Sunday, February 19, 2006

Case o' The Week: Canby Can't Buy Gov't Forfeiture Theory, Rutledge

The Ninth rejects an overreaching government theory for criminal forfeiture in a notable case involving a Hawaiian labor organization. See United States v. Aaaron Rutledge, __ F.3d __, 2006 U.S. App. LEXIS 3448 (9th Cir. Feb. 14, 2006), available here.

Players: Judge Canby writes.

Facts: Anthony Rutledge was President and Chairman of “Unity House,” a Hawaiian nonprofit funded by labor unions. 2006 U.S. App. LEXIS 3448, *3. (Art Rutledge, left, founded the labor organization). Anthony Rutledge was charged with mail and wire fraud on the theory that he fraudulently gained control of the corporation and its assets. Id. at *4. The district court granted the government’s motion for a preliminary injunction, froze the corporation’s assets, and appointed a receiver. Id. at *4-*5.

Issue(s): 1. Criminal Forfeiture and Wire/Mail Fraud: “Rutlege’s threshold argument is that criminal forfeiture is not authorized by statute for the mail and wire fraud crimes with which he is charged.” Id. at *5.

2. “Proceeds:” Has “the government . . . failed to make the requisite showing of probable case to believe that the assets of Unity House were ‘proceeds’ of Rutledge’s alleged mail or wire fraud[?]” Id. at *9.

Held: 1. Criminal Forfeiture and Wire/Mail Fraud: The criminal fraud statute, as amended by CAFRA in 2000, permits criminal forfeiture for wire and mail fraud. “We accordingly reject Rutledge's contention and agree with the district court that section 2461(c) authorizes criminal forfeiture of proceeds of the mail or wire fraud crimes with which Rutledge is charged.” Id. at *8.

2. “Proceeds:” The government’s theory of “proceeds” went beyond that forfeitable in the statute. “Although we conclude that the proceeds of mail or wire fraud are subject to criminal forfeiture, we agree with Rutledge that the government has failed to make the requisite showing of probable cause to believe that the assets of Unity House were ‘proceeds’ of Rutledge’s alleged mail or wire fraud.” Id. at *9.

Of Note: This is a commendable opinion in its refusal to cave into the government’s expansive reading of “proceeds” subject to the forfeiture law. Id. at 1665. Not discussed in the opinion is the fact that this preliminary injunction froze funds that were being used to pay for defense counsel. (See cites in “For Further Reading” below). This is precisely how those involved in indigent defense find themselves tangled up in criminal forfeiture law – clients who could otherwise afford private attorneys lose access to their funds through forfeiture allegations.

A great place to start when dealing with forfeiture is the web site of “Forfeiture Endangers American Rights” (FEAR), website here. ND Cal CJA attorney Susan Raffanti is active in FEAR, and co-authored one of the leading treatises on asset forfeiture, the FEAR Asset Forfeiture Defense Manual.

How to Use: The Civil Asset Forfeiture Reform Act of 2000 (CAFRA) changed criminal forfeiture law, and now permits criminal forfeiture for any violation an Act of Congress. Id. at *5-*6. Before CAFRA, however, the criminal forfeiture statute was much more limited in scope. Id. If you have any old fraud cases, make sure the check whether overt acts happened after August 22, 2000 (the effective date of CAFRA). If not, there is an ex post facto bar to forfeiture of proceeds of fraud. See, e.g., United States v. Colon-Munoz, 192 F.3d 210 (1st Cir. 1999) (discussing ex post facto ramifications of criminal forfeiture and analyzing overt acts in light of ex post facto concerns).

For Further Reading: “Unity House” seems to be one of those uniquely Hawai’ian institutions, started over fifty years by patriarch Art Rutledge to protect local unions from control of mainland labor. See article here. After reading the government’s serious allegations in Rutledge, one would expect that the defendants – if convicted – would have gone down on long fraud sentences. In reality, lead defendant Aaron Rutledge pleaded to a misdemeanor on February 6 and will get one year of probation. See article here.

Yet another impressive prosecution by the federal government . . . .

Steven Kalar, Senior Litigator N.D. Cal. Website available at


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