Where assets
related to criminal copyright infringement are located abroad, Fourth Circuit
ponders whether district court has in rem jurisdiction pursuant to 28 U.S.C. §
1355(b)(2)
In
January 2012, a grand jury charged with criminal copyright infringement and
money laundering many of the claimants in this action. According to the
indictment, the claimants used public websites to facilitate the illegal
reproduction and distribution of copyrighted movies, software, television
programs, and music. The estimated harm to copyright holders was in excess of
$500,000,000, while the reported income exceeded $175,000,000. The district
court issued restraining orders for the claimants’ assets in New Zealand and
Hong Kong. The High Court in Hong Kong responded by issuing a restraining order
against approximately $60 million in assets. The New Zealand court arrested
several of the claimants, released them on bail, and then registered
restraining orders on $15 million in assets.
Because
the New Zealand restraining orders could only remain registered for two years,
and extended for up to additional one year, the United States filed the instant
civil forfeiture action against forty-eight assets restrained pursuant to the
criminal indictment in the district court.
Most
of the claimants in this case filed their claims together. They also filed a
joint waiver of notice. The government moved to strike all the claimants’
claims pursuant to 28 U.S.C. § 2466, the federal fugitive disentitlement
statute. The district court granted the motion to strike allowing claimants to
appear and present arguments on the motion but not on the merits of the case.
The government moved for default judgment, which was granted by the district
court in March 2015. The district court then issued forfeiture order for the
assets in New Zealand and Hong Kong.
Claimants
appeal the judgment on several grounds, including that the district court
lacked in rem jurisdiction over the defendant property because it resides in
foreign countries.
The
United States Court of Appeals for the Fourth Circuit affirms district court’s
decision.
The
key issue here is whether the district court has in rem jurisdiction pursuant
to 28 U.S.C. § 1355(b)(2), if the property is located in a foreign country.
There
is a potential split on this question in the circuit courts. While Second
Circuit has held that it merely makes venue proper in certain courts, the other
circuits, such as Third, Ninth, and D.C. Circuit have held that it establishes
jurisdiction in those courts. The district court in this case adopted the
majority approach. The Court agreed.
“’Under
the traditional paradigm, `the court must have actual or constructive control
over the res when an in rem forfeiture suit is initiated.’ United States v.
Approximately $1.67 Million, 513 F.3d 991, 996 (9th Cir. 2008) (quoting United
States v. James Daniel Good Real Prop., 510 U.S. 43, 58 (1993)). The question
is whether §1355—particularly the 1992 amendments which added subsections (b)
and (d), authorizing district courts to issue process against property outside
their districts—effectively dispenses with this traditional requirement. In the
only circuit opinion to so hold, the Second Circuit said it does not do so with
respect to property outside the United States. United States v. All Funds on
Deposit in Any Accounts Maintained in Names of Meza or De Castro, 63 F.3d 148,
152 (2d Cir. 1995). The Meza court read § 1355(b) to make venue proper in cases
involving foreign property where the district court had control over that
property. Id. at 151 (“Section 1355(b) addresses venue in forfeiture actions .
. . .”). While subsection (d) establishes legal control over property located
outside the court’s jurisdiction but inside the United States, the Meza court held
that a showing of control was still required for property outside the United
States. Id. at 152.”
The
Court also held that the Meza court’s interpretation runs contrary to the
legislative history of the 1992 amendments.
“[…]
When the amendments were introduced in the Money Laundering Improvements Act,
Senator D’Amato included an explanatory statement indicating that subsection
(b) was intended to provide the federal district courts with jurisdiction over
foreign property:
Subsection
(b)(2) addresses a problem that arises whenever property subject to forfeiture
under the laws of the United States is located in a foreign country. As
mentioned, under current law, it is probably no longer necessary to base in rem
jurisdiction on the location of the property if there have been sufficient
contacts with the district in which the suit is filed. See United States v.
$10,000 in U.S. Currency[, 860 F.2d 1511 (9th Cir. 1988)]. No statute, however,
says this, and the issue has to be repeatedly litigated whenever a foreign
government is willing to give effect to a forfeiture order issued by a United
States court and turn over seized property to the United States if only the
United States is able to obtain such an order.
Subsection
(b)(2) resolves this problem by providing for jurisdiction over such property
in the United States District Court for the District of Columbia, in the
district court for the district in which any of the acts giving rise to the
forfeiture occurred, or in any other district where venue would be appropriate
under a venue-for-forfeiture statute.
137 Cong. Rec. S16640-01 (Nov. 13, 1992)
(statement of Sen. D’Amato). […]”
The
Court then concludes: “Because the plain meaning of the statutory text and the
legislative history both support finding that 28 U.S.C. § 1355(b) is
jurisdictional, we affirm the district court’s holding to that effect. The
district court was also correct to find that jurisdiction would lie if any of
the acts resulting in the forfeiture action occurred within its jurisdiction.
The court noted that the civil complaint and the related criminal indictment
allege that there was a conspiracy between the indicted parties and that they
used ‘over 525 servers located within the Eastern District of Virginia.’ All
Assets Listed in Attachment A, 89 F. Supp. 3d at 823 (footnote omitted). The
government furthermore contends, and the claimants do not deny, that the cost
of using those servers ran into the ‘tens of millions of dollars over a period
of years.’ Gov’t Br. 18. This easily satisfies the relatively low standard set
forth in § 1355, and so we affirm the district court’s finding that it had
jurisdiction under the statute.”
The
Court affirms the district court’s decision.
FLOYD,
Circuit Judge, dissenting:
“I agree with the majority that 28 U.S.C. §
1355 is a jurisdictional statute. In enacting § 1355, Congress intended to
fundamentally alter the law regarding in rem jurisdiction. But see United
States v. All Funds on Deposit in Any Accounts Maintained in Names of Meza or
De Castro, 63 F.3d 148, 152 (2d Cir. 1995) (reaching the opposite conclusion,
i.e., that § 1355 is a venue statute, not a jurisdictional one). Congress hoped
to abolish the traditional requirement of in rem jurisdiction that a court have
actual or constructive control over the res. Compare 28 U.S.C. § 2461(b)
(providing that ‘[u]nless otherwise provided by Act of Congress . . . in cases
of seizures on land the forfeiture may be enforced by a proceeding by libel
which shall conform as near as may be to proceedings in admiralty’), with 28
U.S.C. § 1355(a), (b)(2) (providing district courts ‘original jurisdiction’
over forfeiture actions concerning property ‘located in a foreign country’). A
congressional grant of jurisdiction to the courts remains, however, subject to
constitutional constraints on the federal judicial power. My objection to the
ruling of the district court, and to the holding of the majority, is not
grounded in an objection to its claim of jurisdiction over the res pursuant to
Congress’s grant of that jurisdiction, but is rather grounded in justiciability
concerns arising from Article III.”
Citation: U.S. v. Batato,
833 F.3d 413 (4th Cir. 2016). Legal Commentary by Attorney Terik Hashmi, www.TerikHashmiattorney.com.