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Pietragallo's White Collar Criminal Defense Group

In today's environment, the government has never more aggressively regulated, investigated, pursued and prosecuted white collar crime. If you or your company becomes embroiled in any type of federal or state government investigation, you need experienced trial lawyers who have gone toe-to-toe with prosecutors and government agents.

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    New Jersey's New Anti-Corruption Programs: A Short-Term Solution to the AG's Long-Term Access to Information Problem

    What Happened? 

    On May 9, 2017, New Jersey Attorney General Christopher S. Porrino announced two new initiatives, the Anti-Corruption Reward Program and the Anti-Corruption Whistleblower Program, to fight public corruption by incentivizing people with valuable information to come forward to law enforcement. 

    The Rundown 

     The Issue the Incentives are Trying to Solve 

    New Jersey’s anti-corruption laws impose mandatory minimum terms of imprisonment and parole ineligibility for elected officials, government employees, and companies receiving public funds whose illegal behavior somehow relates to their public office or employment. Despite law enforcement’s persistent efforts to prosecute these cases, one of the main challenges they face is securing initial leads that provide the necessary information to form a case around the more dexterous defendants. In an effort to solve this problem, the Attorney General announced two initiatives aimed at gathering more information from the public and less culpable players in a scheme to help prosecute these public corruption cases. 

    The Anti-Corruption Reward Program

    The first initiative, the Anti-Corruption Reward Program, offers up to $25,000 to the public for tips leading to a conviction of a public corruption crime. The funding for the reward is supplied by the Attorney General’s office and comes from criminal forfeiture funds (money derived from crime surrendered to the state). In most cases, only the first person to come forward with unknown information will receive the reward. However, in some cases where two or more people provide different information, the reward may be apportioned. People coming forward with information under this program may not have participated in the crime at issue. Additionally, the reward is not available to government employees who learn of the crime through the course of their employment if they are obligated to report such crimes. 

    The Anti-Corruption Whistleblowing Program 

    The second initiative is the Anti-Corruption Whistleblower Program. This program encourages less-culpable persons involved with the crime at issue to report information in an exchange for an agreement with the Attorney General’s office to waive prosecution of the whistleblower. Individuals may choose to report the information anonymously and/or through an attorney to determine whether they are eligible for a waiver. Ultimately, it is the individual’s choice whether or not to proceed. The whistleblower must provide truthful and accurate information and must cooperate with investigators. Corporations may also apply for the program if: (1) the corrupt activity was committed by its employees; (2) the activity was committed without the knowledge, acquiescence, or participation of the high-level employees, officers, directors or shareholders seeking waiver of prosecution; and (3) the corporation took prompt action to terminate the illegal activity and report it to law enforcement. Elected officials, persons who had a controlling role in the scheme, or persons who enlisted others to join the scheme are not eligible to apply for the program. Whistleblowers that are eligible for the program should be cautioned that involvement in the program may result in the loss of their public employment. 

    For the Record 

    These new programs offer strong incentives for people to come forward confidentially and help us root out public corruption, whether they’re tipsters from the public seeking a reward, or public workers or others seeking to extricate themselves from a corrupt scheme.  By offering the programs for a limited time, we’re looking for swift results, and we will vigorously pursue every lead. -- Director Elie Honig of the Division of Criminal Justice, New Jersey. 

    The Take-Home 

    For now, the programs are only in effect until August 1, 2017. While they seem to directly confront the issue of getting necessary information from potentially hesitant sources, it is curious that the Attorney General’s office believes implementing these programs for a total of three months will help achieve this long-term goal. In fact, the limited duration of these programs begs the question: is there particular information the Attorney General’s office is looking for? Regardless, the use of these programs may illustrate whether the incentives are convincing enough to create opportunity for a more durable solution in the future. 


    Genesis Healthcare to Pay $53.6 Million to Settle Medical Necessity Allegations in Billing for Rehab and Hospice Care

    What Happened?

