Opposition Brief — Harber Corp. v. United States

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No. 09-1389

—— 4

In the Supreme Court of the Ginited States

HARBER CORPORATION, ETAL., PETITIONER!

{

UNITED STATES OF AMERICA

ON PRETITION FOR AWRIT OF CERTIORARI!

TOTHE UNITED STATES COURT OF APPEA?

FOR THE THIRD CIRCUTT

BRIEF FOR THE UNITED STATES IN OPPOSITION

NAL KUMAK KATYAI

Acting Solicitor General

Counsel of Record

LANNY A. BREUER

Axsistant Allorney General

JOSEPH fF. PALMER

Altorney

Department of Justice

Washington, 1.C. 20580-0001

SupremeCtbhriefs@usdoy.gor

(202) 514-2217

QUESTIONS PRESENTED

|. Whether an ancillary proceeding under 21 U.S.C

%53(n), initiated by third-party claimants seeking to pre

vent criminal forfeiture of property in which they claim

an interest, 1s a “civil proceeding to forfeit property” for

purposes of the fee-shifting provision of the Civil Asset

lorfeiture Reform Act, 28 U.S.C. 2465(b)

2. Whether the United States is immune from an

award of interest on seized funds where there was no

Statutory waiver of sovereign immunity permitting the

award of interest

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES

Cases:

Ikelionwu v. United States, 150 I'.8d 233 (2d Cir.

Ss ge ete ae ee a eee ge aa i)

Lane Vv. Pema, 616 US. 167 CIGRB) 2... ccc cc eateccneess &

Larson v. United States, 274 F.3d 643 (st Cir. 2001) . 9,11

Library of Congress v. Shaw, 478% U.S. 310 (1986) 2... .. 5,8

Morgenthau v. Avion Res. Ltd., 898 N.F.2d 929

ee eens ee eee ea ayaa a eee en econ 3

Ohel Rachel Synagogue v. United States, 482 F.3d

eo Se) re ee eee re 12

Smith v. Principi, 281 F.3d 1384 (Fed. Cir. 2002) 2... .. 12

United States v. Andrews, 530 F.3d 1232 (10th Cir.

eS Oooh Pe aes NS, ere aN Nr at oP Na rata eS Sra kale Gin i

United States v. $515,060.42 wn U.S. Currency,

be Fae SO0 CGR Car. BO) 2 on cece cescceseves 10

United States v. Ford, 6A Fed. Appx. 976 (6th Cir.

NN eee ee oe eae a Re AK 1]

United States v. 1461 West 42nd Street, 251 F.8d 1829

a te ee ee aL Aes oe ee Ro 10

United States v. McHan, 345 F.3d 262 (4th Cir. 2003) .... 7

United States v. Moser, 586 F.3d 1089 (8th Cir. 2009),

cert. denied, No. 09-1230 (May 17, 2010) ........... 5, &

(111)

Cases—Continued: Page

U/nited States v. $7,990.00 in US. Currency, 170 F.3d

443 (&th Cir.), cert. dismissed, 52% U.S. 1041 (1999)... . 9

United States v. $80,006.25 in U.S. Currency, 236

I’ 3d 610 Oth Cir. 2000), cert. denied, 534 U.S. &36

Ry ae ee ae ss a ew ew Oe «8 8 2

United States v. $277,000 n U_S. Currency, 69 F.3d

Se SUE ei, BUD os cosa coco ce ewe ck wee ee Weve 10, 11

statutes:

Civil Asset Forfeiture Reform Act of 2000, Pub. L.

No. 106-185, 114 Stat. 202, 18 U.S.C. 981 et seq. ....-..- }]

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aed enka hace e OE N Ss Oe es rh eree

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Hn the Hupreme Court of the Cinited States

No. 09-1889

HARBER CORPORATION, ET AL., PETITIONERS

‘“

UNITED STATES OF AMERICA

~ ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 3-17)

is not published in the Federal Reporter but is reprinted

at. 354 Fed. Appx. 676. The opinion of the district court

(Pet. App. 20-31) denying petitioners’ motion for attor-

neys’ fees and interest is unreported.

