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`Case 2:18-cr-00422-DJH Document 1384 Filed 11/09/21 Page 1 of 20
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`
`
`GLENN B. McCORMICK
`Acting United States Attorney
`District of Arizona
`
`KEVIN M. RAPP (Ariz. Bar No. 014249, kevin.rapp@usdoj.gov)
`MARGARET PERLMETER (Ariz. Bar No. 024805, margaret.perlmeter@usdoj.gov)
`PETER S. KOZINETS (Ariz. Bar No. 019856, peter.kozinets@usdoj.gov)
`ANDREW C. STONE (Ariz. Bar No. 026543, andrew.stone@usdoj.gov)
`Assistant U.S. Attorneys
`40 N. Central Avenue, Suite 1800
`Phoenix, Arizona 85004-4408
`Telephone (602) 514-7500
`
`DAN G. BOYLE (N.Y. Bar No. 5216825, daniel.boyle2@usdoj.gov)
`Special Assistant U.S. Attorney
`312 N. Spring Street, Suite 1400
`Los Angeles, CA 90012
`Telephone (213) 894-2426
`
`KENNETH POLITE
`Assistant Attorney General
`Criminal Division, U.S. Department of Justice
`
`REGINALD E. JONES (D.C. Bar No. 1620183, reginald.jones4@usdoj.gov)
`Senior Trial Attorney
`Criminal Division, U.S. Department of Justice
`1400 New York Ave N.W., Suite 1200
`Washington, D.C. 20005
`Telephone (202) 616-2807
`Attorneys for Plaintiff
`
`
`
`
`
`United States of America,
`
`
`
`Plaintiff,
`
`
`v.
`
`
`Michael Lacey, et al.,
`
`
`
`Defendants.
`
`
`
`
`
`
`
`
`
`IN THE UNITED STATES DISTRICT COURT
`
`FOR THE DISTRICT OF ARIZONA
`
`
`
`
`No. CR-18-00422-PHX-DJH
`
`UNITED STATES’ RESPONSE IN
`OPPOSITION TO DEFENDANTS’
`MOTION TO PARTIALLY VACATE
`SEIZURE WARRANTS AND
`RELEASE FUNDS (Doc. 1366)
`
`

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`Case 2:18-cr-00422-DJH Document 1384 Filed 11/09/21 Page 2 of 20
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`
`INTRODUCTION
`Federal actions are governed by rules. These rules set forth orderly and predictable
`
`procedures, and thus ensure equal treatment across all litigants. While courts may craft
`exceptions to these rules where necessary, these exceptions are narrowly construed and
`carefully guarded to ensure fairness and predictability. In a criminal action, these rules
`dictate that questions of guilt precede questions of forfeiture—including the forfeitability
`of seized assets—unless and until a defendant establishes that her Sixth Amendment rights
`are actually in peril. Despite this well-settled structure, Defendants Lacey, Larkin, Spear,
`and Brunst have moved to “Partially Vacate Seizure Warrants” without attempting to
`follow these rules or make a showing of their purported need, despite having been told in
`this action and others what showing is required. This is a transparent effort to release
`another party’s money into their hands, purportedly to pay legal fees Defendants have not
`itemized, explained, or even promised to actually pay. The Motion should be denied.
`FACTUAL BACKGROUND
`The Backpage/Ferrer Actions
`On April 5, 2018, Backpage.com, LLC and several related entities (collectively
`“Backpage”) pleaded guilty to an information charging one count of money laundering and
`admitted that Backpage, which operated Backpage.com, “derived the great majority of its
`revenue from fees charged in return for publishing advertisements for ‘adult’ and ‘escort’
`services,” “[t]he great majority of these advertisements [were], in fact, advertisements for
`prostitution services,” and after “banks, credit card companies, and other financial
`institutions refused to do business with Backpage” the company “found ways to fool credit
`card companies into believing that Backpage-associated charges were being incurred on
`different websites, to route Backpage-related payments and proceeds through bank
`accounts held in the name of seemingly unconnected entities.” United States v. Backpage,
`LLC, et al, Case No. CR-18-465, Doc. 8-2 at 11-12. At the same time, Backpage’s CEO,
`Carl Ferrer, pleaded guilty to a money laundering and Travel Act conspiracy, admitted to
`a largely similar factual basis, and agreed to cooperate with the government. See United
`
`A.
