Kaley v. United States

Facts

Petitioner Kerri Kaley was a sales representative for a New York–based medical-device company. In 2005, the Food and Drug Administration (“FDA”) informed her that she was under investigation for stealing prescription medical devices and selling them on the black market. Both Kerri and her husband Brian, also under investigation, retained counsel during the two-year investigation. To afford their counsel, the Kaleys took an equity line of credit on their home and purchased a certificate of deposit (“CD”).

In 2007, a grand jury indicted the Kaleys and Jennifer Gruenstrass, another sales representative, for conspiring to transport stolen devices and to defraud the FDA; for receiving payment for stolen equipment; and for obstructing an official proceeding. The indictment demanded forfeiture of property traceable to the alleged crime, “including but not limited to a money judgment in the amount of $2,195,635.28 and the CD.”

Under the authority of 21 U.S.C. § 853, which permits an ex parte restraining order merely upon the filing of an indictment, the United States obtained a protective order to restrain the Kaleys’ forfeitable assets, including money needed to pay for counsel. The Kaleys contested the order, arguing that the restraint of assets violated their Sixth Amendment right to counsel of choice. Additionally, the Kaleys requested a pretrial, post-restraint evidentiary hearing regarding the forfeiture.

The district court denied both the motion to vacate the order and the request for an evidentiary hearing. On appeal, the Eleventh Circuit Court of Appeals reversed the district court’s denial of the evidentiary hearing; on remand, the district court granted the hearing.

According to the Kaleys, the theory underlying the forfeiture was baseless and the government would be unlikely to prevail at trial. Yet the district court concluded that the Kaleys were entitled only to a hearing at which to challenge the “traceability” of assets to the alleged crime—not the underlying charges as well. Since the Kaleys contested at the hearing only the underlying theory, rather than the assets’ traceability to the charged conduct, the district court upheld the protective order.

On April 26, 2012, the Eleventh Circuit Court of Appeals affirmed the district court’s ruling on the hearing’s limited scope, and the protective order remained. The Supreme Court granted certiorari on October 11, 2012 to determine whether the scope of a pretrial hearing implicates the Fifth and Sixth Amendments.

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Discussion

This case addresses scenarios where the government has charged a criminal defendant and frozen her assets. The issue is whether in that scenario the defendant is entitled to a pretrial hearing where she can challenge the underlying charges before the government can freeze assets that the defendant needs to retain counsel of choice. The Kaleys argue that their constitutional rights to due process and counsel of choice require an adversarial hearing at which they can challenge the validity of the forfeiture. The United States maintains that because a grand jury found probable cause to believe that the Kaleys committed an offense, any pretrial hearing must be limited to whether the assets are traceable to the crime. The Supreme Court’s ruling will impact the government’s ability to seize a defendant’s assets and defendants’ ability to retain their property and counsel of choice after being charged.

INTEGRITY OF THE ADVERSARY SYSTEM

The Kaleys contend that the government’s seizure of their assets violates their Sixth Amendment right to counsel by depriving them of funds needed to retain their chosen counsel. The National Association of Criminal Defense Lawyers agrees, warning that a denial of that right “compromises the reliable functioning of the adversary system.” Similarly, several amici stress that restricting access to chosen counsel will tilt the “playing field” in favor of federal prosecutors. Further, the American Bar Association adds that pretrial freezing of defendants’ assets could transform the attorney-client relationship “into a contingency fee arrangement that is dependent on the outcome at trial, in violation of the attorney ethics rules in every State.”

The United States counters that Congress unambiguously permitted the government to freeze forfeitable assets used to pay for counsel. According to the United States, the government has a strong interest in recovering forfeitable assets. This interest, the United States insists, “overrides any Sixth Amendment interest in permitting criminals to use assets adjudged forfeitable to pay for their defense.”

