The White Collar Appeal: Second Circuit Says You Can’t Forfeit What You Never Had

• Weighing in on a growing circuit split, the Second Circuit in United States v. Elias recently nixed a forfeiture order that apportioned the total forfeiture amount equally among the coconspirators, regardless of whether that defendant actually received anything from the crime.
• The court extended Honeycutt v. United States, 581 U.S. 443 (2017)—which limited forfeiture to property a defendant actually acquired—to the forfeiture statute contained in 18 U.S.C. § 981(a)(1)(C), which applies to various forms of bank fraud, money laundering predicates, and customs fraud, among other crimes.
• Elias is significant not only because the Second Circuit’s reasoning would extend broadly to many other forfeiture statutes, but because it deepens an existing circuit split about the application of Honeycutt, adding pressure on the Supreme Court to resolve the split soon.

Background

Matthew Elias was a getaway driver for the robbery of a stash house in Queens.  Elias bungled the getaway by rolling through a stop sign and getting arrested.  The loot—cash, forty pounds of marijuana, and a gun—was in another car with the heist’s ringleader.  Elias was ultimately charged with Hobbs Act robbery.  Testimony at his trial established that the ringleader kept all robbery proceeds for himself, save for $500 and some marijuana given to one other participant—but not Elias.  While in jail, Elias even inquired on a recorded phone call about his share of the loot and was told he would get “no cut.”  A jury convicted Elias, and the Honorable Nicholas G. Garaufis, United States District Judge for the Eastern District of New York, issued a forfeiture order under 18 U.S.C. § 981(a)(1)(C).  Under that provision, any property derived from or traceable to a variety of violations affecting banks—such as bank fraud, counterfeiting, or in this case, bank robbery—customs fraud, and any money-laundering predicate (known as a “specified unlawful activity”) can be forfeited upon conviction.  Although the evidence was clear that Elias never personally received any proceeds from the robbery, Judge Garaufis ordered him to forfeit $10,000, calculated based on his pro rata share of the robbery proceeds. 

Holding

The Second Circuit vacated Judge Garaufis’s forfeiture order.  It held that a defendant must personally acquire something in order to be subject to forfeiture under 18 U.S.C. § 981(a)(1)(C), and because Elias personally obtained nothing from the robbery, he could not be ordered to forfeit something he never received.  The panel reached this conclusion based on the Supreme Court’s 2017 decision in Honeycutt, which interpreted substantially similar language in 21 U.S.C. § 853(a)(1), which applies generally to drug-trafficking crimes.  In Honeycutt, the Supreme Court declined to impose joint-and-several liability for forfeiture under Section 853 because “[n]either the dictionary definition nor the common usage of the word ‘obtain’ supports the conclusion that an individual ‘obtains’ property that was acquired by someone else.”  So too, here, the Second Circuit concluded:  “the word ‘obtain’ appears to have the same role in both § 853 and § 981(a)(2)(A).”

In extending Honeycutt to Section 981, the Second Circuit joined the Third, Ninth, and Eleventh Circuits, as well as Justice Sotomayor, who dissented from a denial of cert petition that presented this question.  The Sixth and Eighth Circuits, by contrast, have reached the opposite conclusion on the basis that Section 853 explicitly refers to “proceeds the person obtained,” whereas Section 981 provides that “property … subject to forfeiture” includes “property of any kind obtained,” without reference “the person.”  According to the Second Circuit, however, that distinction does not lead to a different conclusion.

Key Takeaways

Defendants should distinguish between participation in a broader criminal enterprise and actual ill-gotten gains.  The facts of Elias were relatively straightforward—a simple robbery involving tangible assets, where the defendant, an accomplice, never came into possession of any proceeds from the criminal enterprise.  For white collar cases involving complex schemes, multiple participants, shared bank accounts, and a commingling of ill-gotten gains with lawful proceeds, defense counsel should harness Elias’s language as a limiting principle on the government’s ability to prove what a defendant actually obtained.  And wherever possible, counsel should emphasize the role of ancillary defendants as mere facilitators who conspired, but did not themselves profit significantly (or at all) from the enterprise itself.

Defendants in the Sixth and Eighth Circuits should preserve these arguments for potential Supreme Court review.  The Second Circuit’s opinion in Elias adds to a brewing circuit split and tees the issue up for potential Supreme Court review.  It seems unlikely the Solicitor General’s Office would authorize a cert petition in Elias—both the weight of authority and Justice Sotomayor’s dissent from the denial of cert in Peithman seem to suggest this would not be a winner for the government.  It likely will take a cert petition from a defendant to bring the case before the Supreme Court to resolve the circuit split.

Until the Supreme Court weighs in, however, defendants should seek to expand upon the victory in Elias.  Defendants should challenge any forfeiture order that exceeds the amount of property they actually obtained, regardless of the statute under which the order is issued. The reasoning of Elias suggests that Honeycutt should apply to any forfeiture provision that uses the word “obtained,” which would include numerous other provisions in Section 981, Section 982, and potentially others.