In re Moffitt, Zwerling & Kemler, PC

Decision Date22 February 1994
Docket NumberNo. 93-0006-A.,93-0006-A.
CourtU.S. District Court — Eastern District of Virginia
PartiesIn re MOFFITT, ZWERLING & KEMLER, P.C.

COPYRIGHT MATERIAL OMITTED

Helen Fahey, U.S. Atty., Jay Apperson, Gordon D. Kromberg, Asst. U.S. Attys., Alexandria, VA, for plaintiff.

Arthur F. Mathews, James Lee Buck, II, Craig M. Blackwell, Wilmer, Cutler & Pickering, Washington, DC, for defendant.

MEMORANDUM OPINION1

ELLIS, District Judge.

I.

Under what circumstances are the fees paid to an attorney by an accused drug trafficker subject to criminal forfeiture?

This is the general and quite significant question presented in this 21 U.S.C. § 853(n) criminal forfeiture proceeding. In essence, William Covington ("Covington"), facing indictment for various drug trafficking offenses, paid the law firm of Moffitt, Zwerling and Kemler, P.C. ("the Law Firm") $103,800 to retain the services of its experienced and well-known criminal defense lawyers. Thereafter, Covington was indicted and subsequently pled guilty to several drug trafficking offenses. Pursuant to the plea agreement, the Court entered an order forfeiting various properties Covington admitted were derived from his drug trafficking activities. These properties included certain real property, Covington's auto service business, various firearms and cash, including the cash paid to the Law Firm. Seeking to defeat forfeiture of its fee, the Law Firm filed a petition pursuant to 21 U.S.C. § 853(n)(2), claiming that it was, in effect, a bona fide purchaser for value of the fee and that at the time the fee was received, the Law Firm was "reasonably without cause to believe that the property i.e., the cash fee was subject to criminal forfeiture...." 21 U.S.C. § 853(n)(6)(B). This Memorandum Opinion considers and disposes of the issues raised by the Law Firm's petition.

II.
A. Chronological Summary

Beginning as early as 1985 and continuing to mid-1992, Covington organized and led a cocaine and marijuana distribution operation in northern Virginia. Over the life of the conspiracy approximately 100 kilograms of cocaine and 1000 pounds of marijuana were distributed.2 By 1990, Covington was the subject of a grand jury investigation. In the course of this investigation, the government seized for forfeiture a number of Covington's assets alleged to be drug-related. More specifically, the seized assets, worth hundreds of thousands of dollars, included Covington's home,3 four cars, $238,000 cash (largely in $100 bills), a boat and several certificates of deposit. These seizures, it appears, prompted Covington to retain the law firm of Phillips, Beckwith and Hall. Yet, neither Covington nor this law firm contested the seizures and, as a result, many of the pieces of property, excluding the home and the cash, were forfeited administratively without protest.

In July 1991, additional seizures of Covington's drug-related assets occurred pursuant to a new series of search and seizure warrants obtained by the government in connection with the grand jury investigation. The seized assets on this occasion included more cash, jewelry worth thousands of dollars and a motorcycle, as well as two tow trucks and two business bank accounts, the latter items being the remaining assets of Covington's auto service business.

In August 1991, shortly after this second series of seizures, and perhaps spurred by them and his growing dissatisfaction with the Phillips, Beckwith and Hall firm, Covington moved to retain the Law Firm to act as his counsel. In this connection, Covington paid the Law Firm a total of $103,800 in cash, $17,000 of which was received and accepted by the Law Firm on August 23, 1991 and the remaining $86,800 the following day. These cash transfers are the focus of this proceeding; their details and circumstances are more fully described after the complete chronological factual picture is painted.

Once on board in August 1991, the Law Firm argued successfully for delaying the indictment, then imminent, so that plea negotiations might be pursued and to enable Covington to be hospitalized for treatment of mental depression and related problems. These plea negotiations failed, and on October 30, 1991, Covington and a number of other individuals were indicted on a variety of drug trafficking, firearms and money laundering charges. Following the indictment, several individuals, including a major drug customer of Covington's4, began to cooperate with the government. This customer identified Covington's main supplier in Florida and provided evidence suggesting that Covington had paid the Law Firm with drug trafficking profits. As a result of this and other new information, a superseding indictment was returned in January 1992. Both this indictment and the original included a forfeiture count,5 which noted that one of the forfeited assets was $168,000 in currency, representing cocaine profits not yet accounted for by the ongoing investigation.

