Steven L. Kessler’s article discussing the recent revisions to New York’s primary civil forfeiture statute was published in the New York Law Journal.
New York’s Major Revisions to the Civil Forfeiture Laws
2019 was an important year for civil forfeiture law in New York. This year, the Legislature enacted changes to the statute that should substantially reduce major areas of abuse. These changes, the first significant revisions to the statute since 1990, limit pretrial restraint to tainted property, restrict the use of money judgments, eliminate “common scheme or plan” liability and make clear that defendants are not required to prove that funds needed to pay living expenses and legal fees are untainted. The revisions also seek to reduce forfeiture abuse by reworking the process for distributing forfeited property.
Elimination of Actions Seeking Money Judgments and Limitation of Pretrial Restraint to Tainted Property. As originally enacted in 1983, CPLR Article 13-A did not address the issue of whether untainted property could be attached or restrained before trial. In 1986, the New York Court of Appeals held, in Morgenthau v. Citisource, N.Y.2d 211, 222 (1986), that the claiming authority could restrain untainted property. The court reached this conclusion by combining the provisions relating to pretrial restraint with those relating to money judgments.
The role of money judgments in pretrial restraint: A central feature of the statute as enacted was the ability of the claiming authority to seek “a money judgment in an amount equivalent in value to the property which constitutes the proceeds of a crime, the substituted proceeds of a crime, an instrumentality of a crime, or the real property instrumentality of a crime.” CPLR 1311. The statute did not expressly limit the claiming authority to seeking a money judgment as an alternative to the forfeiture of tainted property. Indeed, there was nothing in the statute that prohibited the claiming authority from seeking only a money judgment. However, in that event, the claiming authority would, at least in theory, still be required to establish, by a preponderance of the evidence, the value of the proceeds, substituted proceeds and/or instrumentalities traceable to the criminal activity. Only then would the claiming authority be entitled to a money judgment “in an amount equivalent in value” to the property proven to be tainted as a result of the criminal activity.
The primary problem created by this statutory scheme was not the availability of the money judgment remedy itself, but its effect on pretrial restraint. Because of the availability of a money judgment, which permits the forfeiture of untainted property, the claiming authority could “prevail on the issue of forfeiture” without proving that any particular property was tainted.
The Citisource decision resulted in decades of excessive, unsupported pretrial restraints. In many forfeiture cases brought under Article 13-A, the claiming authority sought nine-figure money judgments and used that amount as the basis to restrain every penny of the defendant. The huge judgment sought typically dwarfed the defendants’ individual and collective net worth. Yet, not a single dollar belonging to any of those defendants was even alleged, let alone demonstrated, to constitute the proceeds, substituted proceeds or instrumentality of the alleged criminal activity. As a result, from day one of the litigation, no defendant could so much as buy a carton of milk without having to ask permission from the claiming authority or make a motion to the court. This gross imbalance often enabled the claiming authority to extract substantial concessions in exchange for agreeing to release funds to permit the defendants to pay their living expenses and legal fees, particularly during the initial phase of the litigation.
As discussed in our Aug. 18, 2018 column (“SCOTUS Limits Criminal Forfeiture in ‘Honeycutt’, (https://www.law.com/newyorklawjournal/almID/1202795826407/SCOTUS-Limits-Criminal-Forfeiture-in-Honeycutt/)” N.Y.L.J. (Aug. 18, 2018) p. 4), the U.S. Supreme Court’s decision in Luis v. United States, 136 S. Ct. 1083 (2016) was bound to give rise to a reexamination of the Citisource decision. Applying a combination of Sixth Amendment and due process analysis, the Supreme Court held that untainted assets may not be restrained before trial.
Effect of the 2019 revisions: After Luis, a motion to release restrained property on the ground that it has not been shown to be related to the criminal activity should have been successful. But the 2019 amendments to Article 13-A have made that task simpler and the results far more certain. Both the pretrial restraint provisions of the statute and the money judgment provisions have been rewritten.
