U.S. v. 92,422.57

• Decision Date: 20 September 2002
• Docket Number: No. 00-4348.,00-4348.
• Parties: UNITED STATES of America v. NINETY-TWO THOUSAND FOUR HUNDRED TWENTY-TWO DOLLARS AND FIFTY-SEVEN CENTS ($92,422.57), United States Currency Seized from PNC Bank Account # 8400369727 Held in the Name of Kim's Wholesale Distributors, Inc. Kim's Wholesale Distributors, Inc., Appellant
• Court: U.S. Court of Appeals — Third Circuit

Page 137

307 F.3d 137

UNITED STATES of America v. NINETY-TWO THOUSAND FOUR HUNDRED TWENTY-TWO DOLLARS AND FIFTY-SEVEN CENTS ($92,422.57), United States Currency Seized from PNC Bank Account # 8400369727 Held in the Name of Kim's Wholesale Distributors, Inc.

Kim's Wholesale Distributors, Inc., Appellant

No. 00-4348.

United States Court of Appeals, Third Circuit.

Argued December 6, 2001.

Filed September 20, 2002.

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David M. Howard, Stephen J. McConnell (Argued), Dechert, Price and Rhoads, Philadelphia, PA, Catherine M. Recker, Welsh & Recker, Philadelphia, PA, for Appellant.

Michael L. Levy, Robert A. Zauzmer, Christopher R. Hall (Argued), Office of United States Attorney, Philadelphia, PA, for Appellee.

Before ALITO, AMBRO, and GREENBERG, Circuit Judges.

OPINION OF THE COURT

ALITO, Circuit Judge.

This is an appeal from a judgment of civil forfeiture for funds from a bank account owned by Kim's Wholesale Distributors, Inc. ("Kim's"). The complaint claimed that the funds were subject to forfeiture under 18 U.S.C. § 981(a)(1)(A) on the ground that they had been involved in transactions in violation of the money laundering statute, 18 U.S.C. § 1956. Proof supporting the forfeiture was obtained from business records seized from Kim's pursuant to a warrant issued by a United States Magistrate Judge in connection with a wide-scale investigation of illegal trafficking in food stamps.

Kim's moved to suppress the evidence under the Fourth Amendment¹ and to dismiss the complaint. When the District Court denied those motions, the parties entered into a stipulation under which Kim's conceded that it had no defense to the forfeiture action, final judgment was entered against Kim's in the amount of $92,422.57, and Kim's retained the right to appeal the District Court's ruling on its motion to suppress and dismiss. The District Court entered judgment against Kim's in the amount of $92,422.57, and this appeal followed.² For the reasons stated below, we reject Kim's arguments relating to probable cause and particularity, but we find the record inadequate to resolve Kim's argument concerning the seizure of documents written in Chinese, and we therefore vacate the judgment and remand for further proceedings regarding that issue.

I.

In October 1996, the government received anonymous letters implicating two individuals, Qiang Wang and Qun Chen, in an elaborate food stamp trafficking scheme. According to the letters, Chinese take-out restaurants were buying food stamps from low-income food stamp recipients for seventy cents on the dollar. JA at 107. It was alleged that the restaurants were then reselling the food stamps to a partnership (the "Wang-Chen Partnership") for ninety cents on the dollar. The partnership, in turn, was allegedly redeeming the food stamps through grocery stores that did little if any legitimate business. Id. The partnership allegedly opened stores, operated them for a time, and then closed them to avoid paying taxes. Id. The letters named three stores, Wyoming Variety Store, Tasker Grocery Store, and Jacky's Food, that they claimed were operating solely for the purpose of trafficking food stamps. Id.

After receiving the letters, the Secret Service and Department of Agriculture began an extensive investigation. In the spring of 1997, "undercover Secret Service agents sold more than $130,000 in food stamps" to the members of the Wang-Chen Partnership for sixty cents on the dollar.³ Id. at 106. Those food stamps were later redeemed through Wyoming Variety, one of the three stores named in the letter, and two others, Gou Bao Grocery and Hing Loong Food Market and Trading, Inc. Id. A sixth store, Zheng's Grocery, was later identified. Id. at 108. A review of the bank records of five of these six stores revealed that they had "collectively redeemed over $12,000,000 in food stamps since April 1994." Id.

The investigation yielded substantial evidence that these stores did "little if any legitimate retail food business." Id. at 109. Agents videotaped customer traffic in and out of Gao Bao Grocery and found that on average only eight customers a day left with a bag. The store received few deliveries: a man "carried two to three plastic grocery bags into the store on approximately twenty-one occasions between January and April 1997." Id. at 137. Yet Gao Bao deposited $1,885,205 in food stamps between September 23, 1996, and May 31, 1997. Id. at 138. The store would have had "to turn over a $5,000 inventory ten times a week to generate these sales." Id. Wyoming Variety, which had no cash register and was sparsely stocked with a small supply of canned foods and beverages, nevertheless redeemed "$308,359 a month on average" in food stamp deposits. Id. at 140-41. A mail carrier who delivered mail around noon to Jacky's Grocery reported that the store was closed 85% of the time; nevertheless, between March 6, 1995, and March 28, 1996, Jacky's "deposited $2,735,573 in food stamps," which "accounted for 99% of all [its] business receipts." Id. at 147-48.

