

this case proceeding a pace, and the Court controlling its

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docket, controlling the case, and the orderly administration of

justice.

It will affect Mr. Brunst and the other defendants

significantly if counsel is forced to withdraw. We are now

however many months into this case, significantly down the road

with complicated issues, as the Court is getting a small taste

of today.

And we are going to start all over, or at least two

counsel potentially are going to start all over, which is going

to cause the rest of us to start all over.

And why does that matter? It matters more than in a

typical case. This is not the typical case for a whole host of

reasons.

The Court has again got a brief taste of why that is.

We have these First Amendment issues layered on top of many

complicated issues, the whole history of litigation, court

decisions behind us.

But beyond that, it's not typical in the way that the

government has treated the defendants. It is not typical in

the way that the government has essentially tried to

financially strangle these defendants at every turn. And I

will just give the Court one example. 

Our client had an account seized where there was

literally maybe 10, 20 dollars that could be traced back to

Backpage-derived proceeds. We're talking millions of dollars

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seized.

Our client is unable essentially to fund his life.

And, yeah, that's a bit more extreme, but that's where we are

at this point, that if we are talking about a case that's going

to proceed, at this point, into January of 2020, potentially

longer given our conversation at the last hearing, our client

needs to have some resolution here. And our client needs to

see this thing resolved expeditiously. 

Because what we expect is that at the end of the day,

those funds are going to be returned, whether through this

proceeding that we are asking for here, or whether at the end

of this case when everything is resolved.

And so we need to see this forward, and that's our

request, Your Honor, that the Court -- yeah, there's no reason,

we haven't yet heard a single reason for this delay.

And one of my colleagues brought it up, this has been

kind of -- it would be a different situation if we were back in

March and the government came in and seized. There's been no

change in circumstances. They were well aware of these funds

in the attorney accounts several months ago. We have no

explanation for why this is suddenly occurring. There's

theories that we have about what's happened in the interim, in

terms of what's happened in this courtroom in the interim.

But putting that aside, there's no reason for this

delay. No justification. Further delay, essentially starting

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over say another eight months ago, putting us back there, will

cause significant hardship to our client and quite frankly

interferes with this Court's administration of justice in this

case. 

So we would ask the stay be extended and as well, that

the Court hold the further hearing that has been discussed

today.

Thank you, Your Honor.

MS. CHAPMAN: Good morning, Your Honor. Anne 

Chapman. 

Your Honor, I don't have much to add other than that

the movants who are at issue in the pleading that I filed,

which was 365, have Sixth Amendment implicated rights, which I

think Your Honor has been provided with.

And the constitutional infirmities that affect the

seizures by all the defendants apply with equal force to the

movants. And so the Sixth Amendment issues I think are

properly addressed at a later time. I can answer questions

about those if you have them, but I do think you were provided

that information with the pleading.

THE COURT: Ms. Chapman, I just need you to clarify

your position that you are bringing the motion on behalf of the

witnesses in this case. Why do these parties have standing to

challenge the warrants in a different district?

MS. CHAPMAN: Well, Your Honor, the warrant is with

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respect to funds that were -- are in our account in the

District of Arizona, which would require service of the warrant

in the District of Arizona, Your Honor. And I think the

government acknowledges that in their response.

THE COURT: Thank you.

MS. CHAPMAN: So, Your Honor, we essentially are

requesting the same relief, that Your Honor hold a hearing --

continue the stay, hold hearing on the constitutionality of the

seizure, and, again, we can address any related issues with

respect to the Sixth Amendment or indigency at an appropriate

time if it's appropriate, but it's premature at this point when

the constitutionality of the seizure remains in question.

THE COURT: Thank you very much. 

Is there anyone else from the defense?

Government?

MR. KUCERA: Thank you, Your Honor.

John Kucera on behalf of the United States. There has

been a lot of questions about the government's intent and what

has been called inexcusable delay, laches, sort of efforts to

obstruct this Court's calendar and docket by bringing these

seizure warrants at different dates.

THE COURT: What they're basically trying to say is

that you're trying to choke out their clients, to take funds

away from them representing their clients and starting the case

over.

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MR. KUCERA: Understood, and I will respond to that.

But I think it is important to first address their concerns

about and their allegations that we are doing this tactically

in stages in order to make them have to reset. That is not the

case.

When they are asking why it is that the government has

done this several months later, the grand jury returned

indictments alleging, among other things, concealment money,

money laundering, and defendants were successful to varying

degrees at concealing it.

