University of Baltimore Law Forum Volume 21 Article 14 Number 2 Spring, 1991

1991 Recent Developments: In re Billman: Disposition of Substitute Assets Possessed by Third Party and Subject to Rico Forfeiture May Be Enjoined Charles Szczesny

Follow this and additional works at: http://scholarworks.law.ubalt.edu/lf Part of the Law Commons

Recommended Citation Szczesny, Charles (1991) "Recent Developments: In re Billman: Disposition of Substitute Assets Possessed by Third Party and Subject to Rico Forfeiture May Be Enjoined," University of Baltimore Law Forum: Vol. 21 : No. 2 , Article 14. Available at: http://scholarworks.law.ubalt.edu/lf/vol21/iss2/14

This Article is brought to you for free and open access by ScholarWorks@University of Baltimore School of Law. It has been accepted for inclusion in University of Baltimore Law Forum by an authorized editor of ScholarWorks@University of Baltimore School of Law. For more information, please contact [email protected]. the bringing of an action." Id. at 257, medical malpractice. Where a physician rary restraining order (TRO) prohibit­ 577 A.2d at 68. The court explained that repeatedly misdiagnoses his patient's ing McKinney from disposing of the the Joneses could only succeed in their condition due to negligence, each visit $550,000. McKinnEry, 915 F.2d at 919. suit if they could prove that Dr. Speed with the doctor may constitute a separ­ The court subsequently held a hearing had been negligent within the five years ate cause of action and thus, begin a new to determine the validity of the TRO, prior to filing the complaint. Thus, the statute of limitations. and to rule on a motion by the United , doctor could not be held liable for any - Michael P. CasEry States requesting an injunction restrain­ negligence occurring before that period ing disposition of the funds pending the and, as such, he was protected to the forfeiture proceedings. Id. extent that the legislature intended In re Billman: DISPOSITION OF The district court vacated the TRO under §5-109. Id. at 257, 577 A.2d at 68. SUBSTITUTE ASSETS and denied the government's motion for Finally, Dr. Speed argued that the POSSESSED BY THIRD PARTY an injunction, reasoning that section long-standing prohibition against split­ AND SUBJECT TO RICO 1963 makes only those assets which the ting a cause of action prevented the FORFEITURE MAY BE ENJOINED government proves are connected to Joneses from bringing suit. He argued In a case of first impression, the the fugitive's alleged racketeering activ­ that had they brought suit for the initial United States Court of Appeals for the ity subject to pretrial restraint. Id. The act of negligence occurring on July 17, Fourth Circuit ruled that it was within court's decision was based on the govern­ 1978, their claim for relief would have the power of the district court to enjoin ment's inability to trace $22,000,000 necessarily included damages resulting the disposition ofsubstitute assets pend­ deposited by the conspirators in Swiss from all subsequent negligent acts when ing criminal trial or forfeiture under bank accounts to the assets held by her tumor remained undiscovered. Thus, Racketeer Influenced and Corrupt Orga­ McKinney. Specifically, the lower court because the Joneses were precluded nizations laws (RICO). The court held ruled that the government had failed to from bringing suit on the initial negli­ that the statute, codified at 18 U.S.c. prove that the funds in question were gence and the initial negligence was so 1963, prohibited a defendant from avoid­ actual RICO proceeds, and further de­ intertwined with the later negligence, ing forfeiture of his substitute assets. As termined that after the wire transfer, the to allow the Joneses to proceed on the a result, transfer of a RICO target's assets funds belonged to McKinney. Id. later counts was the same as permitting to a third person who did not qualify as a Believing that a more liberal reading them to split their cause of action. Id. at bona fide purchaser for value did not of the statute was appropriate, the court 257-58, 577 A.2d at 68. place the assets beyond the court's of appeals held that an injunction should The court agreed that splitting a cause jurisdiction. u.s. v. McKinnEry, 915 F.2d have been issued. Id. at 919-20. Com­ of action is prohibited in order "to pre­ 916 (4th Cir. 1990). The Fourth Circuit pelled to follow the lower court's find­ vent multiplicity of litigation and to determined that Congress intended Sec­ ings of fact the court treated the ques­ avoid the vexation, costs and expenses tion 1963 to be construed liberally in tioned funds as legitimate, despite its incident to more than one suit on the order to effectuate its remedial purpose. own opinion to the contrary. Id. at 920. same cause of action." Ex Parte Carlin, The purpose, in the context of McKin­ Noting that under RICO the money was 212 Md. 526, 532-33, 129 A.2d 827 nEry, was to preserve the defendant's still subject to forfeiture as substitute (1957) quoted injones, 320 Md. at 258, substitute assets for ultimate forfeiture assets, the court held that an injunction 577 A.2d at 68 (1990). The flaw with upon conviction. was proper against a third party who did Speed's reasoning, noted the court, was Tom). Billman, implicated in the fail­ not qualify as a bona fide purchaser for that the rules prohibiting splitting a ure of a savings and loan, was indicted value. Thus, by determining that McKin­ cause of action, and application of res for racketeering, fraud, and conspiracy ney was not a bona fide purchaser, the judicata principles only apply to situa­ to commit mail and wire fraud. Before court held that the TRO was proper. Id. tions where the plaintiff has in fact the indictment was issued, however, Bill­ at 921. brought suit and a final adjudication has man became a fugitive. After Billman's In its analysis of § 1963 (a)( 1) and occurred. jones, 320 Md. at 259, 577 flight, Barbara A. McKinney, an alleged (3), the court recognized that a forfei­ A.2d at 69. In the Jones' situation the co-conspirator, received a number of ture proceeding against funds derived court explained that prior adjudication cryptic telephone calls from Billman's from RICO criminal activity is "an in addressing the physician's negligence London attorney and from Billman him­ personam proceeding against the defen­ had never occurred. As such, the court self. The purpose of these conversations dant, and the forfeiture constitutes par­ concluded, the Joneses were not pre­ was to arrange a wire transfer of approx­ tial punishment of the offense." McKin­ cluded from bringing suit as to any acts imately $500,000 from the attorney to nEry, 915 F.2d at 920. of negligence occurring within five years McKinney. In addition, McKinney agreed Furthermore, amended section 1963 of filing their complaint. Id. to accept $50,000 from William C. ( m ) provides for the forfeiture of substi­ Throughjones v. speed, 320 Md. 249, McKnew in order to discharge a debt tute assets when actual RICO proceeds 577 A.2d 64 (1990), the Court of Ap­ that McKnewowed to Billman. The debt are unavailable. Subsection (m) specifi­ peals of Maryland has clarified what was listed among Billman's assets. cally provides that "[iJfanyofthe prop­ constitutes a separate cause ofaction for At the commencement of the action, erty described in subsection (a), as a negligence and thereby starts the accrual the United States District Court for the result of any act or omission of the of Maryland's statute of limitations for District of Maryland entered a tempo- defendant ... (3) has been placed be-

