August 1999

White-Collar Crime
By Kathryn Keneally

    Kathryn Keneally specializes in white-collar crime, tax controversy, and commercial litigation. In practice in New York City, she is a member of the U.S. Sentencing Commission Practitioners’ Advisory Group. She is vice-chairperson of the ABA Tax Section’s Civil and Criminal Tax Penalties Committee. She is a member of The Champion Advisory Board.

District Court Relies on Rule 41(e) To Set Limits upon the Government’s Retention of Seized Evidence
In this era of civil and criminal forfeiture, it is well worth looking again at Rule 41(e), Fed. R. Crim. P., and its role in the balance between the government’s prosecutorial interests and the individual’s right to the possession of property. The recent decision in In re Grand Jury Subpoena Duces Tecum Issued To: Roe & Roe, Inc.,1 provides a carefully reasoned and valuable analysis of this procedural tool.

Rule 41(e) provides simply that “[a] person aggrieved by an unlawful search and seizure or by the deprivation of property may move the district court for the return of the property on the ground that such person is entitled to lawful possession of the property.” The rule anticipates evidentiary hearings on factual issues, and permits the court to impose “reasonable conditions” to protect “access and use of the property in any subsequent proceedings.”2

The rule on its face contemplates that property will be returned in due course by the government to its owner. It seems that more commonly, however, once seized by the government, property is often held for months, and sometimes years, until the government sorts out what, if any, legal proceedings it chooses to pursue. The record in Roe & Roe, Inc. illustrates the classic governmental approach, and the decision highlights the flaws in the government’s reasoning.

The movant was a corporate entity that imported and sold food products. In December 1998, certain shipments were inspected by the United States Fish and Wildlife Service, were not cleared for entry into the United States, and were instead held by the government in a customs bonded warehouse. In March 1999, items were seized pursuant to search warrant from the movant’s premises in the United States. Also in March 1999, the United States Customs Service seized products from the movant’s customs bonded warehouse at the airport.3

The court noted that, under certain circumstances, even if the government has a cognizable interest in holding seized property, it may not do so for an unreasonable amount of time without taking some action in connection with the property. The decision in Roe & Roe, Inc., was rendered less than one month after the seizure by the Customs Service, and within five months of the initial refusal by the Fish and Wildlife Service to clear the shipments for entry. Under these circumstances, the court noted that even the movant was not contending that the length of time that the property had been held was per se unreasonable. The movant apparently did contend, however, that in light of the government’s lack of a basis to continue to hold the property, the detention had in fact become unreasonable.4

The court found the standard to determine whether property may be retained by the government in the face of a Rule 41(e) motion in the Advisory Committee Notes, which provides that “‘if the United States’ legitimate interests can be satisfied even if the property is returned, continued retention of the property would be unreasonable.’”5 The Advisory Notes further state that Rule 41(e) “avoids an all or nothing approach,” and instead “recognizes that reasonable accommodations might protect both the law enforcement interests of the United States and the property rights of property owners and holders.”6

The court recognized that, when a Rule 41(e) motion is made during a pre-indictment criminal investigation, a movant bears the burden of proving that the property was illegally seized and that the movant is entitled to its lawful possession. In contrast, however, the court noted that when the property is no longer needed by the government for evidentiary purposes, the burden shifts to the government. The person from whom the property was seized is accorded a presumptive right to the return of the property, and the government must demonstrate a legitimate reason not to return the property. Moreover, the legality of the initial seizure is no longer an issue.7

Rule 41(e) Permits the Government To Do Only
That Necessary To Preserve Its Evidentiary Interests
The government in Roe & Roe, Inc. contended, apparently without dispute, that its criminal investigation was in its initial stages. The court found that this contention was insufficient to permit the government to retain the seized property. The court noted that the movant had agreed that the government “may sample, photograph, or otherwise preserve the evidentiary value” of the seized items, and indeed that the movant was willing to stipulate that samples retained by the government were representative of the entirety.8 The court found that the government had “obtained (or can obtain immediately) everything that it truly needs for evidentiary purposes.”9 Thus the court found that the government “can now count, weigh, test or photograph to the full extent it wishes to do so.”10 The court concluded, however, that under these circumstances, the government “cannot hold for evidentiary use the entirety of the seized shipments.”11

