
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________        No. 93-2278                              UNITED STATES OF AMERICA,                                 Plaintiff, Appellee,                                          v.                         REAL PROPERTY IN WATERBORO, ET AL.,                                Defendants, Appellees,                                          v.                                    PATRICK CUNAN,                                 Claimant, Appellant.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                              FOR THE DISTRICT OF MAINE                       [Hon. Gene Carter, U.S. District Judge]                                          ___________________                                 ____________________        No. 94-1599                                        UNITED STATES OF AMERICA,                                      Appellant,                                          v.                           RICHARD J. DECATO, JR., ET AL.,                                Defendants, Appellees.                                 ___________________                    APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. William G. Young, U.S. District Judge]                                             ___________________                                 ___________________        No. 94-2036                              UNITED STATES OF AMERICA,                                      Appellee,                                          v.                            RICHARD J. DECATO, JR., ET AL.                               Defendants, Appellants.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. William G. Young, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                Boudin, Circuit Judge,                                        _____________                            Aldrich, Senior Circuit Judge,                                     ____________________                          and Bownes, Senior Circuit Judge.                                      ____________________                                 ____________________            Bruce E.  Kenna, with whom Kenna,  Johnston & Sharkey was on brief            _______________            __________________________        for appellants.            David  S. Mackey,  Assistant  United States  Attorney,  with  whom            ________________        Donald K. Stern, United States Attorney, was on brief for appellee.        _______________                                 ____________________                                  September 8, 1995                                 ____________________                      BOWNES, Senior Circuit  Judge.  These  consolidated                      BOWNES, Senior Circuit  Judge.                              _____________________            appeals involve  third-party  claims to  real  properties  in            Bangor and Portland, Maine ("the Maine properties"), that the            United  States is  trying to  forfeit as  part of  a criminal            prosecution  in Massachusetts.   The  District Court  for the            District of Massachusetts  granted the third-party claimants'            motion to  dismiss the Maine properties  from the indictment.            Because we  find that  the third-party claims  were premature            under  the applicable criminal  forfeiture statute, we vacate            the order of dismissal and remand for further proceedings.                                          I.                                          __                      The  government alleges  that Richard  DeCato, Jr.,            the   principal  of   a  drug-dealing   and  money-laundering            operation in New England, purchased the Maine properties with            the proceeds  of drug trafficking and  installed his brother-            in-law,  Patrick Cunan,  as the  straw owner.   In  1990, the            government  filed two  civil  forfeiture actions  against the            Maine properties in the District of Maine.  Not surprisingly,            Cunan was the only party to assert a claim in those actions.                      The  civil forfeiture  actions were  sidetracked by            pretrial proceedings, including an  appeal to this court, see                                                                      ___            United States  v. TWP 17 R  4, 970 F.2d 984  (1st Cir. 1992),            _____________     ___________            and by  the  government's pending  criminal investigation  in            Massachusetts.   In 1993, while  both cases  were pending,  a            federal grand  jury in  Massachusetts charged DeCato  and the                                         -3-                                          3            Cunans   (Patrick  and   Patricia)  with   various  offenses,            including conspiracy  to violate federal drug  laws and money            laundering.  Count 37 of the indictment -- which named DeCato            alone --  sought criminal forfeiture of  the Maine properties            under 21 U.S.C.   853.                      Four days  after the  indictment was  returned, the            government moved to dismiss  the two civil forfeiture actions            with prejudice, in deference to the criminal forfeiture count            ______________            in  Massachusetts.   Judge Carter  so dismissed  the actions.            The United States Marshal for the District of Maine continued            to hold the  assets at issue (including escrowed  monies from            the  sale of  some of  the Portland  properties) pursuant  to            instructions from the United States Attorney for the District            of Massachusetts.                      Several  months  after the  dismissal of  the civil            actions,  Cunan moved in the  District of Maine  for an order            directing  the Maine  Marshal to  disencumber or  release the            Portland assets.  He argued that the dismissal with prejudice            of the civil actions barred, as a matter of res judicata, the                                                        ___ ________            criminal  forfeiture  of  those  assets in  the  District  of            Massachusetts.   Judge  Carter denied  the motion,  and Cunan            appealed the denial in Appeal No. 93-2278.                      In  the District  of Massachusetts,  the government            moved  to restrain  all  of the  properties  in the  criminal            forfeiture count.  