______21.2/The Law Forum - 39 yond the jurisdiction of the courtj ... the whether the substitute assets could be fendant's substitute assets could be re­ court shall order the forfeiture of any restrained pending trial. Id strained pending criminal trial or for­ other property of the defendant.... " Section 1963(d)(I)(A) authorized feiture under RICO. By construing sec­ McKinney, 915 F.2d at 920. Because Bill­ the court, " [u ]pon application of the tion 1963 liberally, the court held that a man was alleged to have placed the mis­ United States ... [to] take any ... action defendant's assets could be restrained if appropriated funds in Swiss banks, be­ to preserve the availability of property transferred to a person not qualifying as yond the court's jurisdiction, the Fourth described in subsection (a) for forfei­ a bona fide purchaser for value. This Circuit held that the district court could ture under this section," subject to cer­ reasoning was found to apply even where have properly ordered forfeiture of Bill­ tain procedural requirements. The court the assets were placed outside the juris­ man's substitute assets after his convic­ determined that the purpose of this sec­ diction of the court. tion.ld. tion was to prevent the disposal ofprop­ The court's ruling has identified the Under the court's reasoning, McKin­ erty which, upon conviction of a RICO broad reaching effect of section 1963 to ney's possession of Billman's substitute defendant, would be subject to forfei­ freeze funds derived from activities RICO assets would not alter the government's ture.ld. at 921. In order to achieve this proscribes. The court has acted to ensure entitlement to forfeiture after convic­ purpose, a liberal construction of sec­ that even substitute proceeds could not tion. The court observed that McKinney tion 1963 was necessary, which required easily be placed out of the reach of both had presented insufficient evidence to the court to read subsections (d)( 1) the judiciary and the government offi­ meet the requirements of section 1963 (a) and (m) together. Id cials charged with strict enforcement of ( c). Specifically, it was not shown that Applying this liberal construction, the the statute. In so doing, the Fourth Cir­ she was "a bona fide purchaserfor value court of appeals held that "the pretrial cuit guaranteed that justice was not eas­ of ... [the] property [in question] who at restraining provisions of 1963 [did] not ily evaded. Importantly, the court was the time of purchase was reasonably permit a defendant to thwart the opera­ the first at the federal circuit level to without cause to believe that the prop­ tion of forfeiture laws by absconding hold that a defendant's substitute assets erty was subject to forfeiture under this with RICO proceeds and then transfer­ could be restrained pending trial, an section." Id. ring his substitute assets to a third per­ issue which has yet to be addressed by Given its finding that the funds in son who [did] not qualify as a bona fide the Supreme Court. McKinney's possession would be within purchaser for value." Id. - Charles Szczesny the district court's jurisdiction follow­ In McKinney, the United States Court ing Billman's conviction, the court of Appeals for the Fourth Circuit con­ turned to the remaining question of sidered for the first time whether a de-

PLACEMENT SERVICE IF YOU NEED

LAW CLERKS LEGAL RESEARCH ASSISTANTS ATTORNEYS

CALL:

GENA GUCKMAN DIRECfOR OF LAW PLACEMENT LAW CENTER THE LAW FORUM 1420 N. CHARLES STREET IS NOW SEEKING PROFESSIONAL ARTICLES AND LEGAL ADVERTISEMENTS

FOR INFORMATION REGARDING SUBMISSION CONTACf

Law Forum Room 200 Law Center 1420 N. Charles Street Baltimore, Maryland 21201 576-2303

40-The law ForumJ21.2 ______--:- ______