This case concerns the new and rapidly developing field of the law of “forfeiture”. In this civil action, the plaintiffs seek, inter alia, to recover damages arising from an alleged fraudulent scheme to improperly obtain public funds. Simultaneous with the prosecution of criminal charges against the defendants, this civil action was commenced under CPLR article 13-A to declare the forfeiture of the proceeds of the crimes for which these defendants were indicted, and pursuant to Social Services Law § 145-b, to recover treble damages in the sum of $39,000,000 claimed to be resulting from the alleged fraud.
A Kings County Criminal Lawyer said that on appeal, the court is called upon to determine (1) whether the Supreme Court properly granted the plaintiffs’ request for the imposition of provisional remedies against certain assets of the defendants, (2) whether the imposition of such relief effectively deprived those defendants subject to criminal charges of their constitutional right to obtain paid counsel of their own choosing by virtue of the freezing of their assets, and (3) whether the court erred in directing the criminal defendants to disclose certain financial information in violation of their constitutional right against self-incrimination.
For the reasons which follow, the court concludes that affirmance is warranted as to criminal defendants and non-criminal defendants. With regard to the other criminal defendant, the court remit to the Supreme Court for further consideration under the rules set forth herein.
Article 13-A of the CPLR, authorizes District Attorneys and the Attorney General, as “claiming authorities”, to recover, as against the criminal defendants, real property, personal property, money, negotiable instruments, securities or other items of value, which constitute the proceeds, substituted proceeds or instrumentalities of crime, or to recover a money judgment in an amount equivalent in value to the property which constituted the proceeds of the crime, the substituted proceeds or an instrumentality of crime. A civil forfeiture action may be commenced and provisional remedies, such as attachment, may be obtained prior to a conviction, but no actual forfeiture or money judgment may be recovered until after a conviction. In fact, the civil action is stayed during the pendency of the criminal proceeding, but the stay does not prevent the granting of provisional remedies.
The crimes upon which a forfeiture action may be based are of two types: (1) postconviction forfeiture crimes, meaning any felony as defined under the Penal Law or other chapter of the consolidated laws; and (2) preconviction forfeiture crimes which are drug-related crimes not involved in this case. The criminal defendants in this case have been indicted for crimes under the postconviction forfeiture crime category, permitting the claiming authority to commence this forfeiture action and obtain provisional remedies, including attachment, prior to conviction. The statutory plan also permits an action against the noncriminal defendants with recovery limited to the proceeds, substituted proceeds or instrumentalities of the crime.
Under CPLR 1312, the provisional remedies of attachment, injunction, receivership and notice of pendency are available upon the court’s determination that the following three-pronged standard is satisfied: (1) there is a substantial probability that the claiming authority will prevail on the issue of forfeiture; (2) failure to enter the order may result in the property being destroyed, removed from the jurisdiction of the court or otherwise unavailable for forfeiture, and (3) the need to preserve the availability of the property through the entry of the requested order outweighs the hardship on any party against whom the order may operate.
CPLR 1326 permits the Court to order disclosure at any time after the granting of an order of attachment upon motion of “any interested person” for information regarding any property in which the defendant may have any interest or to whom debts may be owed. In this case, the court order at issue directed the criminal defendants to each execute and deliver to the claiming authority a sworn financial disclosure statement and signed authorizations, permitting the claiming authority to obtain their Federal and State tax returns and other financial information. The order also states that it “shall not prevent the invocation of the self-incrimination privilege as to any information sought by [the financial disclosure form]”.
The forfeiture statute provides a number of safeguards designed to protect the defendants from an improper deprivation of their property as a result of provisional remedies. If a defendant recovers judgment or succeeds in proving, by the preponderance of the evidence, that the claiming authority acted without reasonable cause and not in good faith in securing the provisional remedy, the claiming authority is liable for “all costs and damages, including reasonable attorney’s fees, which may be sustained by reason of the attachment”.
Other significant safeguards are contained in CPLR 1329, which permits a defendant to move to vacate or modify an order of attachment, and CPLR 1336, which permits a defendant to “move at any time” to vacate or modify a preliminary injunction or temporary restraining order.
With regard to the cause of action by the State, Social Services Law § 145-b provides that it is unlawful to fraudulently obtain payment from public funds for medical services purportedly furnished. The statute further provides that “the state shall have a right of action to recover civil damages equal to three times the amount by which any figure is falsely overstated.” Provisional relief is available to the State in an action under the Social Services Law pursuant to CPLR articles 62 and 63.
Finally, CPLR 6201 sets forth the grounds for the nonforfeiture provisional remedy of attachment. The ground justifying attachment relevant to this appeal is subdivision 3 of CPLR 6201 which provides that an order of attachment may be granted if it is shown that “the defendant, with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff’s favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts”.
