Opinion ID: 6500514
Heading Depth: 2
Heading Rank: 2

Heading: Joint and Several Forfeiture Liability

Text: Following Honeycutt91
The District Court imposed a $12 million forfeiture order and held the Defendants jointly and severally liable for 90 Pelullo does not explain how he calculated that supposed loss amount. 91 When an appellant raises an issue for the first time on appeal, we review for plain error. United States v. Saada, 212 F.3d 210, 223 (3d Cir. 2000). That holds true even when the 136 the total amount. While this appeal was pending, the Supreme Court issued its decision in Honeycutt v. United States, 137 S. Ct. 1626 (2017), holding that 21 U.S.C. § 853(a)(1), a forfeiture provision similar to the ones relied on by the government here, did not permit the imposition of joint and several liability on a defendant for property that he did not acquire. Pelullo and John Maxwell now argue, for the first time on appeal, that the imposition of joint and several liability was erroneous under Honeycutt. 92 They contend that Honeycutt precludes the imposition of joint and several liability in a forfeiture judgment. True enough, to a degree, but only John is entitled to relief. While we accept the government’s concession that imposing joint and several liability on John was improper, we conclude that Pelullo – as a leader of the conspiracy – cannot show plain error in the District Court’s forfeiture order and, as such, remains liable for the full $12 million. issue may have become apparent only with the emergence of new precedent. See United States v. Nasir, 982 F.3d 144, 160 (3d Cir. 2020) (en banc), cert. granted, judgment vacated on other grounds, 142 S. Ct. 56 (2021). “Whether the alleged error is plain is evaluated based on the law at ‘the time of appellate review[,]’ regardless of whether it was plain at the time of trial.” Id. (alteration in original) (quoting Henderson v. United States, 568 U.S. 266, 269 (2013)). The test for plain error is set forth, supra, in note 49. 92 Although Pelullo separately briefs this issue, he also specifically adopts arguments made by John Maxwell. Because neither Scarfo nor William Maxwell specifically adopt those arguments, they have forfeited them. 137 The indictment contained notices of forfeiture, alerting the Defendants that the government intended to seek forfeiture at sentencing if it secured their convictions. 93 During the forfeiture phase of the proceedings, the jury returned a special verdict finding that all the sought-after property was subject to 93 The government obtained forfeiture pursuant to 18 U.S.C. §§ 981(a)(1)(C) (permitting civil forfeiture of “[a]ny property … which constitutes or is derived from proceeds traceable to[,]” inter alia, a securities fraud conspiracy, wire fraud, or a wire fraud conspiracy), 982(a)(1) (authorizing criminal forfeiture of “any property … involved in” a money laundering conspiracy conviction), and 1963(a)(3) (permitting forfeiture of “any property constituting, or derived from, any proceeds which the person obtained, directly or indirectly, from racketeering activity … in violation of [the RICO statute]”), as well as 28 U.S.C. § 2461(c) (authorizing criminal forfeiture where civil forfeiture is permitted in connection with a criminal offense). Under a number of those provisions, the government was entitled to the specific property forfeited or, where that property had been dissipated, to the value of that property. See Sonja Ralston & Michael A. Fazio, The PostHoneycutt Landscape of Asset Forfeiture, DOJ J. Fed. L. & Prac., Sept. 2019, at 33, 60-61 (noting that 21 U.S.C. § 853(p) “provides the court authority to forfeit untainted assets in place of the dissipated tainted assets”); United States v. Bermudez, 413 F.3d 304, 306 (2d Cir. 2005) (“Section 982 … incorporates by reference the substitute asset provisions of 21 U.S.C. § 853[,]” with one exception not raised here.); 18 U.S.C. § 1963(m) (permitting substitution where property forfeitable under § 1963(a) has been dissipated). 138 forfeiture. The District Court then imposed forfeiture money judgments holding all four Defendants – including Pelullo and John Maxwell – jointly and severally liable for $12 million, which it found to be a fair approximation of the “proceeds” of their crimes.94
