Court Opinion

ID: 196281
Source: CourtListenerOpinion
Date Created: 2011-02-07 03:02:22+00
Date Added: 2024-06-11T17:26:41.669318
License: Public Domain

UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT
                                         
No. 93-2278

                  UNITED STATES OF AMERICA,

                     Plaintiff, Appellee,

                              v.

             REAL PROPERTY IN WATERBORO, ET AL.,

                    Defendants, Appellees,

                              v.

                        PATRICK CUNAN,

                     Claimant, Appellant.
                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT
                  FOR THE DISTRICT OF MAINE

           [Hon. Gene Carter, U.S. District Judge]
                                                             

                                         

No. 94-1599

                  UNITED STATES OF AMERICA,

                          Appellant,

                              v.

               RICHARD J. DECATO, JR., ET AL.,

                    Defendants, Appellees.

                                        

        APPEAL FROM THE UNITED STATES DISTRICT COURT 
              FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. William G. Young, U.S. District Judge]
                                                                

                                        

No. 94-2036

                  UNITED STATES OF AMERICA,

                          Appellee,

                              v.

                RICHARD J. DECATO, JR., ET AL.

                   Defendants, Appellants.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT
              FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. William G. Young, U.S. District Judge]
                                                                

                                         

                            Before

                    Boudin, Circuit Judge,
                                                     
                Aldrich, Senior Circuit Judge,
                                                         
              and Bownes, Senior Circuit Judge.
                                                          

                                         

Bruce E.  Kenna, with whom Kenna,  Johnston & Sharkey was on brief
                                                                 
for appellants.
David  S. Mackey,  Assistant  United States  Attorney,  with  whom
                            
Donald K. Stern, United States Attorney, was on brief for appellee.
                       

                                         

                      September 8, 1995
                                         

          BOWNES, Senior Circuit  Judge.  These  consolidated
                      BOWNES, Senior Circuit  Judge.
                                                   

appeals involve  third-party  claims to  real  properties  in

Bangor and Portland, Maine ("the Maine properties"), that the

United  States is  trying to  forfeit as  part of  a criminal

prosecution  in Massachusetts.   The  District Court  for the

District of Massachusetts  granted the third-party claimants'

motion to  dismiss the Maine properties  from the indictment.

Because we  find that  the third-party claims  were premature

under  the applicable criminal  forfeiture statute, we vacate

the order of dismissal and remand for further proceedings.

                              I.
                                            

          The  government alleges  that Richard  DeCato, Jr.,

the   principal  of   a  drug-dealing   and  money-laundering

operation in New England, purchased the Maine properties with

the proceeds  of drug trafficking and  installed his brother-

in-law,  Patrick Cunan,  as the  straw owner.   In  1990, the

government  filed two  civil  forfeiture actions  against the

Maine properties in the District of Maine.  Not surprisingly,

Cunan was the only party to assert a claim in those actions.

          The  civil forfeiture  actions were  sidetracked by

pretrial proceedings, including an  appeal to this court, see
                                                                         

United States  v. TWP 17 R  4, 970 F.2d 984  (1st Cir. 1992),
                                         

and by  the  government's pending  criminal investigation  in

Massachusetts.   In 1993, while  both cases  were pending,  a

federal grand  jury in  Massachusetts charged DeCato  and the

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Cunans   (Patrick  and   Patricia)  with   various  offenses,

including conspiracy  to violate federal drug  laws and money

laundering.  Count 37 of the indictment -- which named DeCato

alone --  sought criminal forfeiture of  the Maine properties

under 21 U.S.C.   853.

          Four days  after the  indictment was  returned, the

government moved to dismiss  the two civil forfeiture actions

with prejudice, in deference to the criminal forfeiture count
                          

in  Massachusetts.   Judge Carter  so dismissed  the actions.

The United States Marshal for the District of Maine continued

to hold the  assets at issue (including escrowed  monies from

the  sale of  some of  the Portland  properties) pursuant  to

instructions from the United States Attorney for the District

of Massachusetts.

          Several  months  after the  dismissal of  the civil

actions,  Cunan moved in the  District of Maine  for an order

directing  the Maine  Marshal to  disencumber or  release the

Portland assets.  He argued that the dismissal with prejudice

of the civil actions barred, as a matter of res judicata, the
                                                                    

criminal  forfeiture  of  those  assets in  the  District  of

Massachusetts.   Judge  Carter denied  the motion,  and Cunan

appealed the denial in Appeal No. 93-2278.

