Opinion ID: 774844
Heading Depth: 2
Heading Rank: 2

Heading: Ex Parte Proceedings Were Appropriate

Text: 26 Claimants next argue that the district court erred by entertaining an ex parte motion to strike the claims and answers. Although ex parte proceedings are appropriate only in a narrow set of circumstances, see In re Intermagnetics Am., Inc., 101 B.R. 191, 193-94 (C.D. Cal. 1989), the unusual facts of the present case justify their use. The attorney-claimants had filed untimely claims and answers and an ex parte motion for a continuance a week before trial was scheduled. This meritless action could have significantly delayed a case that was nearing resolution after nine years. 27 C. The Motion for Disqualification Was Resolved by the Time the District Court Ruled on the Motion to Strike Attorneys' Claims 28 Finally, the claimants argue that the trial judge violated district court rules by dismissing their claims while a motion to disqualify him was pending. Judge Real granted the motion to strike the attorneys' claims on June 3, 1998. The disqualification motion was referred to District Judge Stephen V. Wilson on May 13, 1998, and according to the appellants, Judge Wilson did not rule on the disqualification issue until June 30, 1998. In fact, the June 30 order from Judge Wilson merely clarified an order entered on May 14, 1998, denying the ex parte application for an order recusing Judge Real from further proceedings. Although Judge Wilson's first ruling on the disqualification motion referred to only one of the two code sections under which the motion was brought and omitted one of the attorney claimants, the May 14 order deniedclaimants' ex parte application for order recusing trial judge from further proceedings. This order was unequivocal; the conclusions reached in it covered all claimants and all bases for the motion. It is little surprise that the clarifying order of June 30 characterizes the omissions of the prior order asinadvertent[ ]. We therefore hold that Judge Real did not dismiss the attorneys' claims until after the disqualification motion had been denied. 29 III. THE DISTRICT COURT PROPERLY ADMITTED SWISS BANK RECORDS 30 At the probable cause hearing, the government introduced into evidence Swiss bank records showing that Darnell Garcia deposited millions of dollars in cash in Swiss bank accounts during the period he was allegedly selling drugs and that in order to purchase the defendant real property, he transferred $420,000 from the Swiss Bank Corporation to his checking account at Santa Monica Bank. The claimants argue that the records are inadmissible in the forfeiture hearings because (1) use of the records violated the terms of the Mutual Legal Assistance Treaty between Switzerland and the United States (Treaty) and (2) the government promised during a previous oral argument not to use the records. Neither argument has merit. 31 First, the United States obtained the Swiss bank records pursuant to the Treaty for its criminal prosecution of Darnell Garcia. Article 5 of the Treaty provides that such records shall not be . . . introduced into evidence . . . in any proceeding relating to an offense other than the offense for which assistance has been granted. Art. 5 ¶¶ 1. But the Treaty contains an important exception: Nothing in this Treaty shall be deemed to prohibit governmental authorities in the requesting state from: (a) using the materials . . . in any investigation or proceeding concerning the civil damages connected with an investigation or proceeding for which assistance has been granted. Art. 5 ¶¶ 3. This exception covers the use of the Swiss records in the present case. 32 Even if the exception to the Treaty's limiting provisions does not apply, the civil forfeiture action and criminal prosecution derive from the same criminal conduct. The claimants mistakenly rely on United States v. Ursery, 518 U.S. 267, 273 n.1 (1996), for the argument that the Treaty's limitation applies in the present case. Regardless of whether the civil and criminal actions involve the same offense for Double Jeopardy purposes (an issue left undecided in Ursery), Garcia's offenses of conviction form the predicate for forfeiture under 21 U.S.C. §§ 881(a)(7). Civil forfeiture is a proceeding relating to . . . that offense for which assistance has been granted, art. 5 ¶¶ 1, so the Treaty in no way blocks the district court's discretion to admit the Swiss bank records. 33 Second, the claimants argue that the government is estopped from using the Swiss bank records because a federal prosecutor said during a 1993 oral argument that this evidence would not be introduced in the probable cause hearing. The claimants misstate what the government said to this court. Throughout these proceedings, the government has made two representations: that it would not introduce the records in the forfeiture action if using them would violate the Treaty and that it did not have to use the records to establish probable cause for forfeiture. Neither representation amounts to a promise not to use the records. The government correctly determined that using the records did not violate the Treaty, and regardless of the government's assessment of the strength of its case, it reserved the right to introduce the records into evidence. The district court did not abuse its discretion in admitting the Swiss bank records. 