When a federal grand jury in Miami charged Sila Luis in a massive Medicare fraud in 2012, she knew she’d need a good lawyer.
In fact, she retained one of the best criminal defense firms in the United States, a law firm with a famous client list and an impressive record of victories at trial.
But prosecutors did something else. Completely apart from the pending criminal case, they filed a civil lawsuit asking a federal judge to freeze all of Ms. Luis’s assets – including funds she held that were beyond any taint of alleged criminal activity.
The prosecutors said their actions were aimed at preserving assets that the US government could recover if Luis was convicted. But the pretrial civil action also had the effect of rendering Luis incapable of paying her very effective defense lawyers.
On Tuesday, the US Supreme Court will hear oral argument to determine whether a federal forfeiture law empowers prosecutors to use this kind of tactic or whether such legal hardball violates a defendant’s constitutional right to hire and pay for counsel of her own choosing.
The question isn’t whether criminal defendants have a right to use proceeds of their alleged crimes to pay for a lawyer. The US Supreme Court has declared there is no such right.
The Luis case asks a different question: Can prosecutors freeze legitimate assets (unrelated to any criminal activity) even when such a freeze undercuts the defendant’s ability to hire her own lawyer?
Critics say the practice smacks of conflict of interest, in that the seized money is later used by the agency that seized it. Supporters respond that forfeiture can destroy criminal enterprises root and branch, and help ensure that crime doesn’t pay.
The case arises at a time of national debate over the government’s increasing use of forfeiture, not just in connection with criminal cases but also through administrative hearings and civil litigation, which have lower standards of proof.
Record $4.4 billion in seized assets
The government’s reliance on forfeiture is a somewhat recent development in the nation’s history. The concept of the government seizing someone’s personal property was generally rejected by the Founding Fathers, other than in cases of piracy.
Nonetheless, Congress authorized forfeitures in 1970 amid efforts to battle organized crime and drug trafficking groups.
Federal statutes empowered the government to seize criminal proceeds after a conviction. By the 1980s, the use of forfeiture expanded with the government also seeking to freeze crime-tainted assets pretrial, before a conviction.
Today, forfeiture is authorized in cases involving more than 200 federal offenses. In addition, most states have passed their own array of laws authorizing forfeitures.
One measure of the growth of this tactic is the size of the Justice Department’s Asset Forfeiture Fund – where assets seized by the federal government are deposited.
In 1986, when the fund started, it took in $93.7 million.
By 2006, the fund’s annual take topped $1 billion. In 2014, the fund set a record, collecting $4.4 billion in seized assets.
“In the last decade and a half there has been a sharp increase in the amount of forfeiture activity both at the federal and state level,” says Dick Carpenter, director of strategic research at the Institute for Justice.
“Today it is no exaggeration to say that civil forfeiture is exploding at the federal and the state level,” he said in an interview.
Mr. Carpenter and other critics see these developments as part of a continuing consolidation of government power. Indeed, they say, the federal government’s authority to detain, imprison, and impoverish Americans has never been greater.
“As Congress and the courts have cooperated in the vast expansion of federal asset forfeiture powers, federal prosecutors have been given tools that no one in government should have – powers which put the American people in fear not of punishment for crime, but in fear of the exercise of arbitrary power by their own government,” writes William Olson, in a friend of the court brief on behalf of the United States Justice Foundation and eight other conservative groups.
In the case before the high court, Luis and two others were charged with engaging in health-care fraud from January 2006 to June 2012 while running two home health-care companies in Miami.
In addition to allegedly paying bribes and kickbacks to recruiters and nurses, the defendants are charged with billing the Medicare program for services that were not medically necessary or that were never provided.
Investigators say the companies received $45 million in Medicare payments. An FBI agent told the lower court that much of the money had been moved overseas or disbursed, making it difficult to trace and recover all proceeds of the fraud.
Luis’s lawyer, Howard Srebnick of the Miami-based firm, Black, Srebnick, Kornspan & Stumpf, told the judge in the civil case that Luis’s companies had received $15 million in revenue from sources other than Medicare and unrelated to any alleged crime. He said those funds belong to his client and that she should be able to use a portion of that money to pay for her legal defense.
