One of the most abhorrent current government practices is civil asset forfeiture. Turning the usual rules of due process upside-down, civil asset forfeiture enables local, state, or federal authorities to confiscate money and property from individuals merely on suspicion that the property was somehow involved in a criminal activity.
Once the property has been taken, it is necessary for the owner to go to court and prove his property’s innocence — or else lose it forever.
Only by enduring often protracted and costly legal proceedings can the person recover the seized property. Many innocent people just can’t fight the system and lose out entirely; others settle with the government, getting back a fraction of what was taken from them.
These seizures are highly lucrative for government bodies. Many police forces pad their budgets considerably with the proceeds from asset forfeitures.
In one of its worst decisions of the last century (tough competition!), the Supreme Court gave its blessing to civil asset forfeiture in Bennis v. Michigan. Former FEE president Don Boudreaux and law professor Adam Pritchard give a sharp analysis of this appalling 1996 decision here.
Several years after Bennis, Congress passed the Civil Asset Forfeiture Reform Act of 2000. Recognizing that these seizures were often wrongful and imposed unjust costs on people, the law provides for recovery of fees, costs, and interest by the “prevailing party.” Despite the clear intention to make people who have been harmed by unjustified seizures whole, the authorities often try to avoid paying people the rather small amounts of money they are entitled.
This churlish attitude is displayed in the ongoing case of Lyndon McLellan, the owner of a small convenience store in rural North Carolina.
In July 2014, IRS agents seized Mr. McLellan’s entire bank account, with $107,702.66 in it. The reason for the seizure? The feds thought that his frequent bank transactions involving cash amounts of just under $10,000 looked suspicious; he might be “structuring” his transactions to avoid the requirement of reporting transactions of $10,000.
That was enough for the IRS and, without any effort to find out why McLellan made these transactions or how he derived the funds, it took his money.
Lyndon was not about to just wave goodbye to his life savings, however. He retained an attorney and paid an accountant to try to prove that he had done nothing wrong and should get his money back.
With their help and an enormous pro bono assist from the Institute for Justice, the government has agreed to return all of his money to him. (For more about this outrageous case, see my Forbes article.)
But the government is still trying to avoid making McLellan whole under CAFRA. When the US attorney handling the case offered to return the money, he also tried to get him to sign a document waiving his rights to pursue full recompense — his lost interest and expenses for legal and accounting help. Lyndon declined to sign that document.
So the next day, the US attorney entered a motion in court to dismiss the case (officially named United States of America v. $107,702.66 in United States Currency Seized from Lumbee Guaranty Bank Account No. 82002495) “without prejudice.”
When a case is dismissed without prejudice by a court, the government is reserving the right to re-open it at a future time. In other words, it isn’t really conceding defeat but declaring that the case is still technically open. Asking that the case be dismissed without prejudice might seem strange here because the government’s change in policy last year — the IRS has officially abandoned the policy of seizing bank accounts unless it has evidence of criminal activity — forecloses any re-opening of it.
Ah, but there is a method in this madness. In a number of similar cases, the government has argued that because the seizure case was dismissed without prejudice, the plaintiff does not count as the “prevailing party” under CAFRA and therefore is not entitled to full recompense.
In his response to the government’s motion, Institute for Justice attorney Rob Johnson hit the nail on the head, writing, “The government’s gambit to evade its statutory obligations should not be rewarded. Having dragged Claimants into ten months of costly and unnecessary legal proceedings, the government should be required to make Claimants whole.” (That motion, incidentally, contains a wealth of further detail about the government’s ugly behavior throughout.)
This is not a new gambit, by the way. Sometimes judges have actually bought the argument, but in others, they have seen through the tactic. A good example is United States v. Ito, a 2012 decision by the Ninth Circuit.
The government tried its dismissal without prejudice trick and the district judge went along, but on appeal, the Ninth Circuit vacated that ruling on the grounds that such a dismissal would mean legal prejudice against the claimants who would lose their ability to seek attorney’s fees. The district court was instructed to dismiss with prejudice.
Lyndon McLellan’s case should similarly be dismissed with prejudice. Let us hope the judge so rules, foiling the government’s devious tactic.
The bigger question, though, is why the government, which every second wastes more money than is at stake here — the lost interest on the money plus professional fees McLellan incurred amount to around $15,000 — refuses to just pay for the damage it caused an innocent American.