34 IV. THE GOVERNMENT ESTABLISHED PROBABLE CAUSE FOR THE FORFEITURE 35 The claimants next challenge the district court's finding of probable cause for forfeiture. The determination of probable cause is based on the aggregate of facts and simply involves the question of whether the information relied on by the government is adequate and sufficiently reliable to warrant the belief by a reasonable person that the money was connected to drugs. Circumstantial evidence may suffice to establish probable cause for forfeiture. United States v. $30,060.00 U.S. Currency, 39 F.3d 1039, 1041 (9th Cir. 1994) (citations and quotation marks omitted). [T]he government must show that it had reasonable grounds to believe that the money was related to an illegal drug transaction, supported by less than prima facie proof but more than mere suspicion. To pass the point of mere suspicion and reach probable cause, it is necessary to demonstrate by some credible evidence the probability that the money was in fact connected to drugs. Id. 36 Taken as a whole, the evidence easily meets the threshold for probable cause. Numerous witnesses describe drug deals involving DEA Agent John Jackson, and numerous witnesses describe Jackson's close relationship with Garcia. Garcia's initials and pager number were in the address book of drug dealer Mahlon Steward, and telephone records link Garcia to Steward. Steward's girlfriend identified Garcia as one of Steward's drug trafficking partners. The evidence also establishes that Garcia made numerous suspicious cash deposits in Swiss bank accounts after drug thefts and that money from a Swiss account was used to pay 72 percent of the purchase price of the defendant real estate. 37 The claimants argue that the government's evidence is uncorroborated double or triple hearsay, but probable cause may be established by hearsay and circumstantial evidence. United States v. $405,089.23 in U.S. Currency, 122 F.3d 1285, 1289 (9th Cir. 1997). The claimants' attempts to impeach the credibility of various pieces of testimony are unconvincing, and much of the evidence is either corroborated or conclusively established by telephone, travel, and bank records. 38 The claimants also argue that evidence that Garcia smuggled gold undermines the finding of probable cause. This argument fails not only because a finding of probable cause does not require a conclusive determination that drugs are the only possible source of proceeds, but also because the argument is based almost entirely on the fact that the gold dealers who testified that they paid Garcia at most $150,000 were not reliable witnesses. But there is no evidence that Garcia actually made more than that sum. 39 Finally, the claimants argue that the government did not establish probable cause as to $161,000 of the purchase price of the defendant real estate. This sum derived from the sale of the Garcias' old house and a rental property. The facts show that the Garcias were building equity and improving those properties with suspicious cash payments at roughly the same time that Garcia was making large amounts of money from drug trafficking. The aggregate of facts more than supports the district court's probable cause determination. Even if the district court's determination were erroneous, the government would still be awarded the entire substitute res. Because there is probable cause for forfeiture of $420,000 of the $581,000 purchase price--72 percent--the government would be entitled to at least 72 percent of the resale price of $1,070,000. That sum, $770,400, is greater than the amount of the substitute res. 40 V. THE TRIAL COURT DID NOT IMPROPERLY RESTRICT WITNESS PRESENTATION 41 Claimants next argue that they should have been able to cross-examine two investigators who focused on Garcia's employment by a jewelry business. Any error in the district court's conduct would be harmless, however, because crossexamination only would have established the unreliability of testimony that Garcia was paid no more than $150,000 for gold smuggling activities. Their testimony would not have established that Garcia actually made more money. Even if the cross-examination would have suggested the possibility of an alternative source of the cash used to buy the defendant real property, the existence of an alternative hypothesis does not defeat a finding of probable cause. 42 VI. THE DISTRICT COURT PROPERLY ALLOWED EVIDENCE THAT ADALINE GARCIA WAS NOT AN INNOCENT SPOUSE 43 On November 24, 1992, the United States Tax Court entered a stipulation between the I.R.S. and Adaline and Darnell Garcia that found that Darnell Garcia had an income tax deficiency of $367,275 for the year 1985, but that there was no joint liability. The claimants now argue that this stipulation --which they say assumes that Adaline Garcia was an innocent spouse--should have collaterally or judicially estopped the government from introducing evidence to the contrary during the present forfeiture proceedings. 