    On Friday, DOJ announced that Genesis Healthcare, Inc. had agreed to terms, including the payment of $53,639,288.04, to settle six separate lawsuits and investigations that alleged violations of the False Claims Act relating to allegations that Genesis had billed for medically unnecessary therapy and hospice services, and “grossly substandard” nursing care. The settlement covers operations at Genesis subsidiaries that it had acquired after most if not all of the conduct complained of had occurred. 

    The Rundown

    Hospice and Rehabilitation

    The agreement reached with DOJ includes settlement of allegations that from 2010 through March of 2013, Genesis subsidiary Skilled Healthcare Group Inc. (SKG) and its subsidiaries submitted false claims by (1) billing for hospice services for patients who were not terminally ill, and (2) billing inappropriately for certain physician evaluation management services at the SKG Creekside Hospice facility in Las Vegas. In addition, Genesis settled claims that from 2005 through 2013, SKG and its subsidiaries submitted false claims at certain facilities by providing therapy to certain patients longer than medically necessary, and/or billing for more therapy minutes than the patients actually received. This set of claims also included allegations that the SKG subsidiaries assigned patients a higher Resource Utilization Group (RUG) level than necessary. Genesis did not acquire SKG and its related entities until after all of the conduct at issue had occurred.

    Outpatient Therapy Charges

    The settlement announced on Friday also wrapped in allegations regarding Genesis subsidiaries Sun Healthcare Group Inc., SunDance Rehabilitation Agency Inc., and SunDance Rehabilitation Corp. Specifically, the settlement resolves allegations that from 2008 through September of 2013, those entities billed for outpatient therapy services provided in the State of Georgia that were (1) not medically necessary or (2) unskilled in nature. Sun Healthcare and the SunDance entities were acquired by Genesis in December of 2012.

    Allegations of Substandard Care

    The last piece of the Genesis settlement resolves allegations that between 2003 and 2010, Genesis subsidiary, Skilled LLC, submitted claims at certain of its nursing homes for services that were grossly substandard and/or worthless and therefore ineligible for payment. At the heart of the claims of worthless services were allegations that the nursing homes at issue did not provide sufficient nurse staffing to meet residents’ needs. Genesis acquired Skilled LLC in February of 2015.  

    For the Record

    At a time when the cost of healthcare weighs heavy on many taxpayers, it is imperative that people who illegally bill our healthcare system are held accountable and forced to pay restitution. -- Special Agent in Charge David J. LeValley, FBI Atlanta

    The Take-Home

    While nobody knows at this point what healthcare reform efforts will bring during this legislative session, there should be little doubt that cost-reduction through pursuit of allegations of fraud and abuse will be one of the hallmarks of any proposal. Medical providers, particularly those providing hospice and rehabilitative services, can expect continued scrutiny of their documentation of medical care provided and the medical bases for it.  


    Judge Rakoff Pans Sentencing Guidelines, Grants Substantial Variance in Fraud Case

    When he appeared before U.S. District Judge Jed Rakoff (S.D.N.Y.) for sentencing on June 14, 2017, Stefan Lumiere, a former analyst and portfolio manager at Visium Capital Management LP, was facing a 97-121-month range of imprisonment under the U.S. Sentencing Guidelines.  The advisory range for Lumiere, who was found guilty by a jury for securities fraud and related crimes regarding to the overvaluation of a $480 million health care hedge fund, was largely driven by a loss amount calculated in the tens of millions of dollars.

    Lumiere boldly requested a non-custodial sentence. In support of that outcome, Lumiere argued that he had earned no money beyond his $200,000 salary (relatively modest for the market, his position, and the industry) based on the performance of the fund, and thus had not benefited significantly from the conduct. He also noted that he had no role investor communications; accordingly, he had not made the misrepresentations regarding the fund’s value that were at the root of the scheme. Finally, he focused on his positive personal characteristics, including his extensive volunteer work and his dedication to his family. In that vein, Lumiere submitted more than 60 character letters from family, friends, and colleagues.