With the exception of one, all of the defendants have appealed from this order claiming, in essence, that CPLR article 13-A is unconstitutional both facially and as applied under the circumstances of this case. In order to resolve these issues, the Court begin its analysis with the first case to reach the Court of Appeals involving the statutory scheme embodied in CPLR article 13-A. In discussing the purpose underlying the enactment of article 13-A, the judge noted that the Legislature’s objective was to take the profit out of crime, and accordingly concluded that the availability of provisional remedies serves the substantial governmental need of preventing the judicial process from being frustrated by the dissipation of assets that will potentially satisfy a civil judgment.
In response to the defendants’ constitutional challenge to the statutory scheme, the court held, inter alia, that the procedures provided in article 13-A satisfy minimum procedural due process requirements. The court further noted that article 13-A contains provisions for “an elaborate array of safeguards” carefully drafted “to protect defendants from an erroneous deprivation of their property through the imposition of a provisional remedy” These safeguards include placing a substantial burden upon the claiming authority to establish in the first instance the need for an attachment and a continuing burden to demonstrate the need for maintaining the levy. Additionally, the court pointed out that to accommodate the potential changing circumstances of the defendant pending a final disposition of the forfeiture action, article 13-A provides the following significant safeguards: “[T]he defendant may move at any time to either discharge the attachment or to vacate or modify the attachment and the court may, on its own motion, dismiss the entire action in the interests of justice if it finds such relief warranted by the existence of some compelling factor, consideration or circumstance demonstrating that forfeiture would not serve the ends of justice.
The Court further concludes that the provisional remedy relief granted by the court “serves the substantial governmental need of preventing the judicial process from being frustrated by the dissipation of assets” In the Court’s view, the governmental need to preserve available assets is particularly appropriate in this case where the profits of the criminal defendants’ alleged crimes are misappropriated public funds which can potentially be restored to the taxpayers.
This investigation revealed that the criminal defendants had engaged in a long-term fraudulent scheme whereby invoices were created for patient visits at the facilities in fact occurred. The fraudulent claims were then submitted for reimbursement under the program.
The court also note that none of these factual allegations concerning this fraudulent scheme were controverted by any party having personal knowledge. In his affidavit, the attorney for the defendant stated that defendant was prepared to submit to the Supreme Court, in camera, a sworn affidavit specifically denying the “false accusations” against him. No such document was furnished. We therefore agree with the Supreme Court that, based upon the papers submitted, the claiming authority sufficiently demonstrated the substantial probability that it would succeed on the merits of the forfeiture action by obtaining convictions on the criminal charges.
The defendants’ contention that their due process rights were violated because the Supreme Court failed to conduct a hearing is without merit. Although no evidentiary hearing was held, this was not an ex parte procedure. The court heard extensive argument and the defendants were given an opportunity to submit affidavits and memoranda of law. The submissions of counsel did not raise factual issues with regard to the substantive elements of the charged crimes.
As previously discussed, the Court agrees with the Supreme Court that information concerning the full extent of the defendants’ assets and financial condition is necessary in order to determine whether the freezing of their assets resulting from the imposition of the provisional remedies violates their right to obtain counsel of their choice. Although the defendants also contend that the disclosure order impermissibly forces them to choose between preserving their Fifth Amendment privilege and losing their right to obtain chosen counsel, it appears to us that they overstate their dilemma. It is pure speculation to conclude that by complying with the disclosure order, the defendants will necessarily incriminate themselves by supplying the State with evidence that may be used against them in the pending criminal prosecution. Also, the court order does not compel the defendants to abandon their privilege against self-incrimination. In fact, the record reveals that as to the required disclosure, the order expressly permits “the invocation of the self-incrimination privilege.”
While affirming in part the granting of the provisional remedies and disclosure by the Supreme Court, the Court also conclude that upon a sufficient evidentiary showing, the defendants may ultimately establish that the provisional remedy order should be modified or vacated, based on an evaluation and balancing of the conflicting need of the plaintiffs to preserve the available property as opposed to proof of hardship by the defendants. In order to do so, however, disclosure of the requested financial information is required.
Accordingly, the order appealed from is modified to remit this proceeding to the Supreme Court with regard to the defendants to make the determination as to hardship heretofore discussed, and should otherwise be affirmed.
The Court ORDERED that the order is reversed insofar as appealed from, on the law and the facts, without costs or disbursements, and the matter is remitted to the Supreme Court, Kings County, for a hearing on the issue of whether the need to preserve the available property outweights the hardship to defendant as set forth, and pending determination of the application, the temporary restraining order contained in an order to show cause of the Supreme Court, Kings County, as modified by an order of the same court, is reinstated as to one of the defendant; and, it is further,
ORDERED that the order is affirmed insofar as appealed from by the defendants without costs or disbursements.
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