United States v. Hallinan
| Citation | 75 F.4th 148 |
| Docket Number | 21-1362,21-2623,22-1953,22-2328 |
| Decision Date | 19 July 2023 |
| Parties | UNITED STATES of America v. Charles M. HALLINAN Linda B. Hallinan,* Appellant in No. 21-1362 Linda B. Hallinan and L.B.S.,* Appellants in Nos. 21-2623, 22-1953 & 22-2328 *(Under Fed. R. App. P. 12(a)) |
| Court | U.S. Court of Appeals — Third Circuit |
On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 2:16-cr-00130-001), District Judge: Honorable Eduardo C. Robreno
James T. Giles, Blank Rome LLP, 130 N 18th Street, One Logan Square, Philadelphia, PA 19103, Lance Rogers, Rogers Counsel, 26 East Athens Avenue Ardmore, PA 19003, Jed Silversmith, Law Offices of Jed Silversmith LLC, P.O. Box 2762, Philadelphia, PA 19118, Counsel for Appellant
Mark B. Dubnoff, Elizabeth M. Ray, Office of United States Attorney, 615 Chestnut Street, Suite 1250, Philadelphia, PA 19106, Counsel for Appellee
Before: KRAUSE, BIBAS, and RENDELL, Circuit Judges
Ill-gotten wealth is never stable. The government can forfeit and go after criminal earnings wherever they may be stashed—even in the hands of third parties. Though the criminal defendants themselves have myriad procedural rights, those rights do not transfer to whoever may be holding the tainted property. Instead, "innocent" third parties can hang on to the property only if they show that they really did get it innocently, either by paying good money for it or getting it before it was criminally tainted. They cannot challenge whether the property was rightly forfeited; only the defendant can do that.
Linda Hallinan tries to challenge the forfeiture orders against her father, the defendant. Because she cannot raise her father's challenges, we will affirm in part. And because the discovery orders that she challenges are not final, we will dismiss in part for lack of jurisdiction.
For more than fifteen years, Charles Hallinan ran twenty-six payday-lending companies. They flouted state criminal laws against usury, charging fees roughly equal to 780% interest per year. In total, these companies grossed nearly half a billion dollars. Eventually, a federal grand jury indicted Charles on seventeen counts, including two for RICO conspiracy. After a two-month trial, the jury convicted him on all seventeen. He was sentenced to fourteen years in prison and fined $2.5 million.
On top of all that, Charles had to forfeit $64 million in illicit gains from the RICO conspiracy. To recover that amount, the District Court's first forfeiture order covered a wide array of accounts, properties, and other assets. It also broadly ordered the forfeiture of "any interest in" the "Hallinan Payday Lending Enterprise." JA 50-51 ¶ 3. The District Court then amended that order to include assets uncovered later in the investigation. Charles did not object to these follow-up forfeitures.
But he had already given some of the forfeited property to his daughter Linda and his minor granddaughter L.B.S. So after the follow-up forfeiture orders, Linda filed ancillary claims to recover her interest in the assets. The District Court denied them. We review its findings of fact for clear error and its legal conclusions de novo. United States v. Lacerda, 958 F.3d 196, 216 (3d Cir. 2020).
To sue in federal court, a plaintiff must have both constitutional standing and a cause of action. Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125-28, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014). Constitutional standing comes from an injury; a cause of action gives the injured party the right to sue for redress. Federal causes of action are almost always created by statute. So we use "traditional tools of statutory interpretation" to discern a cause of action's elements and decide whether it "encompasses a particular plaintiff's claim." Id. at 127, 134 S.Ct. 1377.
Here, the forfeiture statutes' text and structure eliminate any "guesswork." Id. at 131, 134 S.Ct. 1377. The statutes wall off the defendant's legal rights in forfeited property from those of third parties through a two-stage process. At stage one, the only relevant party is the criminal defendant. For a RICO conviction, the defendant "shall forfeit" any "interest in" or "proceeds . . . from" the conspiracy. 18 U.S.C. § 1963(a). If the District Court finds that the property fits that description, it "must enter the [forfeiture] order without regard to any third party's interest in the property." Fed. R. Crim. P. 32.2(b)(2)(A) (emphasis added). Third parties may neither intervene in that forfeiture proceeding nor bring separate suits to assert their interests. 18 U.S.C. § 1963(i); 21 U.S.C. § 853(k). Instead, their interests "must be deferred until any third party files a claim in an ancillary proceeding." Fed. R. Crim. P. 32.2(b)(2)(A).