CPLR 1312, the section that sets forth the requirements for obtaining any provisional remedy under Article 13-A, has been significantly changed to make clear that untainted property may not be restrained before trial.
First, the claiming authority’s burden on a motion for a provisional remedy has been raised. The claiming authority must now demonstrate that any property sought to be restrained must be traceable to the alleged criminal activity. The new language is highlighted below:
A court may grant an application for a provisional remedy when it determines that … (a) there is a substantial probability that the claimant authority will be able to demonstrate at trial that the property is the proceeds, substituted proceeds, instrumentality of the crime or real property instrumentality of the crime, that the claiming authority will prevail on the issue of forfeiture, and that failure to enter the order may result in the property being … unavailable for forfeiture … .
Second, the heart of the statutory scheme—CPLR 1311—has been revised to delete the provision authorizing the claiming authority to commence an action seeking a money judgment.
The elimination of the money judgment language from the statute removes the legal underpinning for the Court of Appeals’ conclusion in Citisource that untainted property can be restrained before trial because it may be forfeited after trial.
Limitation on use of money judgments: While money judgments have been eliminated as a remedy that can be sought in the complaint, they are still available, but only as an alternative remedy after trial, and only if the claiming authority secures a forfeiture judgment against specific property proven to be tainted. Thus, the ultimate availability of the money judgment remedy can no longer be used as a basis for justifying the pretrial restraint of property which the claiming authority has not demonstrated to be traceable to the alleged criminal activity.
To address this issue, a new CPLR §1311-b has been added to the statute. This section provides in full:
Money judgment. If a claiming authority obtains a forfeiture judgment against a defendant for the proceeds, substituted proceeds, instrumentality of a crime or real property instrumentality of a crime, but is unable to locate all or part of any such property, the claiming authority may apply to the court for a money judgment against the defendant in the amount of the value of the forfeited property that cannot be located. The defendant shall have the right to challenge the valuation of any property that is the basis for such an application. The claiming authority shall have the burden of establishing the value of the property under this section by a preponderance of the evidence.
As with the revisions limiting pretrial restraint to tainted property, this new section brings New York’s forfeiture law further in line with federal law. Federal in personam criminal forfeiture statutes only permit the government to forfeit untainted property of the defendant if, and to the extent that, the government demonstrates that the tainted property has been rendered unavailable by some act or omission of the defendant. See, e.g., 21 U.S.C. §853(p). Thus, as in federal law, the new §1311-b makes it substantially more difficult for the government to forfeit untainted property of the defendant in a forfeiture action under Article 13-A.
Elimination of Common Scheme or Plan Liability. One of Article 13-A’s most important limiting provisions has been that a forfeiture action may only be founded on a felony crime. See, e.g., CPLR 1310-. The most notable exception to this limitation has been the “common scheme or plan” provision, which permits a forfeiture action based on a misdemeanor crime if the claiming authority can prove that the misdemeanor was part of a common scheme or plan involving the commission of a felony. CPLR 1311 [a].
While this rarely used provision is relatively harmless when applied as intended by the Legislature, it has been used by prosecutors to far more serious effect. In a handful of early decisions under Article 13-A, the claiming authority convinced a few trial courts that the common scheme or plan exception is an implicit authorization for imposing joint and several liability. See Kuriansky v. Natural Mold Shoe, 133 Misc. 2d 489 (Sup. Ct. Westchester County 1986), modified on other grounds, 136 Misc. 2d 684 (1987); see also Morgenthau v. Clifford, 157 Misc. 2d 331 (Sup. Ct. New York County 1992) (citing Natural Mold without discussion); People v. Eletto, N.Y.L.J. (Jan. 31, 1992), p. 28, col. 1 (Sup. Ct. Queens County 1992) (same).