          In  the District  of Massachusetts,  the government

moved  to restrain  all  of the  properties  in the  criminal

forfeiture count.  The Cunans moved, on res judicata grounds,
                                                                

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to  strike   or  dismiss   the  Maine  properties   from  the

indictment.   Judge  Young entered  a  temporary  restraining

order,  took   the  Cunans'  motion   under  advisement,  and

ultimately held  that claim  preclusion  barred the  criminal

forfeiture of the Maine properties.

          The government moved  for reconsideration,  arguing

for the first time that the Cunans, who are third parties  to

Count 37, must wait until an order of forfeiture has actually

been  entered before  they may  assert their  claim.   See 21
                                                                      

U.S.C.   853(k) (barring third-party intervention in criminal

forfeiture action  except as  provided in    853(n)).   Judge

Young denied  reconsideration but noted that "the restraining

order already entered remains in full force and effect."  The

government appealed the dismissal  of the Maine properties in

Appeal No. 94-1599.

          In  July,  1994,  DeCato  entered  a  written  plea

agreement that forfeited "his legal and beneficial  interests

in  all assets  described  in  Count  37,  including  a  cash

forfeiture  in the  amount of  $3,000,000."   He acknowledged

that all  such  assets were  subject  to forfeiture  as  "the

proceeds of unlawful drug activity . . . and/or as substitute

assets."  DeCato also agreed to testify against the Cunans at

their upcoming trial.

          The government then filed a supplemental motion  to

restrain   the  Maine   properties,  although   the  previous

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                                          5

restraining  order does not appear  to have been  lifted.  It

argued  that notwithstanding any  preclusive effect  from the

dismissal of  the civil actions,  the government was  free to

forfeit  DeCato's  interest   in  the  Maine   properties  as

"substitute  assets"   in  place  of  the   $3  million  cash

forfeiture.  See 21 U.S.C.   853(p).  Judge Young entered the
                            

restraining order as requested,  which the Cunans appealed in

Appeal No. 94-2036.

                             II.
                                            

          We  begin with  the  government's appeal  from  the

dismissal of  the  Maine  properties.    In  its  motion  for

reconsideration, the  government argued  that the Cunans  are

barred by 21 U.S.C.   853(k) from asserting their third-party

claim  to  the Maine  properties  until  the properties  have

actually been  ordered forfeited to  the United  States.   We

consider  this   argument   on  the   merits,   despite   the

government's possible waiver below,  for two reasons.  First,

the district  court did  not expressly  rely  upon waiver  in

denying the  motion for reconsideration.   Second, the Cunans

have not asserted waiver on appeal.1

                    
                                

1.  We recognize  that the government's  belated argument  is
possibly a  jurisdictional one,  to the extent  that Congress
may  have barred  the Cunans from  raising, and  the district
court from considering, their claim of ownership of the Maine
properties.   See Halleran v.  Hoffman, 966 F.2d  45, 47 (1st
                                                  
Cir.  1992)   ("A   challenge  to   federal  subject   matter
jurisdiction may  be raised at  any time,  including for  the
first time on appeal.").   We express no opinion  on this and
do not rely on it.

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                                          6

          The bar on third-party  intervention in 21 U.S.C.  

853(k) provides:

          (k)  Except as provided in subsection (n)
          of this  section,  no party  claiming  an
          interest    in   property    subject   to
          forfeiture under this section may --

            (1) intervene in a trial or appeal of a
          criminal case involving the forfeiture of
          such property under this subchapter; or

            (2) commence an action at law or equity
          against the United States  concerning the
          validity of his  alleged interest in  the
          property subsequent  to the filing  of an
          indictment  or information  alleging that
          the  property  is  subject to  forfeiture
          under this section.

Section  853(n), the subsection cited in   853(k), is a wait-

and-see  provision:  "[f]ollowing  the entry  of an  order of
                                             

forfeiture," the United States  is required to publish notice

of  the  order  to interested  third  parties.      853(n)(1)

(emphasis  added).   "Any  person .  .  . asserting  a  legal

interest in property which has  been ordered forfeited to the

United  States" may then "petition the court for a hearing to

adjudicate  the  validity  of  his alleged  interest  in  the

property."    853(n)(2).

          The  government argues  that    853(k)  bars  third

parties  such  as  the  Cunans  from  participating  in  pre-

forfeiture proceedings under any circumstances.  We disagree.