We have been actively pursuing and tracing assets as

they moved all around the world, sometimes overseas, frequently

overseas --

THE COURT: But surely you are not making an argument

that part of the concealment is through attorney-client funds?

MR. KUCERA: Part of the concealment resulted in funds

being deposited into IOLTA accounts, and so we have had a hard

time, because of the efforts to conceal, to trace these assets.

THE COURT: So by making that kind of argument, are

you also saying that there's a potential that the United States

Government might find these lawyers complicit and they might be

part of the conspiracy if you can show direct knowledge of

that?

MR. KUCERA: Your Honor, the government is not

prepared to say that. Is there some theoretical possibility

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that some attorneys somewhere could have been engineering this

and part of the conspiracy? I supposed so, but no one from the

government is saying that now. No one -- there's nothing that

anyone is saying that any of -- the government is in no way

alleging that there's any knowledge of wrongdoing now on the

part of any of the attorneys before you today.

The only thing that I am saying is that, addressing

defendants' argument that this has been some sort of tactic by

the government to delay and to hold out, draw out the time that

we were effecting these seizures, that is not the case.

This is a complicated case involving the movement of

money across multiple countries, multiple jurisdictions and

tracing these assets is a complicated and time-consuming

endeavor that frequently requires MLATs to other countries and

participation by other countries and being able to see where

assets are moving.

As you have seen, part of the reason why we delayed

executing these warrants immediately was because we had

problems with another IOLTA account previously. Because while

we concede the hopping of money from bank to bank, very often

we can't see the internal transfer of money from one account at

say Bank of America to another account at Bank of America.

That's not information that is immediately apparent.

And so in a previous matter, previous seizure, the

government inadvertently seized the wrong funds. And so in an

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effort to avoid that type of confusion and avoid any type of

hardship to these attorneys, the government got the seizure

warrants, called up the attorneys and said, we are hoping to do

this in the least disruptive way possible.

Our effort is to try and do what we are allowed to do

by law but nothing further. We want to minimize any collateral

damage, any collateral consequences. And in some ways, the

government believes that no good deed goes unpunished and we

are here now in what the government believes is the wrong venue

for this fight.

That brings me to the next point. Had defendants

initially framed their position in CDCA, not as a request for

the return of funds but as a Franks motion, saying that there

was something defective about the affidavit, that the affidavit

included material misrepresentations or omissions and should

have more fully fleshed out the First Amendment issues and

neglected to inform the Court in California of these issues, we

might not be here today. We might have had that issue resolved

in CDCA. That is the proper venue for this motion now.

Before the Court is only a question about staying the

execution of these warrants until such time as a decision can

be made.

The government has agreed to stay it. My suggestion

going forward is that we would continue to agree to stay to

allow the defendants to bring whatever motions they feel

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appropriate in CDCA to challenge this affidavit, if that's what

they believe needs to be done. We would not object to such a

request.

But any extension of a stay, the government believes

needs to be analyzed under an injunctive theory.

I don't want to get too deep into the weeds on any of

the issues regarding the First Amendment, because I don't

believe that's properly before this Court. I don't think

that's what these motions were set out to accomplish, and I

think that they have been piggybacked into the court for

today's purposes.

There's a proper proceeding for that. It is a

Monsanto hearing, or if they want to attack it in a Franks-type

proceeding in California on the affidavit, that's fine.

Defense has characterized those cases as being stayed.

Very specific cases have been stayed. None of the affidavits

that are seeking seizure of assets that are before the Court

today have been stayed.

Defendants are free to go into California and

challenge those affidavits by whatever proceeding they see fit.

The one point I would like to highlight for the Court

is that defense counsel has got up again and again and said

frequently, there is no money. There is no more money for

defense if the government seizes this.

And that may or may not be true. There's a proceeding

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to be able to find that out. There is a hearing that the

government has been suggesting repeatedly could be brought

before this Court if defense counsel chooses to do so. That is

a tried and true path to do exactly what defense is trying to

do.

They have mischaracterized the law in so many ways

that I won't begin to try and disabuse the Court of it. The

Court is capable of reading Stein on its own. Stein has almost

literally nothing to do with the case that's before the Court

today.

Stein is about assets that everyone agrees were not

tainted, were not subject to forfeiture. No one at any point

in Stein said that the assets that were being used to pay

defense counsel in that case were in any way illicit. That

case has absolutely nothing to do with the matter before the

Court today.