The Cunans moved, on res judicata grounds,                                                    ___ ________                                         -4-                                          4            to  strike   or  dismiss   the  Maine  properties   from  the            indictment.   Judge  Young entered  a  temporary  restraining            order,  took   the  Cunans'  motion   under  advisement,  and            ultimately held  that claim  preclusion  barred the  criminal            forfeiture of the Maine properties.                      The government moved  for reconsideration,  arguing            for the first time that the Cunans, who are third parties  to            Count 37, must wait until an order of forfeiture has actually            been  entered before  they may  assert their  claim.   See 21                                                                   ___            U.S.C.   853(k) (barring third-party intervention in criminal            forfeiture action  except as  provided in    853(n)).   Judge            Young denied  reconsideration but noted that "the restraining            order already entered remains in full force and effect."  The            government appealed the dismissal  of the Maine properties in            Appeal No. 94-1599.                      In  July,  1994,  DeCato  entered  a  written  plea            agreement that forfeited "his legal and beneficial  interests            in  all assets  described  in  Count  37,  including  a  cash            forfeiture  in the  amount of  $3,000,000."   He acknowledged            that all  such  assets were  subject  to forfeiture  as  "the            proceeds of unlawful drug activity . . . and/or as substitute            assets."  DeCato also agreed to testify against the Cunans at            their upcoming trial.                      The government then filed a supplemental motion  to            restrain   the  Maine   properties,  although   the  previous                                         -5-                                          5            restraining  order does not appear  to have been  lifted.  It            argued  that notwithstanding any  preclusive effect  from the            dismissal of  the civil actions,  the government was  free to            forfeit  DeCato's  interest   in  the  Maine   properties  as            "substitute  assets"   in  place  of  the   $3  million  cash            forfeiture.  See 21 U.S.C.   853(p).  Judge Young entered the                         ___            restraining order as requested,  which the Cunans appealed in            Appeal No. 94-2036.                                         II.                                         ___                      We  begin with  the  government's appeal  from  the            dismissal of  the  Maine  properties.    In  its  motion  for            reconsideration, the  government argued  that the Cunans  are            barred by 21 U.S.C.   853(k) from asserting their third-party            claim  to  the Maine  properties  until  the properties  have            actually been  ordered forfeited to  the United  States.   We            consider  this   argument   on  the   merits,   despite   the            government's possible waiver below,  for two reasons.  First,            the district  court did  not expressly  rely  upon waiver  in            denying the  motion for reconsideration.   Second, the Cunans            have not asserted waiver on appeal.1                                            ____________________            1.  We recognize  that the government's  belated argument  is            possibly a  jurisdictional one,  to the extent  that Congress            may  have barred  the Cunans from  raising, and  the district            court from considering, their claim of ownership of the Maine            properties.   See Halleran v.  Hoffman, 966 F.2d  45, 47 (1st                          ___ ________     _______            Cir.  1992)   ("A   challenge  to   federal  subject   matter            jurisdiction may  be raised at  any time,  including for  the            first time on appeal.").   We express no opinion  on this and            do not rely on it.                                         -6-                                          6                      The bar on third-party  intervention in 21 U.S.C.              853(k) provides:                      (k)  Except as provided in subsection (n)                      of this  section,  no party  claiming  an                      interest    in   property    subject   to                      forfeiture under this section may --                        (1) intervene in a trial or appeal of a                      criminal case involving the forfeiture of                      such property under this subchapter; or                        (2) commence an action at law or equity                      against the United States  concerning the                      validity of his  alleged interest in  the                      property subsequent  to the filing  of an                      indictment  or information  alleging that                      the  property  is  subject to  forfeiture                      under this section.            Section  853(n), the subsection cited in   853(k), is a wait-            and-see  provision:  "[f]ollowing  the entry  of an  order of                                  ___________            forfeiture," the United States  is required to publish notice            of  the  order  to interested  third  parties.      853(n)(1)            (emphasis  added).   "Any  person .  .  . asserting  a  legal            interest in property which has  been ordered forfeited to the            United  States" may then "petition the court for a hearing to            adjudicate  the  validity  of  his alleged  interest  in  the            property."    853(n)(2).                      The  government argues  that    853(k)  bars  third            parties  such  as  the  Cunans  from  participating  in  pre-            forfeiture proceedings under any circumstances.  We disagree.            A  statutory  exception  to the  bar  is  found  in    853(e)            ("Protective  orders"):   where the  government seeks  a pre-            indictment protective order  against the property alleged  to                                         -7-                                          7            be  subject  to forfeiture,  "persons  appearing  to have  an            interest  in the  property" must  be  afforded notice  and an            opportunity  for a  hearing.     853(e)(1)(B).   