Publications

Greetings, Court fans!

 

We have some catching up to do – three opinions from last week, where the focus was on money laundering, and another four this week. Here’s the first batch, and we’ll be back in your in-box shortly.

 

Turning first to money laundering, Cuellar v. United States (06-1456) interpreted 18 U.S.C. § 1956(a)(2)(B)(i), which prohibits the knowing transportation of ill-gotten funds from inside to outside the United States with the aim “to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds.” Cuellar was convicted after he was caught driving toward Mexico with $81,000 in a secret compartment of his car covered in animal hair (either because Cuellar had been transporting goats or because odor-of-goat cloaks the scent of marijuana – depending on whom you believe). On appeal, Cuellar argued that the law only prohibited conduct that attempts to create the appearance of legitimate wealth and that his secretive behavior did nothing to make the $81,000 appear legitimate. The Fifth Circuit initially agreed with Cuellar, emphasizing the distinction between concealing funds for the purpose of transporting them and transporting funds for the purpose of concealing them, but it later reinstated his conviction en banc. The en banc panel rejected Cuellar’s interpretation that the government was required to prove that he attempted to create the appearance of legitimate wealth and found that Cuellar’s extensive efforts to prevent detection of the funds during transit were sufficient to prove that Cuellar attempted to conceal “the nature, location, and source, ownership, or control of the funds.” The Court reversed, in a unanimous decision by Justice Thomas. While the Court also rejected Cuellar’s “legitimate wealth” requirement, it found that the text of the statute did require that the transportation itself be undertaken for the purpose of concealing one of the listed attributes of the funds. Here, the evidence showed only that Cuellar concealed the funds to facilitate transporting them to the leaders of the drug operation, not to hide their nature, source, etc. Thus, his conviction had to be vacated. Justice Alito, joined by the Chief and Justice Kennedy, concurred to describe the type of proof the government would need to introduce under the Court’s interpretation (a/k/a: the prosecutor-calming concurrence). In Cuellar’s case, they opined that the evidence could consist of testimony that taking the dirty money across the border into a largely cash economy would have the effect of disguising “the nature, the location, the source, the ownership, or the control of the proceeds” and that this effect was commonly known in drug-trafficking circles like Cuellar’s.

 

The Court sided with the defendant again in its second money laundering decision, United States v. Santos (06-1005). This time, though, the Court was anything but unanimous, splitting 4-4 along very unusual lines (Justice Scalia leading a plurality joined by Justices Ginsburg, Thomas and Souter; Justice Alito heading up the dissent with the Chief and Justices Kennedy and Breyer), with Justice Stevens concurring in the judgment only and crafting yet a third path with which no one else agreed.

 

The federal money laundering statute prohibits certain activities involving the “proceeds” of criminal activity, including engaging in transactions to promote criminal activity. The statute does not define “proceeds,” which could be understood as either gross receipts or profits. Santos operated an illegal lottery and used some of the money collected to pay his “runners, collectors, and winners.” These payments were not profits to Santos, but instead reflected the costs of operating his illegal business. Yet Santos was convicted for using the “proceeds” of criminal activity to engage in transactions (payments to employees and winners) that “promoted” the criminal activity by allowing it to continue. After exhausting his direct appeals without success, Santos filed a habeas corpus petition contending that “proceeds” encompassed only profits and arguing that there was no evidence that his payments were made from profits rather than receipts. The district court and the Seventh Circuit agreed – as did the Court. As Justice Scalia explained for the plurality, the money laundering statute failed to define “proceeds” and both “profits” and “receipts” made sense in all portions of the statute. Therefore, the rule of lenity required the Court to construe the ambiguous statute in favor of the defendant and adopt the profits-based interpretation. Further, if the Court adopted a “receipts” interpretation, the money laundering charge would often “merge” with the underlying crime (i.e., proof of the underlying crime would be enough to establish proof of money laundering). It would be odd for Congress to establish a five-year maximum for the underlying crime, only to have it increased dramatically by a money laundering charge that required no additional elements of proof (raising double jeopardy concerns). Finally, the argument that the “profits” interpretation might frustrate law enforcement is circular nonsense since it is the Court’s duty to interpret the statute before it – not just make prosecutors’ jobs easier. And the government exaggerated the proof problems since it can hand-select the transactions where it can most easily demonstrate profits.

 

The Alito dissenters would have adopted the “receipts” interpretation because: it is the primary dictionary definition of proceeds; legislative history strongly suggests Congress intended this interpretation; nearly all state money laundering statutes and models use a receipts definition, underscoring that this is the common meaning; and the practical problems posed by the plurality’s interpretation would make enforcement of the statute extremely difficult. Justice Breyer issued a separate dissent to suggest some solutions to the “merger” problem identified by the plurality (which he agreed were real). First, courts could simply interpret the statute not to cover such merged offenses. Second, courts could interpret the term “promote” to exclude instances where payments were made simply to complete one instance of unlawful activity, as opposed to transactions that supported additional criminal conduct. Finally, the Sentencing Commission could alter the guidelines to ensure that sentencing disparities are not a problem.