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`Case 2:18-cr-00422-DJH Document 1384 Filed 11/09/21 Page 3 of 20
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`
`States v. Ferrer, Case No. CR-18-464, Doc. 7-2, at 12-14 (collectively with CR-18-465,
`the “Backpage Actions”).
` As part of their plea agreements, Backpage and Ferrer agreed to pay $500 million
`in restitution to victims directly or proximately harmed by Backpage (including, for
`example, victims trafficked on Backpage), and in furtherance of this restitution, agreed to
`forfeit a range of assets traceable to or involved in their crimes. See, e.g., CR-18-465, Doc.
`8-2 at 6-8. As part of two Preliminary Orders of Forfeiture, Backpage agreed to forfeit a
`substantial amount of cryptocurrency, approximately 260 internet domain names, a number
`of corporate bank accounts, and certain funds held in Interest on Lawyers Trust Accounts
`funded by Backpage (the “IOLTA Funds”):
`• Davis Wright Tremaine LLP IOLTA account x3414 ($6.25 million)
`• Perkins Coie LLP IOLTA account x1235 ($2.9 million)
`• Rusing Lopez & Lizardi IOLTA account x1363 ($5.25 million)
`• Prince Lobel Tye LLP Citibank account x1369 ($100,000)
`• Copeland, Franco, Screws & Gill, P.A. IOLTA account x2052 ($100,000)
`• Wayne B. Giampietro LLC IOLTA account x5397 ($100,000)
`• Walters Law Group IOLTA account x4381 ($100,000)
`• Akin Gump Strauss Haeur & Feld LLP IOLTA account x7941 ($250,000)
`• Thompson Coburn LLP IOLTA account x3332 ($100,000)
`See CR-18-465, Docs. 22, 42, 44. On June 29, 2018, moving defendants (hereinafter
`“Defendants”) filed petitions seeking the IOLTA Funds. See CR-18-465, Docs. 61-64, 73.
`B.
`The CDCA Civil Seizure Warrants and Civil Forfeiture Actions
`Between March and November of 2018, magistrate judges in the Central District of
`California (“CDCA”) found probable cause to issue warrants to seize a range of assets
`involved in or traceable to Backpage’s operations. On June 1, 2018, Defendants filed a
`motion to vacate the seizure warrants on First Amendment grounds, see In re Seizure
`Warrants, CDCA Case No. 18-cv-6742, and on June 10, 2018, Lacey filed an additional
`motion in the same action seeking to release certain purportedly-untainted funds. CDCA
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`Case 2:18-cr-00422-DJH Document 1384 Filed 11/09/21 Page 4 of 20
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`
`Case No. 18-cv-6742, Doc. 22. The motion to vacate was denied on December 20, 2019
`(id., Doc. 130), and Lacey’s motion for return of funds was resolved through stipulation.
`On September 28, 2018, in the Central District of California, the United States filed
`verified complaints for forfeiture in rem based on the seizure warrants and, pursuant to
`Supplement Rule G(3) of the Federal Rules of Civil Procedure, obtained arrest warrants in
`rem over the assets at issue there. See, e.g., Ex. 1 (Arrest Warrant in rem authorizing seizure
`of $407,686.14 in Bank Funds Seized from Compass Bank Account ‘4862). Beginning on
`or about May 22-24, 2019, Defendants filed claims to the assets at issue in these civil
`forfeiture actions. See, e.g., CDCA Case No. 18-cv-8420 (“Civil Actions” or “Civ. Act.”),
`Docs. 31, 36. The Civil Actions were consolidated on January 14, 2020, and on June 1,
`2020, the United States filed a First Amended Consolidated Master Complaint for
`Forfeiture (“FACMC”). See Civ. Act., Doc. 108. On July 1, 2020, Defendants filed two
`motions to dismiss the FACMC, which Judge Klausner denied on December 1, 2020. See
`Civ. Act., Doc. 170. On January 13, 2021, the parties stipulated to stay the Civil Actions,
`and a stay was granted on January 20, 2021. See Civ. Act., Docs. 188-189.
`C.
`This Criminal Case
`On March 28, 2018, a grand jury in this District returned an indictment charging
`Defendants (and others) with knowingly facilitating prostitution and engaging in money
`laundering designed to conceal misconduct and evade law enforcement, and in July of
`2018, the grand jury issued a First Superseding Indictment (the “SI”). See United States v.
