For White Collar Defendants, an Eight-Justice Court Could Mean Less Rights and More Liability

Posted on Wednesday, date : 25 Jul, 2016by cavazos with no responses

For White Collar Defendants, an Eight-Justice Court Could Mean Less Rights and More Liability

Despite the speculative ideological divide left in the wake of Justice Antonin Scalia’s untimely death, the Supreme Court’s five post-Scalia decisions, each decided 6-2 or better, have reflected appreciable consensus. But notwithstanding President Barack Obama’s nomination of D.C. Circuit Chief Judge Merrick Garland to fill Justice Scalia’s seat, uncertainty remains concerning the fate of cases that may realistically face a 4-4 tie. Here’s how the eight-Justice Court might decide two pending cases that carry sweeping implications for white collar litigation:

Constitutional Limitations on Pretrial Asset Restraint

In United States v. Gonzalez-Lopez, Justice Scalia—writing for an unlikely majority that included the four liberal-most Justices—called the right to retain counsel of choice “the root meaning” of the Sixth Amendment. That right is burdened when the government, before conviction, freezes a criminal defendant’s assets needed to retain counsel. Luis v. United States asks whether such a burden is unconstitutional when the frozen assets are not traceable to the charged crime. A tie or answer in the negative would curtail the rights of criminal defendants to use their legitimate assets to retain their counsel of choice.

Under 18 U.S.C. § 1345, a civil court may enjoin a defendant’s disposal of fraudulently-obtained proceeds (“tainted assets”), or restrain an equivalent value of the defendant’s untainted assets as substitute property. Petitioner Sila Luis’ was indicted for Medicare fraud in 2012. A civil court, pursuant to § 1345, contemporaneously enjoined $45 million of her property, including untainted assets needed to retain counsel. Luis objected that the pretrial restraint of legitimate defense funds categorically violated the Sixth Amendment. The court disagreed, finding “no Sixth Amendment right to use untainted, substitute assets to hire counsel.” The Eleventh Circuit affirmed.

In Caplin & Drysdale Chartered v. United States, the Supreme Court found no constitutional right to pay one’s attorney with assets proved forfeitable under 21 U.S.C. § 853, the criminal forfeiture statute. Section 853’s “relation-back” provision vests title to illicit proceeds in the government at the moment the violation occurs. Just as a robbery suspect is not entitled to fund his defense with the victim’s money, the Court reasoned that a defendant has no constitutional right to pay his counsel of choice with the government’s property.

Relying on Caplin, the Court in United States v. Monsanto, held that the pretrial restraint of a defendant’s assets under § 853 is permissible where probable cause supports forfeiture. In Kaley v. United States, the Court restated Monsanto’s rule to reflect § 853 forfeiture requirements: there must be probable cause demonstrating that (1) the defendant has committed a crime, and (2) the subject assets are traceable to that crime. The Court held that a grand jury’s determination on the first requirement is conclusive.

Luis argued that § 853 cases are inapplicable because the government had no preconviction interest in her untainted assets. She also advanced—though not in her petition—a narrow reading of § 1345: a temporary restrain order against all assets is authorized until a hearing, after which only assets proved tainted may be enjoined.

During arguments last November, the three Kaley dissenters seemed ready to limit Monsanto. Justice Sonia Sotomayor appeared loath to further restrict the Sixth Amendment. Chief Justice John Roberts and Justice Stephen Breyer (who approved of Luis’ interpretation of § 1345) disliked the notion that the government could restrain all of a defendant’s legitimate money, including defense funds, without a full pretrial hearing. Even Justice Elena Kagan, who penned the Kaley decision, suggested that the Court may be “uncomfortable with the path [it] started down” in Monsanto.

Conversely, Justices Ruth Bader Ginsburg and Samuel Alito took a dim view of Luis’ tainted/untainted distinction. Justice Ginsburg suggested that Congress intended to “come down very hard” on healthcare and banking fraud. Justice Alito viewed Luis’ distinction as problematic given the fungible nature of money. Although he was “troubled by [the] statute,” he noted Luis’ failure to raise the issue in her petition.

Justice Anthony Kennedy voted against the defendants in Caplin, Monsanto, Gonzalez-Lopez, and Kaley, but here criticized the government’s inability to limit its principle, which “would, in effect, prevent the private bar from practicing law unless it did so on a contingent basis.” Justice Clarence Thomas said naught, but twice voted pro-government in Kaley and Gonzalez-Lopez.

Unless Luis gets scheduled for reargument when a new Justice is appointed, the Court may split four-four, with Chief Justice Roberts and Justices Breyer, Sotomayor, and possibly Kagan siding with Luis. A tie would affirm the decision below. That outcome could be avoided if enough Justices accept Luis’ statutory argument. Alternatively, Justice Kennedy, the last sitting majority-voter from Caplin and Monsanto, could decide that untainted assets—at least those needed to retain counsel of choice—are categorically outside the government’s pretrial reach.

Expansive False Claims Act Liability

The Court’s ruling in another pending case will impact the scope of liability under the federal False Claims Act (“FCA”). The FCA penalizes the submission of false claims for payment to the United States. The “implied certification” theory expands FCA liability by treating a claim as an implicit representation of legal eligibility to be paid. Accordingly, a claim is “false” if submitted while knowingly violating the program’s requirements.

The Seventh Circuit has flatly rejected implied certification. Other courts differ as to whether it applies only to non-compliance with express preconditions of payment. In an opinion now on review, the First Circuit said no: “Preconditions of payment, which may be found in sources such as statutes, regulations, and contracts, need not be expressly designated.” Universal Health Services v. United States ex rel. Escobar asks (1) whether implied certification is a valid theory of FCA liability, and (2) if valid, whether it requires non-compliance with an expressly stated condition of payment.

Recently, the Court has limited the FCA’s reach, deciding six of the seven cases since 2005 for the defendant. That consistency may be lost without Justice Scalia’s traditionally pro-defendant vote on FCA issues. Less than a third of the collective votes of Justices Ginsburg, Breyer, Kagan, and Sotomayor since 2005 have favored FCA defendants. Justice Breyer has routinely sided with qui tam plaintiffs except in unanimous pro-defendant decisions. Justice Sotomayor, who has consistently voted pro-plaintiff, has cautioned against “restrictive” FCA interpretations, considering Congress’ intent “to broaden the availability of qui tam relief.” Justice Ginsburg has similarly rejected decisions that “weaken[] the force of the FCA as a weapon against fraud on the part of Government contractors.” Justice Kagan has only participated in a single FCA decision, where a unanimous Court rejected the defendant’s narrow reading of the “first to file” rule, marking the only instance since 2005 where Chief Justice Roberts, and Justices Kennedy, Thomas, and Alito favored the plaintiff.

Universal Health Services is set for argument this April and will almost certainly be decided by eight Justices. The chance of enough votes to wholly invalidate or affirm the First Circuit’s broad ruling is minimal. If the Court finds middle ground, it will likely reverse the First Circuit on the narrower second question, holding that implied certification applies only where the government expressly states that compliance is a precondition of payment.

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