Under the law at the time of the District Court proceedings, the imposition of joint and several liability was appropriate, and, sensibly, the Defendants did not object to that 94 Recall that the District Court calculated nearly $14.2 million in loss to the victims of the Defendants’ scheme in determining their guidelines ranges. That amount is also reflected in the Court’s order that the Defendants pay the victims almost $14.2 million in restitution. See United States v. Leahy, 438 F.3d 328, 338 (3d Cir. 2006) (en banc) (“Restitution is … a restorative remedy that compensates victims for economic losses suffered as a result of a defendant’s criminal conduct.”). The $12 million in forfeiture ordered by the Court does not conflict with the loss calculation because forfeiture is measured by the defendant’s ill-gotten gains, not the loss to the victims. See United States v. Lacerda, 958 F.3d 196, 218 (3d Cir. 2020) (“[T]he purpose of forfeiture statutes is to separate the criminal from his ill-gotten gains.” (citing Honeycutt v. United States, 137 S. Ct. 1626, 1631 (2017))). Sentencing ranges generally only take into consideration the latter. See U.S.S.G. § 2B1.1 cmt. n.3(B) (“The court shall use the gain that resulted from the offense as an alternative measure of loss only if there is a loss but it reasonably cannot be determined.”) 139 aspect of the forfeiture order. While their appeals were pending, however, the Supreme Court issued its decision in Honeycutt. The case involved a hardware store manager who was convicted of conspiring to sell an iodine product from the store’s stock, all the while knowing it would be used to manufacture methamphetamine. Honeycutt, 137 S. Ct. at 1630. The government conceded that the manager “had no controlling interest in the store and did not stand to benefit personally” from the sale. Id. at 1630-31 (internal quotation marks omitted). Still, the government sought forfeiture judgments against both the owner and the manager in an amount equal to the store’s total proceeds from the sale of the iodine product. Id. at 1631. The forfeiture provision at issue, 21 U.S.C. § 853, permitted liability for “any proceeds the person obtained, directly or indirectly, as the result of” illegal drug distribution. Id. at 1632 (quoting 21 U.S.C. § 853(a)(1)). The Supreme Court read that statute as limiting forfeiture “to property the defendant himself actually acquired as the result of the crime” – in other words, “tainted property acquired or used by the defendant[.]” Id. at 1632-33, 1635. It reasoned that the word “obtain” in § 853(a) “defines forfeitable property solely in terms of personal possession or use.” Id. at 1632. Thus, the Supreme Court concluded, because the manager “had no ownership interest in [the] store and did not personally benefit from the [iodine product] sales[,] … § 853 does not require any forfeiture.” Id. at 1635. Following Honeycutt, we observed in United States v. Gjeli, 867 F.3d 418, 427 (3d Cir. 2017), that 18 U.S.C. §§ 981(a)(1) and 1963, two of the provisions relied on here, “are substantially the same as the one under consideration in Honeycutt.” Thus, the lessons of Honeycutt apply “with equal force” to Pelullo’s and John Maxwell’s forfeiture orders, or at 140 least with respect to those statutes.95 Id. at 427-28. Because their arguments are raised for the first time on appeal, however, they must meet the test for plain error. See supra note 49.
