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Affluent Investor | July 27, 2017

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Courts Should Force Feds to Return Wrongfully Seized Assets – With Interest!

 

U.S. Supreme Court in Washington D.C.

U.S. Supreme Court in Washington D.C.

One of the most abhorrent current governmental practices is that of civil asset forfeiture. Turning the usual rules of due process of law upside-down, civil asset forfeiture enables local, state, or federal authorities to confiscate money and/or property from individuals merely on suspicion that the property was somehow involved in a criminal activity.

These odious laws should, as I have previously suggested, go the way of the Jim Crow Laws. They’re unfair, easily abused, and incompatible with due process.

Once property has been taken, it is necessary for the owner to go to court and try proving his innocence – or else lose it forever.

Only by enduring what are often protracted and costly legal proceedings can the person recover the seized property. Many innocent people just can’t fight the system and lose out entirely; others settle with the government, getting back a fraction of what was taken from them.

These seizures are highly lucrative for government bodies. Many police forces pad their budgets considerably with the proceeds from asset forfeitures.

In one of its worst decisions of the last century (tough competition!), the Supreme Court gave its blessing to civil asset forfeiture in Bennis v. Michigan. In that astounding case, a car jointly owned by Tina Bennis and her husband was seized by local officials because the husband had had sex with a prostitute in it.

That made the vehicle complicit in the crime and subject to seizure. Mrs. Bennis, of course, had nothing to do with the crime, but a majority on the Court nevertheless said, “Too bad, but you lose.”

Four years after Bennis, Congress passed the Civil Asset Forfeiture Reform Act of 2000 (CAFRA). Recognizing that these seizures were often wrongful and imposed unjust costs on people, the law provides for recovery of fees, costs, and interest by the “prevailing party.” Despite the clear intention to make people who have been harmed by unjustified seizures whole, government authorities often try to avoid paying them the rather small amounts of money they are entitled to.

This churlish attitude is displayed in the ongoing case of Lyndon McLellan, the owner of a small convenience store in rural North Carolina.

In July, 2014, IRS agents seized Mr. McLellan’s entire bank account, with $107,702.66 in it. The reason for the seizure? The feds thought that his frequent bank transactions involving cash amounts of just under $10,000 looked suspicious; he might be “structuring” his transactions to avoid the requirement of reporting transactions of $10,000.

That was enough for the IRS, and without any effort to find out why McLellan made these transactions or how he derived the funds, it confiscated his money.

Lyndon was not about to just wave good-bye to his life savings, however. He retained an attorney and paid an accountant to try to prove that he had done nothing wrong and should get his money back. With their help and an enormous pro bono hand from the Institute for Justice, the government has agreed to return that $107,702.66 to him. (For more about this outrageous case, see my Forbes article. Civil Asset Forfeiture Viper Bites NC Business Owner.)

But the government is trying to avoid making McLellan whole. When the US attorney handling the case offered to return the money, he also tried to get him to sign a document waiving his CAFRA rights to pursue full recompense – his lost interest and expenses for legal and accounting help. Lyndon declined to sign that document.

So the next day, the US attorney entered a motion in court to dismiss the case (officially named “United States of America v. $107,702.66 in United States Currency Seized from Lumbee Guaranty Bank Account No. 82002495”) without prejudice.

When a case is dismissed “without prejudice” by a court, that means that the government is reserving the right to re-open it at a future time. In other words, it isn’t really conceding defeat but declaring that the case is still technically open. Asking that the case be dismissed without prejudice might seem strange here because the government’s change in policy last year – the IRS has officially abandoned the policy of seizing bank accounts unless it has evidence of criminal activity – forecloses any re-opening of it.

Ah, but there is method in this apparent madness. In a number of similar cases, the government has argued that because the seizure case was dismissed “without prejudice,” the plaintiff does not count as the “prevailing party” under CAFRA and therefore is not entitled to recompense.

In his response to the government’s motion, Institute for Justice attorney Rob Johnson hits the nail on the head, writing,

“The government’s gambit to evade its statutory obligations should not be rewarded. Having dragged Claimants into ten months of costly and unnecessary legal proceedings, the government should be required to make Claimants whole….”

(That motion, incidentally, contains a wealth of further detail about the government’s ugly behavior throughout.)

This is not a new gambit, by the way. In other asset forfeiture cases, the feds have tried it. On occasion, judges have actually bought the argument, but in others, they have seen right through the tactic. A good example is United States v. Ito, a 2012 decision by the Ninth Circuit (472 Fed.Appx.841).

The government tried its dismissal without prejudice trick there. The district judge went along, but on appeal, the Ninth Circuit vacated that ruling on the grounds that such a dismissal would mean legal prejudice against the claimants who would lose their ability to seek attorney’s fees. The district court was instructed to dismiss the case with prejudice.

Lyndon McLellan’s case should similarly be dismissed with prejudice. Let us hope the judge so rules, foiling the government’s devious tactic.

The government wastes vast amounts of money on things is has no business subsidizing at all. (One example that I just came across: a grant of almost $96,000 for a pantomime version of Shakespeare’s Twelfth Night.) And yet officials try to weasel out of paying miniscule amounts — the lost interest on the money plus professional fees McLellan incurred comes to around $15,000 – that the government is obligated to pay for the damage it causes innocent Americans.

Lord Acton was right about power leading to corruption. It also leads to an arrogant disdain for the rights of ordinary people.

 

Originally posted on Forbes.com.

 

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