`Lacey, et al., Case No. CR-18-422 (the “Criminal Action” or “Crim. Act.”), Doc. 230. On
`February 11, 2019, Defendants moved to dismiss the SI based on purported interference
`with certain defendants’ Sixth Amendment rights (Doc. 456), which the Court denied on
`May 2, 2019, although the Court granted certain counsel permission to withdraw for non-
`payment, and appointed CJA counsel for nonmoving defendants. See Doc. 559. Trial in the
`Criminal Action began on September 1, 2021, and on September 14, 2021, the Court
`granted a mistrial. See Doc. 1308. Trial is now set for February 9, 2022. See Doc. 1377.
`
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`Case 2:18-cr-00422-DJH Document 1384 Filed 11/09/21 Page 5 of 20
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`On October 26, 2021, Defendants moved this Court to “partially vacate the seizure
`
`warrants that currently restrain [certain] assets and order the release of these limited sets of
`assets.” Mot at 2. The Motion seeks the release of four subsets of assets, defined with
`varying degrees of specificity (the “Seized Assets”):
`1. $407,686.14 in Bank Funds Seized from Compass Bank Account 4862, held in the
`name of Voice Media Group (the “VMG Funds”);
`2. “Over $10 Million” in funds seized from a series attorney trust accounts (the IOLTA
`Funds, as defined above);
`3. Undefined seized funds purportedly from non-adult advertising on Backpage (the
`“Non-Adult Advertising Funds”); and
`4. Undefined seized funds purportedly relating to revenues from outside of the United
`States (the “International Funds”).
`Only one moving defendant submitted a declaration in support of the Motion (defendant
`Brunst), and that lone declaration (1) does not disclose any defendant’s ability to pay
`counsel, (2) does not disclose how much any defendant purportedly needs to fund their
`defense, and (3) does not commit to actually pay counsel with any funds released.
`RELEVANT LAW
`Criminal Forfeiture
`Forfeiture in a criminal action is governed by Federal Rule of Criminal Procedure
`
`32.2. Under Rule 32.2(a), the United States must provide notice of its intent to pursue
`forfeiture in the indictment or information, and upon a guilty plea or guilty verdict, the
`Court or Jury must determine what property is subject to forfeiture and “whether the
`government has established the requisite nexus between the property and the offense.” Rule
`32.2(b)(1)(A). Upon a determination that property is subject to forfeiture, a court must
`enter a Preliminary Order of Forfeiture (“POF”) “without regard to any third party’s
`interest in the property,” as the determination of any potential third-party interest in
`property “must be deferred until any third party files a claim in an ancillary proceeding
`under Rule 32.2(c).” Rule 32.2(b)(2); see also United States v. Lazarenko, 476 F.3d 642,
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`Case 2:18-cr-00422-DJH Document 1384 Filed 11/09/21 Page 6 of 20
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`649 (9th Cir. 2007) (“A third party claiming an interest in property subject to forfeiture
`may not intervene in a trial or appeal of a criminal case involving the forfeiture.”).
`Where a third party asserts an interest in the subject property, the court must hold
`an ancillary proceeding to determine the ownership of the property, as set forth in 21 U.S.C.
`§ 853(n). See Rule 32.2.(c); see also Stefan D. Cassella, Asset Forfeiture Law in the United
`States (2d ed. 2013), § 23-2 (“Cassella”) (“[T]he one and only purpose of the ancillary
`proceeding is to determine the ownership of the property”). A third party has no standing
`to contest forfeiture outside of the confines of the ancillary proceeding, and even in the
`ancillary proceeding, the third party must still establish threshold standing to assert any
`purported ownership interest. See Rule 32.2(c)(1)(A). At the ancillary proceeding, the
`burden is on the third party to establish either that (1) the third party had a preexisting
`interest in the subject property superior to the convicted defendant, or (2) was an innocent
`owner of the property. See 21 U.S.C. § 853(n)(6)(A-B).
`Civil Forfeiture
`Following the Civil Asset Forfeiture Reform Act of 2000 (“CAFRA”), civil
`
`forfeitures are largely governed by 18 U.S.C. §§ 981 and 983, as well as Supplemental
`Rule G of the Federal Rules of Civil Procedure (“Rule G”). A civil forfeiture action
`generally begins with the United States filing a verified complaint against a defendant res,
`which is then seized pursuant to an arrest warrant, see Rule G(3)(b), and proceeds much as
`an ordinary civil case would (through motion practice, discovery and trial). 18 U.S.C. § 981
`also includes a statutory stay provision, which permits either the government or a
`claimant/defendant to stay a civil forfeiture action until the conclusion of a parallel criminal
`case. See 18 U.S.C. § 981(g)(1-2).
