United States v. Sheth: forfeiture and restitution
02 Mar 2017

Stefan Cassella of Asset Forfeiture Law, LLC comments on US v Sheth, an unusual case in which the defendant had an interest in how assets were managed after being forfeited to the Government.

 

[United States v. Sheth, 2017 WL 66820 (N.D. Ill. Jan. 6, 2017)]

 

Defendant, a cardiologist, pleaded guilty to submitting false bills to Medicare and other insurance companies. He was ordered to pay $12.3 million in restitution and to forfeit $13.0 million.

As part of the plea agreement, the Government agreed to credit any assets recovered under the forfeiture laws to Defendant’s restitution obligation. The Government did recover various assets and did credit them to the restitution order, but Defendant objected that he was not given credit for the assets’ full value.

First, Defendant objected that when the Government seized $6.5 million from his bank account, it failed to invest the money in an interest-bearing account, thus depriving him of the interest that would have been credited against the restitution order if the Government had done so.

The court held, however, that Defendant had no right under the plea agreement to earn interest on his forfeited assets once the Government seized them. “Forfeitures are not typically credited against restitution judgments at all,” the court said. That the Government agreed to do so in this case did not mean that it was obligated to collect interest on the forfeited property and pay it over to Defendant as well.

Next, Defendant objected that in several instances the Government forfeited an asset only to release it to his ex-wife in settlement of the claims she filed in the ancillary proceeding. He objected that he was given no notice of the Government’s intent to release the assets and no opportunity to object to their release instead of their forfeiture.

The court agreed with the Government that Defendant was not entitled to credit for the value of any asset that, although initially forfeited, was ultimately released to a third party because it did not belong to him. Nevertheless, the court was troubled by the procedure the Government followed in this case.

Ordinarily, a defendant has no standing to object to the way the Government chooses to dispose of a forfeited asset, and no standing to participate in the litigation of a claim between the Government and a third party contesting the forfeiture. That is because once the property is forfeited, the defendant no longer has any legal interest in it. But in this case, the Government’s agreement to apply the forfeited funds to the restitution order carried with it a duty to act in good faith so as to obtain fair value for the property. That includes acting in good faith when relinquishing forfeited property to third parties.

Accordingly, the court examined the way the Government treated each of the assets that it released to the ex-wife to determine if the Government had acted in good faith.

With respect to the first asset, the court determined that, on the merits, the ex-wife had a valid claim and would have prevailed in the ancillary proceeding under 21 U.S.C. § 853(n)(6)(A) if the Government had contested it. Accordingly, the court held that the Government had not acted unreasonably in releasing the property.

With respect to a second asset, however, the Government released it to the ex-wife not because of her superior interest, but because the property was allegedly “under water” and thus had no equity. That may be so, the court said, but Defendant should have been given the opportunity to dispute the property’s value before it was released on that ground. Thus, the court invited Defendant to submit additional briefing on that point.

In two other instances, Defendant objected that he was not given full credit for his one-half interest in an asset in which his wife filed a claim. One such asset was a parcel of real property that was marketed and sold by the U.S. Marshals Service. Although the Government credited Defendant with half of the net proceeds of the sale, he objected that the costs of the sale exceeded what were “ordinary and necessary.” The court held that Defendant must be given the opportunity to demonstrate that the Government acted in bad faith in deducting unnecessary costs.

Finally, with respect to a forfeited automobile, the court held that Defendant was entitled to credit for one-half the blue book value of the car.

In addition to objecting to the way the Government handled the assets in which his ex-wife claimed an interest, Defendant objected to the manner in which the Government liquidated several other assets. In particular, he objected that the Marshals Service waited so long to sell a parcel of land for which he had paid $710,000 that it realized only $35,000 from the sale, and he objected that the Marshals had so badly mismanaged an investment account that they did not realize its full value.

When the Government promises to give a defendant credit for the value of forfeited property, the court said, it has a “duty of good faith” with regard to how it manages and liquidates the asset. With respect to the real property, the court said, the Marshals’ delay in selling the property (until after the market crash) was not due to bad faith, but because the Government could not sell the property until the claim of a third party was resolved.

On the other hand, the court held that Defendant was entitled to present evidence to support his contention that the Government acted in bad faith by failing to manage the investment account properly, and invited him to submit supplemental briefing on that issue.

Accordingly, the court overruled most of Defendant’s objections to the manner in which the Government disposed of his forfeited assets, gave him credit for some of the assets, and directed the parties to brief the remaining issues regarding the Government’s good faith.

 

Comment: This case is a perfect illustration of the problems the Government encounters when it agrees, as part of a plea agreement, to give the defendant credit for the value of any property that he forfeits.

Ordinarily, a defendant has no interest in how the Government manages his forfeited property, what it obtains for the property in liquidation or sale proceedings, and whether or not the Government decides to release the property to third parties. But once the 10 Government agrees to credit the defendant’s restitution obligation with the value of the property that it forfeits, it takes on burden of acting in good faith to protect the defendant’s pecuniary interest.

As this case illustrates, that doesn’t mean that the Government is bound to invest the forfeited property at interest, nor does it mean that the Government cannot settle a claim filed by a third party without “going to the mat” in the ancillary proceeding. The duty is “good faith,” not the “full court press” in zealous advocacy of the defendant’s interest. But it does mean, in appropriate circumstances, justifying the costs of liquidation, allowing the defendant to contest the Government’s conclusion that the property had no value, and managing a volatile asset such as an investment account in a responsible way.

Stefan Cassella, Asset Forfeiture Law, LLC 

www.assetforfeiturelaw.us

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