The opinion of the court was delivered by: ARTHUR D. SPATT
The methods of contemporary telemarketing have become sophisticated in the "information age," relying a great deal on demographic statistics and public opinion surveys. One popular method used in telemarketing is selecting potential customers from mailing list data bases that have been refined to delineate their addressees by any number of possible criteria and characteristics. Indeed, such lists are so fundamental and useful in direct mail advertising or contribution solicitation that they are bought and sold through brokers in an open market, much like other commodities.
Moreover, to survive in today's competitive business environment some businesses utilize aggressive telemarketing techniques. The character of such techniques, often accompanied by bodacious hyperbole, at times borders on deceit and creates a shady area between sharp sales practice and criminal fraud.
In the present case, the Court is asked to determine whether a business using refined mailing lists to aggressively solicit customers for inclusion in its version of a "Who's Who" registry crossed the hazy line from sharp sales practice to criminal fraud. The Government contends that the line was crossed, and has seized certain of the companies' bank accounts, totalling an estimated $ 511,731. On the other hand, the companies contend that at the worst their conduct constituted sales "puffery," but not criminal fraud. They move to dismiss the in rem seizure warrant on the ground that no crime has been committed, and cry foul at the Government's ex parte seizure of their bank accounts, which they contend has virtually destroyed their business.
1. The Bruce Gordon "Who's Who" Businesses. The companies involved in this case are Who's Who Worldwide Registry, Inc. ("Worldwide"), Sterling Who's Who, Inc. ("Sterling"), Who's Who Executive Club, Who's Who Worldwide Communications, Tribute Magazine, Registry Publishing, Inc., Publishing Ventures, Inc., Who's Who of Retailers, and William's Who's Who (collectively the "Companies").
Bruce Gordon ("Gordon") founded the Companies with investment capital supplied by his brother and sister-in-law (Gordon and the Companies are also collectively referred to as the "Petitioners"). Gordon does not own the Companies, but he does control them. The Companies are not affiliated in any way with the entity that originally published the "Who's Who" directory in the United States, Marquis Who's Who, which is presently owned and published by Reed Elsevier, Inc. ("Reed Elsevier"). Indeed, because of Gordon's use of the term "Who's Who" in his companies' names, Reed Elsevier commenced a civil action against Worldwide under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) for trademark infringement and false designation of origin. See Reed Elsevier, Inc. v. Who's Who Worldwide Registry, Inc., CV 92-3959 (ADS). That case was tried by consent of the parties before former United States Magistrate Judge David F. Jordan, who issued a decision on March 31, 1994 finding that Reed Elsevier's mark was infringed, and among other things awarding $ 1,649,000 in damages to Reed Elsevier. As a result of not being able to satisfy the judgment Worldwide filed a petition for Chapter 11 bankruptcy protection. Judge Jordan's decision is presently being appealed to the United States Court of Appeals for the Second Circuit.
Gordon incorporated Worldwide in November, 1989. The business originally entailed publishing "Who's Who Worldwide Registry" ("Worldwide Registry"), and soliciting customers to purchase a membership in the registry. Customers designated for solicitation were selected by using various mailing lists of corporate executives and other professional people. Described in more detail later in this opinion, the solicitation process used by Gordon consists of sending a letter to the potential customer, informing them that they had been "nominated" for inclusion in the registry, and that their inclusion in the registry has been confirmed by Worldwide's officers. The letter also states, among other things, that (i) the Worldwide Registry is a leading publication of accomplished individuals, (ii) inclusion in the registry is limited to exceptional people who are prominent or successful in their field, and (iii) that inclusion in the registry is without cost or obligation to the customer. The solicitation letter also includes a biographical questionnaire for the customer to complete and return, if they wish to be considered for inclusion in the registry.
After receiving the biographical information, the company contacts the customer and aggressively solicits them to purchase a membership in the registry. Membership includes receiving a copy of the bound volume of Worldwide Registry, which lists all of the members and certain biographical information in coded form. The salesperson making the membership solicitation to the customer reiterates that membership in the Worldwide Registry is selective and prestigious. Networking among Worldwide Registry members is also stressed as a unique aspect of membership. In order to make the purchase more attractive, members are also offered a commemorative plaque and camera ready art as part of a membership purchase.
