US v. Carmen Johnson, _Fed. Appx. _ (2017), 2017 WL 1226100: Asset Forfeiture and Its (Unconstitutional) Impact on Choice of Counsel

Although this case is unpublished, I’m focusing on it for a couple of reasons.  First of all, the counsel of record, Andrew Greenlee, has filed a cert petition in the US Supreme Court where the High Court has recently indicated it has some interest in these issues. And secondly, these forfeiture cases are incredibly important especially now that we know there is movement afoot to curtail their abuses.  So, who knows?  Will this be the case the Court selects to make a pronouncement on the issue?

Ms. Johnson was convicted after a 7-day trial of 2 counts of conspiracy to commit wire fraud, in violation of 18 USC §1349, 12 counts of wire fraud in violation of 18 USC §1343, and 10 counts of making false statements on loan applications in violation of 18 USC §1014.  The Government had a couple of investigations on-going into her activities.  First, between February 2003 and July 2011, she operated a credit repair business.  In this role, she was able to file information regarding loans or lines of credit known as “tradelines” to Experian, the national credit agency.  She was alleged to have falsified those tradelines to benefit her clients.  Experian got suspicious, and contacted the United States Secret Service.  She started another company; same thing.  She started a third company; same thing.  In addition to this though, she also allegedly conspired with two real estate agents to enhance the value of fraudulent real estate purchases.  The conspiracies involved at least 10 real estate transactions.

So, in criminal case 13-294, Johnson and others allegedly used false identities and false credit information to obtain mortgage loans to buy residential properties.  In case 14-352, she and another, different real estate person committed a similar scheme.

In its early investigation, the Government obtained a search warrant as part of the credit repair scam, and the Government also filed an affidavit averring that it would seek a money judgment in a forthcoming affidavit. The Magistrate Judge issued the warrant and the agents seized $515,967.64 from certain bank accounts associated with the credit repair scam. Days later, the agents executed a separate warrant and located loan files (for the mortgage fraud) that showed lines of credit from the credit-repair businesses at the premises where she had these businesses.

Two years after the warrants were executed, Johnson was indicted for case 13-294 based on the mortgage fraud/ property flipping scheme.  The indictment included a forfeiture allegation.  During the pre-trial proceedings, she filed a motion for release of the funds that were seized from the credit-repair investigation.  She informed the court she needed the funds to pay for legal representation. She claimed they were “untainted” assets and she should be permitted to use them for her legal defense.   The Government argued she failed to make the threshold showing that she was entitled to a hearing.  They also argued that the seizure was effected in a separate investigation.  They argued her only legal remedy was to request return of her assets under a Rule 41(g) motion.  The government also argued for the first time that the funds were not “substitute assets” as they alleged in their warrant, but were “directly traceable to criminal activity” and were therefore tainted assets.

The district court then held a non-evidentiary hearing on the issue of the release of funds.  It denied her motion for an evidentiary hearing and also denied release of the funds.  After this, her retained counsel moved to be relieved, and that was granted.  Johnson decided to proceed pro se, representing herself.

Months later, and the trial about to start, Johnson asked her court-appointed standby counsel to represent her.  He moved for a continuance because he had not yet reviewed the evidence.  The court denied the motion.  Welp.  Unsurprisingly, without competent counsel because he was simply unprepared, she was convicted. In addition to 57 months of incarceration, Johnson was also ordered restitution of $2,315,660.94.

On appeal, Johnson argues the court was wrong to apply Rule 41(g) because the assets were seized pursuant to the same investigation that gave rise to the indictment she faced at the time she filed her motion, and because Rule 41(g) should not apply when a defendant needs the seized funds to pay for counsel.  She also argued that the standards established by US v. Farmer, 274 F. 3d 800 (4th Cir. 2001) she was entitled to an evidentiary hearing because (1) the funds were untainted according to the March 2011 affidavit, and (2) she needed the funds to pay for a lawyer.

District courts apply a different legal analysis to a motion for a return of property depending, in part, on whether prosecution has begun.  If the restraint of property occurs pre-indictment, a defendant’s relief can come only under FRCP, Rule 41(g).  Rule 41(g) provides: [a] person aggrieved by an unlawful search and seizure of property or by the deprivation of property may move for the property’s return.”

Under Richey v. Smith, 515 F.2d 1239 (5th Cir. 1975), courts faced with a 41(g) motion consider a four-factor test.  See also Ramsden v. United States, 2 F.3d 322 (9th Cir. 1993).  The test includes consideration of:

1) whether the Government displayed a callous disregard for the constitutional            rights of the movant;

2) whether the movant has an individual interest in and need for the property   he wants returned;

3) whether the movant would be irreparably injured by denying return of the    property; and


4) whether the movant has an adequate remedy at law for the redress of his        grievance.

Id. at 325 (citing Richey).

If, however, the restraint of property comes after indictment, then the court applies the “Jones-Farmer” rule.  Under this rule, due process requires a pretrial adversary hearing when a defendant makes a threshold showing that the Government may have seized untainted assets without probable cause and that he needs those assets to hire counsel.

The Court then found that the Rule 41(g) analysis was the proper one to follow in this case since the funds were seized in connection with the credit-repair scam, and not the mortgage fraud scam.

Johnson also argued that Jones-Farmer should apply because the March 2011 affidavit described the assets as substitute assets and were therefore untainted.  The Government argued the term “substitute assets” was a drafting error and that they were actually the proceeds of Johnson’s unrelated crime.

Again, the court denied her claim and found that Johnson had no right to a hearing because she failed to provide any evidence, other than her assertion, that any of her assets were untainted.  I just find this remarkable.  I mean, the whole point of an evidentiary hearing is to provide evidence, yet the Court here finds fault with her for failing to provide evidence to justify the evidentiary hearing!  The Court dinged the Government a bit for its mischaracterization of “substitute assets” but found that the affidavit still provided probable cause to believe the assets were, in fact, tainted.

In the end, the Court found that Johnson did not have a right to use illegally obtained funds to hire an attorney.  Caplin & Drysdale v. United States, 491 U.S. 617 (1989); United States v. Monsanto, 491 U.S. 600 (1989).  And of course, most recently, Luis v. United States, 578 U.S. ___ (2016) a case in which the Supreme Court of the United States held that the Sixth Amendment to the United States Constitution prohibits the pre-trial restraint of assets needed to retain a defendant’s counsel of choice when those assets have not been used in conjunction with criminal activity.

The Court also denied Johnson’s claim regarding the denial of her motion for a continuance.  The Court essentially found it was her fault, and that she did not establish prejudice.  The Court also denied her sufficiency of the evidence claim, and the loss attributable claim.

I think this case highlights one of the very significant dangers of asset forfeiture and that is, it allows the government to insert itself into issues of a defendant’s representation.  It is incredible to me that the government was allowed to argue that a defendant wasn’t even entitled an evidentiary hearing where she may have been able to show that she was entitled to the funds for a lawyer.  The government shut down her opportunity for even a hearing where she could introduce evidence (and then faulted her for not presenting that evidence).  Representation issues should be between a defendant and the court.  The government has no business bring its considerable resources to bear on a defendant’s ability to hire counsel.  And in this case, the government was successful in preventing Johnson from having any counsel at all!  Justice is not served when a defendant is left without a lawyer because the government has a financial interest in obtaining a citizen’s assets, and without giving her a fair shake at proving the assets were untainted.  I hope the United States Supreme Court takes a hard look at this one.