83 F.3d 660 (4th Cir. 1996), 95-1884, United States v. Moffitt, Zwerling & Kemler, P.C.

Docket Nº:95-1884, 95-1916.
Citation:83 F.3d 660
Party Name:UNITED STATES of America, Plaintiff-Appellant, v. MOFFITT, ZWERLING & KEMLER, P.C., Defendant-Appellee. American Civil Liberties Union of Virginia; National Association of Criminal Defense Lawyers, Amici Curiae. UNITED STATES of America, Plaintiff-Appellee, v. MOFFITT, ZWERLING & KEMLER, P.C., Defendant-Appellant. American Civil Liberties Union of
Case Date:May 09, 1996
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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83 F.3d 660 (4th Cir. 1996)

UNITED STATES of America, Plaintiff-Appellant,

v.

MOFFITT, ZWERLING & KEMLER, P.C., Defendant-Appellee.

American Civil Liberties Union of Virginia; National

Association of Criminal Defense Lawyers, Amici Curiae.

UNITED STATES of America, Plaintiff-Appellee,

v.

MOFFITT, ZWERLING & KEMLER, P.C., Defendant-Appellant.

American Civil Liberties Union of Virginia; National

Association of Criminal Defense Lawyers, Amici Curiae.

Nos. 95-1884, 95-1916.

United States Court of Appeals, Fourth Circuit

May 9, 1996

Argued March 5, 1996.

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[Copyrighted Material Omitted]

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ARGUED: Gordon Dean Kromberg, Assistant United States Attorney, Bernard James Apperson, III, Assistant United States Attorney, Alexandria, Virginia, for Appellant. Arthur Francis Mathews, Wilmer, Cutler & Pickering, Washington, D.C., for Appellee. ON BRIEF: Helen F. Fahey, United States Attorney, Alexandria, Virginia, for Appellant. Craig M. Blackwell, Michael B. Bressman, Craig J. Brown, Steven P. Finizio, Wilmer, Cutler & Pickering, Washington, D.C., for Appellee. Stephen B. Pershing, ACLU Foundation of Virginia, Richmond, Virginia; Peter Goldberger, Ardmore, Pennsylvania, for Amici Curiae.

Before WILKINSON, Chief Judge, and LUTTIG and MICHAEL, Circuit Judges.

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Affirmed in part, reversed in part, and remanded with instructions by published opinion. Chief Judge WILKINSON wrote the opinion, in which Judge LUTTIG and Judge MICHAEL joined.

OPINION

WILKINSON, Chief Judge:

In this appeal, we are asked to resolve important questions about the operation and preemptive effect of the Comprehensive Forfeiture Act of 1984(CFA). 21 U.S.C. § 853. These questions arise out of the government's effort to forfeit, as the proceeds of criminal activity, a $103,800 legal fee paid to the law firm of Moffitt, Zwerling & Kemler. The law firm and the government each allege numerous errors in the district court's rulings. The firm contests the appropriateness of forfeiting the fee when it was not specifically identified as subject to forfeiture in the indictment, and it also appeals the rejection of its claim that it was an innocent transferee under the CFA. We affirm the district court with respect to these assignments of error. The government, in turn, contests the limitations imposed on its efforts to ascertain the disposition of the fee. We affirm in part, and reverse in part the district court's rulings on this matter.

We reverse, however, with respect to the most significant issue raised by this appeal: the preemptive effect of the CFA on state claims of detinue and conversion brought by the government to recover the fee. The government brought these common law actions, in part because the law firm had dissipated most of the $103,800 by the time a restraining order was entered. We hold that these common law actions are consistent with the purposes of the federal forfeiture statute and that the CFA does not abrogate the government's authority to pursue them.

I.

In late August, 1991, William Paul Covington retained the law firm of Moffitt, Zwerling & Kemler to defend him against charges of drug trafficking and money laundering. Covington was then the subject of a grand jury investigation and many of his personal and business assets had already been seized. To secure the firm's representation, Covington was required to pay $100,000 up front. On August 23, 1991, Covington partially paid the fee with a wad of bills fished from his pocket that amounted to $17,000; the next day he delivered another $86,800 in cash, stored in a cracker box or a shoe box. Much of the $103,800 payment was in the form of $100 bills.

Neither William Moffitt nor John Zwerling asked Covington the source of the $103,800, though Moffitt apparently told Covington that, though they could accept cash, they could not accept "funny money." Covington refused a receipt for both payments because, he said, the F.B.I. might find it. The law firm thereafter filed the required Internal Revenue Service Form 8300 reflecting the cash payments from Covington, but failed to identify Covington as the source of the cash transfer.