By 1994, Gordon's business had expanded to comprise several "Who's Who" entities with over 60,000 members. In addition to the Worldwide Registry, several other "Who's Who" registries were also being published, including the Who's Who Worldwide Registry Sterling Edition ("Sterling Edition"), the Who's Who Executive Club Registry ("Executive Club Registry"), which consists of the members and listees in the Worldwide Registry and Sterling Edition, and the Who's Who of American Business Leaders, 1991 Edition. Customers can purchase lifetime, five-year, three-year, corporate or associate membership. Listing in a registry is classified according to the type of membership bought. A typical entry in the Executive Club Registry is as follows:
President & Principal, Micro-Bac International Inc., 9607 Gray Boulevard, Austin, Tx Bus: Biotechnology, P/S: Para-Bac Oil Field Products, Org: Research & Development, MA: Worldwide, Exp: Degradation of Substance, FM: Forbes, FV: Mexico, H/S: Traveling/Football.
Who's Who Executive Club Registry 1994-1995, at 101. A listing of codes at the beginning of the registry explains that "Bus" refers to type of business, "P/S" to major product or service, "Org" to type of organization, "MA" to marketing area, "Exp" to expertise, "FM to favorite magazine, "FV" to favorite vacation place, and "H/S" to favorite hobbies and sports.
In addition to receiving a free registry, wall plaque and camera ready art, Gordon's Companies offered members a host of other support services, such as a subscription to a magazine entitled Tribute, a Gold MasterCard, public relations services, discounts on telephone service, and airborne express service. Gordon used two offices for his business operations; one in Lake Success, New York and on Lexington Avenue in Manhattan, New York.
Debra Benjamin is the membership director and vice-president of marketing for Worldwide, and also the executive editor of Tribute magazine. In an affidavit accompanying the petitioner's documents, she describes Worldwide Registry's membership services in the following manner:
We offer a variety of services to our members. Among these are Tribute Magazine, a magazine which focuses on our members, with profiles of members and their companies, as well as articles about other subjects we believe will appeal to our readership[.]
Among other services we offer to our members are a variety of discounted services, including discounts in residential and business telephone service, Airborne Express discounts which allow occasional users to receive corporate rates, a Gold MasterCard through MBNA Bank, and discounted professional public relations services from our own office staff[.]
We have sponsored networking parties for our members . . . . We have also offered, through an outside tour operator, an attractively priced trip to Vietnam and Hong Kong in conjunction with a lawyers' organization. Although we had inquiries from some members, no one signed on to go[.]
We also give our members, free as a part of their membership, a beautifully bound registry of members' names and business related information submitted by them, an engraved plaque showing their membership in Who's Who Worldwide, and camera ready art of our organization's logo for their own use. We offer, for purchase, a CD Rom that contains all the registry information and allows members to access information about other members using fourteen user definable fields[.]
We seek managerial business and professional people who are high ranking in their fields. It is true that we choose most of our names from mailing lists, but the lists themselves are selective. We obtain the mailing lists from list brokers . . . and we are demanding in what we ask for. We ask for industry-specific lists and specify certain titles within each of those industries. For example, in a health care industry list, we would ask for and accept only titles such as president, chairman, or chief of staff[.] We also obtain names for potential new members through nominations by our current membership[.]
For people who return their applications indicating that they are interested in being considered for membership, and who are then interviewed by telephone and qualify -- but ultimately choose not to be members -- there is a special section of the registry denominated "Listees". As space permits, these non-members are listed by name and address, since they have qualified for membership and have indicated their interest in being included in the registry[.]