There  is no            suggestion that third parties are excluded from this process,            even though restraining orders necessarily precede forfeiture            orders.    In fact,  the legislative  history  of the  bar on            third-party intervention cautions  that "[t]his provision  is            not  intended to preclude a  third party with  an interest in            property that is  or may  be subject to  a restraining  order            from  participating in a hearing regarding the order . . . ."            S.  Rep.  No.  225, 98th  Cong.,  2d  Sess.  206 n.42  (1983)            (explaining parallel provision of RICO statute), reprinted in                                                             _________ __            1984 U.S.C.C.A.N. 3182, 3389  n.42.  The legislative history,            moreover, makes  no  distinction between  pre-indictment  and            post-indictment restraining orders; evidently,  third parties            may  "participat[e]"  in  both  types  of  restraining  order            proceedings.   Cf.  id. at  3386 (noting  that although  "the                           ___  ___            post-indictment restraining order provision  [  853(e)(1)(A)]            does not require prior notice and opportunity for a hearing,"            the provision "does not exclude . . . the authority to hold a            hearing  subsequent to the initial  entry of the  order . . .            .").                      This  exception  to  the  bar  on intervention  may            reflect  due process  concerns.   Section  853(e) presents  a            special  problem for  third parties,  who face  not  only the                                         -8-                                          8            potential  forfeiture  of property  in  which  they claim  an            interest,  but also immediate  restraints upon  property that            may be in  their control.   A restraining  order directed  at            third parties  is "strong medicine," United  States v. Regan,                                                 ______________    _____            858  F.2d  115, 121  (2d Cir.  1988),  whether it  is entered            before or after the indictment.                      We  conclude that  under     853(e), third  parties            claiming   an   interest   in   restrained   or   potentially            restrainable property  may "participat[e]" in  the associated            restraining order proceedings.  We now ask whether the Cunans            participated  in those proceedings in the manner contemplated            by Congress.   After examining the  structure and legislative            history  of   853(e), we  hold that the  Cunans' res judicata                                                             ___ ________            argument was prematurely made.                      Broadly   speaking,   the   government   can   seek            protective orders in  two contexts:  before an indictment has            been filed, or after.  To obtain  a pre-indictment protective            order,  the government  must show,  among other  things, that            "there is  a substantial  probability that the  United States            will  prevail  on  the  issue  of forfeiture  .  .  .  ."                853(e)(1)(B).    By  contrast,   under     853(e)(1)(A),  the            indictment itself establishes the merits  of the government's            case,  and courts  may  enter a  protective  order "upon  the            filing of an indictment . . . alleging that the property with            respect to which  the order is sought would, in  the event of                                         -9-                                          9            conviction, be subject to forfeiture . . . ."   The text of              853(e)(1)(A)  nowhere suggests that  participants in  a post-            indictment  protective  order  proceeding can  challenge  the            underlying forfeitability  of the property.   That would turn            an  ancillary proceeding into the  main event --  a result at            odds  with  Congress'  desire   to  "assure  a  more  orderly            disposition  of  both  the  criminal  case  and  third  party            claims."  1984 U.S.C.C.A.N. at 3390.                      The legislative history  of   853(e)(1)(A) confirms            this reading, for it expressly limits  the scope of arguments            that can  be raised  by participants in  a post-indictment               853(e)  proceeding.     "For   the  purposes  of   issuing  a            restraining  order, the  probable  cause  established in  the            indictment  . .  .  is  to  be  determinative  of  any  issue            regarding the  merits of the  government's case on  which the            forfeiture is to be based."   1984 U.S.C.C.A.N. at 3386.   If            the court elects to "hold a hearing subsequent to the initial            entry of  the order . . .  the court may at  that time modify            the order or vacate an order that was clearly improper (e.g.,                                                                    ____            where  information presented  at the  hearing shows  that the            property restrained was  not among the property  named in the            indictment).   However, it is stressed that at such a hearing            the court is not  to entertain challenges to the  validity of            _____________________________________________________________            the  indictment."   Id.  (emphasis added).    We think  these            ________________    ___            provisos were meant  to apply to both criminal defendants and                                         -10-                                          10            third-party claimants.   The  purpose of a  restraining order            proceeding, after  all, is  to preserve at-risk  property for            trial, not to determine whether the property should have been            included in  the indictment.   Under    853(e)(1)(A), parties            claiming   an   interest   in   restrained   or   potentially            restrainable  property  may  not use  the  restraining  order            proceeding to attack the indictment itself.                      That is what  the Cunans  tried to do.   Their  res                                                                      ___            judicata  claim states,  in essence,  that the  indictment is            ________            invalid because criminal forfeiture as a  cause of action has            vanished.   