Luis v. United States: How the Supreme Court should decide a landmark case in white collar criminal law

January 28, 2016

Westlaw Journals Commentary thumbImagine a rule of baseball that says the pitcher gets to choose the hitter’s bat, or a rule of chess that allows a player to eliminate an opponent’s pawns before the game begins. Imagine a rule of blackjack that allows a casino to deal the cards and then determine the bettor’s bankroll. Each of these scenarios should sound fundamentally unfair. The reason why is simple: Competitions and contests no longer yield fair results when one side picks the other’s resources.

Nevertheless, in 2016 the U.S. Supreme Court might institutionalize this imbalance in the realm of white collar criminal law. The court heard oral argument Nov. 10 in Luis v. United States, No. 14-419, and this important decision is pending.

Instead of baseball bats or chess pawns or blackjack chips, however, the high court will decide whether to permit the government to dictate the resources that defendants may use to hire attorneys.

What follows is an explanation of why this result would be as unfortunate as it is plausible, and what the court can do to avoid entering such an Orwellian conclusion.

The quarter-century march toward Luis

The Sixth Amendment to the U.S. Constitution provides that, “In all criminal prosecutions, the accused shall enjoy the right … to have the Assistance of Counsel for his defense.”

This right, the Supreme Court has recognized, is “by far the most pervasive for it affects [the defendant’s] ability to assert any other rights he may have.” United States v. Cronic, 466 U.S. 648, 654 (1984). The Sixth Amendment is thus not limited to enabling defendants to hire counsel in general. Instead, it extends to selecting counsel “of one’s choice”— a tenet recognized as “the root meaning of the constitutional guarantee.” United States v. Gonzalez-Lopez, 548 U.S. 140 (2006).

In the words of U.S. Circuit Judge Richard Posner, “This entitlement is infringed … even if the defendant is able to hire another competent, perhaps equally or even more competent, lawyer — otherwise, of course, there would not be a right to counsel of one’s choice.” United States v. Santos, 201 F.3d 953 (7th Cir. 2000).

On June 22, 1989, the Supreme Court issued a pair of decisions that began the Sixth Amendment descent that may reach a new low point in Luis. The first, Caplin & Drysdale v. United States, 491 U.S. 617 (1989), involved a law firm’s attempt to obtain payment from a criminal defendant who pleaded guilty and was subject to an order forfeiting virtually all his assets. The law firm argued that the forfeiture statute either contained an implicit exception for attorney fees or violated the Sixth Amendment right to counsel.

But the high court disagreed. “A defendant has no Sixth Amendment right to spend another person’s money for services rendered by an attorney,” it recognized. After all, the asset restraint did not infringe upon the right to counsel because of the very nature of post-trial forfeiture and tainted assets: Forfeiture is a post-trial remedy.

Therefore, the court said, “it [is not] necessarily the case that a defendant who possesses nothing but assets the government seeks to have forfeited will be prevented from retaining counsel of choice.” Indeed, the court said certain defendants “may be able to find lawyers willing to represent them, hoping that their fees will be paid in the event of acquittal, or via some other means that a defendant might come by in the future.”

As to tainted assets, it would be illogical to allow a defendant to spend such monies, the court held — otherwise, a “robbery suspect … [could] use funds he has stolen from a bank to retain an attorney to defend him.”

The Supreme Court extended this analysis in the second case, United States v. Monsanto, 491 U.S. 600 (1989). There, the issue once again pitted prosecutorial asset restrictions against the Sixth Amendment right to counsel. But in Monsanto, the restriction was pretrial rather than post-conviction. In other words, it was a preliminary asset freeze rather than a permanent forfeiture. Yet the court issued its blessing for such restraints all the same.

“It would be odd,” the court said, “to conclude that the government may not restrain property … based on a finding of probable cause, when we have held that … the government may restrain persons where there is a finding of probable cause to believe that the accused has committed a serious offense.”

Indeed, the justices said, “if the government may, post-trial, forbid the use of forfeited assets to pay an attorney,” as the court authorized in Caplin & Drysdale earlier that day, “then surely no constitutional violation occurs when, after probable cause is adequately established, the government obtains an order barring a defendant from frustrating that end by dissipating his assets prior to trial.”

The rule emanating from Caplin & Drysdale and Monsanto was simple: A showing of mere probable cause is sufficient to deprive a criminal defendant of money needed to hire counsel as long as the frozen or forfeited money stems from the crime.