2. The Investigation of Gordon's Companies.
Based on complaints regarding the Companies' business practices received from, among others, the New York State Department of Law, the New York State Consumer Protection Board and the Better Business Bureau, the United States Postal Inspection Service ("Postal Service") commenced an investigation of Gordon and his companies in July, 1994. The investigation involved (i) review of the complaints received by the Postal Service from the aforementioned organizations, (ii) information from six confidential informants with inside knowledge of the Companies' practices, (iii) undercover recordings of phone solicitations by the Companies, and (iv) review of documents filed in connection with the trademark infringement suit in Reed Elsevier, Inc. v. Who's Who Worldwide Registry, Inc..
The investigation culminated in a 115 page complaint and affidavit ("Complaint"), sworn to by Postal Inspector Martin T. Biegelman ("Biegelman") and dated March 22, 1995. The Complaint concludes that based on the Postal Service's investigation, the Companies' business operations constituted a "telemarketing boiler room" operation using "high pressure telephone sales pitches that misrepresent the identity of the Company and the nature of the products in order to defraud customers into purchasing one of the Company's 'Who's Who' directories and other products." Complaint at 11. According to Biegelman, since 1989 Gordon and the Companies have defrauded customers of approximately $ 22 million dollars. The Complaint charges that the Companies' use of the mail and telephones to make the solicitations was in furtherance of a scheme to defraud people, and constitutes a violation of the mail and wire fraud statute, 18 U.S.C. §§ 1341 and 1343.
The Complaint alleges that in December 1989 Biegelman conducted an investigation of an allegedly similar "boiler room" operation involving Who's Who in American Executives, Inc. and other companies operated and controlled by Steven Samuel Warstein, a/k/a Steven West ("West"). West, his wife and eighteen managers and salespersons were charged with mail and wire fraud, and eventually pleaded guilty to the charges. One of the salespersons involved in the West companies who eventually pled guilty left West in August, 1991 to work for Gordon at Worldwide. This person operated as a confidential informant, CI-6, for Biegelman in the present case.
According to Biegelman, Gordon started his operation by patterning it on the West operation, which had been described to Gordon by a former employee of West. Allegedly, this former employee also provided Gordon with copies of West's solicitation letters, applications and sales scripts for use when soliciting customers. Biegelman's Complaint goes on to describe the solicitation letters used by Gordon's salespersons and the follow-up telephone solicitation seeking a membership purchase.
Contrary to what prospective customers are told in solicitation letters and phone calls, Biegelman alleges that, among other things, Worldwide's and Sterling's (collectively the "Company's") solicitation letters and salespersons make fraudulent representations with regard to the nomination and selection process for membership in a registry, the prestige of the registry, the lack of any cost for being included in a registry, the identity of other members of the registry, the utility of the registry as a networking tool, and the ability of the Company to sponsor seminars and conferences. Moreover, Biegelman alleges that Company salespersons use script or "pitch" sheets when talking to a customer that they know contain false information, and that registries or other membership products are not prepared until many months after a customer accepts membership.
Biegelman alleges that CI-1 posed as a customer and recorded numerous telephone conversations and meetings with salespersons at the Companies, which he then passed on to Biegelman. CI-2, CI-3, CI-4 and CI-5 were employees of one or another of the Companies, and acted as undercover informants for Biegelman. Each of these CIs wore a concealed tape recorder and recorded conversations with salespersons. These recordings were passed on to Biegelman. CI-3 also posed as a customer and recorded telephone solicitations with salespersons.
As mentioned previously, CI-6 was a sales person at the West Company who left West to join Worldwide in August 1991. According to CI-6, Gordon prepared the pitch sheets containing the false information that salespersons used for solicitations. This allegedly false information included telling customers they were nominated for membership, that the Company sponsored conferences and seminars for members, and that the Company had offices nationwide. CI-6 also related to Biegelman that the salespersons at the Company knew the information in the pitch sheets was false. In addition, CI-6 told Biegelman that Gordon directed salespersons to use aliases when talking with customers, and that several former West employees were working for Gordon. CI-6 was fired by Gordon in January 1995 because he failed to meet his sales quota.