    While Judge Rakoff declined to impose a non-custodial sentence, he varied sharply downward from the Guidelines range.  He railed against the punitive nature of the Guidelines in general, and as applied to Lumiere. In this case, as in many, the range they produced bore no relationship to the statutory factors – such as the history and characteristics of the offender, the nature and circumstances of the offense, and the need for just punishment – that the Court was required to apply under 18 U.S.C. § 3553(a). After evaluating all of the evidence in light of the § 3553(a) factors, Judge Rakoff sentenced Lumiere to 15 months’ imprisonment and a $1 million fine.

    The outcome demonstrates that effective sentencing advocacy can make a substantial impact in federal court.  But perhaps even more important is drawing the right audience, a judge who is willing to approach the U.S. Sentencing Guidelines with rigorous analysis and healthy skepticism in determining whether they produce a just result in the instant case. 


    Unanimous Supreme Court Limits Key SEC Bargaining Chip

    On Monday, the Supreme Court resolved an ongoing circuit split in its unanimous Kokesh v. Securities and Exchange Commission decision, putting to rest the question of whether or not disgorgement is subject to a 5-year limitations period.  Disgorgement is a form of restitution that is measured by the defendant’s ill-gotten gain.  The remedy seeks to deprive the defendant of any profits and remove any rewards associated with the unlawful conduct.  A main purpose of disgorgement is to deter the defendant from repeating the same or similar violation in the future.  In some cases, the Securities and Exchange Commission (“SEC”) uses this remedy as leverage in settlement negotiations. 

    The circuits have been split as to whether disgorgement constitutes a penalty, forfeiture, or neither, for purposes of imposing the 5-year limitations period required by 28 U.S.C.A. § 2462.  Imposing the limitation would prevent the SEC from seeking disgorgement on ill-gotten gains obtained more than five years prior to the action.  Some circuits were imposing the 5-year limitations period after finding disgorgement to be a penalty or forfeiture, while others, such as the 10th Circuit, found that § 2462 did not apply to disgorgement at all.  Justice Sotomayor, writing for the Court in Kokesh, finally answers the question – disgorgement is a penalty and is subject to the 5-year statutory limitations period.

    In Kokesh, the SEC brought an enforcement action after Kokesh allegedly misappropriated $34.9 million from four businesses from 1995-2009.  After a jury found Kokesh’s actions in violation of the Investment Company Act of 1940, the District Court imposed an injunction, civil monetary penalty, and disgorgement.  The District Court held that disgorgement is neither a penalty nor a forfeiture for the purposes of § 2462.  Thus, disgorgement was awarded based on Kokesh’s ill-gotten gains over the entire fourteen years.  The total remedies amounted to $2,354,593 for the civil monetary penalty and $34.9 million for the disgorgement judgment.  The 10th Circuit affirmed this decision.

    The Supreme Court unanimously disagreed.  Several aspects of disgorgement convinced the Court that the remedy is punitive in nature.  First, disgorgement is a court-imposed consequence for violating a public law effecting the Government, as opposed to an action against a private victim.  Second, disgorgement acts as a deterrent for future violations by taking away the ill-gotten gains from the violator.  While the Government tried to argue that disgorgement is compensatory rather than punitive, the Court was not persuaded.  Ill-gotten gains are not always returned to the victims, and in some instances, may be sent to the Treasury instead.  

    The practical effect of Monday’s decision is that Kokesh’s disgorgement judgment will go from $34.9 million to no more than $5 million.  This sizeable decrease illustrates the important issues that may arise from the Kokesh decision, like will the implementation of a limitations period for disgorgement weaken the deterrent effect sought after in the first place?  Only time will tell. 


    Ohio Attorney General Sues Pharmaceutical Companies Over Opioid Marketing - Yet Another Sign of Government Focus on Recovering Financial Cost of Opioid Epidemic

    Last week, Ohio Attorney General Mike DeWine filed a lawsuit against multiple pharmaceutical companies, including Purdue, Teva, Johnson & Johnson, and Janssen.  The suit alleges that, beginning in the late 1990’s, the companies disseminated false information about the risks and benefits of long-term opioid use through million dollar marketing schemes intended to de-stigmatize opioids and increase their use for chronic pain. 

