United States v. Batato

Decision Date12 August 2016
Docket NumberNo. 15–1360,15–1360
Citation833 F.3d 413
Parties United States of America, Plaintiff–Appellee, v. Finn Batato; Bram Van Der Kolk; Julius Bencko; Mathias Ortmann; Sven Echternach; Kim Dotcom; Megaupload Limited; Megapay Limited; Vestor Limited ; Megamedia Limited; Megastuff Limited; Mona Dotcom, Claimants–Appellants, and All Assets Listed in Attachment A, and All Interest, Benefits, and Assets Traceable Thereto, in Rem, Defendant. Cato Institute; Institute for Justice; National Association of Criminal Defense Lawyers, Amici Supporting Appellants.
CourtU.S. Court of Appeals — Fourth Circuit

ARGUED: Michael S. Elkin, Winston & Strawn LLP, New York, New York, for Appellants. Jay V. Prabhu, Office of the United States Attorney, Alexandria, Virginia, for Appellee. ON BRIEF: Craig C. Reilly, Alexandria, Virginia, for Appellants; Robb C. Adkins, San Francisco, California, Steffen N. Johnson, Christopher E. Mills, Winston & Strawn LLP, Washington, D.C., for Appellant Megaupload Limited; David B. Smith, Smith & Zimmerman, PLLC, Alexandria, Virginia, for Appellants Julius Bencko and Sven Echternach; Ira P. Rothken, Jared R. Smith, Rothken Law Firm, Novato, California, William A. Burck, Derek L. Shaffer, Stephen M. Hauss, Quinn Emanuel Urquhart & Sullivan, Washington, D.C., for Appellants Kim Dotcom and Megaupload Limited. Dana J. Boente, United States Attorney, G. Wingate Grant, Assistant United States Attorney, Karen L. Taylor, Assistant United States Attorney, Jasmine H. Yoon, Assistant United States Attorney, Allison B. Ickovic, Special Assistant United States Attorney, Office of the United States Attorney, Alexandria, Virginia; Ryan K. Dickey, Brian L. Levine, Senior Counsel, Computer Crime & Intellectual Property Section, United States Department of Justice, Washington, D.C., for Appellee. Darpana Sheth, Institute for Justice, Arlington, Virginia, Thomas K. Maher, North Carolina Office of Indigent Defense Services, Durham, North Carolina, Ilya Shapiro, Cato Institute, Washington, D.C., for Amici Cato Institute, Institute for Justice, and National Association of Criminal Defense Lawyers.

Before GREGORY, Chief Judge, and DUNCAN and FLOYD, Circuit Judges.

Affirmed by published opinion. Chief Judge Gregory

wrote the majority opinion, in which Judge Duncan joined. Judge Floyd wrote a dissenting opinion.

GREGORY

, Chief Judge:

The claimants in this case appeal from the district court's entry of default judgment for the government in a civil forfeiture action against funds deposited in the claimants' names in banks in New Zealand and Hong Kong. Default judgment was entered after the government successfully moved to disentitle the claimants from defending their claims to the defendant property under the federal fugitive disentitlement statute, 28 U.S.C. § 2466

. The claimants appeal the judgment on several grounds, most prominent among them that the district court lacked jurisdiction over the defendant property because it resides in foreign countries, that fugitive disentitlement violates constitutional due process, and that disentitlement in this case was improper because the claimants are not fugitives from the law. Finding these arguments unpersuasive, we affirm the district court.

I.

On January 5, 2012, a grand jury returned an indictment against many of the claimants in this action, charging them with criminal copyright infringement and money laundering “with estimated harm to copyright holders well in excess of $500,000,000 and reported income in excess of $175,000,000.” Gov't Br. 4. The claimants' alleged copyright infringement scheme, dubbed the “Mega Conspiracy,” used public websites to facilitate the illegal reproduction and distribution of copyrighted movies, software, television programs, and music. The government estimates that the alleged criminal conduct has caused billions of dollars in harm to the copyright holders.

Following the indictment, the district court issued restraining orders for assets in New Zealand and Hong Kong where most of the remaining identified proceeds resided. The High Court in Hong Kong responded almost immediately by issuing a restraining order against approximately $60 million in assets, while New Zealand first arrested several of the now-claimants, released them on bail, and then several months later, in April, registered restraining orders on $15 million in assets. New Zealand also scheduled extradition hearings for August 2012, but these hearings have been continued at least eight times at the claimants' request.