JURISDICTION

The judgment of the court of appeals was entered on

December 4, 2009 (Pet. App. 1-2). A petition for rehear-

ing was denied on February 9, 2010 (Pet. App. 32-383).

The petition for a writ of certiorari was filed on May 10,

2010. The jurisdiction of this Court is invoked under 2%

U.S.C. 1254(1).

(1)

Zz

STATEMENT

After several bank accounts were included in a pre

liminary order of forfeiture in a criminal prosecu-

tion, petitioners initiated a proceeding under 21 U.S.C.

%53(f) asserting their interest in the accounts. After the

district court granted summary judgment in petitioners’

favor, they sought attorneys’ fees, costs, and interest

arising from that proceeding. The United States Dis-

trict Court for the District of New Jersey denied that

motion, Pet. App. 18-31, and the court of appeals af-

firmed, id. at 38-17.

1. On June 27, 2002, the United States seized more

than $21 million held in 89 bank accounts at Merchants

Kank in connection with the arrest of a bank employee,

Maria Nolasco. Pet. App. 5; Gov’t C.A. Br. 4. Nolasco

eventually pleaded guilty to one count of operating a

money-transmitting business without a license, in viola-

tion of 18 U.S.C. 1960, and four counts of filing false tax

returns, in violation of 26 U.S.C. 7201. Pet. App. 5. In

her plea agreement, Nolasco agreed to forfeit any inter-

est in the seized accounts, and the government initiated

criminal forfeiture proceedings against her under 18

U.S.C. 982(a)Q1). Gov’t C.A. Br. 4. In December 2004,

the district court entered a preliminary order of forfei-

ture. Pet. App. 5.

2. Petitioners and other claimants filed petitions un-

der 21 U.S.C. 858(n), which allows “[a]ny person, other

than the defendant, asserting a legal interest in prop-

erty which has been ordered forfeited to the United

States,” to seek “a hearing to adjudicate the validity of

his alleged interest.” The district court ruled that peti-

tioners’ interests in the property were superior to No-

lasco’s at the time of the offenses, and it therefore amen-

3

ded the preliminary order of forfeiture to exclude the

funds claimed by petitioners. Pet. App. 4-5.

The government then transferred the funds to the

New York County District Attorney’s Office, which had

initiated civil forfeiture proceedings against the funds.

Gov't C.A. Br. 5. A New York grand jury charged the

corporate-entity petitioners with violations of New York

law. [bid.; Morgenthau v. Avion Res. Ltd., 898 N.1.2d

929, 930 (N.Y. 2008).

Authorities in Brazil also brought criminal charges

against individuals associated with the seized accounts,

including the natural-person petitioners. Gov’t C.A. Br.

3,6. Based on those charges, the United States District

Court for the District of Columbia issued an order freez-

ing the funds under 28 U.S.C. 2467(d)(8)(B)(i) and 18

U.S.C. 9838(})Q1) as potentially forfeitable to the Brazil-

ian government. Gov’t C.A. Br. 6. Pursuant to that or-

der, the New York authorities transferred the funds to

the United States Department of Justice. /bid.; Pet.

App. 6 n.2; Morgenthau, 898% N..2d at 932 n.&. Iollow-

ing the transfer, the corporate-entity petitioners

pleaded guilty in New York state court to banking law

violations. Gov’t C.A. Br. 6.

3. Although all of the funds in question have either

been forfeited by petitioners or remain in the custody of

the goverment pending the outcome of litigation in the

District of Columbia and Brazil, petitioners moved in the

United States District Court for the District of New Jer-

sey for an award of attorneys’ fees, costs, and interest

under the fee-shifting provisions of 26 U.S.C. 2465(b).