I am happy to address any other questions, but the

Court has all of the pleadings. I am confident the Court has

read them.

THE COURT: I don't have any questions for you. Thank

you.

MR. KUCERA: Thank you.

THE COURT: I will allow one defense counsel to

address the government's argument. 

You all can meet and confer and let me know.

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 (Discussion between defense counsel held off the record.) 

THE COURT: Lauren.

 (Discussion between the Court and law clerk held.) 

MR. PICCARRETA: Judge -- 

THE COURT: Can you speak into a microphone and tell

me who you are.

MR. PICCARRETA: I'm sorry. Mike Piccarreta. 

Judge, would it be permissible if we had two people

just talk for no more than two minutes each?

THE COURT: Yes. 

MR. PICCARRETA: Mr. Cambria will speak after me.

Judge, the government tells you that all this --

THE COURT: I'm sorry, sir. Can you speak into one of

the microphones? Just pick one. I have very poor hearing. I

want to make sure I hear everything.

MR. PICCARRETA: Me, too.

Judge, the government talks about they needed this

time to trace the funds.

I met with them May 4th of this year where we had our

initial discussion of my funds, and they told me about the

funds. And there was no mystery, it went from account A, a

Backpage subsidiary, to my trust account. 

And they have that in their seizure warrant. There's

an arrow. This was no international entry. It just went boom,

boom, just like every other transaction that comes into my

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trust account. And they were well aware of that in May, and

it's in their seizure warrant that shows that.

And, you know, Judge, Mr. Cambria will talk about

Monsanto, but I have been told that the issues they want to

send us back to L.A. to do again, when you read the judge's

order, you saw his response to raising these issues, which I

was told have been raised there.

And, yes, they have mountains of deficiencies in their

seizure warrant, from Franks issues to omissions to withholding

and noncompliance with the local rules.

THE COURT: Well, let me ask you, do you recall any

Franks issues being brought to the attention of the Central

District Court?

MR. PICCARRETA: They were -- in some of them, for

that seizure warrant, were in the papers that the judge had and

were stayed, and according to what he wrote, did not want to

rule on because didn't want to prejudice the government and

thought they would be best raised here. So here we are.

MR. GRANT: Your Honor, Jim Grant again. 

I just wanted to briefly touch on I think what

Mr. Rapp was saying, because I think it's a profound

misunderstanding of how the First Amendment works and what Fort

Wayne Books holds and how it applies. 

His position was that only has to do with actually

seizing books or videos, it doesn't apply to seizing proceeds

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from the activities of a publisher or distributor that are for

First Amendment protected materials. That's flatly wrong.

The First Amendment protections apply to all sorts of

different stages within the process. This is from Chief

Justice Roberts in Citizens United. "Suppressing speech may

operate at different points in the speech process, including

restrictions from requiring a permit from the outset, imposing

a burden by impounding proceeds on receipts or royalties,

seeking to exact a cost after the speech occurs, or subjecting

the speaker to criminal penalties."

It's the equivalent here, Your Honor, of saying that,

well, we didn't seize all of the ads on the website, although

in fact the government did seize the website and that's the

start of the whole process of their seizures, on the same

probable cause assertions, but they are saying, well, we'll

just take all the money from the publisher so the publisher

can't act any longer, and that's okay. We can do that, but

because we are not seeking the actual books or videos.

Fundamentally, that's wrong.

If the government seizes the printing press, the

government taxes the operation, if the government seizes all of

the bank accounts of the publisher, all of those things

infringe our First Amendment. All of those things are

protected. 

As Mr. Cambria points out, that's part of what Simon &

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Schuster holds. But it's fundamentally a First Amendment

proposition. That it's not simply the seizure of the

suppressed materials by themselves, it applies as well in the

seizure of the proceeds.

I also wanted to make one note about Mr. Kucera's

comment about accidentally seizing an incorrect account. He's

talking about the seizure that the government did of my firm's

trust account. This was some months ago. Shortly after the

disqualification motion. 

But in the process of doing that, they served the

seizure warrant on our bank. The bank actually then put a

freeze on the entire trust account having to do with all of our

various clients and obviously causing very severe problems for

my firm.

We contacted the government immediately and said, what

are you doing? And managed to work out an arrangement shortly

thereafter, but it was a process that can be draconian, and

that's exactly what the government did as to us.