    The complaint describes direct marketing campaigns targeting doctors, as well as reliance on prestigious physicians in the pain management field and front groups—who held themselves out as independent patient advocacy organizations, yet received almost all of their funding from pharmaceutical industry sources—to spread misinformation and to make false statements that the CDC and the FDA had proven to be untrue.  One example of the alleged misinformation was the assertion that opioid users showing signs of addiction, like requesting drugs by name, manipulative behavior, seeing more than one doctor to obtain opioids, and hoarding, were actually being undertreated and should be prescribed higher dosages of opioids.  According to the complaint, pharmaceutical companies and the doctors associated with them referred to this phenomenon as “pseudoaddiction,” and falsely claimed that it was supported by scientific evidence.  This deceptive marketing, the Ohio AG claims, caused Ohio doctors to overprescribe opioids for chronic pain conditions, directly resulting in the dramatic increase in opioid addiction, overdose, and death.

    The financial burden associated with the opioid epidemic in Ohio, and across the nation, has been astronomical.  Costs include the more obvious expenses, like the costs of the prescriptions themselves, and for treatment and counseling that are paid for by government health programs.  The epidemic carries extremely costly collateral consequences as well, including higher expenditures relating to unemployment, the increased need for child protection services, and medical care for babies born with opioid addiction.  For example, the Ohio complaint alleges that the state spends an estimated $45 million per year for placement costs of children in custody because their parents abuse opiates, and that Ohio’s child protection agencies experienced a nine percent increase in the number of children in foster care between 2011 and 2015.

    Ohio is not the first state hit hard by the opioid epidemic to sue pharmaceutical companies.  West Virginia, which has the highest rate of fatal opioid overdoses in the country, reached a $36 million settlement in January related to a 2012 lawsuit alleging that drug companies knowingly sold millions of pills to pharmacies that distributed the medication without proper oversight and inundated the state with painkillers.  Mississippi has also filed a similar lawsuit, as have counties in Illinois, New York, and California; the cities of Everett, Washington, and Chicago, Illinois; and the Cherokee Nation.  These states and local municipalities hope to use litigation to recover costs associated with rampant opioid abuse from the pharmaceutical industry. 

    The Ohio complaint states causes of action under Ohio’s Product Liability Act, the public nuisance law, the Ohio Consumer Sales Practices Act, Medicaid Fraud, and common law fraud.  Several of the defendants are also named in a cause of action under the Ohio Corrupt Practice Act, akin to a federal RICO claim.  Among other relief, Ohio demands damages for the funds paid by its Department of Medicaid and Bureau of Workers’ Compensation for excessive opioid prescriptions as well as restitution for Ohio consumers who paid for excessive prescriptions of opioids for chronic pain.

    As the opioid epidemic continues, pharmaceutical companies and their individual executives, as well as sales and marketing staff, could face criminal charges if evidence shows that they intentionally lied about the safety of their products.  In 2007 for example, Purdue Pharma, the maker of painkiller OxyContin, pleaded guilty to criminal charges alleging that it misled regulators, doctors and patients about the risk of becoming addicted to the drug.  Three of the company’s top executives also pleaded guilty individually to related charges.  It is possible that the recent civil litigation against pharmaceutical companies could spawn similar criminal investigations.

    Doctors who prescribe painkillers, as well as the pharmacies that distribute them, are also likely to continue to face increased scrutiny as the federal and state governments struggle to control the opioid crisis.  A review of Department of Justice press releases found that, so far this year at least 26 medical professionals have already been convicted, charged or sentenced in federal courts in Ohio, Pennsylvania, and West Virginia for offenses relating to unlawful distribution of prescription drugs. 

