United States v. Rashid

          ORDER GRANTING GOVERNMENT'S EX PARTE APPLICATION FOR POST-INDICTMENT RESTRAINING ORDER [DKT. NO. 134] AND POST-INDICTMENT RESTRAINING ORDER ENJOINING PROPERTY SUBJECT TO FORFEITURE

          DENISE PAGE HOOD CHIEF JUDGE

         I. Introduction

         On September 13, 2017, the Government filed an Ex Parte Application for Post-Indictment Restraining Order pursuant to 21 U.S.C. § 853(e)(1)(A) (the “Application”). Dkt. No. 134. The Application seeks to preserve the availability of real property located at 2990 W. Grand Boulevard in Detroit, Michigan, as well as any rental income generated from that property (collectively, the “Restrained Property”). The Government asserts that the Restrained Property is subject to criminal forfeiture as proceeds of Defendant's health care fraud and because the Restrained Property is traceable to property (funds) involved in money laundering.

         Several filings related to the Application have been made by the Government, Defendant and a third party, Bank of America. On September 6, 2017, Defendant filed a Memorandum in Support of Appointing a Receiver for the 2990 W. Grand Boulevard property, Dkt. No. 128, and the Government filed a Supplemental Brief regarding a Request to Pay Detroit Edison Bill (previously filed by Defendant). Dkt. No. 129. On September 12, 2017, the Government filed a Second Forfeiture Bill of Particulars regarding properties subject to civil forfeiture, including the 2990 W. Grand Boulevard property. On September 13, 2017, Bank of America filed a Notice of Appearance as an Interested Party and a Miscellaneous Case Number (17-51250) was assigned for purposes of any filings by Bank of America (both of which were noted on the docket for this case by minute entry dated September 13, 2017). On September 13, 2017, Defendant filed a Memorandum Supplement in Support of Appointing a Receiver for the 2990 W. Grand Boulevard property. Dkt. No. 133.

         On September 13, 2017, the Government filed the Application, including a sealed exhibit (an affidavit of FBI Special Agent Stephen Osterling)^[1] in support of the Application. Dkt. Nos. 134, 135. On September 19, 2017, Bank of America filed a Response to the Application. Dkt. No. 5 in Case No. 17-51250. On September 19, 2017, Defendant filed a Response to the Application, Dkt. No. 143, and the Government filed a Reply to the Responses of Defendant and Bank of America on September 20, 2017. Dkt. No. 144. The Court has reviewed and considered all of the foregoing filings.

         II. Applicable Law

         21 U.S.C. § 853(e)(1) provides that the Court may enter a restraining order upon the filing of an indictment:

         (1) Upon application of the United States, the court may enter a restraining order or injunction, require the execution of a satisfactory performance bond, or take any other action to preserve the availability of property….for forfeiture under this section-

(A) upon the filing of an indictment or information charging a violation….for which criminal forfeiture may be ordered under this section and alleging that the property with respect to which the order is sought would, in the event of conviction, be subject to forfeiture under this section; . . .

         The purpose of pre-trial restraint of property is to preserve the availability of property that can be forfeited after trial. In re Billman, 915 F.2d 916, 921 (4th Cir. 1990), cert. denied, 500 U.S. 952 (1991).

         The Supreme Court expressly approved the restraint of assets prior to trial in United States v. Monsanto, 491 U.S. 600 (1989), a case in which the district court restrained, under 21 U.S.C. § 853, a defendant from disposing of his house, his apartment, and $35, 000 in cash prior to trial. The Supreme Court stated that:

[I]t would be odd to conclude that the Government may not restrain property, such as the home and apartment in respondent's possession, based on a finding of probable cause, when we have held that…the Government may restrain persons where there is a finding of probable cause to believe that the accused has committed a serious offense.

         Id. at 615-16. “The return of the indictment by the federal grand jury . . . represents a determination of probable cause sufficient to issue a restraining order under 21 U.S.C. § 853(e)(1)(A) . . .” United States v. Sellers, 848 F.Supp. 73, 75 (E.D. La. 1994); In re Billman, 915 F.2d at 919 (“The probable cause found by the grand jury satisfies the government's burden of proving the allegations of the indictment.”). See generally United States v. Stone, 608 F.3d 939, 945 (6th Cir. 2010) (“A grand jury indictment, by itself, establishes probable cause to believe that a defendant committed the crime with which he is charged.”).

         The issuance of a restraining order need not be limited to real property, as it may extend to rental income from the real property if the real property is purchased with proceeds subject to forfeiture (because it is “property derived from the proceeds”). See 18 U.S.C. §§ 981(a)(1)(C) (“Any property, real or personal, which constitutes or is derived from proceeds traceable to a violation of . . . any offense constituting “specified unlawful activity” (as defined in Section 1956(c)(7) of this title)”); 28 U.S.C. § 2461(c), and 18 U.S.C. §§ 982(a)(1) and (7) (“The court, in imposing sentence on a person convicted of a Federal health care offense, shall order the person to forfeit property, real or personal, that constitutes or is derived, directly or indirectly, from gross proceeds traceable to the commission of the offense.”); United States v. Warshak, 631 F.3d 266, 332-33 (6th Cir. 2010) (finding that when a business is solvent because of the underlying specified unlawful activity, all of its revenue is subject to forfeiture as proceeds derived from the offense); United States v. Smith, 749 F.3d 465 (6th Cir. 2014) (citation and internal quotation omitted) (“[t]he court concluded that fraud touched everything - from [defendant's business's] banking accounts to its day-to-day operations - meaning that the various items connected to [defendant's business's] revenue stream are subject to forfeiture because the transactions all resulted directly or indirectly from a conspiracy to commit fraud”). An agent's affidavit may serve to establish probable cause that the property subject to forfeiture has the requisite connection to the underlying crime. See, e.g., United States v. Kaley, 579 F.3d 1246, 1259 (11th Cir. 2009) (court may rely on grand jury's finding of probable cause, supplemented by the FBI case agent's probable cause affidavit).