But those decisions were not the main problem. Rather, it was the use that prosecutors made of those decisions in recent forfeiture cases. Typically, the assertion of joint and several liability became the key element in the ninefigure, mega-forfeiture money judgment cases brought against multiple defendants which, in addition to providing impressive press releases, often resulted in the imposition of grossly excessive pretrial restraints.
As discussed in a previous column (https://www.law.com/newyorklawjournal/almID/1202795826407/SCOTUSLimits-Criminal-Forfeiture-in-Honeycutt/), the Supreme Court’s groundbreaking 2017 decision in Honeycutt v. United States, 137 S. Ct. 1626 (2017)—combined with the removal of the money judgment remedy—should eliminate attempts to apply joint and several liability to forfeiture actions under Article 13-A. The removal of the “common scheme or plan provision” from the statute should ensure that, whatever arguments a claiming authority might present, the courts will take comfort from both state law and federal precedent and not accept them as a basis for the imposition of pretrial restraints based on a joint and several theory of liability.
One argument that prosecutors have already made—though no reported court rulings have yet resulted—is that Honeycutt was applying federal statutory law, not constitutional law, and therefore is not controlling in cases arising under Article 13-A. Given the striking similarities between key language of the provisions of Article 13-A and the federal statutes at issue in Honeycutt, however, together with the new revisions to Article 13-A, this contention will now be rejected by the courts.
In Honeycutt, the court held that the statute’s use of the word “obtained” conclusively established that, even in a conspiracy or criminal enterprise case, forfeiture is “limited to property the defendant himself actually acquired as the result of the crime.” The Supreme Court therefore held that a co-conspirator could not be compelled to forfeit property he did not personally receive, even though it was received by other members of the conspiracy. Honeycutt, 137 S. Ct. at 1635.
Because Article 13-A’s definition of “proceeds” also requires that the property be “obtained” by the defendant, the Supreme Court’s decision in Honeycutt makes clear that joint and several liability cannot be inferred from the language of New York’s forfeiture statute.
The legislative history of Article 13-A is in alignment with the Supreme Court’s reasoning in Honeycutt. When the New York Legislature enacted Article 13-A, it concluded that “totally inappropriate forfeitures have been sustained on the claim that the property was used in the commission of a crime. Legislation which would permit such disproportionate penalties through the rubric of civil forfeiture is unacceptable to members of our respective committees.” Letter from Sen. Padavan and Assemblyman Miller (Bill Sponsors) to First Assistant Attorney General Allee, Oct. 13, 1983 (citing Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663 (1974)); see Kessler, New York Criminal and Civil Forfeitures (LexisNexis 2018), §App 4.01, at App 4-40.
Even New York County District Attorney Robert Morgenthau “condemned the outcome of cases” permitting disproportionate or inappropriate forfeitures such as Calero-Toledo. Letter from D.A. Morgenthau to Sen. Padavan and Assemblyman Miller, Oct. 25, 1983; see Kessler, New York Criminal and Civil Forfeitures (LexisNexis 2018), §App 4.01, at App 4-48.
The Legislature sought to rein in excessive forfeitures through such unique features as in personam civil forfeiture, the requirement of a criminal conviction for post-conviction forfeitures and the creation of the noncriminal defendant to protect the rights of innocent third parties while ensuring that criminal defendants cannot transfer ill-gotten gains to such third parties to avoid forfeiture. See, e.g., CPLR 1311; Governor’s Program Bill 1984 Memorandum, reprinted at Kessler, New York Criminal and Civil Forfeitures (LexisNexis 2018), §App 4.01, at App 4-72 to 4-77.
Similarly, the Supreme Court in Honeycutt saw no “significant expansion of the scope of property subject to forfeiture” and made clear that in personam forfeiture statutes—just like in rem forfeitures—are to be narrowly construed and strictly limited to the express language of the authorizing statutes, leaving no room for ‘implied’ remedies like joint and several liability.