Right to challenge

Twenty-five years later, the Supreme Court revisited the Sixth Amendment right to counsel — and relied on Caplin & Drysdale and Monsanto to deliver another blow. This time, in Kaley v. United States, 134 S. Ct. 1090 (2014), the issue was not whether prosecutors can freeze or forfeit tainted monies upon a showing of probable cause. Instead, it was whether defendants have a right to challenge such probable cause determinations at a hearing.

After all, by the time an asset freeze becomes an issue, probable cause has already been found by a grand jury, which authorized the criminal charges. In this regard, some statutes indicate that grand juries evaluate “reasonable cause” rather than “probable cause,” but these terms have been recognized as equivalent. See, e.g., N.Y. Crim. Proc. Law § 190.65 (referring to “reasonable cause”); People v. Maldonado, 86 N.Y .2d 631, 635 (1995) (“Reasonable cause means probable cause.”).

Yet grand jury proceedings are not adversarial hearings, and their targets are not permitted a full opportunity to defend themselves. In fact, probable cause determinations by grand juries have been found so easy to obtain that, the saying goes, a prosecutor can “indict a ham sandwich.” See, e.g., In the Matter of Grand Jury Subpoena of Stewart, 144 Misc. 2d 1012, fn. 1 (N.Y. Sup. Ct., N.Y. Cty. 1989).

So Kaley reached the Supreme Court for a decision on whether, on the question of probable cause, a secret and non-adversarial grand jury proceeding is all a criminal defendant may receive prior to having his allegedly tainted monies frozen before trial.

The high court in Kaley answered that question in the affirmative. It said grand juries are sufficient and defendants are not entitled to further hearings to preserve their assets for the sake of hiring counsel. Citing Caplin & Drysdale and Monsanto, the court “beg[a]n with those rulings not as mere background, but as something much more,” noting that on “the single day the court decided both those cases, it cast the die on [Kaley] too.”

The decision in Kaley sparked a vigorous dissent from Chief Justice John Roberts. Acknowledging the steep decline of rights afforded defendants accused of crimes, he recounted that, in the past, “[w]e have held … that the government may effectively remove a defendant’s primary weapon of defense — the attorney he selects and trusts — by freezing assets he needs to pay his lawyer. That ruling is not in issue.”

“But today, the court goes further, holding that a defendant may be hobbled in this way without an opportunity to challenge the government’s decision to freeze those needed assets,” Chief Justice Roberts wrote. After all, he said, Kaley made more realistic the “possibility that a prosecutor could elect to hamstring his target by preventing him from paying his counsel of choice” — an especially distasteful risk because, by definition, the “prosecutor [is] the party who wants the defendant to lose at trial.”

By curtailing a defendant’s access to money — without a hearing, no less — Kaley flipped the presumption of innocence attendant to criminal prosecutions, violating the right of innocent-until-proven-guilty suspects “to vindicate that presumption by choosing the advocate they believe will best defend them,” Chief Justice Roberts said.

The ruling in Kaley paved the way for prosecutors not only to influence which attorneys criminal defendants can afford but to exert this influence through the secrecy of grand jury proceedings.

Luis and its stakes

As controversial as Kaley was, in Luis the Supreme Court has the opportunity to strike an even more devastating blow to those accused of white collar offenses.

Luis involves 18 U.S.C.A. § 1345(a)(2), which states:

If a person is alienating or disposing of property, or intends to alienate or dispose of property, obtained as a result of a banking law violation … or a federal health care offense … the attorney general may commence a civil action in any Federal court — (A) to enjoin such alienation or disposition of property; or (B) for a restraining order to … prohibit any person from withdrawing, transferring, removing, dissipating, or disposing of any such property or property of equivalent value.

The law’s reference to “property of equivalent value” is now being used against Sila Luis.

The government has charged the defendant with a $45 million health care fraud. In connection with such robust charges, it obtained a freeze of virtually all her assets — including those she obtained lawfully.

She has contested the freeze as an unconstitutional deprivation of her right to counsel and due process. See Brief for Petitioner at i, Luis v. United States, No. 14-419, 2015 WL 5012824 (U.S. Aug. 18, 2015) (defining the “question presented” as “whether a pretrial injunction prohibiting a defendant from spending untainted assets to retain counsel of choice in a criminal case violates the Fifth and Sixth Amendments”).

Much is at stake. A decision in favor of the government would enable prosecutors to hobble the ability of criminal defendants to hire private counsel by freezing all monies, including those untainted by crimes.

Consider two hypothetical people accused of defrauding a bank. Person 1 has no job, and is alleged to have put the fraud proceeds into a newly created savings account; Person 2 washes cars for a living, is alleged to have donated fraud proceeds to a charity, but has a pre-existing savings account for money earned washing cars over many years.  If the Luis court authorizes prosecutors to freeze untainted money, then not only will Person 1’s fraud proceeds be susceptible to an asset-freeze, but so will Person 2’s car-wash revenue.