From August, 1994 through March, 1995, Biegelman had CI-1 and CI-3 test the Company's representations regarding nomination and the selectivity of membership by having the CIs call the Company and pose as potential customers. Approximately eighty-five phone calls were made to the Company during this period. According to Biegelman, during these calls the CIs posed as dentists, policemen, office managers, sales managers, a delicatessen owner and other "non high-level" business occupations. In each of these cases, Biegelman alleges that the CIs were accepted for membership by the Company, even though they were not a company president, vice president or chief executive officer.
Based on all of the information provided to him by the CIs, the complaints forwarded to him by the Better Business Bureau and New York State and the other documents he reviewed, Biegelman made the following specific allegations of fraud against Gordon and the Companies (which he refers to as the "Company") in the Complaint:
1. The Company falsely represents to customers that it is a long standing, well known and recognized business which publishes highly selective, prestigious and authoritative biographical directories. In truth, the Company has only been in existence since 1989 and is the subject of frequent customer complaints regarding dishonest business practices. In addition, the Company's directories are neither highly selective nor well recognized and authoritative.
2. The Company falsely represents to customers in solicitation letters that they were nominated by one or more of the established members of Who's Who Worldwide and Sterling Who's Who for inclusion in its directories. In truth, customers are almost exclusively solicited from mailing lists purchased by the Company from outside sources.
3. The Company falsely represents to customers in solicitation letters that their inclusion in the Company's directories is without cost or obligation on the part of the customer. In truth, customers must purchase a membership to be listed in the Company's directories.
4. The Company falsely represents to customers in solicitation letters that the majority of new candidates who are nominated are not accepted for inclusion. In truth, anyone who is willing to purchase a membership is accepted.
6. The Company falsely represents to customers in solicitation letters the identity of the sender of the letters. The numerous letters sent to customers since at least 1990 are signed on behalf of the Company in the names of fictitious persons.
7. The Company falsely represents that members of its directories like to anonymously nominate potential new members of the directory. In truth, the names of virtually all the individuals contacted by the Company are obtained through mailing lists purchased by the Company.
8. The Company falsely states that an exclusive committee at the Company decides who will be accepted for membership, based on the candidate's individual achievements. In truth, customers are accepted for inclusion in one of the Company's directories based on one criteria: whether they agree to purchase a membership.
9. The Company falsely represents to customers who have been "nominated" for membership that their names were not obtained from mailing lists. In truth, the names of virtually all the individuals contacted by the Company are obtained through mailing lists purchased by the Company.
10. The Company falsely represents to customers that it does not solicit new members for its directories. In truth, the Company employs a large, full-time sales force to solicit new customers to become members and to purchase the Company's directories. In fact, salespeople are required to meet rigid sales quotas to avoid being fired.
11. The Company falsely states to customers that it is a member-owned and member-run organization. In truth, the Company is owned and operated by Bruce Gordon. Members have no ownership interest in the Company and have no say in how it is run.
12. The Company falsely represents that potential members must engage in a qualifying interview to prove they are a leading person in their profession. In truth, the qualifying interview is a ruse to gain the customer's confidence, so that an attempt can be made to sell the customer a membership and other Company products. In fact, customers interviewed are rarely disqualified so long as they do not object to the sales pitch, or are willing to purchase Company products.
13. The Company makes misleading statements in telephone pitches to customers regarding the involvement of famous people with the Company. For example, Barbara Walters of "20/20" and Russian President Boris Yeltsin, are described as members of the Company's directories. In fact, neither has ever had any involvement with the Company.
14. The Company makes false and misleading statements to customers concerning the directory's closing, printing and shipping dates to pressure customers into a quick sale. In truth, customers are frequently told months in advance of any printing deadlines that the deadline for inclusion in the directory will expire shortly.
15. The Company falsely represents to customers that memberships are limited, that they are not always available and that new openings come about only through the attrition of existing members. In truth, there is no limitation on the number of memberships and the availability of memberships is not based on attrition, but rather on the ability and willingness of a customer to pay the membership fee.
