Thursday, October 4, 2012

Circuit Split Watch: Earning a Return on Seized Money

This article first appeared in the October 3, 2012, issue of the National Law Journal’s Supreme Court Insider.

When the United States seizes and later returns a person’s money, the question arises: Who should get the interest earned while it was in the hands of the government?

In September, the U.S. Court of Appeals for the 3rd Circuit joined the majority in a multi-circuit split on this issue, which centers on competing views of sovereign immunity. The Supreme Court could be asked to weigh in on the question.

Ryan James Craig was convicted of wire fraud and failure to appear at trial in the U.S. District Court for the Middle District of Pennsylvania. The court ordered him to pay restitution and a special assessment totaling almost $13,000. The federal government had already seized over $16,000 from Mr. Craig, who moved to reclaim the excess money.

After significant legal wrangling, including an appeal to the 3rd Circuit, the government returned the excess money. Craig had another restitution order against him in Rhode Island, and the government had wanted the excess money transferred there. However, since the cases were unrelated, it was ultimately determined on appeal that the excess should be returned to Craig.

Craig then brought a motion for interest against the United States, on the amount returned. The district court denied the request and, on appeal, the 3rd Circuit agreed.

Writing for a unanimous panel in United States v. Craig on September 17, Judge Thomas Hardiman looked first to 28 U.S.C. § 2465, an asset forfeiture statute that allows for recovery of interest from the United States, under certain circumstances. Craig, he concluded, did not meet the statutory requirements. In addition, Judge Hardiman determined that Federal Rule of Criminal Procedure 41(g), which deals with return of seized property, does not cover interest.

Hardiman also examined the possibility of recovery as a matter of fairness and equity, citing decisions from seven other federal appellate circuits. Three allow equitable interest claims against the United States, while four do not, Hardiman stated.

The 3rd Circuit reasoned that equity cannot “abrogate the sovereign immunity of the United States”; only express waiver can. An earlier 3rd Circuit opinion had questioned the minority view, but, unlike the recent opinion, it was not precedential.

On the other side of the split, Hardiman cited Carvajal v. United States, among other cases. In Carvajal, a 2008 decision from the 9th Circuit, the government seized from and subsequently returned $75,800 to an individual.

Judge Susan Graber, also writing for a unanimous panel, indicated that interest is simply part of the property that needs to be returned. Sovereign immunity is not a barrier.

If the United States seized a pregnant cow and later, after the cow had given birth, the seizure was found to be in error, the government could not give back the cow and keep the calf, Graber explained, quoting an earlier 9th Circuit decision. Likewise, the government needs to return interest from an improper seizure.

The Supreme Court could soon be asked to resolve the conflict. First, though, there is a pending petition for rehearing en banc in the 3rd Circuit.

“As this Court noted in its opinion in this case,” Craig argued in his petition, “there is a split among other United States Courts of Appeal[s].”