THE COURT: Mr. Grant, how -- if you don't mind, how

long did it take to resolve that mistake?

MR. GRANT: As to the -- well, I am not sure I can

call it as mistake, Your Honor. But as to the initial change,

we managed to do that in a couple of days.

As to the entire process from when the government

first effected its seizure until most recently, when the

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government finally indicated that -- they froze everything,

including all of the amounts we earned for prior work and had

yet not been paid. It took us two and a half months before the

government actually released those funds for us to be able to

use them.

THE COURT: Thank you very much.

MR. GRANT: You're welcome.

MR. KUCERA: If I may, Your Honor, just respond to

that one last point? I think that mischaracterized what

happened.

THE COURT: Go ahead, please.

MR. KUCERA: Thank you.

When the United States executed seizure warrants on

the account that we were just discussing, the bank on its own

decided to freeze all of the IOLTA accounts for that law firm.

THE COURT: Well, how is that possible when the

government in its pleading, seizure pleading, specifically

provides the bank with information with specific account

numbers that will only be seized?

MR. KUCERA: My understanding of what happened is that

the bank decided that the law firm was an anti-money laundering

risk. That it was a risk under the Bank Secrecy Act. That's

my understanding. They did not discuss it with me. That's the

best of my knowledge.

THE COURT: Are you speculating that that's what the

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bank thought?

MR. KUCERA: I am speculating, Your Honor, yes. Yes.

That's my guess. There's nothing that we did that indicated --

there's nothing in the government's seizure warrant that

indicated that all of the IOLTA accounts should be seized. 

In discussing with opposing counsel, we came to a very

quick agreement, I think this might have happened on a Thursday

or a Friday, and we worked as quickly as we could. Our intent

was not to do this, was not to shut them down, to make it as

painless a process as possible.

THE COURT: Mr. Grant said it took two and a half

months.

MR. KUCERA: And that's the part that I find a bit

disingenuous. What took two and a half months was the

government agreed to allow that money to -- the money the

government was seeking, the undisputed portion that both

parties agreed was subject to the seizure warrant, was handed

over to the government.

There was another portion of funds that we -- the

parties decided to analyze. The government explained that it

had no interest in seizing earned funds.

We did not seek to seize any funds that counsel had

said they already earned. And some portion of the funds that

had been left in the account, counsel said were earned.

We asked counsel to provide documentation of how that

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was earned, what it was. Said redact whatever you feel needs

to be redacted in order to protect attorney-client or any other

privilege you feel you need to assert, and after that we will

then go ahead, if we agree with your conclusions, we will agree

that you can keep those funds.

Those funds stayed in their IOLTA account, by

agreement of the parties, pending this discussion.

The way that it was just characterized was much more

jack-booted thuggish than what actually happened. This was --

THE COURT: Sorry, I'm not familiar. Maybe that's a

Central District term. "Jack-booted thuggish," I don't

understand that. What does that mean?

MR. KUCERA: It's a term that I think came out of Ruby

Ridge, where government employees were construed as jack-booted

thugs for the way they handled various actions.

I didn't mean to use a colloquialism. We were accused

of being very heavy-handed by counsel. I don't think that

that's what happened. I don't know that that's the proper

construction of how the government treated this.

THE COURT: Thank you very much.

Mr. Grant, if you will speak into the microphone,

please.

MR. GRANT: Thank you, Your Honor. I appreciate the

opportunity.

Absolutely there was no suggestion by our bank that

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Case 2:18-cr-00422-DJH Document 401 Filed 11/16/18 Page 48 of 66
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there was any issue of money laundering or any concerns about

that. 

What actually happened was, when the government served

the seizure warrant unannounced on our bank, the bank then puts

a hold on all funds in the IOLTA account. 

And we immediately went to the government and said,

what is this? They said, oh, that often happens. That you

will find out that the banks will freeze everything just

because they received a warrant as to some piece of it.

And so, yeah, that can happen on occasion. So it was

something apparently that they were familiar with. We were

able to work out an arrangement in the near turn. Then it took

us two and a half months of back and forth with the government

to actually free up funds that we had recently applied.

THE COURT: I appreciate that. Thank you.

Next, I want to move to the second issue I have here.

It's Document Number 365, which is the Emergency Motion to Stay

Seizure of Attorneys' Fees and Joinder in defendants Padilla

and Vaught's emergency motion.