17. The Company falsely represents that, when a customer agrees to become a member, a press release announcing his membership will be sent to each of the other members. In truth, such press releases are not sent to other members.
18. The Company falsely represents to customers that its directories are invaluable tools for networking among members. In truth, the directory does not contain home or work telephone numbers nor zip codes, which makes it virtually useless for any networking purposes.
19. The Company falsely represents that it sponsors conferences and seminars in foreign countries or at posh resorts, where members can meet and network with each other. Customers are told, for example, of successful and well-attended conferences on international trade in Hong Kong and Vietnam, and of a golf and tennis networking event in Hilton Head, South Carolina. In truth, no such conferences or events were ever held or sponsored by the Company.
Finally, Biegelman alleges that these accusations are supported by Judge Jordan's findings and conclusions in the trademark infringement action between Reed Elsevier and Worldwide. Biegelman cites to the March 8, 1994 decision of Judge Jordan, in which he held that in addition to infringing on Marquis's Who's Who trademark, Worldwide also falsely described its products in solicitations to customers. According to Judge Jordan, these false descriptions included statements concerning (i) the nomination of customers, (ii) the worldwide scope of the company's operations, (iii) the prestige and selectiveness of the Worldwide Registry, (iv) the networking utility of the registry, and (v) the lack of cost to a customer for being listed in the registry. See Reed Elsevier, Inc. v. Who's Who Worldwide Publishing, Inc., No. CV 92-3959 (DFJ) (March 8, 1994), Findings of Fact, Conclusions of Law, Decision and Order at 16-19.
3. The Seizure and Present Motion.
Grounded upon Biegelman's Complaint, on March 22, 1995, United States Magistrate Judge Joan M. Azrack signed warrants for the arrest of Gordon and twenty nine of the Companies' salespersons. On March 29, 1995, the United States obtained an ex parte warrant of seizure pursuant to Rule 41 of the Federal Rules of Criminal Procedure from Judge Azrack, authorizing the seizure of funds on deposit in certain of the Companies' bank accounts. According to the affidavit in support of the seizure warrant, sworn to by Biegelman, the funds on deposit in the accounts are controlled by Gordon, and contain the proceeds of his alleged fraud scheme. The Government contends that these funds are subject to forfeiture pursuant to 18 U.S.C. §§ 981(a)(1)(A) and (C), because they are, respectively, transactions or attempted transactions at money laundering, and are the proceeds of mail and wire fraud.
The arrest warrants for Bruce Gordon and the salespersons were executed on March 30 and March 31, 1995. None of these persons has been indicted, and as of yet, only one, Marvin Gross -- who is Biegelman's CI-6 -- has pleaded guilty pursuant to a cooperation agreement to an information charging one count of mail and wire fraud.
On April 10, 1995, Gordon and his Companies brought an Order to Show Cause challenging the legality of the seizure, and seeking the return of the seized property pursuant to Fed. R. Civ. P. 41(e). The essential contention of the Petitioners' motion is that the criminal Complaint should be dismissed and the seized property be released because no crimes were committed. According to the Petitioners, there is no probable cause for believing that mail and wire fraud were committed, and, therefore, the accounts are not forfeitable and thus not subject to seizure.
The Petitioners contend that, even if, arguendo, some fraud was committed, it was limited to a small amount of customers. In the Petitioners' view, the proceeds traceable to such a minuscule amount of fraud does not warrant a seizure of the magnitude conducted by the Government in this case. Moreover, the Petitioners contend that some seized funds should be released to allow the Petitioners to continue their business and pay counsel fees. If release of funds is not granted expeditiously, the petitioners maintain that the Companies will be forced out of business.
Relying on recent decisions concerning the interplay of seizure of alleged forfeitable assets and due process concerns, the Petitioners insist that they are entitled to a hearing on probable cause on several grounds. First, they contend that a probable cause hearing is necessary under United States v. Monsanto, 924 F.2d 1186, 1203 (2d Cir.) (holding that where funds are required to pay for criminal defense from allegedly forfeitable assets that are seized ex parte, the fifth and sixth amendments require an adversary, post-restraint, pre-trial hearing to determine whether there was probable cause that the defendant committed the crimes that provide the basis for forfeiture), cert. denied, 502 U.S. 943 (1991), in order to release funds so that counsel can be retained and paid.
