medications into a chain of illegal commerce.
The Government submissions show probable cause to believe that the in rem defendant Joseph Beauty Supply and the Claimant Jose Vargas engaged in "financial transactions" (which are defined by § 1956(c)(3) and (4) to include a "purchase" or "sale" that involves "movement of funds . . . affecting interstate commerce") in that they purchased and resold medications that were in the illegal stream of commerce described above, that these medications were the "proceeds" of mail fraud, and that by engaging in these purchases and sales they intended to promote the mail fraud, by creating a market for such fraudulently diverted medications.
The Government has thus demonstrated that, upon a showing of probable cause, seizure of the assets of Joseph Health and Beauty Supply was within the standards of § 981, incorporating § 1956 and § 1341. Furthermore, although there are certain weaknesses in the Government's showing of probable cause (which were discussed in the record of the hearing on October 9, 1992), I agree with Judge Freeh that the Government has succeeded in showing probable cause.
There is one exception -- the seized bank accounts. The Government has failed to show probable cause for their seizure. The only showing that the bank accounts were "involved" in transactions that violated § 1956 is the assertion in the Government's affidavit that a prescription drug wholesaler in Puerto Rico wrote at least two checks to Joseph Beauty Supply that were returned for insufficient funds. The Government argues a reasonable inference can be drawn that the checks passed through the seized bank accounts. The inference does not follow. There are other means of negotiating checks than through bank accounts. Moreover, even if the checks did pass through a bank account in the control of Joseph Health and Beauty Supply or Vargas, the Government has not shown probable cause that the checks passed through either of the seized accounts, much less both of them. Thus, the seizure of the bank accounts was not lawful.
In United States v. All Assets of Statewide Auto Parts, No. 92-6015, decided August 3, 1992, the Court of Appeals directed that absent an extraordinary situation, the district courts should "exercise their discretion to stay civil forfeiture proceedings pending the completion of related criminal proceedings against the claimants." The Court of Appeals recommended that "whenever possible [the district court] should favor less drastic measures, such as occupancy agreements, bonds, receiverships, lis pendens, or other means for preserving the status quo ante seizure" until adjudication of the underlying questions. This ruling by the Court of Appeals was motivated by the draconian "finality" of harm that can result from seizure orders, even though they are but provisional remedies, sometimes obtained ex parte, and require only a showing of probable cause, regardless of the existence of rebuttal or impeaching evidence. Solely on the basis of probable cause as to the existence of illegal transactions, entire legitimate businesses may be shut down, their bank accounts frozen, and their legitimate operating cash seized.
At the Part I hearing, Judge Freeh considered the arguments advanced by claimant based on Statewide Auto Parts. Judge Freeh decided that the public interest in preventing illegal distribution of prescription medicine outweighed other factors in the record before him, making pretrial seizure appropriate. I believe that ruling was within Judge Freeh's discretion under Statewide Auto Parts, and I therefore decline to vacate Judge Freeh's seizure order as to the leasehold of Joseph Health and Beauty Supply.
Notwithstanding my denial of the motion to vacate Judge Freeh's order permitting seizure, there is a reasonable question as to (1) whether the court should require the Government to permit the claimant to occupy the seized premises for the conduct of lawful business during the pretrial period;
and (2) whether the seizure of all of the cash funds found at Joseph Health and Beauty Supply went beyond what was attributable to lawful activity.
Claimant is invited to make prompt submissions to support a showing that he should be allowed to occupy the seized premises pending trial, see Statewide Auto Parts, supra, and that the seizure of all cash funds was excessive, see U.S. v. $ 448,342.85, supra (discussing appropriate tracing presumptions) United States v. Banco Cafetero Panama, 797 F.2d 1154 (2d Cir. 1986) (same).
The Government is ordered to release immediately the bank accounts seized. Otherwise, claimant's motion for reconsideration of Judge Freeh's order is denied.
Dated: New York, N.Y.
October 14, 1992
Pierre N. Leval, U.S.D.J.