In February 1992, government agents stepped up efforts to ascertain whether the sums paid the Law Firm were drug trafficking proceeds. In this connection, IRS Currency Transaction Reports ("CTR") filed by the Law Firm were examined and found to reflect deposits of $17,000 and $86,000 into the Law Firm's account on the dates the cooperating witness had said the tainted money was paid by Covington to the Law Firm.6 But because these forms did not identify the source of the money,7 there was as yet no conclusive evidence to establish that Covington was the source of the money. To pursue this point, the government sought and obtained search warrants for the Law Firm's accounts relating to these deposits. Again, the records searched confirmed the $103,800 deposit, but not the source of the money.

Contemporaneously with the bank search warrants, the government served subpoenas duces tecum on both Phillips, Beckwith & Hall and the Law Firm.8 The Law Firm moved to quash the subpoena on the grounds that enforcement would (i) impermissibly interfere with an accused's right and opportunity to retain counsel and (ii) improperly tip in the government's favor the delicate balance of power between the prosecution and the defense. Another judge of this division granted the motion to quash the subpoena on the ground that the subpoena chilled Covington's right to retain effective counsel. The government appealed and the case was stayed pending the appeal.9

Up to this time, March 1992, the Assistant United States Attorneys prosecuting the criminal case, including the forfeiture, had not obtained the requisite permissions from the U.S. Attorney and the Assistant Attorney General to forfeit the fees paid to the Law Firm. By early May 1992, these permissions had been obtained and the government then filed a bill of particulars identifying the $103,800 paid to the Law Firm as an item subject to forfeiture under the indictment. Shortly thereafter, the government also sought and obtained this Court's Order restraining the Law Firm from disbursing the $103,800 in fees it received from Covington.

The next event of significance occurred in July 1992, when the government advised the Court and the Law Firm that Covington, then in pre-trial detention at Alexandria Detention Center, had sent word through another inmate housed at the Center that he, Covington, wished to plead guilty but the Law Firm would not let him do so because, ostensibly, it would reflect poorly on the Law Firm. In its pleading reporting this event, the government suggested that a conflict of interest now existed between Covington and the Law Firm. In response, the Law Firm sought dismissal of the indictment on the ground of government misconduct, including a violation of Covington's Sixth Amendment rights. Following two hearings, the Court ruled that a conflict existed, requiring the withdrawal of the Law Firm as Covington's counsel.10 The Court then appointed new counsel11 with directions to review the pending motion to dismiss the indictment and advise the Court whether Covington wished to (i) pursue the pending motions, (ii) file new or additional motions or (iii) follow some other course. New counsel, after reviewing the record and consulting at length with Covington, filed no new motions, nor did it pursue the pending motion. Instead, Covington pled guilty to three counts of the indictment, specifically a drug conspiracy in violation of 21 U.S.C. § 846, money laundering offense in violation of 18 U.S.C. § 1956, and a firearms offense in violation of 18 U.S.C. § 924(c). Covington was subsequently sentenced to 262 months incarceration to be followed by five (5) years of supervised release and a total of $150 in special assessments.12

Pursuant to the plea agreement, a consent order of forfeiture was entered at the time of sentencing, forfeiting, under 21 U.S.C. § 853 and 18 U.S.C. § 982, virtually all of Covington's assets, including cash, real estate, the auto service business and various firearms.13 The Court then entered an order forfeiting the $103,800 fee paid to the Law Firm, which forfeiture was explicitly conditioned on the rights of third parties to claim an interest in the money by filing a petition pursuant to 21 U.S.C. § 853(n). Notice was appropriately published and the Law Firm filed a petition claiming the $103,800. Specifically, the Law Firm claimed that it received the money as a bona fide purchaser at a time when it was reasonably without cause to believe that the money was subject to forfeiture as drug trafficking proceeds.14 A two day evidentiary hearing was held on the Law Firm's petition. Among the witnesses who testified at the hearing were Covington and several of his co-conspirators on behalf of the government and, on behalf of the Law Firm, two of its named partners plus another, former Covington attorney.

B. The Source of the $103,800 Fee

The hearing record compels the conclusion that the $103,800 in cash paid to the Law Firm constituted the...

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