`The “Monsanto Hearing”
`Under the statutory structure described above, a criminal determination of guilt will
`
`almost always precede any adjudication on the forfeitability of seized assets, in order to
`“promote[] the goals of res judicata: fairness, finality, and avoidance of duplicate judicial
`proceedings.” United States v. Liquidators of European Fed. Credit Bank, 630 F.3d 1139,
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`1152 (9th Cir. 2011) (describing statutory design that criminal proceedings advance ahead
`of a parallel civil forfeiture actions). This is because forfeiture is “an aspect of punishment
`imposed following conviction of a substantive criminal offense.” Libretti v. United States,
`516 U.S. 29, 39 (1995).
`
`In 1989, the Supreme Court decided two cases addressing how to balance this
`statutory design against a defendant’s Sixth Amendment right to counsel of their choosing.
`In United States v. Monsanto, 491 U.S. 600, 614 (1989), the Court held that pre-trial asset
`restraints based on probable cause are constitutionally permissible, even when a defendant
`seeks to use those assets to pay for counsel. And in Caplin & Drysdale, Chartered v. United
`States, 491 U.S. 617, 626 (1989), the Court held that “[w]hatever the full extent of the Sixth
`Amendment’s protection of one’s right to retain counsel of his choosing, that protection
`does not go beyond the individual’s right to spend his own money.” (quotation omitted).
`
`Post-Monsanto, a criminal defendant may seek a limited hearing to challenge the
`probable cause for an asset restraint (a “Monsanto hearing”)—but the defendant is entitled
`to such a hearing only if he first shows that such assets are needed to pay for his counsel
`of choice. Thus, the defendant must make an initial showing of a potential Sixth
`Amendment injury. In United States v. Unimex, Inc., 991 F.2d 546, 551 (9th Cir. 1993),
`for example, the Ninth Circuit held that the burden is squarely on the movant to establish
`a “substantial claim” of a Sixth Amendment injury through “sufficiently definite, specific,
`detailed, and nonconjectural” affidavits. In United States v. Bonventre, 720 F.3d 126, 133
`(2d Cir. 2013), the Second Circuit similarly held that, to qualify for Monsanto hearing, a
`defendant must disclose his net worth, provide a comprehensive list of his assets, and
`explain how he has been paying his counsel and other living expenses. Accord, United
`States v. Jones, 160 F.3d 641, 647 (10th Cir. 1998) (“[a]s a preliminary matter, a defendant
`must demonstrate . . . she has no assets, other than those restrained, with which to retain
`private counsel”); United States v. Farmer, 274 F.3d 800, 804-05 (4th Cir. 2001); see also
`Cassela, § 17-6 (“Under Jones and Farmer, a defendant has a right to a post-restraint, pre-
`trial hearing if he makes two threshold showings: 1) that he has no assets other than those
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`subject to the restraining order with which to exercise his Sixth Amendment right to
`counsel or to pay for living expenses; and 2) that there is a bona fide reason to believe that
`the court (or the grand jury) erred in finding probable cause to believe that the restrained
`property would be subject to forfeiture if the defendant is convicted.”).
`
`Moreover, courts have imposed strict guardrails to prevent defendants from using
`Monsanto as a general pre-trial discovery device or a fishing expedition into the
`government’s case. In Kaley v. United States, 571 U.S. 320, 324 (2014), the Supreme Court
`held that a Monsanto hearing is not a forum to relitigate a grand jury’s probable cause
`finding—but is limited to challenging the alleged nexus between the seized property and
`the charged offense.
`
`In Luis v. United States, the Supreme Court addressed a related issue: “Whether the
`pretrial restraint of a criminal defendant’s legitimate, untainted assets (those not traceable
`to a criminal offense) needed to retain counsel of choice violates the Fifth and Sixth
`Amendments.” 136 S. Ct. 1083, 1088 (2016). The defendant there allegedly dissipated
`alleged fraud proceeds pre-indictment, and the government obtained an order restraining
`her admittedly-untainted property. See id. The defendant argued this restraint violated her
`Sixth Amendment rights, and the Supreme Court agreed, holding that the defendant had “a
`Sixth Amendment right to use her own ‘innocent’ property to pay a reasonable fee for the
`assistance of counsel.” Id. at 1096. Luis hinged on the fact that the property was
`indisputably untainted and “belong[ed] to the defendant, pure and simple.” Id. at 1090.