I have the government's response, which is Document

Number -- I'm sorry, Docket Number 371. Counsel's reply to the

response, which is Docket Number 379. And I am prepared to

hear arguments on that. If you have any at this point.

Defense?

MS. CHAPMAN: Your Honor, Anne Chapman. If I am

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correct, this is the emergency motion to stay on behalf of the

movants, which was essentially asking Your Honor to determine

the same constitutionality of the seizure as has been

previously been discussed this morning and addressed in my

earlier comments.

THE COURT: Correct.

MS. CHAPMAN: So I don't have anything to add, Your

Honor. I can answer any questions. I think we also provided

you with information about the Sixth Amendment interests of

these movements. If Your Honor has questions about that, I can

answer them, but essentially the issues are as discussed by

other counsel this morning, that we are in a pre-seizure

process.

The government, I understand, has suggested several

times we had to move to a post-seizure process. But we are

asking that Your Honor consider the constitutionality of the

seizure and the issues that have been previously discussed this

morning with respect to the First, Fourth, and the Sixth

Amendments. It would have the same effect on the movements --

or the movants, rather, as it would on the defendants.

THE COURT: Thank you very much. I was just giving

you another opportunity.

MS. CHAPMAN: I appreciate it, Your Honor.

THE COURT: Government?

MR. KUCERA: Nothing further unless the Court wants to

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inquire, Your Honor.

THE COURT: I don't have any questions for the

government on that either.

This is actually a perfect time to take our morning

recess. Court will be in recess until 10:35.

(Recess taken at 10:18 a.m.; resumed at 10:37 a.m.)

THE COURT: This Court will come to order. All

parties present when the court last closed are present again.

The last thing I want to take up is Document Number

376. I know we have the arguments that have already been

presented in the earlier 360; however, I will give the defense

an opportunity.

376 is the Defendants' Emergency Motion to Stay

Seizure of Attorneys' Fees, and that's Defendant Michael Lacey,

James Larkin, John Brunst, Scott Spears. Emergency Motion to

Stay Seizure of Attorneys' Fees and Request for an Immediate

Hearing. The supplemental brief is Document Number 377.

And Mr. Kucera, I am treating the government's

response as Document Number 371, since 371 was filed in the 360

original emergency motion to stay the seizure. Is that what

you would like?

MR. KUCERA: Notwithstanding the fact that these other

documents were filed after the response --

THE COURT: Correct.

MR. KUCERA: -- yes, Your Honor.

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THE COURT: I mean, would your response be pretty much

the same? It's the same issue.

MR. KUCERA: Certainly along those same lines, yes,

Your Honor.

THE COURT: Okay. Well, I will allow you an

opportunity to present on the record any additional information

you would like to as it relates to Docket Number 376, after I

hear from the defense.

MR. KUCERA: Thank you, Your Honor.

THE COURT: You're welcome.

Is there anyone from the defense that wishes to place

anything else on the record as it relates to Document Number

376?

MR. GRANT: Briefly, Your Honor. 376 is the motion as

to Mr. Larkin, Lacey, Brunst, and Spear.

THE COURT: For the record, Mr. Grant. I just wanted

to make sure I had your name.

MR. GRANT: I'm sorry, Your Honor. I forgot.

THE COURT: Go ahead.

MR. GRANT: It raises very similar issues, the same

impropriety of the government's seizure in the first instance.

The basic proposition here that -- we are not here to talk

about Monsanto issues until we first establish whether the

government's seizures in the first instance were permissible.

You don't begin to talk about Monsanto until we find out if

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they are legal in the first instance.

And I want to point out one other -- and that is not

the case here because the government couldn't effect the

seizures under the First Amendment. 

I wanted to point out one other thing as well, that

the nature of the request here, of course, is we are asking the

Court to permit us to proceed with the stay and be able to

brief further and argue further about the government's

seizures.

And the issue is not so much looking at the exact

warrants that have been issued by the Central District of

California, it would simply be -- tell the government at this

stage, we are going to maintain the status quo, there will be

no seizures of attorney trust accounts going forward, in order

to be able to address that issue. Without having to, you know,

parse through the warrants in the Central District of

California.

THE COURT: Thank you very much. 

Anyone else?

Mr. Kucera?

MR. KUCERA: Yes, Your Honor, just briefly.