DUE PROCESS PROTECTION

The Kaleys claim that the constitutional right to due process requires a meaningful opportunity to be heard upon deprivation of one’s property. A limited hearing, the Kaleys argue, denies them that opportunity. In support of the Kaleys, the CATO Institute warns that the lack of an adversarial hearing greatly threatens individual interests. Similarly, several amici assert that grand juries cannot be trusted to protect individuals’ property interests from seizure. According to these supporters, the modern federal criminal justice system has departed radically from what the founders envisioned, perversely altering the dynamic between the federal government and its citizens.

The United States responds that an expanded hearing would undermine the role of the grand jury. Moreover, that hearing would function as a redundant “mini-trial” before the actual trial. To allow such a mini-trial, the United States maintains, would interfere with the pretrial preservation of forfeitable assets that Congress sought to secure.

At the heart of this dispute are the conflicting goals of preserving an individual’s interests in property and counsel of choice, and the federal government’s interest in seizing forfeitable assets. Although several organizations submitted amicus curiae briefs on behalf of the Kaleys, no one submitted a brief in support of the United States’ interest. The Supreme Court’s ruling will impact which interest the federal criminal justice system ultimately will privilege.

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Analysis

The Supreme Court will decide whether the Fifth Amendment due process clause and the Sixth Amendment right to counsel of choice require a pretrial, adversarial hearing at which a criminal defendant may challenge the underlying charges when a post-indictment, ex parte restraining order freezes assets the defendant needs to retain counsel of choice. Though the Supreme Court addressed a similar issue in United States v. Monsanto, it did not address the precise issue contested here. This ambiguity resulted in a circuit split over the proper scope of the hearing required under the due process clause.

The Kaleys acknowledge that when the government seeks a pre-indictment protective order under 21 U.S.C. § 853, the statute requires a hearing where the court shall determine whether “there is a substantial probability that the United States will prevail on the issue of forfeiture.” Critically, however, the Kaleys note that if the government obtains an indictment first, the restraining order may be entered ex parte, and in this situation the statute does not explicitly require a hearing. The Kaleys also contend that the Fifth and Sixth Amendments demand a hearing at which “the government must establish a substantial probability that it will prevail on the issue of forfeiture.” Here,the Kaleys maintain that due to a lack of a pretrial evidentiary hearing, their Fifth and Sixth Amendment rights were violated.

The United States counters that, as Monsanto indicates, a facially fair indictment returned by a grand jury is enough to subject a defendant to restraints on his liberty, pending trial. Thus, in the government’s view, a probable cause determination is a constitutionally adequate basis for the less intrusive step of imposing restrictions on a defendant’s property. The government also claims that requiring a pretrial hearing where the defendant may address guilt or innocence, rather than solely the issue of traceability, would “unduly burden the government’s interest in the relevant property.” Further, the government argues that allowing the Kaleys to challenge the grand jury’s determination of probable cause would force the government to prematurely disclose its trial strategy and perhaps even jeopardize testifying victims and cooperators.

The Kaleys claim that they are entitled to retain counsel of their choice under the Sixth Amendment, and that the district court erred in granting a restraining order that froze the assets the Kaleys set aside to retain counsel. The United States does not dispute that the Kaleys are entitled to a hearing; rather, the United States disputes the Kaleys’ assertion that a defendant may contest probable cause in that hearing after a grand jury has already determined that probable cause exists. Thus, the issue at hand is the scope of the hearing that the Kaleys are entitled to. The Kaleys contend that the Fifth Amendment due process clause requires a full pretrial, adversarial hearing when an ex parte protective order seizes assets the criminal defendant needs to retain counsel of choice. The United States argues that the Eleventh Circuit correctly concluded that the due process clause only requires a limited hearing to determine whether the restrained assets have a sufficient connection to the charged crimes.

Both parties agree that the Supreme Court, upon deciding Caplin & Drysdale, Chtd. v. United States and its companion case, United States v. Monsanto, left open the question as to “whether the due process clause requires a hearing before a pretrial restraining order can be imposed.” The United States concedes that the issue is properly before the Supreme Court and that the Court properly granted certiorari.