The New Zealand restraining orders could only remain registered for two years, after which they could be extended for up to one year. Recognizing that the restraints would run out on April 18, 2014, or if extended on April 18, 2015, the United States filed this civil forfeiture action against forty-eight assets restrained pursuant to the criminal indictment in the district court on July 29, 2014. Although restraining orders froze the assets in the lead up to this action, the New Zealand courts have routinely released funds to claimants for living and legal expenses. Some of these have been very substantial, including millions in legal fees for Kim Dotcom, and $170,000 per month for living expenses for the same claimant.

Most of the claimants in this case filed their claims together on August 28, and Mona Dotcom filed a spousal claim on September 1, 2014. The claimants also filed a joint waiver of notice. The government subsequently moved to strike all the claimants' claims pursuant to 28 U.S.C. § 2466

, the federal fugitive disentitlement statute. On February 27, 2015, the district court granted the motion to strike, having allowed claimants to appear and present arguments on the motion but not on the merits of the case. The government then moved for default judgment, which the district court granted on March 25, 2015, issuing forfeiture orders for the assets in New Zealand and Hong Kong. United States v. All Assets Listed in Attachment A, 89 F.Supp.3d 813 (E.D. Va. 2015).

Claimants timely noted this appeal.

II.

The claimants' first challenge to the district court judgment contests that court's in rem jurisdiction over assets in foreign countries. The claimants make essentially several arguments which we will address in turn: first, the statute cited by the district court as establishing its jurisdiction speaks to venue rather than jurisdiction; second, that if that statute is jurisdictional, the case must still be justiciable, meaning the district court must have sufficient control over the res to render a binding opinion effecting title; and finally, that jurisdiction was improper because the district court did not have sufficient minimum contacts with the defendant property.

A.

The district court asserted in rem jurisdiction pursuant to 28 U.S.C. § 1355(b)(2)

.1 There is a potential split in the circuit courts regarding how to interpret subsection (b): the Second Circuit has held that it merely makes venue proper in certain courts, while the Third, Ninth, and D.C. Circuits have held that it establishes jurisdiction in those courts.2 The district court adopted the majority approach, and we affirm that decision.

“Under the traditional paradigm, ‘the court must have actual or constructive control over the res when an in rem forfeiture suit is initiated.’ United States v. Approximately $1.67 Million, 513 F.3d 991, 996 (9th Cir. 2008)

(quoting United States v. James Daniel Good Real Prop., 510 U.S. 43, 58, 114 S.Ct. 492, 126 L.Ed.2d 490 (1993) ). The question is whether § 1355—particularly the 1992 amendments which added subsections (b) and (d), authorizing district courts to issue process against property outside their districts—effectively dispenses with this traditional requirement. In the only circuit opinion to so hold, the Second Circuit said it does not do so with respect to property outside the United States. United States v. All Funds on Deposit in Any Accounts Maintained in Names of Meza or De Castro, 63 F.3d 148, 152 (2d Cir. 1995). The Meza court read § 1355(b) to make venue proper in cases involving foreign property where the district court had control over that property. Id. at 151 (Section 1355(b) addresses venue in forfeiture actions ....”). While subsection (d) establishes legal control over property located outside the court's jurisdiction but inside the United States, the Meza court held that a showing of control was still required for property outside the United States. Id. at 152.

This interpretation fails a closer textual analysis and runs contrary to the legislative history of the 1992 amendments. By its own terms, § 1355(d)

only applies to [a]ny court with jurisdiction over a forfeiture action pursuant to subsection (b).” § 1355(d) (emphasis added). The plain meaning of § 1355(d), therefore, renders the Meza court's finding that [s]ection 1355(b) addresses venue” impossible—courts may acquire jurisdiction by operation of the provision. Although it would be clearer still for § 1355(b) to explicitly state its own jurisdictional nature, rather than merely saying that a “forfeiture action or proceeding may be brought in” those district courts it describes, the plain meaning of that language in the context of the entire statute is unmistakable.

The Meza

court's interpretation, urged by the claimants here, also runs contrary to the legislative history of the 1992 amendments. When the amendments were introduced in the Money Laundering Improvements Act, Senator D'Amato included an explanatory statement indicating that subsection (b) was intended to provide the federal district courts with jurisdiction over foreign property:

Subsection (b)(2) addresses a problem that arises whenever property subject to forfeiture under the laws of the United States is located in a foreign country. As mentioned, under current law, it is probably no longer necessary to base in rem jurisdiction on the location of the property if there have been sufficient contacts
...

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