`
`In sum, Monsanto and Luis each provides a defendant with the opportunity to use
`untainted funds to pay for their defense if needed. As shown below, regardless of whether
`Monsanto or Luis applies, Defendants must first establish—through sworn declarations or
`affidavits—that they cannot pay for their counsel of choice without access to the seized
`assets. Defendants’ Motion must be denied because they have failed to make this necessary
`threshold showing, and their remaining assertions are likewise deficient.
`
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`Case 2:18-cr-00422-DJH Document 1384 Filed 11/09/21 Page 9 of 20
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`
`
`I.
`
`ARGUMENT
`This Court Has Already Held that Monsanto Applies.
`Defendants admit they have not attempted to make a Monsanto/Unimex showing.
`Instead, they argue the Motion is not governed by Monsanto because (they assert) the
`Seized Assets are “legitimate and untainted.” Mot. at 8.1 Yet almost two years ago, this
`Court held that the seizures at issue “were based on the CDCA’s finding of probable cause,”
`and that “[u]nlike in . . . Luis, the Government is not attempting to prevent Defendants
`from using assets it believes are untainted.” Crim. Act., Doc. 559 at 7.
`Nothing has changed since that decision. Defendants’ motion to vacate the seizure
`warrants in the Civil Actions was denied, and the magistrate judges’ findings of probable
`cause have not been overturned. It continues to be true that “given the probable cause
`findings, this case, at least at this point, is much more like Monsanto and Caplin.” Id. at 7.
`As this Court recognized in Doc. 559:
`
`Allowing pretrial restraint of assets is consistent with “the long-recognized
`and lawful practice of vesting title to any forfeitable assets, in the United
`States, at the time of the criminal act giving rise to forfeiture.” Caplin, 491
`U.S. at 627. This ensures any “ill-gotten gains” will not dissipate before
`conviction and protects the community’s interest in recovery. Monsanto,
`491 U.S. at 616. The Supreme Court affirmed these rulings as recently as
`2014 when it decided Kaley. 571 U.S. at 371 (“So again: With probable
`cause, a freeze is valid.”).
`
`Here, the seizures were based on the CDCA’s finding of probable cause.
`Pretrial restraints based on probable cause to believe that the assets will
`be ultimately forfeited does not offend the Fifth or Sixth Amendment.
`
`Crim. Act., Doc. 559 at 7.
`Despite this law of the case,2 Defendants now simply assert that the Seized Assets
`are untainted, and accordingly, this case is governed by Luis rather than Monsanto. But
`
`1 Defendants admit that they would have to make a showing of a Sixth Amendment injury
`otherwise. See Mot. at 15 (“These assets are not ‘loot, contraband, or otherwise ‘tainted’’
`and, therefore, Defendants are not required to make a showing under Monsanto that they
`have been deprived of counsel”).
`2 Under the law of the case doctrine, “a court is generally precluded from reconsidering an
`issue that has already been decided by the same court or a higher court in the identical case,
`absent a material change in circumstances.” Ticketmaster L.L.C. v. Prestige Entm't W., Inc.,
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`Defendants cannot sidestep this Court’s prior Order (Doc. 559), the CDCA’s probable
`cause findings, and the Monsanto and Unimex cases, simply by ignoring these orders and
`decisions. The weakness of Defendants’ position is particularly obvious in light of the relief
`requested: an order vacating the seizure warrants.3 The Motion implicitly admits that the
`Seized Assets were restrained based on a finding of probable cause by a magistrate judge,
`and yet somehow, the word “magistrate” does not appear a single time in the Motion. In
`short, despite this Court’s prior holding and their own admission that they would need to
`make a showing under Monsanto/Unimex (see note 1, supra), Defendants have simply
`chosen not to do so. On this basis alone, the Motion should be denied.