 

Stevens’s deciding vote came down somewhere between “smack dab in the middle” and “out in left field.” Stevens would determine the definition of “proceeds” based on the crime charged, since Congress might have intended different meanings for the term depending on the underlying crime and the Court could fill this “gap” in the statute. (To which the plurality replied that it had never before heard of interpreting the same word in two different ways in one statute based on different underlying facts!) In the case of Santos’s illegal lottery, Stevens agreed that the rule of lenity required interpreting the statute to encompass only profits because there was no legislative history suggesting that Congress intended to capture lottery transactions that simply involved payments for costs. However, clear legislative history demonstrated that Congress intended a “receipts” interpretation in the case of drug cases and organized crimes. This legislative history left no gap to be filled and thus, the rule of lenity did not come into play in such cases. (The plurality was quick to point out that the only portion of Stevens’s concurrence with any value as precedent was his joining with the majority to hold that, in the absence of contrary legislative history, the term “proceeds” means profits. The remainder of his opinion was the “purest of dicta.” Stevens disagreed, noting that where contrary legislative history existed he agreed with the four dissenters, making for a majority of five the other way, and the plurality’s speculation about the stare decisis effect of that portion of the decision was what was dicta. The dissenters also weighed in, arguing that Stevens’s concurrence meant that their view would govern in drug and organized crime cases – the heartland of the money laundering statute.)

 

While the correct interpretation of the money laundering statute going forward may not be too clear, one things is: How the Justices handle legislative history matters a great deal and on this score, the Chief and Alito often part ways with Scalia and Thomas. They are willing to look at legislative history carefully and rule based on it; Scalia and Thomas will not. And this may well be the difference maker.

 

Finally, in Richlin Security Service Co. v. Chertoff (06-1717), a unanimous Court led by Justice Alito held that a party who prevails against the federal government before an administrative agency and who meets the requirements to recover costs and fees under the Equal Access to Justice Act (“EAJA”), 5. U.S.C. § 504(a)(1), may recover paralegal fees at “market rates.” Richlin provided security services to the INS and later brought an administrative action to recover back wages it was forced to pay in connection with the job. Richlin prevailed and filed an application under the EAJA to recover its litigation expenses. The EAJA permits the recovery of “fees and other expenses” “includ[ing] the reasonable expenses of expert witnesses, the reasonable cost of any study, analysis, engineering report, test or project . . . and reasonable attorney or agent fees” and states that the “amount of fees . . . shall be based upon prevailing market rates.” Among other items, Richlin sought to recover paralegal fees it was billed by its law firm. The Government, however, argued that only “attorney or expert fees” were recoverable at market rates, and all other expenses were recoverable at cost – in this case the lawyer’s cost for the paralegal services (i.e., the paralegal’s salary converted into an hourly rate), not the amount actually paid by Richlin. The Court swiftly rejected the government’s “fractured” interpretation, explaining that the text of the EAJA: (1) does not support the government’s dichotomy between fees and expenses; (2) nowhere suggests that amounts billed for paralegal fees should be viewed as expenses even if such a dichotomy existed (since paralegal services were more like attorney’s fees than studies or reports); and (3) even if viewed as expenses, there was no statutory reason to measure the expenses from the perspective of Richlin’s attorney (who paid the paralegal’s salary) rather than Richlin (who was billed an hourly “market” rate). Further, in Missouri v. Jenkins, 491 U.S. 274 (1989), the Court had found it “self evident” that a fee-shifting provision that allowed for the recovery of attorney’s fees encompassed paralegal fees, which had historically been built into attorneys’ hourly rates. (Justice Thomas apparently felt that the text was enough and did not join this section of the opinion, or the subsequent section on legislative history and public policy, from which Justice Scalia also absented himself.)

 

The Court also granted cert in two cases.

 

In Fitzgerald v. Barnstable School Committee (07-1125), the Court will determine “[w]hether Title IX’s implied right of action [for sex discrimination by federally funded educational institutions] precludes Section 1983 constitutional claims to remedy sex discrimination by [these institutions]?”

 

The second case, Philip Morris USA, Inc. v. Williams (07-1216), may sound familiar. On its last trip to the Supremes, the Court held that due process precluded the jury from punishing Philip Morris with punitive damages (97 times greater the compensatory damages awarded) based on harm caused to individuals other than the plaintiff. On remand, Oregon refused to apply the ruling, holding that Philip Morris had procedurally defaulted under state law. The question presented this time is “[w]hether, after this Court has adjudicated the merits of a party’s federal claim and remanded the case to state court with instructions to ‘apply’ the correct constitutional standard, the state court may interpose – for the first time in the litigation – a state law procedural bar that is neither firmly established nor regularly followed?”

 

The Court also asked the SG to weigh in on AK Steel Corp. v. West (07-663), which asks: (1) Whether the Sixth Circuit, in accord with the Seventh Circuit but in conflict with two other circuits and numerous state courts, was correct in holding that a pension plan participant may seek relief for a statutory violation of ERISA under ERISA § 502(a)(1)(B), even though that provision authorizes relief only for violations of “the terms of the plan.” (2) Whether the Sixth Circuit, in accord with the Fourth Circuit but in conflict with four other circuits, was correct in holding that a court may apply the rule of contra proferentem to override a plan administrator’s reasonable interpretation of a pension plan.

 

With four decisions released yesterday and 22 more to go by the end of June, you will be hearing from us frequently. Until then, thanks for reading!

 

Kim & Ken

From the Appellate Practice Group at Wiggin and Dana
For more information, contact Kim Rinehart, Ken Heath, or any other member of the Practice Group at 203-498-4400