The government put forward a list of reasons why it should be permitted to retain all of the seized property. The court measured each against a fundamental standard requiring the government to “articulate some other continuing interest in the property” sufficient to outweigh the movant’s interests.12 Because the court concluded that the government’s evidentiary needs could be satisfied without the continued retention of all of the seized property, the court concluded that “[a]ny further retention must be based on legal authority other than a search warrant seizure or subpoena for evidentiary purposes.”13

First on the government’s list was that there was an on-going criminal investigation, which was indisputably still in the early stages. The court concluded that this contention had been resolved by its finding that the government’s legitimate evidentiary needs could be met by retained samples. Moreover, the court found that the government could not use its investigatory seizure powers to effect a de facto forfeiture. The court summarized: “A de facto forfeiture, however, is exactly what would happen if, as here, the Government, having satisfied its evidentiary needs, has failed to articulate legitimate reasons for holding the property in light of the harm caused to the movant.”14

Next, the government argued that the property was “derivative contraband.”15 The seized products were concededly not contraband per se. The court determined that the government could not retain the seized products as “derivative contraband” without establishing their status as such in a “proper proceeding” that provided the movant with due process.16 Thus the court concluded: “Simply put, the Government cannot establish that a per se legal product is derivative contraband based upon the contents of sealed affidavits that were executed to obtain search warrants.”17

Possibility That the Government Might Bring
Future Proceedings Was Not Sufficient
The next three arguments on the government’s list may all be viewed as variations on a basic theme: in essence, the government contended that because it may someday be shown in some proceeding that the movant was not entitled to possession of the seized items, until that day the government may retain the items. The court recognized that any one of these arguments might someday prevail, but found that the mere possibility that some future proceeding might be brought did not suffice as a bar to relief under Rule 41(e).

For example, the government contended that the movant “may not be entitled” to the possession of the seized products “because of issues related to U.S. customs laws.”18 The court responded that “[t]he Government remains free to contend, in a proper manner, that it can prevent [the movant] from bringing the products into the country on customs law grounds and may assert such grounds in the normal fashion.19

Next, the government contended that the movant may not be “the sole entity that has an ownership interest” in the seized property.20 Again, the court concisely responded that “[a]ny other claimants . . . are free to take such actions as they wish to protect their interests,” but that the “possible existence of other claimants” did not give the government a right to retain seized property.21

The final contention made by the government is likely the one that it most commonly makes to retain seized items that it does not necessarily require for evidence — that the items “might be subject to civil forfeiture.”22 Again, the court recognized that government was “[o]f course, . . . free to exercise its legal rights in regard to any forfeiture claim.”23 The court gave short shrift, however, to the government’s contention that it could “retain the property on the ground that it may, at some future time, take steps to effect forfeiture.”24

None of the government’s contentions in Roe & Roe, Inc. were particularly novel. It should come as no surprise that the government, having seized items as potential evidence in a criminal investigation, would then attempt to hold on to the items for an indefinite period while it determined whether there was some administrative or forfeiture proceeding that the government may wish to pursue. Through the use of Rule 41(e), the movant in Roe & Roe, Inc., was able to put the government to the test, and obtained an order directing the release of the property.

In its parting sentence, the court succinctly put the government’s standard practices in the proper perspective: nothing prohibits the government from taking a legal position or action to deprive a party of the possession of seized property, but first the government must afford the property owner “all legal rights with respect to any such position or action.”25 In other words, in at least one district court, the government does not win simply by saying that someday it might win.

Sometimes the Government Will Do as it Pleases

One night in New York City, two people had plans to have dinner at the home of friends. They brought wine, and they knew that more wine would be served with the meal. Rather than face the issue of finding a way home in an inebriated state, they made arrangements before dinner for a car service to pick them up later that night to take them home.

The car service arrived on time. The car was a late model sedan, and the driver was black. The car proceeded up Broadway, and turned on 125th Street, headed for the West Side Highway.

A very, very bright light flashed into the car. The source of the light was something stationary, deliberately set up to focus on cars making that particular turn. The driver pulled over immediately.