    The epidemic could also be leading to increased oversight of government funded treatment facilities and anti-drug programs to ensure that such entities comply with regulations and do not abuse the heightened demand for their services.  For example, the former CEO of a company contracted to provide substance abuse treatment to California students pleaded guilty to federal charges relating to allegations that the company submitted more than $50 million in fraudulent claims for treatment services that it never provided.  Similarly, the New York State Attorney General has also targeted treatment programs in its state, and recently indicted the owners of multiple Medicaid-enrolled drug treatment centers and three-quarter houses in an illegal kickback scheme, which included money laundering and grand larceny charges.  It is likely that similar prosecutions will continue to result from law enforcement efforts to combat opioid abuse and increased national attention on the issue.


    A Special Prosecutor - Another Way to Look at it for the Trump Administration

    No President, no executive branch member, no cabinet member wants to have a special prosecutor appointed to investigate him, her or them.  However, if the past is prologue, the special prosecutor appointed makes all the difference in the world.  One need go no further than Kenneth Starr, Whitewater, and the entire Clinton investigation, as an example of how far-reaching a special prosecution can be.

    Mr. Starr is, and was, a gifted appellate lawyer, appellate judge, academician, and writer.   What he wasn’t was a prosecutor.  Moreover, he had no investigative background of any kind.  Hence, with history as our guide, one sees that it became a prosecution completely out of control at every level. At the end of the day, the President was acquitted by the Senate and the prosecuting party was hurt by the process.  An argument can be made that the country and all three branches of government were hurt as a result of it.

    Former FBI Director Robert Mueller is exactly the type of special prosecutor one would want involved in a case to lend credibility and integrity to the end result.  Mr. Mueller served under a Republican administration, and he was confirmed 100 to zero for his tenure to be extended by a Democratic President.  Mr. Mueller is a 72-year old veteran of the United States Marine Corps.  He earned his undergraduate degree from Princeton University, a Master’s degree in International Relations from New York University, and a law degree from the University of Virginia School of Law.  In addition to his tenure at the FBI, Mr. Mueller’s public service has included time as a prosecutor in the U.S. Attorneys’ Offices for the Northern District of California, the District of Massachusetts, and the District of Columbia.  He also served as an Assistant to Attorney General Dick Thornburgh during the late ‘80s and early ‘90s when he oversaw the prosecutions of Manuel Noriega and Gambino crime family boss John Gotti.  He has a reputation for competency, expertise in difficult prosecutions, and, most importantly, absolute discretion.  

    Leaks are impossible to stop when an active criminal investigation is occurring in Washington. Everyone who knows Special Prosecutor Mueller believes that if there isn’t anything there, he is not going to proceed.  He is not likely, unless forced by Congress, to issue a scathing or sensational report made up of  yet unproven reports.  He is someone who understands the importance of getting to the bottom of whether something happened or not. 

    Frankly, Mr. Mueller’s appointment as Special Prosecutor should provide all involved with a level of comfort that the investigation will be handled efficiently and appropriately.  This should allow the President of the United States to get back to addressing policies important to the American people, knowing that the President’s actions and those of his colleagues will be investigated in an even-handed manner.


    Electronic Health Records Vendor to Pay $154.92 Million for FCA Violations

    eClinicalWorks, one of the largest electronic health record vendors in the United States, settled FCA violations related to its software, the DOJ announced on May 31.  The FCA suit was a qui tam action filed by a whistleblower in the District of Vermont, alleging that eClinicalWorks misrepresented the capability of its software used to maintain electronic health records (“EHR”).  The company received federal funds provided to EHR vendors like eClinicalWorks to adopt certified technology necessary to the accuracy and security of personal health data.  To receive federal funds, however, an EHR vendor must truthfully certify that its software met these requirements which are established by HHS and verified by an independent certifying agency.

    The United States joined the qui tam case through its complaint-in-intervention, alleging that eClinicalWorks concealed from the certifying agency the non-compliant nature of its software and, as a result, falsely obtained its certification.  The government claimed that, for example, the software did not accurately record user actions through its audit function and did not satisfy the data portability requirement to allow the transfer of patient health information from one EHR vendor to another. 