Tasker Grocery's mail carrier reported that "the door was always locked.... There were never any customers." Id. at 150. But Tasker Grocery redeemed $2,004,164 in food stamps between April 1, 1994, and March 22, 1995. Id. Food stamps accounted for 99% of all its deposits. Id.

Officers videotaped Zheng's Grocery between May 13 and May 16, 1996. The videotape disclosed an employee enter the store at about 8:30 a.m. and lock the door behind him. People who tried to enter the store were unable to do so. The employee left at 4:30 p.m. and locked the door behind him. There were no deliveries. Id. at 152. However, between December 26, 1995, and October 18, 1996, Zheng's redeemed $2,383,296 in food stamps. Id. Zheng's deposited only $900 in cash during this entire period. Id. at 153.

The investigation also produced evidence that the sham store owners withdrew food stamp proceeds from their bank accounts by checks made payable either to cash, to the store owners, to an employee of a take-out restaurant, or to one of a group of wholesale food companies including Kim's. Id. at 109, 161. Indeed, all of the sham grocery stores "drafted a substantial number of checks to Kim's despite the fact that the stores were selling little if any food inventory." Id. at 161. For example, Zheng's Grocery drafted $951,603 in checks to Kim's and Wyoming Variety drafted $46,503 in checks to Kim's despite doing little legitimate business. Id. at 162. After reviewing canceled checks drafted by sham grocery stores to Kim's, an agent determined that Kim's had deposited $399,389.20 from these sources into its account at PNC Bank since September 11, 1996. Id. at 164.

The sham grocery store owners drafted checks to Kim's in a manner designed to conceal the proceeds of the food stamp trafficking scheme and make it appear that the stores were purchasing significant food inventory. According to the investigating agents, food stamp traffickers mistakenly believe that checks for more than $10,000 result in the filing of a Currency Transaction Report or a Suspicious Activity Report,⁴ id. at 118, and the vast majority of the checks drafted to Kim's by Gou Bao Grocery and Zheng's Grocery were in amounts just below $10,000. Id. 163, 164. Zheng's Grocery often drafted more than one check a day to Kim's. For example, on July 1, 1996, Zheng's drafted four checks to Kim's in the following amounts: $9,400, $9,300; $9,200, and $9,100. Id. at 163. Gou Bao wrote checks for just under $10,000 several times a week. Id. at 164.

Two lead case agents — Senior Special Agent Debra Thomerson, from the Department of Agriculture, and Special Agent Glen McElravy, from the Secret Service — swore out an affidavit in support of a master search warrant for numerous locations, including Kim's. Agent Thomerson had been involved in over 100 investigations involving the illegal use of food stamps, had received special training in the area of food stamp trafficking, and was a specialist in the documentation, identification, and retrieval of food stamps. Special Agent McElravy had assisted in numerous money laundering investigations and had received special training in identifying assets subject to forfeiture due to involvement in money laundering offenses. The affidavit underlying the search warrant set forth facts to show that Kim's was a participant in an ongoing and extensive scheme to traffic in food stamps, in violation of 7 U.S.C. §§ 2024(b) and (c) (food stamp fraud), 18 U.S.C. § 1956 (money laundering), 18 U.S.C. § 1956(h) (money laundering conspiracy), and 18 U.S.C. § 371 (conspiracy). The warrant application was presented to and signed by a Magistrate Judge on September 11, 1997. The warrant authorized the seizure of the following Kim's records:

1. Receipts, invoices, lists of business associates, delivery schedules, ledgers, financial statements, cash receipt, disbursement, and sales journals, and correspondence.

2. Computers, computer peripherals, related instruction manuals and notes, and software in order to conduct an off-site search for electronic copies of the items listed above.

Id. at 181.

When the warrant was executed, numerous documents were seized from Kim's premises, including handwritten notes on brown paper bags recording food stamp transactions, invoices to Chinese restaurants documenting the exchange of food stamps for Kim's products at a discount to face value, and an accounting journal cataloging bulk food stamp transactions. Two journals volunteered by an employee revealed bulk food stamp transactions and documented that Kim's bought food stamps at a discount to face value from at least 19 restaurants in return for wholesale food products, that Kim's redeemed the food stamps through three grocery stores, and that Kim's deposited checks from the grocery stores into its bank accounts. See id. at 187-188. Kim's then...