Pet. App. 6 & n.2. That statute allows a court to make

such an award to a Claimant who has “substantially pre-

vail[ed]” “in any civil proceeding to forfeit property.” In

the alternative, petitioners contended that, even if See-

4

tion 2465(b) did not authorize recovery, the district

court should order the government to disgorge any in-

terest realized on the seized money. /d. at 6.

The district court denied the motion. Pet. App. 20-

31. The court concluded that a proceeding under Sec

tion 858(n), in which a third party asserts its interest in

property subject to criminal forfeiture, is not a “civil

proceeding to forfeit property” within the meaning of

Section 2465(b). /d. at 27. The court noted that the Sec-

tion &53(n) petitions in this case “did not purport to for-

feit property” but instead “served as an attempt to in-

tervene in and block the Government’s attempt to seize

the property in the criminal forfeiture proceeding it ini-

tiated.” /bid. The district court also rejected petition-

ers’ disgorzement claim on the ground that sovereign

immunity bars an award of interest against the govern-

ment “unless the Government has waived its sovereipn

immunity from such an award by contract or statute.”

Id. at 29.

4. The court of appeals affirmed. Pet. App. 3-17.

The court rejected petitioners’ contention that an ancil-

lary proceeding under Section &538(n) is a “civil proceed-

ing to forfeit property” for purposes of Section 2465(b).

The court held that, while a Section 853(n) ancillary pro

ceeding is a “civil proceeding” separate from the erimi-

nal prosecution in which the forfeitability of the prop-

erty is established, it is not a proceeding “to forfeit prop-

erty” because “a Section 853(n) proceeding cannot result

in the forfeiture of a claimant’s property.” /d. at 10-11.

The court observed that, because “[florfeitability has

already been proven” in the separate criminal proceed-

ing, “[o]}wnership is the only relevant issue in a Section

853(n) ancillary proceeding.” Jd. at 12. Because the

ae

Section 853(n) ancillary proceedings are limited to “ex

clud|ing] property from forfeiture” based on the peti-

tioner’s possession of superior title than the defendant’s,

such proceedings “do not ‘forfeit property’ as required

by Section 2465(b).” /bid. The court noted that the only

other court of appeals to decide the issue had reached

the same conclusion. /d. at 14 (citing United States v.

Moser, 586 F.3d 1089 (&th Cir. 2009), cert. denied, No.

09-1280 (May 17, 2010).

Kelying on principles of sovereign immunity, the

court of appeals also rejected petitioners’ alternative

contention that, even in the absence of statutory authori

zation, the United States should be required to “dis

gorge” the interest earned on the funds. Pet. App. 14-

16. The court explained that, under the “no-interest

rule” of Library of Congress v. Shaw, 478 U.S. 310

(1986), the United States is immune from an award of

interest absent “express congressional consent to the

award of interest separate from a general waiver of im-

munity to suit.” Pet. App. 14 (quoting Shaw, 478 U.S. at

314). The court acknowledged that a minority of circuits

have allowed awards of interest against the government

in the context of seized funds, on the theory that interest

earned has become part of the property that should be

returned to the claimant. /d. at 15. But the court ad

hered to “the majority approach” barring interest

awards, because, as the court explained, the “minority

view * * * is at odds with Shaw.” /d. at. 16. The court

of appeals noted that the minority’s characterization of

an interest award as “disgorgement” is inconsistent with

this Court’s statement in Shaw that “the force of the no-

interest rule cannot be avoided simply by devising a new

name” for an award of interest. /bid. (quoting Shaw,

478 U.S. at 319).

LF

ARGUMENT

Petitioners assert (Pet. 16-81) that they are entitled

to attorneys’ fees, costs, and interest under 28 U.S.C.