    Under the settlement, eClinicalWorks and three of its founders – the CEO, the COO, and the Chief Medical Officer – accepted joint and several liability for the payment of $154.92 million.  Three other employees, one a software developer and the two others, project managers, will each pay $50,000 and $15,000, respectively.  The settlement also includes a corporate integrity agreement with the HHS Office of Inspector General requiring eClinicalWorks to take remedial measures and subject itself to monitoring of its software quality control systems by an oversight agency.  The whistleblower, a software technician, will receive approximately $30 million under the False Claims Act.

    The DOJ press release, the United States’ complaint-in-intervention, and the Corporate Integrity Agreement can be found here, here, and here, respectively.


    U.S. to Banamex USA: Only 10 Investigations into 18,000 Banking Alerts is Absurd

    Last week, the U.S. Department of Justice announced a non-prosecution agreement (“NPA”) between Banamex USA, a California bank with significant operations in Mexico, related to alleged U.S. Bank Secrecy Act (“BSA”) violations.  The government’s investigation, which took place over the past several years, revealed that Banamex USA willfully failed to employ sufficient controls to prevent money laundering and willfully failed to file Suspicious Activity Reports related to questionable banking transactions.  The United States claimed Banamex USA processed over 30 million payments to Mexico worth more than $8.8 billion.  Despite this volume, Banamex USA conducted less than 10 investigations into questionable transactions although its monitoring system issuing over 18,000 alerts from 2010 to 2012.  In the NPA and the associated factual stipulations, Banamex agreed to the violations as well as to the forfeiture of $97 million and other remedial measures.

    The NPA follows several years of legal concerns regarding Banamex USA.  Last week’s DOJ press release also referenced the FDIC’s June 2015 assessment of a $140 million penalty for Banamex USA’s failure to implement an effective BSA/AML compliance program.  The combined penalties from the FDA assessment and the recent DOJ forfeiture is roughly $237.44 million.

    Also, as covered by White-Collared  in March 2014 (here), $585 million in fraudulent accounts receivable loans made by Banco Nacional de Mexico, Banamex USA’s affiliate in Mexico, led their corporate parent, Citigroup, Inc., to downwardly adjust its 2014 financial results.  Of the $585 million received by the borrower, Oceanografia S.A. de C.V., only $185 million was backed by actual accounts receivables.  The 2014 announcement coincided with Citigroup’s annual filing which – in an ironic turn of events – disclosed that Banamex received subpoenas from the FDIC and DOJ regarding compliance with the U.S. Bank Secrecy Act and other AML requirements.

    The link to the DOJ press release and the NPA can be found here and here, respectively.


    Second Circuit Applies Abatement Ab Initio to Criminal Fines

    Score one for the defendants – at least those who die while their criminal appeals are pending. In United States v. Libous, the U.S. Court of Appeals for the Second Circuit vacated the conviction of the late New York State Senator, Thomas Libous, and ordered a $50,000 criminal fine that he paid to be reimbursed to his estate.

    On July 22, 2015, Libous, the Deputy Majority Leader in the New York State Senate, was convicted of making false statements to the FBI during a public corruption investigation about his efforts to secure his son a job at a law firm. He avoided prison time, in part because he had been diagnosed with advanced-stage prostate cancer, and was sentenced to six months’ house arrest and two years’ probation. He was also ordered to pay a fine of $50,000 and a $100 special assessment. In May 2016, after noticing his appeal but before filing an appellate brief in the Second Circuit, Libous passed away. The executrix of Libous’s estate moved to withdraw the appeal, to vacate the underlying judgment of conviction, and for remand to the district court for dismissal of the indictment and entry of an order that the fine and special assessment be remitted to the estate.

    Acknowledging the applicability of abatement ab ignitio – a common law doctrine which states that a conviction abates when a defendant dies pending an appeal as of right – the government agreed that Libous should be relieved of the conviction. However, it argued that Libous’s estate was not entitled to the fine or special assessment that Libous paid.

    The three-judge panel unanimously ruled in favor of the estate, holding that, as Libous “stands as if he had never been convicted . . . [h]e is no longer a wrongdoer.” The government could not retain a fine extracted for an offense that Libous, given his death while his appeal was pending, was presumed not to have committed.