We begin with John Maxwell, who was the Chief Executive Officer and a board member of FirstPlus, albeit in title only. He was installed in those roles by Pelullo and William Maxwell. No one could fairly describe John Maxwell as a “mastermind” of the conspiracy, cf. Honeycutt, 137 S. Ct. at 1633 (describing, as an example of someone who could be held jointly and severally liable, a drug dealer “mastermind” who obtained all the proceeds of a drug distribution scheme), and our analysis can begin and end with the government’s concession of plain error and acknowledgement that John’s role in the conspiracy was “akin to the manager of the hardware store in Honeycutt[.]” (Answering Br. at 278.) We understand the government to be agreeing to a remand of John Maxwell’s case so that the forfeiture order against him can be modified to allow liability only for the portion of proceeds he actually obtained. We accept that concession and will remand for further proceedings.96 On remand, the District Court should 95 We do not decide today whether Honeycutt also applies to 18 U.S.C. § 982(a)(1), the third basis cited for the forfeiture orders. 96 As noted, United States v. Gjeli extended the holding of Honeycutt – where the relevant forfeiture provision applied to proceeds “obtained … as the result of” an offense – to 18 U.S.C. § 981(a)(1)(C), which permits forfeiture of proceeds 141 calculate how much John “himself actually acquired” due to his involvement in the schemes. Honeycutt, 137 S. Ct. at 1635.
Pelullo argues that, like John Maxwell, he too should not have been held jointly and severally liable. Pelullo’s arguments, however, fail under prong two of plain-error review: even assuming Honeycutt applies, see supra notes 9596, there was no “clear” or “obvious” error. Olano, 507 U.S. at 734. Unlike the defendant in Honeycutt, Pelullo was a primary leader and organizer of the FirstPlus scheme, “call[ing] all the shots.” 97 (JAD at 1552.) He exercised dominion and control over the entirety of the proceeds reaped “traceable to” an offense, and 18 U.S.C. § 1963(a)(3), which covers proceeds “obtained … from” unlawful conduct. United States v. Gjeli, 867 F.3d 418, 427-28 & n.16 (3d Cir. 2017). Section 982(a)(1), one of the bases for the forfeiture order here, permits forfeiture of “property … involved in” an offense. We need not opine on whether Honeycutt prohibits joint and several liability under § 982(a)(1), see supra note 95, since the government has conceded error as to John Maxwell. United States v. Senke, 986 F.3d 300, 306 (3d Cir. 2021) (accepting the government’s concession of plain error and remanding for further proceedings). 97 Relying on extensive evidence introduced at trial, the government characterizes Pelullo as sitting at the “pinnacle of [the] criminal enterprise and ma[king] all the decisions about disbursing its proceeds, including to himself.” (Answering Br. at 274; see also Answering Br. at 14-16, 19-20.) 142 from the scheme. He gave definitive commands to employees, directed the disbursement of company funds, and issued instructions to FirstPlus’s lawyers, accountants, and other consultants, all of which evidenced his control over the criminal operation. The Supreme Court in Honeycutt emphasized the importance of having an “ownership interest” in or “personal benefit” from the proceeds of a crime. 137 S. Ct. at 1635. It is not plainly wrong to interpret Pelullo’s leadership of the FirstPlus looting, coupled with his supervision of the individuals who were distributing the stolen funds, as demonstrating his ownership of or benefit from the proceeds of the criminal enterprise. It follows that it was not plainly wrong to interpret Honeycutt as allowing Pelullo to be held jointly and severally liable. Pelullo contends that he should only be liable for the money that ended up in his pocket. But even after Honeycutt, multiple people can “obtain” the same proceeds over the course of a crime where they jointly controlled the enterprise. See United States v. Cingari, 952 F.3d 1301, 1306 (11th Cir. 2020) (holding that imposition of joint and several liability on “spouses who jointly operated their fraudulent business” for the full proceeds of their scheme was not plainly erroneous). Thus, as someone who controlled the criminal enterprise, Pelullo can be held jointly and severally liable for funds that he did not walk away with. That others may have also benefited from the proceeds in question does not mean the District Court plainly erred in holding Pelullo liable for the entire amount. Again, he personally benefited from and exerted control over those funds, 143 which is the type of conduct that the Supreme Court indicated can give rise to forfeiture liability. While we decline to make here any definite statement about who is subject to joint and several liability for the entirety of the proceeds of a criminal scheme under Honeycutt, any error in Pelullo’s sentence in this regard was not plain, and he is therefore not entitled to relief from the forfeiture order.