Second Circuit Reviews Evidence Standard For Forfeiture Proceedings

In considering whether probable cause exists to find that certain resources of the defendant were “traceable” to the charged fraud and could be forfeited, the trial court may "receive and consider ... evidence and information that would be inadmissible under the Federal Rules of Evidence,” including under the hearsay rules, in United States v. Walsh, _ F.3d _ (2d Cir. April 2, 2013) (No. 12-2383-CR)

The Federal Evidence Blog has noted before that forfeiture determinations have not been subjected to many of the restrictions imposed by rules of evidence. See FRE 1101 And Evidence For Forfeiture (Nov. 16, 2011) (FRE, including hearsay rule, is not applicable to forfeitability of seized assets, which are a form of sentencing proceeding). Recently the Second Circuit took another look at the evidence practices applicable to forfeiture actions. The case involved pre-trial forfeiture of certain of defendant's assets so that he would not be able to use the probable results of his fraud to fund his criminal defense. This case provides some insight into the Monsanto hearing process of the Second Circuit.

Lower Court Proceedings

In the case, the defendant was charged with conspiracy to commit securities fraud and wire fraud, as well as committing such frauds and money laundering. During pretrial, the district court denied the defendant's motion for access to "$3.7 million in assets that were frozen in a parallel civil enforcement action." He hoped to use these to fund his legal defense, rather than depend on public resources. Walsh, _ F.3d at _. The defendant appealed the trial court's denial of his motion and the circuit affirmed the district court ruling that the defendant should not have access to the funds.

The defendant's access to the assets, he claimed, were not traceable to his charged crimes. This was the basis of his motion and accordingly was considered at a hearing conducted pursuant to United States v. Monsanto, 924 F.2d 1186, 1198 (2d Cir. 1991) (in banc) (so as protect government witness from exposure, the court may "receive and consider ... evidence and information that would be inadmissible under the Federal Rules of Evidence."). The Monsanto inquiry included one fact witness for the government -- an FBI agent, "who had investigated the charged fraud." As part of his testimony, the agent recounted how a co-defendant and a partner of one of the charged fraudulent entities had "told him about the fraudulent scheme and set out the transactional history" of the house in which the defendant had parked gains from the charged fraud. Walsh, _ F.3d at _.

Circuit Analysis

The Second Circuit rejected the defendant's contention that the agent's testimony about what he was told by the co-defendant and others was not admissible because it was hearsay:

In order to “preclud[e] unwarranted exposure of government witnesses,” Monsanto permits a “court [to] receive and consider at such a hearing evidence and information that would be inadmissible under the Federal Rules of Evidence.” Although Walsh argues that Monsanto's evidentiary rule should be limited to cases where witnesses may be in physical danger—such as those involving drugs —we are persuaded by district court opinions in this Circuit applying Monsanto's evidentiary rule to non-drug cases. The unwarranted exposure of government witnesses was a valid consideration in this case, to avoid what the district court called a “dress rehearsal” of the trial. In any event, the Monsanto hearing involved only a finding of probable cause, and “[a] finding of probable cause may be based on hearsay.”
Walsh, _ F.3d at _ (citing United States v. Monsanto, 924 F.2d 1186, 1198, 1203 (2d Cir. 1991); United States v. All Funds on Deposit in any Account at Certain Fin. Insts. Held in the Names of Certain Individuals, 767 F.Supp. 36, 42 (E.D.N.Y. 1991) (Spatt, J.); United States v. Clarkson Auto Elec., Inc., No. 10–CR–6111CJS, 2012 WL 345911, at *1 n.4 (W.D.N.Y. Feb.1, 2012) (Payson, M.J.); United States v. Daccarett, 6 F.3d 37, 56 (2d Cir. 1993).

One issue not addressed in Walsh was whether anything might change about admissible evidence in a forfeiture proceeding as the scope of application of Crawford v. Washington, 541 U.S. 36 (2004), is resolved concerning the possible use of testimonial hearsay. Walsh did not focus on this, or perhaps as the circuit implies, it need not have broached the issue in light of its previous take on the issue in United States v. Monsanto, 924 F.2d 1186, 1198 (2d Cir. 1991), which suggested that the constitutional requirement of due process mandates a pretrial hearing on propriety of an action affecting the defendant's access to resources.

New Supreme Court Case

On another note, on March 18, 2013, the Supreme Court granted certiorari review next Term in Kaley v. United States (No. 12-464), which addresses the issue:

“When a post-indictment, ex parte restraining order freezes assets needed by a criminal defendant to retain counsel of choice, do the Fifth and Sixth Amendments require a pretrial, adversarial hearing at which the defendant may challenge the evidentiary support and legal theory of the underlying charges?”
See also Kaley v. United States certiorari petition and the government's response.

Summary

In contrast, the court in Walsh cited boilerplate law to the effect that the Fifth and Sixth Amendment, "considered in combination, require an adversary, post-restraint, pretrial hearing as to probable cause that (a) the defendant committed crimes that provide a basis for forfeiture, and (b) the properties specified as forfeitable in the indictment are properly forfeitable.” Walsh, _ F.3d at _ (citing United States v. Monsanto, 924 F.2d 1186, 1203 (2d Cir. 1991) (in banc)). The issue in Walsh focused on a different aspect of this issue regarding the traceability of the proceeds of the charged fraud.

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