44 Collateral estoppel is appropriate when (1) there was a full and fair opportunity to litigate the issue in the previous action; (2) the issue was actually litigated in that action; (3) the issue was lost as a result of a final judgment in that action; and (4) the person against whom collateral estoppel is asserted in the present action was a party or in privity with a party in the previous action. In re Palmer, 207 F.3d 566, 568 (9th Cir. 2000). A stipulation may meet the fully litigated requirement where it is clear that the parties intended the stipulation of settlement and judgment entered thereon to adjudicate once and for all the issues raised in that action. Green v. AncoraCitronelle Corp., 577 F.2d 1380, 1383 (9th Cir. 1978). 45 The present case is entirely different from Green, which involved a federal suit that sought to relitigate a state court action that had been settled by the same parties. Collateral estoppel is inappropriate in the present case for two reasons. First, there is no evidence that the parties intended the stipulation to be a final adjudication of the merits of the innocent spouse issue. The fact that Darnell Garcia agreed to pay a substantial percentage of the money sought by the I.R.S. suggests that the finding of no joint liability was hardly a significant concession. Second, the tax deficiency case only covered the year 1985, and the forfeiture case covered a period of six years. The tax case did not approach a full litigation of the innocent spouse issues. 46 Judicial estoppel is also not warranted because the positions taken by the I.R.S. and the U.S. Attorney are not inconsistent and do not undermine the integrity of the court. See New Hampshire v. Maine, 121 S. Ct. 1808, 1814-15 (2001). 47 VII. FORFEITURE PROCEDURES DO NOT VIOLATE DUE PROCESS 48 The claimants argue that forfeiture procedures violate due process by shifting the burden of proof to the claimant upon a mere showing of probable cause. This argument was rejected in United States v. $129,727.00 U.S. Currency, 129 F.3d 486, 491-94 (9th Cir. 1997). VIII. THE FORFEITURE IS NOT AN EXCESSIVE FINE 49 The government brought its forfeiture complaint under 21 U.S.C. §§ 881(a)(6), which makes subject to forfeiture all proceeds traceable to [a drug transaction]. The claimants argue that the forfeiture of the defendant real estate constituted an excessive fine in violation of the Eighth Amendment. 50 Although forfeitures under 21 U.S.C. §§§§ 881(a)(4) and (a)(7) are considered punitive and within the ambit of the Eighth Amendment, see Austin v. United States , 509 U.S. 602, 622 (1993) ([F]orfeiture under [those code paragraphs] constitutes payment to a sovereign as punishment for some offense and, as such, is subject to the limitations of the Eighth Amendment's Excessive Fines Clause.) (citation and quotation marks omitted), forfeiture under paragraph (a)(6) is entirely different. Paragraphs (a)(4) and (a)(7) involve the forfeitures of conveyances and real property that facilitate drug transactions, and paragraph (a)(6) involves forfeiture of drug proceeds. Although this court has not ruled directly on this issue, it is the view of a number of courts of appeals that [f]orfeiture of proceeds cannot be considered punishment, and thus, subject to the excessive fines clause, as it simply parts the owner from the fruits of the criminal activity. United States v. Alexander, 32 F.3d 1231, 1236 (8th Cir. 1994). See also United States v. One Parcel of Real Property Described as Lot 41, Berryhill Farm Estates, 128 F.3d 1386, 1395 (10th Cir. 1997) ([W]e . . . hold as a matter of law that forfeiture of drug proceeds pursuant to §§ 881(a)(6) can never be constitutionally excessive.); Smith v. United States, 76 F.3d 879, 882 (7th Cir. 1996) ([P]roceeds forfeitures can never be out of proportion to the `loss' suffered by the government or society. If there has been a finding that certain property, for instance, is forfeitable pursuant to§§ 881(a)(6) as proceeds of drug trafficking, . . . [i]t directly represents at least a portion of the profits and can thus be less than or equal to society's loss, but not more than the loss.) (emphasis in original). Cf. United States v. $405,089.23 U.S. Currency, 122 F.3d 1285, 1292 (9th Cir. 1997) (Reinhardt, J., concurring in part and dissenting in part) (arguing that a remand was unnecessary for consideration of a challenge based on the excessive fines clause to a forfeiture under 21 U.S.C. §§ 881(a)(6) because it appears to me that were we to reach the Eighth Amendment claim we would be required to reject it). 51 Because criminal proceeds represent the paradigmatic example of guilty property, the forfeiture of which has been traditionally regarded as non-punitive, we follow the Seventh, Eighth, and Tenth Circuits and hold that the excessive fines clause of the Eighth Amendment does not apply to a forfeiture action brought under 21 U.S.C. §§ 881(a)(6).