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UNITED STATES v. AMBROSIO

October 31, 1983

UNITED STATES of America,
v.
Francis AMBROSIO, Anthony Farino, Jack Farino, Amfar Asphalt Corporation, Herbert Hochreiter, Lizza Industries, Inc., James J. Pratt and Pratt & Pratt, Inc., Defendants.



The opinion of the court was delivered by: MISHLER

Memorandum of Decision and Order

MISHLER, District Judge.

 Defendant Herbert Hochreiter is charged in Count 98 of the indictment with a RICO violation. 18 U.S.C. §§ 1962-63. The indictment further charges that "[a]s a result of this violation as alleged in this count, the ownership interests of the defendant Herbert Hochreiter in Lizza Industries, Inc., namely, 30%, are, to their full extent, subject to forfeiture to the United States of America pursuant to the provisions of Title 18, United States Code, Section 1963(a)." A restraining order was granted ex parte on July 10, 1983 pursuant to 18 U.S.C. § 1963(b). *fn1"

 The order enjoined Hochreiter and Lizza Industries, Inc., ("Lizza") from transferring or depleting a substantial portion of Lizza's assets except upon thirty days advance notice to the United States Attorney. On July 27, 1983, the court vacated the restraining order against Lizza because Lizza was not charged under 18 U.S.C. §§ 1962-63 and its property was not subject to forfeiture. *fn2" The United States now moves to reinstate the restraining order against Lizza. The government argues that a restraining order is necessary because defendant Hochreiter's "interest" in Lizza is subject to forfeiture and the value of that "interest" is subject to preservation of Lizza's assets. *fn3" This case poses the difficult question of the extent a court may encumber the property of an "innocent" third party in order to preserve the "interests" of the government in the defendant's potentially forfeitable property.

 DISCUSSION

 Title IX of the Organized Crime Control Act of 1970, the Racketeer Influenced and Corrupt Organizations Act (RICO) *fn4" was "enacted in response to what Congress perceived as the threat to the American economy from the unchecked growth of organized crime." United States v. Huber, 603 F.2d 387 (2d Cir.1979) (citing United States v. Parness, 503 F.2d 430, 439 (2d Cir.1974), cert. denied, 419 U.S. 1105, 95 S. Ct. 775, 42 L. Ed. 2d 801 (1975)), cert. denied, 445 U.S. 927, 100 S. Ct. 1312, 63 L. Ed. 2d 758 (1980). "The purpose of RICO is to enable law enforcement authorities not only to punish individual criminals, but to separate the corrupt interstate enterprises in which they were involved from their criminal organizations so that prosecutions will do more than merely impose a "compulsory retirement and promotion system as new people step forward to take the place of these convicted." Huber, supra, at 392 (quoting S.Rep. 91-617, 91st Cong., 1st Sess. 78 (1969)).

 In addition to the traditional penalties of fine and incarceration, *fn5" RICO provides that the convicted defendant forfeit to the United States

 (1) any interest he has acquired or maintained in violation of section 1962, and (2) any interest in, security of, claim against, or property or contractual right of any kind affording a source of influence over, any enterprise which he has established, operated, controlled, conducted, or participated in the conduct of, in violation of section 1962.

 18 U.S.C. § 1963(a).

 This forfeiture provision was arguably designed primarily to separate the convicted racketeer from the enterprise. See generally, Taylor, Forfeitures Under 18 U.S.C. § 1963 -- RICO's Most Powerful Weapon, 17 Am.Crim.L.Rev. 379 (1980) (hereinafter cited as Taylor). A hotly debated issue is whether RICO's forfeiture provision was intended only to separate the defendant from the enterprise or whether it was intended to be used also as a criminal penalty. Compare United States v. Marubeni America Corp., 611 F.2d 763 (9th Cir. 1980), with United States v. Martino, 681 F.2d 952 (5th Cir.1982). The government argues here that if Hochreiter is convicted of violating RICO, then Hochreiter will have to forfeit his 30% ownership interests in Lizza. The government is equating RICO's "interest" provision with "assets" of the corporation. In contrast, the defendants are equating "interest" with ownership of the stock in the corporation. The definition of "interest" is a difficult question, one that the U.S. Court of Appeals for the Second Circuit declined to decide in United States v. Walsh, 700 F.2d 846, 857 (2d Cir.1983) and which is presently before the United States Supreme Court in United States v. Martino, 681 F.2d 952 (5th Cir.1982), cert. granted sub nom. Russello v. United States, 459 U.S. 1101, 103 S. Ct. 721, 74 L. Ed. 2d 948 (1983) (oral argument heard on October 5, 1983). We do not decide this difficult question because assuming arguendo the government has an interest in 30% of the assets of Lizza, a restraining order prohibiting the transfer or depletion of its assets would deprive Lizza of its property without due process of law. *fn6"

 I. Due Process and Forfeiture Proceeding

 Due process requirements in in personam forfeiture proceedings differ from due process requirements in in rem forfeiture proceedings. An in rem forfeiture involves relinquishment of contraband or property which has been used in the commission of a criminal offense. Note, Rico Forfeitures and the Rights of Innocent Third Parties, 18 Calif.U.L.Rev. 345, 349 (1982) (hereinafter cited as Rights of Innocent Parties). Federal and state statutes authorize such forfeitures. See, e.g., 18 U.S.C. § 1082 (1976) (illegal gambling); 18 U.S.C. § 3612 (illegal bribes); 18 U.S.C. § 3615 (liquor violations); 49 U.S.C. § 782 (narcotics violations). Almost any instrumentality used in a criminal offense may be subject to an in rem forfeiture. See Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 683, 94 S. Ct. 2080, 2092, 40 L. Ed. 2d 452 (1974) (yacht used to transport controlled substances forfeited). Indeed, in rem forfeitures have become established in criminal jurisprudence. See id.; Goldsmith-Grant Co. v. United States, 254 U.S. 505, 511, 41 S. Ct. 189, 191, 65 L. Ed. 376 (1921).

 In rem forfeitures have been challenged under due process clause of the fifth amendment. The owners have claimed that they are being deprived of their property without committing any wrongdoing. See e.g., Calero-Toledo, supra, 416 U.S. at 683, 94 S. Ct. at 2092. In an in rem proceeding, however, the instrumentality, and not the owner of the property, is considered the offender. Goldsmith-Grant, supra, 254 U.S. at 511, 41 S. Ct. at 191. Thus, the penalty is imposed directly upon the thing because it is guilty. This is "the only adequate means of suppressing the offense or wrong, or insuring an indemnity to an injured party." United States v. Brig., 43 U.S. (2 How.) 210, 233, 11 L.Ed 239 (1844). The Supreme Court has upheld in rem forfeitures by tracing its roots to Judeo-Christian practices. E.g., Calero-Toledo, supra, 416 U.S. at 680, 94 S. Ct. at 2090.

 "In an in rem proceeding, because the property subject to forfeiture is itself considered offensive to the law, the owner is considered a third party." Rights of Innocent Third Parties, supra, at 350. The owner's innocence is not a defense to the in rem forfeiture, Calero-Toledo, supra, at 680, 94 S. Ct. at 2090, and the claim of a due process violation will fail. Id. "Despite the proliferation of in rem forfeiture enactments, the innocence of the owner of the property subject to forfeiture has almost uniformly been ...


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