Despite these close similarities between the federal statutes at issue in Honeycutt and the relevant provisions of Article 13-A, prosecutors have continued to assert that the Supreme Court’s opinion has no direct impact on the construction and application of New York’s civil forfeiture law. The elimination of the common scheme or plan language from the statute should put these arguments to rest.
Protecting Motions to Release Funds to Pay Living Expenses and Legal Fees. The provision requiring the release of restrained funds to pay a defendant’s living expenses and legal fees during the pendency of forfeiture proceedings remains one of the most important and innovative protections in all of Article 13-A. See CPLR 1312. As crafted by the Legislature, the only conditions to the granting of such a motion are that the expenses and fees be “reasonable” and “bona fide” and that the defendant establish by affidavit “the unavailability of other assets,” not subject to pretrial restraint, to pay such fees and expenses. Id.
Some relatively recent decisions were interpreted as imposing an additional requirement that the defendant establish that the funds sought to be released were not traceable to the alleged criminal activity. See, e.g., Kessler, New York Criminal and Civil Forfeitures (LexisNexis 2018), §4.12 (discussing, inter alia, District Attorney v. Efargan, 12 Misc.3d 1186(A) (Sup. Ct. New York County 2006)). While these decisions can and should be viewed merely as enforcing the requirement that the defendant provide complete financial disclosure to obtain the relief provided by CPLR 1312, the larger problem was the spin placed on them by prosecutors.
The 2019 statutory amendments address this issue by adding the following clarifying language to CPLR §1312:
… That funds sought to be released under this section are alleged to be the proceeds, substituted proceeds, instrumentality or a crime or real property instrumentality of a crime shall not be a factor for the court in considering and determining a motion made pursuant to this subdivision.
In light of the plain language of this section as originally drafted, the additional clarifying language should not have been necessary. Together with the new amendments’ express prohibition against pretrial restraint of untainted assets, there should be even less need for clarifying language. The imposition of a burden on the defendant to demonstrate that the funds sought to be released are untainted was necessarily built on the assumption that untainted assets could be restrained at all. Now, the revised statute makes it crystal clear that only assets traceable to the charged criminal activity can be restrained before trial. Accordingly, any motion for release of restrained funds will, by necessity, be seeking the release of property which the claiming authority has shown is the proceeds, substituted proceeds or instrumentality of the charged criminal activity. The 2019 addition to §1312  demonstrates that this is the result intended by the Legislature.
Additional Statutory Changes. The 2019 revisions also amend CPLR 1349, relating to the distribution of forfeited assets, and add a new section to the General Municipal Law to assist in the implementation of those amendments. Further, to ensure more complete reporting of demographic information in connection with criminal prosecutions, the Legislature added a new subdivision to CPLR 1311 and amended §220.50 of the Criminal Procedure Law and §480.10 of the Penal Law.
Finally, the Legislature revised CPLR 1352 to ensure that no municipality attempts to enact its own forfeiture ordinance to bypass the constitutional protections for prompt due process review of retention of seized property. While there is extensive protection in the law already, from the federal Krimstock decisions to the New York Court of Appeals decision in County of Nassau v. Canavan, 1 N.Y.3d 134 (2003). there would seem to be no harm in including an affirmative provision reaffirming these protections. This provision will provide additional ammunition for a challenge to a forfeiture under a loosely drafted or improperly enforced local ordinance.
The scope and breadth of the 2019 amendments to CPLR Article 13-A add further protections from prosecutorial abuse and should substantially affect the way New York’s civil forfeiture statute is litigated, enforced and applied by the courts.
Steven L. Kessler represents clients nationwide in forfeiture matters and complex civil litigation. He is a member of the Joint Rules Committee on Forfeiture for the Southern and Eastern Districts of New York and the author of two acclaimed treatises on forfeiture. Eric Wagner, an associate to Mr. Kessler, assisted in the preparation of this article.