`The Court should not turn a blind eye to what Defendants are attempting. If granted,
`their Motion would nullify Monsanto: No rational defendant would ever follow the
`procedures set by courts post-Monsanto when they could ignore a magistrate’s finding of
`probable cause, and instead just assert that seized funds are untainted and obtain a hearing
`to try to release assets—all without showing that they even intended to use such assets to
`fund their defense. Nothing in the Motion justifies such a radical change in the law.4
`
`
`315 F. Supp. 3d 1147, 1166 (C.D. Cal. 2018) (citing Thomas v. Bible, 983 F.2d 152, 154–
`155 (9th Cir. 1993)). This doctrine “encourages the conservation of limited judicial
`resources and promotes consistency by allowing court decisions to govern the same issues
`in subsequent stages of the same case.” E. Bay Sanctuary Covenant v. Trump, 950 F.3d
`1242, 1261 (9th Cir. 2020).
`3 As a matter of procedure, vacating the seizure warrants is actually a moot point, as the
`seizure warrants currently do not restrain anything: as detailed above, the VMG Funds are
`subject to an arrest warrant (see Ex. 1) and the IOLTA Funds are subject to the amended
`POF (see CR-18-465, Doc. 44), each of which authorize the government’s retention of
`these assets, so vacating the seizure warrants would be largely academic. Defendants seem
`to miss this point, and confusingly argue that “[t]o date, the government has failed to file
`any legal instrument that would authorize the continued restraint of these [IOLTA Funds]”
`(Mot. at 11), but a POF permits the government to seize and retain forfeitable property. See
`Rule 32.2(b)(3)(“The entry of a preliminary order of forfeiture authorizes the Attorney
`General (or a designee) to seize the specific property subject to forfeiture”).
`4 For the same reasons, Defendants are also not entitled to fee reimbursement (Mot. at 16-
`17), and have not cited a single case holding that the government is responsible for the
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`Case 2:18-cr-00422-DJH Document 1384 Filed 11/09/21 Page 11 of 20
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`II.
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`Even Under Luis, Defendants Have Failed to Carry Their Burden.
`Even if the Court were to consider the Motion under Luis (and it should not),
`Defendants still fail to meet their burden. As the Supreme Court stated in Luis, “the pretrial
`restraint of legitimate, untainted assets needed to retain counsel of choice violates the Sixth
`Amendment” 136 S. Ct. at 1088 (emphasis added). Post-Luis, courts have held that the
`Supreme Court meant what it said in using the word “needed”: much like with Monsanto,
`a defendant seeking relief under Luis must show that she actually needs restrained funds to
`retain counsel of choice. Defendants are certainly aware of such precedent, because Judge
`Klausner expressly rejected their arguments to the contrary in the CDCA:
`
`Defendants next argue that the pre-trial restraint of their assets is depriving
`them of their right to counsel of their choice as guaranteed under the Supreme
`Court’s holding in Luis v. United States, 136 S. Ct. 1083, 1088 (2016). As
`Defendants have made no showing in this motion that they lack other funds
`to pay counsel, the Court disagrees. . . .
`
`Claimants have made no attempt at such a showing. Their motion makes no
`reference to their present availability of funds, and the Court cannot find
`anything in the hundreds of pages of exhibits that they have submitted from
`which it can draw any inference on the subject. As such, the Court finds that
`Defendants have failed to make the necessary prima facie showing to justify
`a hearing on release of funds to pay for counsel.
`
`Civ. Act., Doc. 131 (internal citations omitted). Multiple courts have agreed that there is
`no Sixth Amendment injury under Luis absent a showing that a defendant actually needed
`restrained funds to retain counsel. See, e.g., United States v. Lindell, 766 F. App’x 525,
`528–29 (9th Cir. 2019) (“Even assuming there were untainted funds in the IRA during the
`criminal proceedings, Defendants have failed to clearly demonstrate that those funds were
`needed to pay for counsel of choice.”); United States v. Jones, 844 F.3d 636, 641, n.1 (7th
`Cir. 2016) (no Luis error where defendant “has not shown a bona fide need for the
`restrained assets”); United States v. $89,866.18, No. 2:16-CV-42-JEM, 2021 WL 1560813,
`at *2 (N.D. Ind. Apr. 21, 2021) (“Beyond a vague assertion of bona fide need and a
`statement of the amount of fees he currently owes his counsel of choice, Claimants have
`
`costs of a mistrial they themselves moved for. See Doc. 1308. Defendants cite only a single
`case, Arizona v. Washington, 434 U.S. 497, 503–04 (1978), which says nothing about fees.
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`not established that [defendant] has no other method of obtaining funds to pay his attorneys
`in the criminal case. Until a showing is made, the Court need not address the extent to
`which some of the forfeited funds may be untainted by the alleged fraud.”).