HOW MUCH PROCESS IS DUE UNDER THE FIFTH AMENDMENT?

To sustain a procedural due process violation, the Kaleys must show (1) that the government deprived them of a protected property interest that they were entitled to, and (2) that the deprivation occurred without adequate procedural safeguards. The United States does not dispute that the attachment of the Kaley’s CD deprived them of a property interest; but it maintains that the hearing granted was sufficientto satisfy due process, and that “[t]he court of appeals correctly held that the scope of a pretrial hearing on a restrained assets is limited to whether the assets have a sufficient connection to the charged offense to justify the restraint.”

The Kaleys contend that the proper test for determining the “process due in any particular setting” is the test the Supreme Court established in Mathews v. Eldridge. The Mathews test requires the court to consider three factors. First, the Court must consider the private interest that the official action will affect; second, the risk of erroneous deprivation of the interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the government’s interest, including the function involved and the fiscal and administrative burdens associated with additional procedural requirements.

The Kaleys contend that, after considering the Mathews factors, the Court must require either “a pre-deprivation or prompt post-deprivation hearing.” Further, the Kaleys emphasize that in none of the previous cases decided by the Supreme Court, albeit dealing with similar issues, has the Court limited the hearing to an inquiry regarding traceability of the assets to the alleged crime.

The United States counters, noting that the Third, Fourth, Sixth, and Tenth Circuit Courts of Appeals have held that a “district court must take th[e] allegations of the indictment as true and assume at the hearing that the underlying offense has been committed,” and stated that the hearing is properly restricted to the question only as to whether “the assets are traceable to the underlying offense.” The United States maintains that the proper rule of law only requires a limited hearing, as “[n]o reason exists to think that an extra layer of procedure . . . that could be undertaken only at a significant cost . . . would be beneficial, much less that it is constitutionally mandated.”

DOES THE EX PARTE RESTRAINING ORDER UNCONSTITUTIONALLY RESTRICT THE RIGHT TO RETAIN COUNSEL OF CHOICE?

The Supreme Court has previously stated that a defendant’s right to counsel of choice “reflects constitutional protection of the defendant’s free choice independent of concern for the objective fairness of the proceeding.”

The Kaleys contend that the government effectively violated that constitutional right by restricting their means of paying for counsel of their choice. The United States disputes this, arguing that in Caplin & Drysdale, the Court ruled that § 853is not invalidated by the Due Process Clause of the Fifth Amendment, and that “there is a strong governmental interest in obtaining a full recovery of all forfeitable assets . . . that overrides any Sixth Amendment interest in permitting criminals to use assets adjudged forfeitable to pay for their defense.”

The Kaleys claim that such procedures are unduly prejudicial to them because the restraint of assets prohibits them from retaining chosen counsel who have represented the Kaleys for years and are experts in the case. Additionally, the Kaleys argue, any previously expended resources would be wasted. The Kaleys further claim that this would improperly advantage prosecutors.

The United States counters that in Monsanto, even though the defendant was represented by a court-appointed attorney, the Court rejected the petitioner’s argument that “the Fifth and Sixth Amendments require[] Congress to permit a defendant to use assets that are forfeitable under the statute to pay that defendant’s legal fees.” Based on Monsanto, the United States maintains that the Kaleys are not entitled to use assets contained in a CD to retain counsel of choice after the grand jury determined that probable cause existed to trace the assets to the charged crime.

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Conclusion

In this case, the Supreme Court will consider whether a post-indictment, ex parte restraining order that freezes assets needed by a criminal defendant to retain counsel of choice requires a pretrial, adversarial hearing at which the defendant may challenge the evidentiary support and legal theory of the underlying charges. The Court’s ruling will impact the rights of criminal defendants in federal district courts, the ease with which the government may freeze the assets of criminal defendants, and the scope of procedural protections guaranteed by the Due Process Clause of the Fifth Amendment.

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