Once retained, the firm notified prosecutors that they represented Covington. In a series of meetings with law firm members, the prosecutors outlined the nature of their case against Covington and provided a list of assets seized from Covington. These seizures included his home, four cars, a boat, hundreds of thousands of dollars in cash, a motorcycle, and assets of his auto service and towing businesses, namely, two tow trucks and two bank accounts. Prosecutors also disclosed a 50-page affidavit, prepared by an IRS investigator, that supported search and seizure warrants executed against Covington. Among other things, the affidavit reported that Covington had accumulated or spent a vast amount of money in the previous few years, money which the investigator concluded could only have come from drug trafficking activity. Moreover, the investigator revealed that Covington used his businesses to facilitate drug sales and to launder drug profits.

On October 30, 1991, the grand jury indicted Covington on a variety of drug trafficking, firearm, and money laundering offenses. A superseding indictment was returned on January 9, 1992. Both the original and the superseding indictment contained counts providing

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for the forfeiture of "any and all properties constituting, or derived from, proceeds" obtained as a result of the illegal activity and any properties used to facilitate that activity. Such assets "include[d], but [were] not limited to" cash of up to $168,000 that the government had not yet located.

On May 12, 1992, after obtaining the approval of the Department of Justice, the government filed a bill of particulars identifying the $103,800 paid to the law firm as subject to forfeiture. It also sought and obtained a restraining order to prevent dissipation of the fee. 21 U.S.C. § 853(e)(1)(A).

In August, 1992, the district court disqualified the law firm from continuing to represent Covington. The judge observed that the most important reason for the disqualification was Covington's statement that while he wanted to plead guilty, he could not because one of his lawyers informed him that such a plea would place the law firm's acceptance of the fee in an unfavorable light. Another important reason for the disqualification related to the government's intention to use evidence concerning Covington's legal fee at trial. J.A. 567-68. New counsel was then appointed.

On September 25, 1992, Covington entered a guilty plea. He was sentenced in February, 1993 to 262 months in prison. At sentencing, pursuant to 21 U.S.C. § 853, and with Covington's consent, the $103,800 fee paid to the law firm was ordered forfeited. Subsequently, the law firm sought to vacate the forfeiture order. It filed a petition asserting that it was "reasonably without cause to believe" that the fee was subject to forfeiture. 21 U.S.C. § 853(n)(6)(B). The district court rejected the petition. In re Moffitt, Zwerling & Kemler, P.C., 846 F.Supp. 463 (E.D.Va.1994) ("Moffitt I ").

Thereafter, the government sought a final decree of forfeiture to collect the $103,800 from Moffitt, Zwerling. The firm maintained, however, that recovery was limited to the $3,695 that remained unspent at the time the district court entered the May, 1992 restraining order. Nearly all of the $103,800 fee was spent, in fact, as early as January, 1992. In response, the government pursued a number of remedies to retrieve some or all of the fee. First, it argued that the firm, under § 853, was liable to the government for the full $103,800; the district court rejected this claim. In re Moffitt, Zwerling & Kemler, P.C., 864 F.Supp. 527 (E.D.Va.1994) ("Moffitt II "). Next, the government sought forfeiture of any property traceable to the fee as property "derived from" forfeitable assets. 21 U.S.C. § 853(a). Finally, to recover the fee, the government brought common law actions of detinue and conversion under Virginia law. The district court ruled on a variety of discovery disputes arising from the tracing effort, In re Moffitt, Zwerling & Kemler, P.C., 875 F.Supp. 1152 (E.D.Va.1995) ("Moffitt III "), and it ruled that the state common law actions were preempted by the CFA. United States v. Moffitt, Zwerling & Kemler, P.C., 875 F.Supp. 1190 (E.D.Va.1995) ("Moffitt IV "). Both the government and the law firm now appeal certain aspects of these rulings.

II.

We first address the alleged improprieties in the procedure employed by the government to subject the fee to forfeiture. Moffitt, Zwerling contends that the district court lacked jurisdiction to order forfeiture of the fee because that fee was not specified in the indictment. This claim is meritless. First, the indictment and the superseding indictment contained forfeiture counts naming "any and all properties constituting, or derived from" or used to facilitate criminal activities. The list of assets "include[d], but [was] not limited to ... [a]ny and all interest of WILLIAM PAUL COVINGTON in $168,000 in United States currency." The indictment thus sought forfeiture of all the proceeds of Covington's criminal activity, explicitly including up to $168,000 not yet accounted for.

Moreover, the law firm's claim rests on the assumption that forfeiture is a substantive element of the offense, and therefore must be specified in the indictment. Stirone v. United States, 361 U.S. 212, 218-19, 80 S.Ct. 270, 273-74, 4 L.Ed.2d 252 (1960). But the Supreme Court and this court have conclusively rejected the argument that forfeiture

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is a substantive element of offenses. Libretti v. United States, --- U.S. ----, ----...

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