Defense counsel cites to Monsanto and points out just

essentially generally to several pages of Monsanto, that

Monsanto stands for the proposition that the government must

first establish the legality of its seizure prior to having

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Monsanto hearing.

This isn't really found anywhere specifically. There

is certainly no holding to that. But the government takes the

point that there has to be some sort of legal mechanism by

which the government takes hold of this property. The

government submits that that's exactly what it did by going out

and obtaining the seizure warrants based on probable cause from

a federal magistrate. 

This isn't a function of like a PC arrest or a PC

seizure by an agent just at the discretion of the agent and

then having a decision made by a court after the fact.

The government went through the procedure that it

always goes through when it obtains a seizure warrant and does

have lawful possession of the asset pursuant to a seizure

warrant, or would have but for the stay.

THE COURT: Thank you very much.

This is an oral decision. 

After consideration of Defendant Andrew Padilla, Joye

Vaught's Emergency Motion to Stay Seizure of Attorneys' Fees

and Request for Immediate Hearing, which is Document Number

360, the government's response, which is Document Number 371,

the Defendants' Joint Reply, which is Docket Number 382, the

joinders and supplements, which are Docket Numbers 363, 365,

363, and 370, this Court's also taken into consideration the

arguments presented by counsel, and I rule as follows:

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As it relates to Docket Number 360, this Court

declines to exercise jurisdiction over the seizure warrants at

issue in the emergency warrant -- I'm sorry, the emergency

motion.

It is well settled that a court should rarely

interfere with the order of another Court as any such

interference usurps the power of the rendering court.

Although courts have held that justice may

occasionally demand this type of interference, the

identification of those rare situations is committed to the

sound discretion of the District Court. 

See Ord versus United States and also Treadway versus

Academy of Motion Picture Arts and Sciences.

Furthermore, the Ninth Circuit Court of Appeals has

held that considerations of comity and orderly administration

of justice demand that the nonrendering court should decline

jurisdiction of an action and remand the parties for their

relief to the rendering court. 

See Delson Group Incorporated versus GSM Association,

which is also a Ninth Circuit case. 

Through the emergency motion, the defendants are

seeking an order from this Court to interfere with two criminal

seizure warrants that were issued upon findings of probable

cause by a magistrate judge in the Central District of

California.

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This Court finds that the defendants have not set

forth any persuasive reasons as to why this Court should

interfere with the Central District of California's issuance of

the search warrants, and this Court finds that the defendants

have a sufficient legal remedy for any challenges to the

seizure warrants issued by the Central District of California

in that district.

Accordingly, the relief requested in the Defendants'

Emergency Motion to Stay Seizure of Attorneys' Fees and Request

for Immediate Hearing, which is Document Number 360, is denied.

The temporary stay imposed by this Court's order,

which is Document Number 361, is lifted and the government may

move forward with execution of the seizure warrants at issue if

so ordered.

As it relates to Docket Number 365, again, I have

carefully considered the pleadings, which are the Emergency

Motion to Stay the Seizure of Attorneys' Fees, which is

Document Number 365. The government's response, which is

Document Number 371. Counsel's reply to the response, which is

document -- I'm sorry, Docket Number 379, and the arguments of

counsel.

Again, this Court declines to exercise jurisdiction

over the seizure warrants at issue in this emergency warrant,

as already stated before, but since this is a different order

because there was a different filing under Document Number 365,

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it's well settled that a court should rarely interfere with the

order of another court, as any such interference usurps the

power of the rendering court.

Although courts have held that justice may

occasionally demand this type of interference, the

identification of those rare situations is committed to the

sound discretion of the District Court.

See Ord versus United States or Treadway versus the

The Academy of Motion Picture and Arts and Sciences, both Ninth

Circuit cases.

Furthermore, the Ninth Circuit Court of Appeals has

held that considerations of comity and orderly administration

of justice demand that the nonrendering court should decline

jurisdiction of an action and remand the parties for their

relief to the rendering court. 

See Delson Group Incorporated versus GSM, which is a

Ninth Circuit 2014 case.

Through the emergency motion, counsel seeks an order

from this court to interfere with one criminal seizure warrant

that was issued upon a finding of probable cause by a

magistrate judge in the Central District of California.

The movant has not set forth any persuasive reasons as

to why this Court should interfere with the Central District of

California's issuance of the seizure warrant, and this Court

finds that the movant has sufficient legal remedy for any

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challenges to the seizure warrant issued by the Central

District of California in that district.