A  statutory  exception  to the  bar  is  found  in    853(e)

("Protective  orders"):   where the  government seeks  a pre-

indictment protective order  against the property alleged  to

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                                          7

be  subject  to forfeiture,  "persons  appearing  to have  an

interest  in the  property" must  be  afforded notice  and an

opportunity  for a  hearing.     853(e)(1)(B).   There  is no

suggestion that third parties are excluded from this process,

even though restraining orders necessarily precede forfeiture

orders.    In fact,  the legislative  history  of the  bar on

third-party intervention cautions  that "[t]his provision  is

not  intended to preclude a  third party with  an interest in

property that is  or may  be subject to  a restraining  order

from  participating in a hearing regarding the order . . . ."

S.  Rep.  No.  225, 98th  Cong.,  2d  Sess.  206 n.42  (1983)

(explaining parallel provision of RICO statute), reprinted in
                                                                         

1984 U.S.C.C.A.N. 3182, 3389  n.42.  The legislative history,

moreover, makes  no  distinction between  pre-indictment  and

post-indictment restraining orders; evidently,  third parties

may  "participat[e]"  in  both  types  of  restraining  order

proceedings.   Cf.  id. at  3386 (noting  that although  "the
                                   

post-indictment restraining order provision  [  853(e)(1)(A)]

does not require prior notice and opportunity for a hearing,"

the provision "does not exclude . . . the authority to hold a

hearing  subsequent to the initial  entry of the  order . . .

.").

          This  exception  to  the  bar  on intervention  may

reflect  due process  concerns.   Section  853(e) presents  a

special  problem for  third parties,  who face  not  only the

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                                          8

potential  forfeiture  of property  in  which  they claim  an

interest,  but also immediate  restraints upon  property that

may be in  their control.   A restraining  order directed  at

third parties  is "strong medicine," United  States v. Regan,
                                                                        

858  F.2d  115, 121  (2d Cir.  1988),  whether it  is entered

before or after the indictment.

          We  conclude that  under     853(e), third  parties

claiming   an   interest   in   restrained   or   potentially

restrainable property  may "participat[e]" in  the associated

restraining order proceedings.  We now ask whether the Cunans

participated  in those proceedings in the manner contemplated

by Congress.   After examining the  structure and legislative

history  of   853(e), we  hold that the  Cunans' res judicata
                                                                         

argument was prematurely made.

          Broadly   speaking,   the   government   can   seek

protective orders in  two contexts:  before an indictment has

been filed, or after.  To obtain  a pre-indictment protective

order,  the government  must show,  among other  things, that

"there is  a substantial  probability that the  United States

will  prevail  on  the  issue  of forfeiture  .  .  .  ."    

853(e)(1)(B).    By  contrast,   under     853(e)(1)(A),  the

indictment itself establishes the merits  of the government's

case,  and courts  may  enter a  protective  order "upon  the

filing of an indictment . . . alleging that the property with

respect to which  the order is sought would, in  the event of

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                                          9

conviction, be subject to forfeiture . . . ."   The text of  

853(e)(1)(A)  nowhere suggests that  participants in  a post-

indictment  protective  order  proceeding can  challenge  the

underlying forfeitability  of the property.   That would turn

an  ancillary proceeding into the  main event --  a result at

odds  with  Congress'  desire   to  "assure  a  more  orderly

disposition  of  both  the  criminal  case  and  third  party

claims."  1984 U.S.C.C.A.N. at 3390.

          The legislative history  of   853(e)(1)(A) confirms

this reading, for it expressly limits  the scope of arguments

that can  be raised  by participants in  a post-indictment   

853(e)  proceeding.     "For   the  purposes  of   issuing  a

restraining  order, the  probable  cause  established in  the

indictment  . .  .  is  to  be  determinative  of  any  issue

regarding the  merits of the  government's case on  which the

forfeiture is to be based."   1984 U.S.C.C.A.N. at 3386.   If

the court elects to "hold a hearing subsequent to the initial

entry of  the order . . .  the court may at  that time modify

the order or vacate an order that was clearly improper (e.g.,
                                                                        

where  information presented  at the  hearing shows  that the

property restrained was  not among the property  named in the

indictment).   However, it is stressed that at such a hearing

the court is not  to entertain challenges to the  validity of
                                                                         

the  indictment."   Id.  (emphasis added).    We think  these
                                   

provisos were meant  to apply to both criminal defendants and

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                                          10

third-party claimants.   The  purpose of a  restraining order

proceeding, after  all, is  to preserve at-risk  property for

trial, not to determine whether the property should have been

included in  the indictment.   Under    853(e)(1)(A), parties

claiming   an   interest   in   restrained   or   potentially

restrainable  property  may  not use  the  restraining  order

proceeding to attack the indictment itself.

