United States v. DeCato

• Court: Court of Appeals for the First Circuit
• Decided: September 8, 1995
• Docket: 93-2278
• Status: Published

Opinion

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


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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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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


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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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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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