Accordingly, counsel's Emergency Motion to Stay

Seizure of Attorneys' Fees, which is Docket Number 365, is

denied.

The temporary stay imposed by this Court's order,

Docket Number 369, is lifted and the government may move

forward with executing the seizure warrants at issue if so

ordered.

And last, as it relates to Docket Number 376, this is

the Court's oral decision, after consideration of defendant

Michael Lacey, James Larkin, John Brunst, and Scott Spears'

Emergency Motion to Stay Seizure of Attorneys' Fees and Request

for Immediate Hearing, which is Document Number 376, the

supplemental brief, which is Document Number 377, and the

government's response, which is nearly identical to the

response 371, in the docket filing 360, this Court declines to

exercise jurisdiction over the seizure warrants at issue in the

emergency motion.

It is well settled that the court should rarely

interfere with the order of another court as any such

interference usurps the power of the rendering court. Although

courts have held that justice may occasionally demand this type

of interference, the identification of those rare situations is

committed to the sound discretion of the District Court.

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See Ord versus United States, or Treadway versus The

Academy of Motion Picture, Arts and Sciences, both Ninth

Circuit cases.

Furthermore, the Ninth Circuit Court of Appeals has

held that considerations of comity and orderly administration

of justice demand that the nonrendering court should decline

jurisdiction of an action and remand parties for their relief

to the rendering court. 

See Delson Group Incorporated versus GSM, which is a

Ninth Circuit 2014 case.

Through the emergency motion the defendants are

seeking an order from this Court to interfere with nine

criminal seizure warrants that were issued upon a finding of

probable cause by a magistrate judge in the Central District of

California.

The defendants have not set forth any persuasive

reasons as to why the Court should interfere with the Central

District of California's issuance of the seizure warrants, and

the Court finds that the defendants have sufficient legal

remedy for any challenges to the seizure warrants issued by the

Central District of California in that district.

Accordingly, the Defendants' Emergency Motion to Stay

Seizure of Attorneys' Fees and Request for Immediate Hearing,

which is Document Number 376, is denied. The temporary stay

imposed by this Court's order, which was Document Number 384,

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is lifted and the government may move forward with the

execution of the seizure warrants at issue, if so ordered.

The hearing is adjourned.

MR. PICCARRETA: Judge, may I say one thing?

THE COURT: I'm sorry?

MR. PICCARRETA: May I say one thing?

THE COURT: Sure. Go ahead.

MR. PICCARRETA: I would ask the Court to continue

this stay --

THE COURT: Can you speak into the microphone and tell

me who you are?

MR. PICCARRETA: Mike Piccarreta. 

Judge, we would ask the Court to stay these orders for

seven days to allow us time to consider bringing motions in the

Central District.

THE COURT: Your request is denied.

The hearing is adjourned.

MS. BERNSTEIN: Your Honor, may I address 377? I

didn't have an opportunity to do that. That was Mr. Larkin's

supplemental brief.

THE COURT: I specifically asked you if there was any

defense counsel that wished to address that issue.

MS. BERNSTEIN: I understood that to be about 376. I

apologize.

THE COURT: Go ahead.

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MS. BERNSTEIN: Thank you, Your Honor. 

Especially in light of the Court's ruling just now,

we -- I do want to just highlight the issues that were raised

by Mr. Larkin in Document Number 377.

He is in an untenable position that the government has

seized nearly all of his assets through Central District of

California seizure warrants, which we did challenge. We raised

and briefed the serious Franks issues that were present there.

The government never responded to that on the merits. Instead

said they could file a civil complaint. Filed a civil

complaint. They sought the stay and obtained a stay. Now, the

government has obtained the seizure of funds, of all other

funds that were earmarked for Mr. Larkin's defense.

And additionally has put Mr. Larkin on notice that

should he spend other money that he has from newspaper print

proceeds, the government views that as somehow criminal,

subjecting him to possible further charges, as well as further

bond revocation.

Mr. Larkin owned a newspaper empire with the Phoenix

New Times, SF Weekly, LA Weekly, Village Voice, Denver

Westword, Dallas Observer, Miami New Times, many print

newspapers. He had a history of running those. He -- they

made millions of dollars.

They were sold and he continues to generate income

from the sale of the newspaper. That is not Backpage money.

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The government has -- and has not seized that money, but the

government has told Mr. Larkin that it will move to indict if

he does spend that money. So he is in an untenable position

that he can't use money that was earmarked for his defense as

it was just restrained and seized, and he can't spend newspaper

print proceeds without any repercussions. 