Prosecutors disagreed. They filed their civil lawsuit under a statute that they say gives federal judges discretion to order the pretrial freeze of the illicit proceeds of any health-care fraud. If some of those proceeds cannot be located, prosecutors said, the judge can order assets “of equivalent value” to be frozen as well.
Civil forfeiture and the Sixth Amendment
That’s what happened in the Luis case.
In his brief to the Supreme Court, Mr. Srebnick says the federal law does not entitle the government to freeze property to which it has no legal claim. The government is only entitled to freeze assets that it can show are tied to illicit activities, he says.
The federal statute cited by the government, Srebnick argues, is designed to provide prosecutors with a specific, and limited, tool to prevent a defendant from hiding or spending alleged criminal proceeds in the run-up to a trial.
Such a temporary restraining order can be critical in preventing funds and other assets from being hidden or moved beyond the government’s reach. But the statute doesn’t authorize the government to indefinitely freeze untainted assets that would otherwise be used to pay legal expenses in a related criminal trial, Srebnick says.
That action, he argues, would violate the Sixth Amendment right of a defendant to hire her counsel of choice. It could also violate the Fifth Amendment right to due process and a fair trial, he says.
Srebnick is urging the Supreme Court to read the forfeiture statute narrowly and thus avoid triggering potential constitutional violations.
US Solicitor General Donald Verrilli insists in his brief to the court that the only requirement necessary to freeze a person’s assets is that those assets be deemed “forfeitable.”
He urges the high court to embrace a substantially broader reading of the forfeiture statute. Mr. Verrilli argues that federal law permits prosecutors to seek a court order to freeze any assets “of equivalent value,” whenever a defendant has taken action to spend or hide assets that federal agents can directly link to a crime.
Since Luis is potentially liable for up to $45 million in restitution, and federal agents were unable to locate all $45 million, the government may reach out and restrain other of Luis’s assets “of equivalent value,” according to the solicitor general.
The Supreme Court has never addressed this specific question.
In a friend of the court brief, the American Bar Association warns that the prosecutor’s actions in the Luis case represent “a profound expansion of the government’s pretrial exercise of control over a defendant’s assets.” The brief warns of “pervasive and uniquely harmful” fallout for the criminal justice system.
“If the government can restrain pretrial a defendant’s use of untainted assets to retain counsel of choice, then the government is effectively granted the capability to deprive the accused of counsel of choice,” ABA President Paulette Brown writes in the brief.
In such a case, a defendant would be required to rely on government-funded appointed counsel.
A friend of the court brief filed on behalf of the National Association of State Legislatures and other state and local government groups urges the Supreme Court to uphold the federal government’s broad interpretation of the forfeiture statute.
“A ruling in favor of the petitioner will result in a massive unwarranted preemption of validly-enacted state laws and would create an artificial distinction in the law between directly forfeitable property and substitute assets,” Mary Massaron writes in the brief.
“A broad constitutionally-based ruling threatens to render these varied laws unconstitutional in whole or in part,” she adds.
That kind of broad ruling is exactly what conservative groups are hoping comes from the Luis case. They see in the growing array of forfeiture provisions a dire threat to American freedom.
Mr. Olson, in his friend of the court brief, argues that the government is advancing an extreme legal position that seeks to cripple the defendant’s ability to defend herself from federal charges.
“The implications of these positions in the brave new world of asset seizure and forfeiture, urged by the government, should send shivers down the backs of the justices on this court, who are tasked with guarding the rights of the people against this government’s headlong pursuit of powers typifying those of a totalitarian police state,” Olson writes.
Critics of the government’s tactics are calling for a complete repeal of civil forfeiture actions. In addition, they say the government should eliminate its apparent conflict of interest in forfeiture by requiring that seized funds be deposited in a general fund, rather than be used to underwrite the same law-enforcement agencies that seized those funds.
The case is Luis v. US (14-419). A decision is expected by June.