Four white men, dressed in ordinary clothes, ran from different directions to the car. They banged on the windows, which the driver immediately lowered. They trained flashlights into the car. They looked at the black driver, and the two white passengers in the back seat. Presumably, they realized that this was a car service taking the passengers home. One of the men said something like "okay,” and began to waive the car on.

One of the passengers interrupted this process, asking who the men were. "New York City Police,” was the answer. The next question seemed obvious: Why were bright lights shone into the car, forcing it to stop? The entire extent of the answer was “safety check, ma’am.” The next question seemed equally obvious: What is a safety check? The answer was not nearly as illuminating as the other bright lights that had been used that night: “This is a safety check. It is for your safety.” When it was brought to the police officer’s attention that neither the passengers nor the driver had perceived any lack of safety until they were forcibly detained without explanation, the police officer simply stared back, as if the apparent naivete of the passengers at the reasonableness of the proceedings was beyond his comprehension. He responded simply that the car should move on.

As this dialogue ensued, another vehicle was forced to pull over in front of the car service sedan. Apparently the second vehicle required a more thorough "safety check,” because all of its occupants, four black men, had stepped out of their vehicle and were being patted down by law enforcement officers.

Anyone following the news of late, from New York in particular and certainly from other places as well, will know that this story is far from unique. It seems fair to conclude that the police officers, when they stopped the car service sedan, saw only a late model car with a black driver. It seems equally fair to conclude, when they waived the car on while treating the passengers of other vehicles differently, it was because by then they had seen white passengers in the back seat.

Why do I choose to tell this story in this column? Perhaps, I hope to make the point that law enforcement is law enforcement, and if we do not draw clear lines for the cop in the street, we do not preserve the rights of our "white-collar” clients. Perhaps, I tell this story here because this is the forum that is available to me to address criminal justice issues. Certainly, I tell this story because I am deeply troubled by recent and historic events in New York, which is my home. Also, I tell this story now because I regret that I have not told it sooner and more vocally. I tell this story because I was in the car.


Notes
1.1999 U.S. Dist. LEXIS 5749, Civil Action No. MJG-99-812 (D. Md. April 14, 1999)(Garbis, D.J.). At the time that this column was written, page citations to the reported decision were not available. Accordingly only page citations to the decision as reported by LEXIS have been included.
2. Rule 41(e) also provides that post-indictment motions shall be treated “also as a motion to suppress under Rule 12.”
3.1999 U.S. Dist. LEXIS 5749 at *1-*3.
4. Id., 1999 U.S. Dist. LEXIS 5749 at *4, n.2.
5. Id., 1999 U.S. Dist. LEXIS 5749 at *3, quoting Rule 41(e), Advisory Notes to 1989 Amendments.
6. Rule 41(e), Advisory Notes to 1989 Amendments.
7. Id., 1999 U.S. Dist. LEXIS 5749 at *5.
8. Id., 1999 U.S. Dist. LEXIS 5749 at *6 & n.4.
9. Id.
10. Id.
11. Id., 1999 U.S. Dist. LEXIS 5749 at *6-7.
12. Id., 1999 U.S. Dist. LEXIS 5749 at *7.
13. Id., 1999 U.S. Dist. LEXIS 5749 at *7-8.
14. Id., 1999 U.S. Dist. LEXIS 5769 at *9.
15. The Supreme Court has defined “contraband per se” as “objects the possession of which, without more, constitutes a crime,” and “derivative contraband” has been defined as items which are not “intrinsically illegal in character,” but rather have been put to an illegal use. One 1958 Plymouth Sedan v. Pennsylvania, 380 U.S. 693, 699-700 (1965).
16. Id., 1999 U.S. Dist. LEXIS 5769 at *10.
17. Id.
18. Id.
19. Id., 1999 U.S. Dist. LEXIS 5769 at *10-11.
20. Id., 1999 U.S. Dist. LEXIS 5769 at *11.
21. Id.
22. Id. (emphasis added).
23. Id., 1999 U.S. Dist. LEXIS 5769 at *11-12.
24. Id., 1999 U.S. Dist. LEXIS 5769 at *12.
25. Id., 1999 U.S. Dist. LEXIS 5769 at *13.



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