And so we are seeking clarity as to what money

Mr. Larkin, if he is able to use those newspaper print proceeds

to fund his legal defense and his life.

THE COURT: Mr. Kucera, do you wish to respond to

that -- or Mr. Rapp?

MR. RAPP: Well, first, this motion came in quite

late, and our response to the previous dockets doesn't really

address this. We haven't had a chance to respond. But in a

word, I don't know what she is talking about.

THE COURT: I just asked co-counsel minutes ago if

there was some additional information that the government

wanted to place on the record and he had that opportunity. I

don't know why -- what's your name again, ma'am?

MS. BERNSTEIN: Whitney Bernstein.

THE COURT: I don't know how you didn't understand

when I asked the question about the emergency motion, Document

Number 376, when I pointed to defense counsel if anyone had

anything to place on the record. I don't know how you didn't

understand my question.

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But Mr. Rapp, your co-counsel indicated that 371,

the -- when I asked the question, should it serve as the

response, he did say they had some additional information -- I

don't recall what you said exactly, Mr. Kucera, but I provided

the government with an opportunity to flush out the issue.

So go ahead.

MR. RAPP: Well, I think there's some confusion. You

were talking about 371. This is 377. This came in --

THE COURT: No, there's no confusion. My question

was, the issues raised in Docket Number 376 were similar to the

issues raised in 360. I asked your co-counsel if he wanted to

use 371 to serve as a response.

Is that what I asked you, Mr. Kucera?

MR. KUCERA: Yes, Your Honor.

THE COURT: So where's the confusion?

MR. RAPP: This is 377, not 376. Maybe I could just

cut to the chase.

THE COURT: Did you hear what I just told you?

MR. RAPP: I --

THE COURT: We are here to address document number --

Docket Number 376. I understand 377 -- is her supplemental

brief, which is 377. That's why I asked Mr. Kucera that exact

question, because I didn't receive a response from the

government.

MR. KUCERA: Can we have a moment, Your Honor?

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THE COURT: Of course. 

 (Discussion between government counsel held off the 

record.) 

MR. RAPP: Judge, if the Court has any questions about

this motion, we are happy to respond to them.

THE COURT: Go ahead. Is there anything from you?

MS. BERNSTEIN: We are seeking the government's

position that if Mr. Larkin accesses, utilizes money that is

newspaper print proceeds for his legal defense or his life, we

have been put on notice from the government that they would

find that to be criminal.

THE COURT: Okay. Is this relief that you are

requesting outside of what we were here for today?

MS. BERNSTEIN: No, Your Honor. I think it implicates

many of the same issues, it's just now, especially in light of

the fact that the money earmarked for the defense has been

restrained, Mr. Larkin -- we need some clarity as to whether he

can spend money that is not restrained and not related to

Backpage without incurring additional criminal charges.

THE COURT: Is the government prepared to respond to

that?

MR. KUCERA: The government is not prepared to respond

to it and I cannot imagine any situation where the government

ever would respond to the possibility of prospective action and

take a position on whether or not that action is subject to

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indictment.

THE COURT: Is there anything else you would like to

place on the record?

MS. BERNSTEIN: Would the Court entertain an

evidentiary hearing upon further briefing at a later date as to

this issue?

THE COURT: No. This Court has ruled on the matters

that were pending, which is Docket Number 360, Docket Number

365, and Docket Number 376. My ruling is on the record and the

hearing is adjourned.

MS. BERNSTEIN: Thank you, Your Honor.

(Proceedings conclude at 10:58 a.m.)

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Case 2:18-cr-00422-DJH Document 401 Filed 11/16/18 Page 65 of 66
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UNITED STATES DISTRICT COURT

C E R T I F I C A T E

I, ELVA CRUZ-LAUER, do hereby certify that I am duly

appointed and qualified to act as Official Court Reporter for

the United States District Court for the District of Arizona.

I FURTHER CERTIFY that the foregoing pages constitute

a full, true, and accurate transcript of all of that portion of

the proceedings contained herein, had in the above-entitled

cause on the date specified therein, and that said transcript

was prepared under my direction and control.

DATED at Phoenix, Arizona, this 17th day of November,

2018.

 s/Elva Cruz-Lauer 

 Elva Cruz-Lauer, RMR, CRR 

 

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