    The panel found support for its ruling in the U.S. Supreme Court’s recent decision in Nelson v. Colorado, 137 S. Ct. 1249 (2017). There, the Court held that the Fourteenth Amendment’s due process clause required the refund of fees, costs, and restitution whenever a reviewing court invalidates a conviction and no retrial will occur. In so holding, the panel rejected the government’s concern that abating the fine, which was levied on Libous while he was alive, would delegitimize the punishment. Per the panel, it was not determining that Libous was wrongly punished, but rather that there was no longer a valid conviction to support the fine.

    United States v. Libous stands in contrast to United States v. Schumann, 861 F.2d 1234 (11th Cir. 1988) and United States v. Zizzo, 120 F.3d 1338 (7th Cir. 1997), both of which held that abatement ab ignitio did not apply to fines paid by defendants before their deaths. The Second Circuit panel found those cases unpersuasive because they did not account for the due process underpinnings of the doctrine, and it questioned their vitality in light of the Supreme Court’s decision in Nelson


    Not So Fast: The Pennsylvania Supreme Court's Check on Civil Asset Forfeiture

    A dialogue has been ongoing in this country regarding the ability of the government to seize property that is alleged to be connected with criminal conduct.  We have all seen forfeiture notices attached to federal indictments, and we have seen District Attorneys and State Attorneys General file civil actions against “bad” property, including cars, homes, cash, and more.  On May 18, 2017, USA Today ran an article entitled “How Police Steal From Citizens,” wherein op-ed contributor Payton Alexander notes that at least 15 states are considering legislation to cut down on civil asset forfeiture, or eliminate it completely.  Here, in Pennsylvania, we might not have to wait for the legislature.

    On May 25, 2017, in a lengthy and detailed opinion by Justice Debra Todd, the Pennsylvania Supreme Court struck down the seizure of a 71-year-old disabled grandmother’s home and vehicle by the Philadelphia District Attorney’s Office.  Elizabeth Young was home on bedrest when her son, 50-year-old Donald Graham was arrested for selling marijuana out of the home and car owned by his mom.  Ms. Young unsuccessfully asserted an innocent owner defense at the trial court level in an attempt to save the rowhome in which she lived for the past 40 years. 

    The Pennsylvania Supreme Court held that the analysis of a forfeiture action begins with a determination of whether the property is an instrumentality of a crime.  If it is found to be an instrumentality, a proportionality analysis must be undertaken.  The Court explained in great detail a non-exhaustive list of factors to be considered in weighing the value of the property to be seized against the gravity of the crime.  In this particular case, the District Attorney’s Office argued, in part, that Mr. Graham sold drugs out of his mother’s home for years, thus placing neighbors and investigating officers in harm’s way.  The Supreme Court found this analysis to be insufficient and flawed.

    Perhaps the issue of greater importance addressed by the Court was that of Ms. Young’s innocent owner defense.  Justice Todd explained that the trial court must identify the circumstances that make it reasonable to infer that the owner of the property had actual knowledge of the criminal conduct in order for the Commonwealth to defeat the innocent owner defense.  The Court noted the difficulty a property owner might have in “proving a negative,” i.e. that she did not have knowledge of the crimes.  The Court added that a home is an “especially significant type of property.”  “The loss of one's home, regardless of its monetary value, not only impacts the owner, but may impact other family members, and one's livelihood. Indeed, the home is where one expects the greatest freedom from governmental intrusion; it not only occupies a special place in our law, but the most exacting process is demanded before the government may seize it.”  The Supreme Court held that the trial court did not sufficiently consider all of the relevant circumstances in evaluating Ms. Young’s evidence proffered in support of her defense.  The case has been remanded.

    Pennsylvania is known to be a political swing state and can be viewed as a bellwether on certain important issues.  Only time will tell whether this most recent decision of the Pennsylvania Supreme Court will lead the pack in nationwide reform of civil asset forfeiture.

    Commonwealth v. 1997 Chevrolet, et al., can be found on the Court's website here or at 2017 WL 2291733.

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