`The Motion does not attach any declarations from Defendants explaining how much
`they need to pay counsel or prepare for trial, what their trial budget might be, what expenses
`they intend to pay from any released funds, what would become of any unspent or excess
`funds not ultimately paid to counsel, or even swearing that they will actually use any funds
`released to pay counsel. See Kaley, 571 U.S. 320, 355 (2014) (Roberts, J., dissenting)
`(“[W]e are not talking about all of a defendant’s assets that are subject to forfeiture—only
`those that the defendant can show are necessary to secure his counsel of choice.”). On the
`present record, the Court could just as easily conclude that Defendants simply intend to
`spirit any released funds out of the country and beyond this Court’s jurisdiction.
`Even if Defendants had attempted to make such a showing of need, it is difficult to
`see how they could have succeeded, as post-Luis, courts have generally held that a
`defendant suffers no Sixth Amendment injury under Luis where he or she was competently
`represented by counsel of choice. See Marshall, 754 F. App’x at 160 (“Because Marshall
`was represented by the counsel of his choice, there was no need for the seized funds and,
`thus, no Luis error.”); United States v. Gordon, 657 F. App’x 773, 778 (10th Cir. 2016)
`(“Luis needed the funds to obtain counsel of her choice. Here, Gordon did not need the
`assets to retain counsel as he, in fact, had retained counsel of his choice and that counsel
`thoroughly and vigorously represented him at trial”) (citations and alterations omitted). For
`nearly three years, Defendants have been vigorously represented by a veritable who’s who
`of the Southern California bar, including counsel from three leading trial boutiques, noted
`First Amendment attorneys, and multiple former federal prosecutors and federal defenders.
`There is no indication in the Motion that any defense counsel intend to withdraw, nor have
`Defendants or counsel explained how any purported lack of funds would functionally
`impair their defense. While Defendants vaguely assert they “lack funds to pay the hard
`costs necessitated by a second trial, are unable to mount a constitutionally effective
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`defense, and may lose their choice of counsel in violation of the Sixth Amendment” (Mot.
`at 15), they do not cite any declaration or indicate that a motion to withdraw is forthcoming.
`On this record, the Sixth Amendment is not implicated and Luis is not applicable.
`III. Defendants Have No Right to Fund Their Defense with Backpage’s Money.
`A defendant has “no Sixth Amendment right to spend another person’s money for
`services rendered by an attorney, even if those funds are the only way that that defendant
`will be able to retain the attorney of his choice.” Doc. 559 at 5 (quoting Caplin & Drysdale,
`491 U.S. at 626). Here, Defendants seek to release IOLTA Funds that Backpage has already
`agreed to forfeit—yet Defendants have made no effort to establish that they (as opposed to
`Backpage) own these funds, and the proper venue for them to do so is in the ancillary
`proceeding.
`The IOLTA Funds were included in a signed POF (see CR-18-465, Doc. 44), and
`Defendants filed petitions to the IOLTA Funds in the ancillary proceedings. See CR-18-
`465, Docs. 61-64, 73.5 Under Rule 32.2 and 21 U.S.C. § 853(n), a third party’s sole avenue
`for challenging a POF is to establish in the ancillary proceeding that they have a superior
`ownership interest in these assets. “[S]ection 853(n) is the exclusive proceeding in which
`third parties may claim interests in property subject to criminal forfeiture.” United States
`v. Nava, 404 F.3d 1119, 1125 (9th Cir. 2005) (emphasis added); Lazarenko, 476 F.3d at
`648 (9th Cir. 2007) (“Section 853(n) provides the process for vindicating a third party’s
`interest in forfeited property. The law appears settled that an ancillary proceeding
`constitutes the only avenue for a third party claiming an interest in seized property.”).
`Even if probable cause were lacking (it is not), Defendants have made no effort to
`establish that they have a superior ownership interest to Backpage in the IOLTA Funds,
`and the exclusive venue for them to make such a showing is in the ancillary proceeding. In
`fact, the only mention of any POF in the Motion is an argument that “most assets the
`
`5 Defendants previously sought “reconsideration” of the amended POF (see CR-18-465,
`Doc. 45), but as described above, a third-party has no standing to object to inclusion of
`assets in a POF, and Defendants have since filed petitions to the IOLTA Funds.
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`Case 2:18-cr-00422-DJH Document 1384 Filed 11/09/21 Page 14 of 20
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