This  direct challenge  to  the validity  of  the            indictment cannot be heard in a restraining order proceeding.            To challenge the forfeitability  of the Maine properties, the            Cunans must await  the entry  of an order  of forfeiture  and            petition  for a hearing under   853(n)(2), at which time they            may press their claim  that they have a superior  interest in            the   properties  as  a  matter  of  res  judicata.    See                                                    ___  ________     ___            853(n)(6)(A)  (forfeiture  order  shall  be  amended  if  the            claimant's  right, title,  or  interest in  the property  was            vested  or superior to  that of the defendant  at the time of            the acts giving  rise to  the forfeiture).   See also  United                                                         ___ ____  ______            States  v. Reckmeyer,  836  F.2d  200,  206 (4th  Cir.  1987)            ______     _________            (noting  that the petitioners'  post-forfeiture claim under              853(n) "is  a fundamental one that . . . attacks the validity            of the forfeiture order itself").                                         -11-                                          11                      We  acknowledge that  it may  be difficult  in some            cases   to  establish  the   proper  limits   of  third-party            participation in  restraining order proceedings.   On the one            hand, premature attacks upon the validity of the indictment -            -  the type  of argument  made by  the Cunans --  are clearly            barred.   On the  other, prudential arguments  concerning the            burdens of  restraint are  clearly permitted by  the statute,            which recognizes the due  process concerns that are triggered            by  judicial orders aimed at  third parties.   Cf. Regan, 858                                                           ___ _____            F.2d at  121-22 (delineating circumstances  under which  such            orders should not be  entered).  Some arguments may  not fall            neatly on  either side of  the line.   In  Regan itself,  for                                                       _____            example,   the  third-party  claimant,  a  partnership  whose            partners included  the criminal defendants, was  permitted to            challenge the potential  forfeitability of partnership assets            under RICO's forfeiture  provision, albeit without  disputing            the factual allegations of the  indictment.  See also  United                                                         ___ ____  ______            States  v.  Wu,  814  F.  Supp.  491,  494  (E.D.  Va.  1993)            ______      __            (speculating  that the  third-party spouse  of  the defendant            might  be   entitled  to   intervene  in   restraining  order            proceeding in order to contest the breadth of the order).  At            any rate, the Cunans' res judicata argument falls well on the                                  ___ ________            forbidden side of the line.                      Our holding is limited to the arguments made by the            Cunans.  Specifically, the Cunans do not argue, and we do not                                         -12-                                          12            consider,  whether  the  Due  Process  Clause  may  sometimes            require that  interested parties  be given an  opportunity to            challenge  a   restraining  order,  on  the   merits  of  the            indictment if  necessary, before  the  entry of  an order  of            forfeiture.  Cf. United  States v. Harvey, 814 F.2d  905, 929                         ___ ______________    ______            (4th  Cir. 1987) (  853(e)(1)(A) violates  due process to the            extent   that   it  authorizes   ex   parte,  post-indictment                                             __   _____            restraining  orders without opportunity  for a post-restraint            hearing other than the  criminal trial itself); United States                                                            _____________            v.  Crozier,  777  F.2d  1376,  1382-84 (9th  Cir.  1985)  (                 _______            853(e)(1)(A) violates due  process by not  guaranteeing third            parties or criminal defendants  an opportunity to challenge a            post-indictment  restraining order until after forfeiture has            been ordered).  Here, the district court permitted the Cunans            to participate in the restraining order proceedings; in fact,            it granted the Cunans  more process than was provided  by the            statute.                                         III.                                         ____                      Our holding  moots the  Cunans' appeals in  No. 94-            2036  (from Judge Young's  entry of a  restraining order) and            No.  93-2278 (from  Judge Carter's  denial of  the motion  to            disencumber  or release  the Portland assets).   It  does not            matter whether Judge Carter should have granted the motion to            disencumber,  because  Judge  Young  subsequently  entered  a            restraining  order in the Massachusetts prosecution, and that                                         -13-                                          13            order cannot be challenged on the sole ground -- res judicata                                                             ___ ________            -- raised  by the Cunans on  appeal.  That leaves  us with no            basis  for granting the only  relief that the  Cunans seek in            Appeal No. 93-2278, i.e., the return of the Maine properties.                                ____                                         -14-                                          14                                         IV.                                         ___                      For the foregoing reasons,  we vacate the March 18,                                                     ______            1994 order of the Massachusetts District Court dismissing the            Maine properties from Count 37 of the indictment, and  remand                                                                   ______            the case to  that court for proceedings  consistent with this            opinion.                                         -15-                                          15