Second, the Petitioners contend that the ex parte seizure of the accounts without a pre-deprivation hearing violated their due process rights. According to the Petitioners, there were no exigent circumstances in this case necessitating an ex parte seizure, especially one which has the practical effect of shutting down a business. Therefore, the Petitioners maintain that, under United States v. All Assets of Statewide Auto Parts, Inc., 971 F.2d 896, 905 (2d Cir. 1992) (to the extent a due process, post-deprivation hearing regarding whether a business has been completely destroyed by the ex parte seizure of its assets is based on a challenge to the seizure and forfeiture, it implicates a probable cause evidentiary hearing), a post-deprivation hearing regarding probable cause is necessary.
The Petitioners further contend that a probable cause hearing is necessary because the Government's representations to Judge Azrack concerning the alleged fraud, which were relied upon to sign the warrants of arrest and seizure, constitute deliberate falsehoods or a reckless disregard for the truth in violation of Franks v. Delaware, 438 U.S. 154, 98 S. Ct. 2674, 57 L. Ed. 2d 667 (1978).
In addition, the Petitioners claim that a letter sent to members of the Worldwide and Sterling Registries by Biegelman after the arrests on March 30 and March 31, 1995, which announces the arrests on charges of mail and wire fraud and includes a five-page questionnaire regarding the member's experience with the Companies, is premature, reckless, and has irreparably damaged the Companies' business. The Petitioners also challenge an administrative complaint filed by the Postal Service against Gordon, Worldwide and Sterling, which seeks the issuance of orders that would prevent delivery of mail to the Companies and forbid the Postmaster General to pay any money orders drawn on the Companies. According to the Petitioners, these actions by the Postal Service are part of a deliberate and concerted effort to destroy the Companies' business prior to any determination of the merits of the criminal charges.
The Petitioners' motion seeks the following relief: (1) an order directing the Government to return all bank accounts and other property seized, or alternatively, an immediate hearing or the propriety of the seizure and/or release of part of the funds for the Companies' ordinary and necessary business and counsel expenses; (2) an order directing the Government, and the United States Postal Inspectors, to cease contacting and sending questionnaires to members and customers of Who's Who Worldwide and Sterling Who's Who, and to cease disseminating information to the public about arrests and charges relating to Gordon's Companies; (3) an order enjoining the Postal Service's administrative proceeding in connection with the Complaint; and (4) an order directing an accounting for damages incurred by reason of the alleged improper Government conduct.
On the other hand, the Government contends that fraud has indeed been committed, because the Companies have knowingly made false and misleading statements during solicitations in order to fraudulently induce customers to purchase their Who's Who registries. According to the Government, the Companies misrepresent, among other things, the selectivity, uniqueness and quality of the registries they publish, and the benefits of membership in such registries. The Government argues that probable cause exists to believe the accounts are the proceeds of mail and wire fraud.
The Government also contends that the Petitioners' due process rights have not been violated. In the Government's view, the bank accounts can be liquidated fairly quickly and, therefore, present exigent circumstances which allow an ex parte seizure of the accounts. Moreover, the Government contends that not all of the Companies' bank accounts were seized, and that certain accounts subject or potentially subject to Worldwide's bankruptcy proceedings remain available for the Companies to use in paying business and counsel expenses.
Because an indictment has not been filed in the related criminal actions, the Government further contends that the Petitioners are not entitled to a probable cause hearing with respect to the necessity of obtaining some of the seized money in order to pay for their counsel. In addition, the Government maintains that Gordon may not have standing to contest the seizure of the accounts, because he allegedly does not possess legal title to the companies which own the seized funds.
