United States v. Kaley

• Decision Date: 26 April 2012
• Docket Number: No. 10–15048.,10–15048.
• Citation: 23 Fla. L. Weekly Fed. C 977,677 F.3d 1316
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Kerri L. KALEY, Brian P. Kaley, Defendants–Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

23 Fla. L. Weekly Fed. C 977

677 F.3d 1316

UNITED STATES of America, Plaintiff–Appellee,

v.Kerri L. KALEY, Brian P. Kaley, Defendants–Appellants.

No. 10–15048.

United States Court of Appeals, Eleventh Circuit.

April 26, 2012.

Wifredo A. Ferrer, Carol Herman, Alison Whitney Lehr, Anne Ruth Schultz, Madeleine R. Shirley, Thomas Austin Watts–Fitzgerald, U.S. Attys., Miami, FL, for Plaintiff–Appellee.

Howard M. Srebnick, Black, Srebnick, Kornspan & Stumpf, PA, Guy Richard Strafer, G. Richard Strafer, PA, Miami, FL, for Defendants–Appellants.

Appeal from the United States District Court for the Southern District of Florida.Before EDMONDSON and MARCUS, Circuit Judges, and FAWSETT,^* District Judge.MARCUS, Circuit Judge:

In this interlocutory criminal appeal, Kerri L. Kaley and Brian P. Kaley challenge a district court's order denying their motion to vacate a pretrial protective order restraining their assets. This is the second time the case has come before us. In United States v. Kaley, 579 F.3d 1246 (11th Cir.2009) (“ Kaley I”), we reversed the district court's prior order which had concluded that the Kaleys were not entitled to a pretrial evidentiary hearing on their motion to vacate the protective order, and we remanded for further proceedings. On round two, the district court determined that the Kaleys were entitled to a pretrial, post-restraint hearing, but that the only question to be addressed at the hearing was whether the restrained assets were traceable to or involved in the conduct charged in the indictment. At the hearing, the Kaleys did not present any evidence regarding traceability, and the district court declined to set aside the protective order.

The Kaleys once again appeal, arguing that, in addition to traceability, they should have been allowed to challenge the factual foundation supporting the grand jury's probable cause determinations (the very validity of the underlying indictment) at a pretrial, post-restraint hearing. Because, as we see it, the defendants are not entitled to try the entire case twice, once before trial and then again before a judge and jury, we affirm the district court's order denying the Kaleys' motion to vacate the protective order.

I.

In Kaley I, we summarized the basic facts and procedural history of the case in this way:

In January 2005, Kerri Kaley, then a sales representative with Ethicon Endo–Surgery, was informed she was the target of a grand jury investigation in the Southern District of Florida. Kaley was suspected of stealing prescription medical devices (“PMDs”) from hospitals and then selling them on the black market. Kaley retained ... counsel in the investigation. Kaley's husband, Brian Kaley, who was also under investigation ... retained a separate attorney .... Together, the two attorneys informed the Kaleys that their legal fees to take the case through trial would be approximately $500,000. To obtain funds to pay those fees, the Kaleys applied for and obtained a home equity line of credit of $500,000 on their residence and used the proceeds to buy a certificate of deposit (“CD”).

On February 6, 2007, the grand jury returned a seven-count indictment against the Kaleys.¹ Count One charged a conspiracy to transport PMDs in interstate commerce while knowing them to have been stolen, in violation of 18 U.S.C. § 371. Counts Two through Six charged five substantive [ 18 U.S.C.] § 2314 offenses, and Count Seven charged obstruction of justice, in violation of 18 U.S.C. § 1512(b)(3). The indictment also sought criminal forfeiture of all property traceable to the § 2314 offenses, including the CD ....

FN1: The indictment was also returned against Jennifer Gruenstrass, whose case has since been severed from the Kaleys'.

On February 7, 2007, the Government moved the district court ex parte for a protective order restraining the Kaleys from transferring or otherwise disposing of the property listed in the forfeiture count, and a magistrate judge, concluding that the indictment established probable cause that the property was “traceable to” the Kaleys' commission of the § 2314 offenses, granted the motion the same day ....

On March 5, 2007, the Kaleys moved the district court to vacate the February 7th protective order. They contended that the order prevented them from retaining counsel of their choice in violation of their Sixth Amendment right to the representation of counsel. A magistrate judge heard this motion too on April 6th and sustained the protective order; however, he limited the protective order's scope (insofar as it applied to the CD) to $140,000.