2465(b) as substantially prevailing parties in a “civil pro

ceeding to forfeit property.” In the alternative (Pet. 11-

16), they argue that they are entitled to “disgorgement”

of interest even in the absence of specific statutory au-

thorization. The court of appeals correctly rejected

those arguments, and its decision does not conflict with

any decision of this Court, Although there is some dis-

apreement among the circuits on whether sovereign im

munity bars recovery of interest on seized money, this

case would be a poor vehicle for resolving it. Further

review is not warranted.

1. Petitioners renew their contention (Pet. 16 31)

that an ancillary proceeding under 21 U.S.C. 8538(n) is a

“civil proceeding to forfeit property” for purposes of the

fee-shifting provisions of 28 U.S.C. 2465(b). The court

of appeals correctly rejected that argument, and peti-

Lioners do not contend that its decision conflicts with

any decision of this Court or any other court of appeals.

Section 2465(b) provides for recovery of attorney’s

fees and interest (if the case involves currency) for a

claimant who “substantially prevails” in “any civil pro-

ceeding to forfeit property under any provision of Fed-

cral law.” As the court of appeals explained, an ancillary

proceeding under Section 853(n) is not a “civil proceed

ing to forfeit property.” Pet. App. 9-14. In contrast with

civil, in rem forfeiture proceedings in which all inter-

ested parties may participate, criminal forfeiture is an

in personam proceeding against a defendant in which

only the government and the defendant may participate.

See 21 U.S.C. 853(k). Section 853(n), however, provides

that a third party “asserting a legal interest in property

7

which has been ordered forfeited to the United States”

in a criminal proceeding may “petition the court for a

hearing to adjudicate the validity of his alleged interest

in the property.” To prevail in the ancillary proceeding,

the third party need only establish that he, not the de

fendant, was the owner of the property at the time it

became subject to forfeiture, or that he was a bona fide

purchaser without reason to believe the property was

subject to forfeiture. 21 U.S.C. 858(n)(6)(A) and (13). If

the claimant prevails, the court must amend the order of

forfeiture to exclude the claimant’s property. 21 U.S.C.

%5.3(n)(6).

An ancillary proceeding under Section 853(n) is not

a proceeding “to forfeit property” because the objec-

tive of the party initiating the proceeding is not to forfeit

property, and the proceeding cannot result in forfeiture

of any assets that have not already been determined to

be forfeitable. Forfeitability of the property is not at is-

sue in the ancillary proceeding—the only issue is owner-

ship. See United States v. Andrews, 530 F.3d 1232,

1236-1287 GOth Cir. 2008) (“[A] third party has no right

to challenge the preliminary order’s finding of forfeit

ability; rather, the third party is given an opportunity

during the ancillary proceeding to assert any ownership

interest that would require amendment of the order.”).

Accordingly, the court of appeals correctly viewed the

ancillary proceeding as essentially a quiet-title action, in

which the court determines the rightful owner of prop

erty that is otherwise forfeitable. Pet. App. 11-12; see

also United States v. McHan, 345 F.3d 262, 275-276 (4th

Cir. 2003). And the court correctly concluded that such

a proceeding is not a proceeding “to forfeit property” for

purposes of Section 2465(b)—its purpose is not to estab-

lish the government’s right to forfeit the property but

a)

rather to determine whether property belongs to the

Claimant rather than to the defendant, in order to ex-

clude it from the forfeiture order. Pet. App. 11-12.

That conclusion accords with that of the only other

court of appeals to have considered the issue. See U/ni-

ted States v. Moser, 586 F.3d 1089, 1095 (&th Cir. 2009),

cert. denied, No. 09-1230 (May 17, 2010). In that case,

the Mighth Circuit held that a prevailing claimant in a

Section 8538(n) ancillary proceeding could not recover

attorney’s fees under Section 2465(b). /d. at 1095-1096.

