Court Opinion

ID: 2963577
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:12:19.602806+00
Date Added: 2024-06-11T11:42:43.124730
License: Public Domain

USCA1 Opinion

	

                            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

                                         -3-
                                          3

            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,
                                                    ___ ________

                                         -4-
                                          4

            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

                                         -5-
                                          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.

                                         -6-
                                          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

                                         -7-
                                          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

                                         -8-
                                          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

                                         -9-
                                          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

                                         -10-
                                          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").

                                         -11-
                                          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

                                         -12-
                                          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

                                         -13-
                                          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.
                                ____

                                         -14-
                                          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.

                                         -15-
                                          15