          That is what  the Cunans  tried to do.   Their  res
                                                                         

judicata  claim states,  in essence,  that the  indictment is
                    

invalid because criminal forfeiture as a  cause of action has

vanished.   This  direct challenge  to  the validity  of  the

indictment cannot be heard in a restraining order proceeding.

To challenge the forfeitability  of the Maine properties, the

Cunans must await  the entry  of an order  of forfeiture  and

petition  for a hearing under   853(n)(2), at which time they

may press their claim  that they have a superior  interest in

the   properties  as  a  matter  of  res  judicata.    See   
                                                                      

853(n)(6)(A)  (forfeiture  order  shall  be  amended  if  the

claimant's  right, title,  or  interest in  the property  was

vested  or superior to  that of the defendant  at the time of

the acts giving  rise to  the forfeiture).   See also  United
                                                                         

States  v. Reckmeyer,  836  F.2d  200,  206 (4th  Cir.  1987)
                                

(noting  that the petitioners'  post-forfeiture claim under  

853(n) "is  a fundamental one that . . . attacks the validity

of the forfeiture order itself").

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                                          11

          We  acknowledge that  it may  be difficult  in some

cases   to  establish  the   proper  limits   of  third-party

participation in  restraining order proceedings.   On the one

hand, premature attacks upon the validity of the indictment -

-  the type  of argument  made by  the Cunans --  are clearly

barred.   On the  other, prudential arguments  concerning the

burdens of  restraint are  clearly permitted by  the statute,

which recognizes the due  process concerns that are triggered

by  judicial orders aimed at  third parties.   Cf. Regan, 858
                                                                    

F.2d at  121-22 (delineating circumstances  under which  such

orders should not be  entered).  Some arguments may  not fall

neatly on  either side of  the line.   In  Regan itself,  for
                                                            

example,   the  third-party  claimant,  a  partnership  whose

partners included  the criminal defendants, was  permitted to

challenge the potential  forfeitability of partnership assets

under RICO's forfeiture  provision, albeit without  disputing

the factual allegations of the  indictment.  See also  United
                                                                         

States  v.  Wu,  814  F.  Supp.  491,  494  (E.D.  Va.  1993)
                          

(speculating  that the  third-party spouse  of  the defendant

might  be   entitled  to   intervene  in   restraining  order

proceeding in order to contest the breadth of the order).  At

any rate, the Cunans' res judicata argument falls well on the
                                              

forbidden side of the line.

          Our holding is limited to the arguments made by the

Cunans.  Specifically, the Cunans do not argue, and we do not

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                                          12

consider,  whether  the  Due  Process  Clause  may  sometimes

require that  interested parties  be given an  opportunity to

challenge  a   restraining  order,  on  the   merits  of  the

indictment if  necessary, before  the  entry of  an order  of

forfeiture.  Cf. United  States v. Harvey, 814 F.2d  905, 929
                                                     

(4th  Cir. 1987) (  853(e)(1)(A) violates  due process to the

extent   that   it  authorizes   ex   parte,  post-indictment
                                                       

restraining  orders without opportunity  for a post-restraint

hearing other than the  criminal trial itself); United States
                                                                         

v.  Crozier,  777  F.2d  1376,  1382-84 (9th  Cir.  1985)  ( 
                       

853(e)(1)(A) violates due  process by not  guaranteeing third

parties or criminal defendants  an opportunity to challenge a

post-indictment  restraining order until after forfeiture has

been ordered).  Here, the district court permitted the Cunans

to participate in the restraining order proceedings; in fact,

it granted the Cunans  more process than was provided  by the

statute.

                             III.
                                             

          Our holding  moots the  Cunans' appeals in  No. 94-

2036  (from Judge Young's  entry of a  restraining order) and

No.  93-2278 (from  Judge Carter's  denial of  the motion  to

disencumber  or release  the Portland assets).   It  does not

matter whether Judge Carter should have granted the motion to

disencumber,  because  Judge  Young  subsequently  entered  a

restraining  order in the Massachusetts prosecution, and that

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                                          13

order cannot be challenged on the sole ground -- res judicata
                                                                         

-- raised  by the Cunans on  appeal.  That leaves  us with no

basis  for granting the only  relief that the  Cunans seek in

Appeal No. 93-2278, i.e., the return of the Maine properties.
                                    

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                                          14

                             IV.
                                            

          For the foregoing reasons,  we vacate the March 18,
                                                           

1994 order of the Massachusetts District Court dismissing the

Maine properties from Count 37 of the indictment, and  remand
                                                                         

the case to  that court for proceedings  consistent with this

opinion.

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