On April 10, 2007, the grand jury returned a superseding indictment. This indictment replicated the first seven counts of the first indictment and added an additional count—a charge that the Kaleys had conspired to launder the proceeds of the § 2314 offenses, in violation of 18 U.S.C. § 1956(h). This indictment also sought the criminal forfeiture of the CD and the Kaleys' residence on the theory that those assets were “involved in” the Kaleys' commission of the § 1956(h) offense. On April 17th, the Kaleys renewed their motion to vacate the February 7th protective order (as amended by the order of April 6th), and expressly requested a pretrial, post-restraint evidentiary hearing.

The magistrate judge heard the motion on April 27th. He questioned whether the indictment alone provided probable cause to restrain the defendants' assets and ordered the prosecutor to submit an affidavit supporting probable cause. The prosecutor responded by filing, in secret and under seal, an affidavit executed by the FBI case agent.

On May 1, 2007, the magistrate judge issued two orders. In the first order, he found probable cause—based on the indictment and the case agent's affidavit—that the CD and the Kaleys' residence were “involved in” the violations of § 1956(h) and § 2314. In the second order, he amended the February 7th protective order to include within its scope the full value of the CD and the Kaleys' residence. On May 2nd, the magistrate judge issued a third order denying the Kaleys' motion to vacate the protective order and to hold a pretrial, post-restraint evidentiary hearing ....

On May 7, 2007, the Kaleys appealed the magistrate judge's May 1st and 2nd orders to the district court. On June 25th, the district court affirmed the magistrate judge's issuance of the protective order .... The trial court also affirmed the magistrate judge's denial of a pretrial evidentiary hearing, concluding that postponing the hearing until the trial itself satisfied due process. On June 27, 2007, the Kaleys lodged [an] interlocutory appeal, challenging the district court's decision.

Kaley I, 579 F.3d at 1249–53 (footnotes omitted).

In Kaley I, this Court reversed the district court's denial of the Kaleys' request for an evidentiary hearing and remanded for further proceedings. We held that under controlling case precedent the district court was correct to apply the four factors enumerated in United States v. Bissell, 866 F.2d 1343 (11th Cir.1989), to determine whether a pretrial, post-restraint hearing was required, but that the district court had erred in weighing those factors. Kaley I, 579 F.3d at 1256–57. We remanded the case for the district court to reweigh the Bissell factors in light of our ruling. Id. at 1260. On remand, the district court found that the Bissell factors favored holding an evidentiary hearing.

In pre-hearing memoranda, the Kaleys argued that the question for the district court to consider at the hearing was whether the government would be likely to prevail at trial. They asserted that the government would be unlikely to prevail because the theory underlying its prosecution was baseless and the underlying facts could not support the charges. The Kaleys explained that they were accused of receiving unwanted prescription medical devices (“PMDs”) from hospitals that previously had purchased them from Ethicon, Kerri Kaley's employer, and then reselling those PMDs themselves rather than returning them to Ethicon. According to the Kaleys, the government's theory of prosecution was that Kerri Kaley held the returned PMDs in a “constructive trust” for Ethicon, and so, by selling the PMDs, the Kaleys unlawfully converted Ethicon's property. The Kaleys contended that there could be no constructive trust because they did not owe any fiduciary duties to Ethicon, and because Ethicon had never asserted any property rights in the unwanted PMDs. The Kaleys also noted that the government had offered this constructive trust theory at the separate trial of a codefendant, Jennifer Gruenstrass, who was acquitted of all charges, and they asserted that this Court had rejected a similar theory of prosecution in United States v. Goodrich, 871 F.2d 1011 (11th Cir.1989).

At an evidentiary hearing conducted on July 29, 2010, the district court heard arguments from the parties regarding the hearing's proper scope. The Kaleys explained that they were not contesting whether the restrained assets were traceable to or involved in the conduct charged in the indictment, but instead were taking the position that the protective order should be vacated because the underlying facts did not support the charged crimes in the first place. The government responded that, in light of this Court's decisions in Bissell and Kaley I, it was not required to offer substantive evidence from its case against the Kaleys in order to establish the evidentiary foundation of the criminal charges, and that the only purpose of the hearing was to determine whether the restrained assets were traceable to or involved in the conduct charged in the indictment.¹

On October 24, 2010, the district court issued an order denying the Kaleys' motion to vacate the protective order. Citing language taken from Bissell and Kaley I, the district court concluded that the only relevant inquiry at the hearing was whether the restrained assets were traceable to or...