780536984Before the U.S. Supreme Court’s ruling last week in Luis v. United States, the government could freeze a criminal defendant’s assets before trial even if they bore no connection to the alleged crimes. With the ruling, if the restraint prevents the defendant from paying for counsel, it violates the Sixth Amendment.

Sila Luis faced federal charges for health care fraud.  The government sought a pretrial restraining order to freeze assets of hers that were not connected to the fraud. It relied upon 18 U.S.C. § 1345, a civil statute permitting the restraint of assets obtained as a result of, or traceable to, federal health care (or banking) crimes. Of relevance here, the statute also permits the restraint of assets of equivalent value. § 1345(a)(2).

The government argued that freezing Luis’ untainted assets before trial was constitutional under Supreme Court precedent. The restraint would preserve funds forfeitable upon conviction and for restitution when the fraudulently obtained funds had been transferred or spent (as allegedly happened here). The lower court ordered a restraint of up to $45 million, the equivalent of the fraud’s alleged proceeds, and the Eleventh Circuit affirmed.

Luis challenged the order because it prevented her from paying her lawyer. She said it violated her Sixth Amendment right to counsel. A majority of the Court agreed but on different rationales.  In a plurality opinion, Justice Breyer (joined by Chief Justice Roberts and Justices Sotomayor and Ginsburg) wrote that the Amendment protects Luis’ right to “use her own ‘innocent’ property to pay a reasonable fee for the assistance of counsel.” As a matter of property law, Luis owned the assets outright, and the government had no interest in the assets before conviction. This was in contrast to the government’s interests in tainted assets and distinguished this case from prior precedent (in the plurality’s view). Given that the assets were untainted and Luis owned them fully, the government’s interest in securing forfeiture at conviction and the victims’ interest in restitution “lie somewhat further from the heart of a fair, effective criminal justice system” than the right to counsel of choice.

Justice Thomas, writing separately, agreed with the conclusion – the Sixth Amendment prevents freezing a criminal defendant’s untainted assets pretrial – but on the basis of the Amendment’s text and common law alone. He found the balancing test unwarranted. Writing in dissent, Justice Kennedy, joined by Justice Alito, would have upheld the restraint under prior precedent and warned of the incentives the decision created for criminals “to spend, conceal or launder” tainted funds, because untainted funds would remain available.  Justice Kagan also dissented but wrote separately, agreeing that precedent controlled and compelled a finding against Luis but describing that precedent as “troubling.”

What implications does Luis have on asset forfeiture in the criminal context?

  • First, it allows for defendants to fight pretrial orders under this statute and others like it. The future battle lines may be over the traceability of assets and the reasonableness of attorneys’ fees.  (See also this Dealbook piece, although it is not apparent five Justices would require an analysis into the reasonableness of fees.)  The prospect of litigating these points may even deter the government from using these restraints in borderline cases.
  • Second, it protects the Sixth Amendment in the face of future legislation. As Justice Breyer’s opinion notes, this limitation prevents a greater erosion of the right to counsel in the event Congress passes more statutes authorizing pretrial asset restraints for other offenses.
  • Third, it could affect interpretations of other existing statutes. For example, the Racketeer Influenced and Corrupt Organizations Act (RICO) allows for the forfeiture of untainted assets upon conviction.  The Fourth Circuit has interpreted RICO to allow for the pretrial freezing of such assets. See In re Billman, 915 F.2d 916 (4th Cir. 1990).  (See Amici Curiae brief of NACDL et al. in Luis.)
  • Fourth, the ruling may impact state forfeiture regimes, as Justice Kennedy’s dissent notes, frustrating states’ attempts to collect untainted assets when tainted assets are moved out of reach. His dissent portends other “far-reaching implications,” like jeopardizing the constitutionality of pretrial asset restraints if they impact other rights (e.g., free speech) or in other contexts (e.g., tax).

But the ruling is a victory for those in the defense world and a reminder that government power has limits.  It reaffirms the right to counsel and the principle of innocent until proven guilty – and what those mean in practice (the freedom to use innocent funds to pay for counsel before conviction).