The court reasoned that, because the ancillary proceed

ing is limited to “claims of ownership and priorities of

interest vis-a-vis the government and the petitioners,”

it is uncertain whether the proceeding qualifies as “a

civil proceeding to forfeit property.” /bid. In light. of

that ambiguity, the court concluded that Congress did

not “clearly and unequivocally waive| | sovereign immu

nity in this situation.” /d. at 1096. This Court recently

denied review in Moser, and there is no reason for a dif

ferent outcome here.

2. Petitioners also argue (Pet. 11-16) that, even in

the absence of a statutory waiver of sovereign immunity,

the district court had authority to order “disgorgement”

of interest on their seized funds. That is incorrect. The

United States government is immune from suit unless it

has expressly waived its sovereign immunity. Lame v.

Pena, 518 U.S. 187, 192 (1996). Any purported waiver of

sovereign immunity is “strictly construed” in favor of

the sovereign, 2bid., and there is “an added ploss of

strictness” when a claimant seeks an award of interest

against the government, Library of Congress v. Shaw,

478 U.S. 310, 319 (1986). This Court has long recognized

the “no-interest rule,” according to which the United

States is immune from an award of interest absent “ex-

0

press congressional consent to the award of interest

separate from a general waiver of immunity to suit.” /d

at 314. Moreover, Shaw makes clear that “[t)he force of

the no-interest rule cannot be avoided simply by devis

ing a new name” for the interest award. /d. at 821.

Thus, in Shaw, the Court rejected an award of interest

that was characterized as an essential part of a “reason

able attorney’s fee” in litigation with lengthy delays,

explaining that “|tjhe character of interest cannot be

changed by calling it ‘damages,’ ‘loss,’ ‘earned incre

ment,’ ‘just compensation,’ ‘discount,’ ‘offset,’ or ‘pen

alty,’ or any other term, because it is still interest and

the no-interest rule applies to it.” /bid. The Court also

emphasized that “[cJourts lack the power to award inter

est against the United States on the basis of what they

think is or is not sound policy.” /bid.

The “no-interest rule” of Shaw forecloses petitioners’

claim in this case. As the court of appeals noted, petition

ers’ requested relief—an order compelling the United

States to disgorge the interest on the seized funds —-was

an “interest award” within the meaning of Shaw, from

which the United States is immune absent an express

congressional waiver. Pet. App. 15-16. That judgment

is in harmony with the majority of courts of appeals that

have addressed the issue. See Larson v. United States,

274 F.3d 643, 647-648 (1st Cir. 2001) (per curiam) (the

United States is immune from an award of interest when

the government returns money it has previously seized);

Ikelionwu v. United States, 150 F.3d 2838, 239 (2d Cir.

1998) (same); l/nited States v. $7,990.00 in U.S. Cur

rency, 170 F.3d 843, 845-846 (8th Cir.) (same), cert. dis

missed 528 U.S. 1041 (1999); United States v. $30,006.25

in U.S. Currency, 2386 F.3d 610, 615 (0th Cir. 2000)

(same), cert. denied, 534 U.S. 856 (2001).

10

As petitioners note (Pet. 11-13), two courts of appeals

have held in civil asset-forfeiture causes that, when the

government returns money it has previously seized,

courts may order the government to disgorge the re

turned funds with interest. See United States vy.

$277,000 in U.S. Currency, 69 I'.8d 1491, 1497-1498 (9th

Cir. 1995) ($277,000); United States v. $515,060.42

in U.S. Currency, 162 F.3d 491, 504 (Sth Cir. 199%)

($515,060.42); see also United States v. 1461 West 42nd

Street, 251 I'.38d 1829, 1838 (11th Cir. 2001) (noting in

dictum that the government “may be liable for prejudg

ment interest” and citing $515,060.42, but holding that

sovereign immunity barred any award because the gov

ernment did not earn interest on the seized properties).

But this case is a poor vehicle for reviewing the dis

apreement among the circuits On this issue, because it is

not clear that petitioners would be entitled to recover

interest even under the rule adopted by the Sixth and

Ninth Circuits.

