In the Courts

Attorneys Do Not Have to Forfeit Their Fees

In a Matter of First Impression, the First Circuit Holds that Attorneys Who Represented a Convicted Money Launderer Could Not Be Required to Forfeit Their Fees, Paid in Advance of Forfeiture, to the Government

In United States v. Saccoccia, Nos. 01-2160, 01-2170, 01-2393, 2003 WL 22075696 (1st Cir. Sept. 8, 2003), attorneys who represented Stephen A. Saccoccia, a convicted drug dealer and money launderer, appealed a district court order directing that they forfeit some of their fees to the government. The grand jury returned an indictment against Saccoccia in November 1991, charging him with one count of conspiracy under the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. ' 1963(d) (RICO), along with several counts of laundering proceeds from an illegal drug trafficking operation. The government sought the forfeiture of all business and personal property directly or indirectly derived from Saccoccia's racketeering activities including almost $137,000,000 in currency, and, in the alternative, sought the surrender of all non-tainted property of equivalent value should Saccoccia's tainted property have become unavailable. The district court promptly enjoined the transfer of the forfeitable property designated in the indictment.

Saccoccia then retained attorneys to defend him. Beginning in March 1992, Saccoccia transferred large sums of money to his attorneys. Approximately 1 year later, Saccoccia was convicted and ordered to forfeit the $137,000,000 in currency specified in the indictment. The government moved to compel the attorneys to turn over the fees as property subject to forfeiture. The district court granted the motion to compel and the attorneys appealed.

On appeal, the attorneys contended that the forfeiture statute, 18 U.S.C. ' 1963, does not permit the government to reach the legal fees they received from Saccoccia, due to the fact that those fees had been expended. The government argued that its right to recover derived from the knowing violations by the attorneys of the post-indictment injunction entered pursuant to ' 1963(d)(1), which constrained Saccoccia and his counsel from transferring any funds subject to forfeiture under subsection 1963(a).

Under 18 U.S.C. ' 1963(a)(1), (3), a defendant is required to forfeit “tainted” property (i) acquired by committing the offense, and (ii) “constituting, or derived from, any proceeds … obtained, directly or indirectly” from its commission. After an indictment is issued, the district court may enjoin the transfer of all property “subject to forfeiture under [section 1963].” If the tainted property is unavailable for forfeiture, such as where the property has been transferred to a third party, the government may recover “substitute” property (ie, defendant's other untainted property of equivalent value).

Section 1963 enables the government to recover from the defendant “tainted” or “substitute” property in a defendant's possession, or “tainted” property held by a third party by virtue of a voidable fraudulent transfer. The third party may petition the court for a hearing to determine the validity of its legal interest in tainted property, and may defeat a forfeiture petition by establishing, inter alia, that it is a bona fide purchaser for value, “reasonably without cause to believe” that the property was subject to forfeiture at the time it was purchased.

Nevertheless, the “substitute property” provision is exclusively applicable to “any other property of the defendant.” The statute does not afford an avenue for the government to reach a third party's untainted assets as a substitute for tainted assets that the third party already had transferred prior to the date of forfeiture. Therefore, the First Circuit rejected the government's attempt to obtain the funds through the forfeiture statute.

The court explained that the government had other recourse besides the forfeiture statute. For instance, the government presumably could initiate a state-law proceeding against the attorneys for conversion of such property, and recover compensatory damages from their non-tainted assets. In addition, the government may utilize its enforcement powers under subsection 1963(k) to “trace” tainted funds, thereby disproving the contention that appellants' cash-on-hand is neither the tainted fees, nor other property directly or indirectly derived from the tainted fees. Finally, the government may initiate civil or criminal contempt proceedings against the attorneys. Accordingly, the court vacated the award against the appellants and remanded the case to the district court to permit the government a reasonable opportunity to determine whether it intends to initiate contempt proceedings or submit conversation claims against the appellants.

Attorneys Do Not Have to Forfeit Their Fees

In a Matter of First Impression, the First Circuit Holds that Attorneys Who Represented a Convicted Money Launderer Could Not Be Required to Forfeit Their Fees, Paid in Advance of Forfeiture, to the Government

In United States v. Saccoccia, Nos. 01-2160, 01-2170, 01-2393, 2003 WL 22075696 (1st Cir. Sept. 8, 2003), attorneys who represented Stephen A. Saccoccia, a convicted drug dealer and money launderer, appealed a district court order directing that they forfeit some of their fees to the government. The grand jury returned an indictment against Saccoccia in November 1991, charging him with one count of conspiracy under the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. ' 1963(d) (RICO), along with several counts of laundering proceeds from an illegal drug trafficking operation. The government sought the forfeiture of all business and personal property directly or indirectly derived from Saccoccia's racketeering activities including almost $137,000,000 in currency, and, in the alternative, sought the surrender of all non-tainted property of equivalent value should Saccoccia's tainted property have become unavailable. The district court promptly enjoined the transfer of the forfeitable property designated in the indictment.

Saccoccia then retained attorneys to defend him. Beginning in March 1992, Saccoccia transferred large sums of money to his attorneys. Approximately 1 year later, Saccoccia was convicted and ordered to forfeit the $137,000,000 in currency specified in the indictment. The government moved to compel the attorneys to turn over the fees as property subject to forfeiture. The district court granted the motion to compel and the attorneys appealed.

On appeal, the attorneys contended that the forfeiture statute, 18 U.S.C. ' 1963, does not permit the government to reach the legal fees they received from Saccoccia, due to the fact that those fees had been expended. The government argued that its right to recover derived from the knowing violations by the attorneys of the post-indictment injunction entered pursuant to ' 1963(d)(1), which constrained Saccoccia and his counsel from transferring any funds subject to forfeiture under subsection 1963(a).

Under 18 U.S.C. ' 1963(a)(1), (3), a defendant is required to forfeit “tainted” property (i) acquired by committing the offense, and (ii) “constituting, or derived from, any proceeds … obtained, directly or indirectly” from its commission. After an indictment is issued, the district court may enjoin the transfer of all property “subject to forfeiture under [section 1963].” If the tainted property is unavailable for forfeiture, such as where the property has been transferred to a third party, the government may recover “substitute” property (ie, defendant's other untainted property of equivalent value).

Section 1963 enables the government to recover from the defendant “tainted” or “substitute” property in a defendant's possession, or “tainted” property held by a third party by virtue of a voidable fraudulent transfer. The third party may petition the court for a hearing to determine the validity of its legal interest in tainted property, and may defeat a forfeiture petition by establishing, inter alia, that it is a bona fide purchaser for value, “reasonably without cause to believe” that the property was subject to forfeiture at the time it was purchased.

Nevertheless, the “substitute property” provision is exclusively applicable to “any other property of the defendant.” The statute does not afford an avenue for the government to reach a third party's untainted assets as a substitute for tainted assets that the third party already had transferred prior to the date of forfeiture. Therefore, the First Circuit rejected the government's attempt to obtain the funds through the forfeiture statute.

The court explained that the government had other recourse besides the forfeiture statute. For instance, the government presumably could initiate a state-law proceeding against the attorneys for conversion of such property, and recover compensatory damages from their non-tainted assets. In addition, the government may utilize its enforcement powers under subsection 1963(k) to “trace” tainted funds, thereby disproving the contention that appellants' cash-on-hand is neither the tainted fees, nor other property directly or indirectly derived from the tainted fees. Finally, the government may initiate civil or criminal contempt proceedings against the attorneys. Accordingly, the court vacated the award against the appellants and remanded the case to the district court to permit the government a reasonable opportunity to determine whether it intends to initiate contempt proceedings or submit conversation claims against the appellants.