Finally, the Government contends that the Petitioners have not met the standard for obtaining injunctive relief against the Government. As a result, the Government claims there is neither a basis for enjoining the Postal Service from pursuing its administrative proceedings against Gordon and his Companies, nor a basis for enjoining the Government and grand jury from continuing its investigation of the alleged mail and wire fraud by sending the questionnaires to the Worldwide and Sterling members. Indeed, the Government suggests that such an injunction is an unconstitutional intrusion into Executive Branch powers and violates the separation of powers doctrine.
On April 10, 1995, United States District Judge Eugene H. Nickerson granted the Petitioners' request for a temporary restraining order enjoining the Government, including the Postal Service, from (i) sending additional questionnaires to members of Worldwide and Sterling; (ii) sending letters informing the members of the arrests and seizures in this matter; and (iii) continuing the administrative proceeding brought in connection with Biegelman's Complaint. Judge Nickerson made the motion returnable on April 13, 1995, before United States District Judge David. G. Trager.
At the hearing on April 13, 1995, Judge Trager did not reach the merits of the Petitioners' motion. Instead, he granted the Government's request to transfer the case to Judge Mishler, because ostensibly the case was related to another case before Judge Mishler, namely the plea by Gross. In addition, the Government contended the case was similar to the West case, which also had been before Judge Mishler. Judge Trager continued the temporary restraining order issued by Judge Nickerson. During the hearing before Judge Trager, the Government stipulated that it would not seize any of the approximately $ 500,000 in bank accounts belonging to the Companies that it had not yet seized, pending the hearing and resolution of the present motion. See Transcript of April 13, 1995 hearing before Judge Trager, at 44-48. Some of these unseized funds are subject to Worldwide's bankruptcy proceedings. Due to scheduling conflicts, Judge Mishler was not able to hear the petitioner's motion in a timely fashion. The hearing was, therefore, held before United States District Judge Joanna Seybert on April 19 and April 20, 1995.
On April 19th, the parties addressed the Petitioners' entitlement to a hearing challenging the seizure. The Petitioners essentially pressed the four grounds for a hearing that they raised in their motion. First, the Petitioners argued that a post-deprivation hearing was required under Statewide, on the ground that the ex parte seizure of the accounts violated the Petitioners' due process rights because there were no exigent circumstances warranting the ex parte seizure. Second, the petitioners contended that there was no probable cause to support the warrant, and therefore, a hearing was necessary (i) under Rule 41(e) in order for the Government to show probable cause for believing that the accounts are subject to forfeiture, and (ii) under Franks v. Delaware, because Judge Azrack allegedly signed the seizure warrant on the basis of affidavits containing false statements. Third, the Petitioners contended that in order to create a record for an immediate appeal under Statewide if their motion is denied, they were entitled to a hearing on whether the seizure of the accounts has effectively shut down the Companies from operating. And fourth, the Petitioners contended that a probable cause hearing was required under Monsanto, because the Companies were precluded by the seizure from obtaining funds to pay counsel fees in this case, and for defending Gordon in the criminal case.
Initially, on April 19th Judge Seybert found that a probable cause hearing was not warranted at that point in time, because probable cause had been determined by Judge Azrack to be sufficient on the papers submitted to her. According to Judge Seybert, a review of the papers apparently confirmed her view that the papers were sufficient for the warrant to issue and the seizure to be made, and that a Franks hearing was not necessary. See April 19, 1995 Tr. at 44-45, 63. Nevertheless Judge Seybert did raise two concerns regarding proof of tracing the victims' money to the accounts, and the scope of the warrant and seizure. April 19, 1995 Tr. at 45, 63-64. After some argument, Judge Seybert also determined that a hearing was necessary on the issue of whether the seizure effectively shut down the Companies. She therefore allowed the hearing to proceed on that basis, in order to create a record for an immediate appeal by the Petitioners under Statewide, should the Court deny the motion to vacate the warrant. See April 19, 1995 Tr. at 60, 63-64
The next day, however, after looking at the constitutional concerns raised in the Monsanto and Statewide Judge Seybert granted the Petitioners' request for a probable cause ...