Moreover, the size of this freeze will be limited only by the scope of the government’s allegations — so that, perversely, defendants will be less capable of marshaling assets for their defense the more serious the charges. Unencumbered by a need to connect monies to crimes, prosecutors will be able to bankrupt white collar suspects before they have a chance to hire counsel .

Nevertheless, the high court is unlikely to agree with Luis that freezing her untainted assets violated her right to counsel. This is because money is fungible. A ruling that prosecutors can freeze tainted monies (Monsanto) but not untainted monies (Luis) would mean that criminal defendants could play the system by simply spending crime proceeds immediately. That way, they would benefit from spending stolen money while barring the government from freezing cleaner replacement money.

The court is unlikely to incentivize the accelerated dissipation of tainted assets. This reluctance is borne out by the court’s recent behavior: As powerful a dissent as Justice Roberts authored in Kaley, it garnered only half as many votes as Justice Elena Kagan’s majority opinion. And since Kaley, the justices’ views have had less than two terms to evolve.

A proposed solution

In the end, however, the court has a narrow opening to respect its recent precedent and preserve a fair system of incentives — while sparing the Sixth Amendment additional trauma.  It can do so by punting on the constitutional issue altogether and focusing instead on basic statutory construction.

In a less headline-grabbing aspect of this case — indeed, it is an issue Luis did not even raise in her initial petition to the Supreme Court — the asset-freezing statute is itself unclear about what actions may be taken with respect to untainted assets.

While it permits an action to “enjoin” the dissipation of tainted assets, it separately permits an action for “a restraining order” over tainted or untainted assets. Compare Section 1345(a)(2)(A) and Section 1345(a)(2)(B). If, as is often the case, “restraining order” is interpreted as short-form for “temporary restraining order,” then Section 1345 would not permit much of a pretrial asset freeze of untainted assets.

What it would permit is a very temporary hold of untainted assets, under subsection B — pending a hearing to determine the issuance of a longer-lasting freeze of tainted assets under subsection A. Id. at 37-38 (making this argument).

This precise reading of Section 1345 has three main channels of support.

  • First, the terms “restraining order” and “temporary restraining order” are used interchangeably with custom. Even the prime federal statutory basis for temporary restraining orders —Rule 65 of the Federal Rules of Civil Procedure — refers generally to “Restraining Orders” in the statutory title.
  • Second, the government’s reading of the statute renders subsection A superfluous. If subsection B were not limited to temporary restraining orders, it would permit the full-blown freeze of any person’s tainted or untainted assets. Subsection A’s authorization to enjoin the disposition of just tainted assets, then, would be swallowed whole.
  • Third, the Supreme Court has a rule of resolving statutory ambiguity to avoid constitutional friction. So the ambiguity in Section 1345 is itself reason to find in the defendant’s favor. If the court construes subsection B as a temporary restraint, as Luis argues, that interpretation will permit room for her to eventually use untainted monies to hire counsel of her choice, thereby avoiding Sixth Amendment entanglement.

To be sure, Luis’ reading of the statute has weaknesses. Most notably, as the government points out, the statute is premised on steps the attorney general can accomplish by “commenc[ing] a civil action” for that purpose. See 18 U.S.C.A. § 1345(a)(2). While civil actions may be commenced to obtain injunctions or permanent orders, they are not commenced for the ultimate purpose of issuing temporary restraining orders.

Indeed, seeking a temporary restraining order as ultimate relief would make no sense, as temporary restraining orders preserve the status quo pending the outcome of some other, more basic pursuit. Moreover, Section 1345 itself uses the word “temporary” elsewhere. In subsection (A)(3), for example, it refers to a “permanent or temporary injunction or restraining order” — showing that Congress knew how to use the word “temporary” when it saw fit. Its use of the term “restraining order” rather than temporary restraining order, then, appears intentional. See Brief for Respondent at 18, Luis v. United States, No. 14-419, 2015 WL 5731783 (U.S. Sept. 30, 2015) (generally making this point).

While the government has a strong basis to support its reading of Section 1345, ultimately the fact that strong arguments exist on both sides of the debate proves how ambiguous and poorly worded the law truly is. One reading of the statute renders an entire subsection ambiguous, whereas another creates strange ultimate relief and writes the word “temporary” into a law that actually uses it elsewhere.

In the end, the court can leverage this ambiguity for its own benefit — allowing it to trigger the rule of constitutional avoidance—so that it can resolve Luis without having to roam onto the crisscrossing terrain of forfeiture law and the Sixth Amendment right to counsel.