The rationale of that rule is that the interest earned

on seized cash “becomes part of the res,” and therefore

when the povernment returns the res, il must also dis

gorge with the res the interest that has become an inte

gral part of it. $575,060.42, 152 F.3d at 505 (quoting

$277,000, 69 F.3d at 1496); see also 2d. at 504 (“|Wle do

not view the award of interest in this case as the typical

award of pre-judgment interest which cannot be recov

ered absent an express waiver of sovereign immunity;

rather, we view this award of interest as an aspect of the

seized res.”). In this case, however, it is doubtful wheth

er a rule requiring a return of interest together with the

res wilh which it has merged would benefit petitioners.

Petitioners have not recovered the res and, accordingly,

their claim would at best be premature. Moreover, in

the event that the ongoing litigation results in forfeiture

of the res to the government of Brazil, petitioners should

nol be able to recover interest based on an argument

that the interest had “become part of the res, to be re

turned with the res to the claimant.” $277,000, 69 F.3d

al 1496."

In addition, as petitioners note (Pet. 14-16), the Sixth

and Ninth Circuit rule that petitioners invoke rests on

“equitable principles.” But in light of the corporate-en

Lity petitioners’ guilty pleas in New York and the pend

ing prosecutions of the individual petitioners for crimes

in Brazil related to the seized accounts, it is uncertain

whether the balance of equities would ultimately sup

port an interest award in their favor.

In any event, the importance of this issue has been

significantly diminished by the passage of the Civil As-

set Forfeiture Reform Act of 2000 (CAFRA), Pub. L.

No. 106-185, 114 Stat. 202, 18 U.S.C. 981 el seg. Before

CAFRA, Section 2465 “made no provision for, or refer-

ence to, the recovery of pre-judgment interest.” Lar

* ‘The Sixth Circuit has suggested in an unpublished decision that,

while it is generally true that “interest accrued on a returnable res

* * * would simply follow the res,” it is not strictly necessary that the

res ultimately be returned in order to award interest, because “the gov

ernment should not reap benefits from the money of its citizens * * *

whether the res is forfeitable under another theory or not.” l/nited

States v. Ford, 64 Fed. Appx. 976, 985 (2008). That statement was dic

tum, however, because the court held that “nointerest award could pro

perly [be] made * * * absent a determination that |the claimant] was

indeed the proper owner of the funds,” and that, where such a determi

nation had not been made, an award of interest was premature. /bid

Here, if the funds at issue are ultimately found to have been forfeitable

to the Brazilian government as of a time preceding their seizure by the

United States, an award of interest to petitioners would be improper

even under the reasoning of Ford.

son, 274 F.3d at 645. With the passage of CAI RA, Con-

yress amended the statute to provide for an award of

pre-judgment interest to claimants who substantially

prevail in civil asset-forfeiture proceedings involving

currency. 28 U.S.C. 2465(b) (2000). While CAI RA does

not provide for an interest award for prevailing claim

ants in all circumstances, see pp. 6-8, supra; Ohel Rachel

Synagogue v. United States, 482 F.3d 105%, 1062-1063

(Sth Cir. 2007) (noting that recovery under 2465(b) is not

permitted in criminal or administrative forfeiture pro

ccedings), CAF RA’s provision for recovery of interest in

ordinary ¢ivil-asset forfeiture cases, such as those un-

derlying: $277,000 and $515,060.42, has greatly reduced

the practical significance of the circuit conflict. See

Smith v. Principr, 241 F dd 1884, 1488 n.2 (fed. Cir.

2002) (“The circuit split is of diminishing significance”

because of CAFRA.).

CONCLUSION

The petition for a writ of certiorari should be denied.

hkespectfully submitted.

NEAL KUMAR KATYAL

Acting Solicitor General

LANNY A. BREUER

Assistant Attorney General

JOSEPH F. PALMEK

Attorney

JULY 2010