That ancillary proceeding is stage two. Only there can "[a]ny person, other than the defendant, asserting a legal interest" in the forfeited property bring a claim. 18 U.S.C. § 1963(l)(2); 21 U.S.C. § 853(n)(2). The court can amend the forfeiture order if the third party shows that she either (1) was a bona fide purchaser for value or (2) has an interest in the forfeited property that was vested or superior at the time of the crime. 18 U.S.C. § 1963(l)(6); 21 U.S.C. § 853(n)(6). Otherwise, the third party cannot "relitigat[e]" the underlying forfeiture order against the defendant. Fed. R. Crim. P. 32.2 adv. comm. n., subdiv. (b); cf. In re NFL Players Concussion Inj. Litig., 775 F.3d 570, 576 n.6 (3d Cir. 2014) ().
So to recover the property Charles forfeited, Linda must show either that she was a bona fide purchaser or that her interest is superior to the government's. United States v. 101 Houseco, LLC, 22 F.4th 843, 849-50 (9th Cir. 2022) (collecting cases); United States v. Lavin, 942 F.2d 177, 185 n.9 (3d Cir. 1991) ().
Linda does not say she was a bona fide purchaser. Nor does she make much of an effort to prove that her interest was or is superior to the government's. Under the "relation back" rule, all property rights vest in the government "upon the commission" of the crime. 18 U.S.C. § 1963(c); 21 U.S.C. § 853(c). The District Court credited the government's tracing expert and found that Charles's criminal enterprise got the assets before he gave them to Linda. Linda claims that no one used criminal funds to buy those assets. But that argument goes to the property's forfeitability, which is beyond the ancillary proceeding. She never contests the timeline showing that the criminal enterprise got them first. So the government took title before she did, making its interest superior. See 18 U.S.C. § 1963(l)(6)(A); 21 U.S.C. § 853(n)(6)(A).
There is one wrinkle. Linda says the underlying forfeiture orders did not directly forfeit the property that she seeks to recover. Instead, she says, the District Court forfeited it as substitute property. And that distinction could matter: the parties agreed that the government's interest in substitute property relates back to the time of the indictment, not the crime.
Linda may not challenge the method used in the underlying forfeiture order. But because it affects the superiority of her interest, she may seek to interpret that order. Yet she faces a steep climb. We review the District Court's reading of its own order for abuse of discretion, giving it "great deference." In re Asbestos Prods. Liab. Litig. (No. VI), 718 F.3d 236, 244 (3d Cir. 2013) (internal quotation marks omitted).
The District Court read its own orders to forfeit the relevant assets directly. In doing so, it did not abuse its discretion. True, the orders mentioned substitute property as an alternative theory. But the court reasoned primarily that these assets were simply later-discovered assets of the initially forfeited enterprise. Cf. Fed. R. Crim. P. 32.2(e)(1)(A). So the government's interest relates back to the time of the crime, trumping Linda's interest.
The rest of Linda's arguments challenge the forfeiture orders procedurally and substantively: Linda says the property was not forfeitable, the forfeiture was excessive, the district court bungled forfeiture procedure, Charles did not get due process, and so on. But only the defendant may challenge the forfeitures themselves. So these arguments are irrelevant to Linda's limited cause of action.
And though Linda gestures at her own due-process rights, she got all the process that she was due: notice and a hearing to prove that she was the rightful owner. Plus, she can petition the Attorney General for discretionary relief. 18 U.S.C. § 1963(g)(1); 21 U.S.C. § 853(i)(1). Those protections are enough. Libretti v. United States, 516 U.S. 29, 44, 116 S.Ct. 356, 133 L.Ed.2d 271 (1995) ().
Linda also challenges the subpoenas issued to her, her lawyers, and her bank. We lack jurisdiction over all three. As for the bank subpoena, a "court ruling denying" a bank customer's motion to quash is "not . . . a final order" and the customer may take "no interlocutory appeal" of it. 12 U.S.C. § 3410(d). Rather, the customer may appeal the ruling...
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