         Upon a showing of probable cause that Defendant committed the underlying crime that permits forfeiture and that the subject property has the requisite connection to that crime, the Court has the power to enter an order restraining the property. See Kaley v. United States, 134 S.Ct. 1090, 1095 (2014).

         A post-indictment restraining order under 21 U.S.C. § 853(e) may be issued ex parte, as there is no right to a pre-restraint hearing. See e.g., United States v. Jamieson, 427 F.3d 394, 405-06 (6th Cir. 2005) (restraining order may be entered upon the filing of an indictment, as a post-restraint hearing pursuant to United States v. Jones, 160 F.3d 641 (10th Cir. 1998), is sufficient to protect a defendant's Due Process rights); United States v. Holy Land Foundation for Relief and Development, 493 F.3d 468, 475 (5th Cir. 2007) (en banc) (“a court may issue a restraining order without prior notice or a hearing”).

         A third-party is expressly precluded from intervening to assert an interest in the subject property prior to the entry of an order of forfeiture. 18 U.S.C. § 853(k) and (n). 21 U.S.C. § 853(k)(1) and (2) provide: “Except as provided in subsection (n), no party claiming interest in property subject to forfeiture under this section may (1) intervene in a trial . . . of a criminal case involving the forfeiture of such property under this section; or (2) commence an action at law or equity against the United States commencing the validity of his alleged interest in the property subsequent to the filing of an indictment . . . alleging that the property is subject to forfeiture under this section.” (emphasis added). 21 U.S.C. § 853(n)(1) and (2) provide: “(1) Following the entry of an order of forfeiture under this section . . . (2) [a]ny person, other than the defendant, asserting a legal interest in property which has been ordered forfeited to the United States pursuant to this section may . . . petition the court for a hearing to adjudicate the validity of his alleged interest in the property. . . .” (emphasis added). 21 U.S.C. § 853(n)(6) provides, in part: “If, after the hearing, the court determines that the petitioner has established by a preponderance of the evidence” a right to the property, “the court shall amend the order of forfeiture in accordance with its determination.” (emphasis added).

         III. Analysis

         As expressly provided by 18 U.S.C. § 853(k) and (n), Bank of America has no right or ability to challenge the Application or the entry of the post-indictment restraining order requested by the Government. In United States v. Huntington Nat. Bank, 682 F.3d 429 (6th Cir. 2012), the critical case Bank of America cites in support of its rights as the holder of a security interest in the 2990 W. Grand Boulevard property, the court addressed only whether that secured creditor was eligible to qualify as a bona fide purchaser for value after the district court had entered a preliminary order of forfeiture. The Huntington decision has no bearing on the issue before the Court. Similarly, Defendant has no right to a pre-restraint hearing. See, e.g., Jameison, 427 F.3d at 405-06. Accordingly, for purposes of determining whether to grant the Application, the Court does not take into account the arguments of Defendant or Bank of America.^[2]

         The Court has reviewed the Application and FBI Agent Osterling's affidavit. The Court finds that the Government has established probable cause that Defendant committed the underlying crimes and that the Restrained Property has the requisite connection to the underlying crimes. Because the Court has reached that conclusion, it enters an order restraining the property. Kaley v. United States, 134 S.Ct. 1090, 1095 (2014).

         The Court makes the following specific findings:

         1. Pursuant to 21 U.S.C. § 853(e)(1), this Court is authorized to enter an ex parte restraining order or injunction, require the execution of a satisfactory performance bond, or take any other action to preserve the availability of property subject to forfeiture.

         2. On July 6, 2017, a federal grand jury in the Eastern District of Michigan initiated the instant criminal action by returning a 10-count indictment charging Defendant and several others with conspiring and engaging in an illegal health care fraud scheme from December 2008 through July 2017 to defraud a health care benefit program (Medicare) in violation of 18 U.S.C. §§ 1347 and 1349, as well as engaging in an illegal kickback scheme to further the health care fraud. In addition, Defendant was charged with engaging in money laundering in violation of 18 U.S.C. § 1957. Dkt. No. 1.

         3. The indictment also contains a criminal forfeiture allegation, alleging that certain real and personal properties are subject to forfeiture to the Government upon Defendant's conviction, pursuant to 18 U.S.C. §§ 981(a)(1)(C) and 28 U.S.C. § 2461(c), and 18 U.S.C. §§ 982(a)(1) and (7), because they are property, real or personal, involved in the money laundering offense, or are traceable to such property, and/or constitute or are derived, directly or indirectly, from gross proceeds traceable to the commission of a health care offense, including conspiracy. The ...