United States District Court, D. Arizona
HONORABLE SUSAN M. BRNOVICH, UNITED STATES DISTRICT JUDGE
are seven defendants in this matter. Of which, six have
joined the motion before the Court. Defendants Joye Vaught
and Andrew Padilla filed a motion to dismiss the indictment
against them or, in the alternative, a motion to allow their
counsel to withdraw. (Doc. 456). Defendants James Larkin
(Doc. 463), Scott Spear (Doc. 464), Michael Lacey (Doc. 465),
and John Brunst (Doc. 467) join the motion to dismiss, but
not the alternative motion to withdraw counsel. The seventh
defendant, Dan Hyer, has entered a plea of guilty as to Count
1 of the Superseding Indictment and is awaiting sentencing.
(Docs. 270, 284, 520). The Government filed a response to the
motion to dismiss (Doc. 476), to which Defendants replied.
(Doc. 507). Defendants Vaught and Padilla filed Ex Parte
Applications and Consents for Withdrawal of Counsel (Docs.
556, 558) Defendants argue the case should be dismissed
because the Government has violated their Fifth and Sixth
25, 2018, a federal grand jury returned a 100-count
superseding indictment against Defendants alleging they
engaged in criminal acts while operating of the website
Backpage.com (“Backpage”), including conspiracy,
facilitating prostitution, and money laundering. (Doc. 230).
It included forfeiture allegations. (Id.). This is
one of multiple cases involving Backpage. In another case
before this Court, Backpage itself and related entities have
pleaded guilty to Money Laundering Conspiracy, 18 U.S.C.
§ 1956(h). (CR-18-465-PHX-SMB, the “Backpage
Proceedings, ” Docs. 8, 10, 20). In still another, the
CEO of Backpage, Carl Ferrer has pleaded guilty to
Conspiracy, 18 U.S.C. § 371. (CR-18-464-PHX-SMB, the
“Ferrer Proceedings, ” Docs. 7, 12, 20). Both of
those cases are awaiting sentencing and forfeiture
proceedings. Additional forfeiture proceedings are underway
in the Central District of California and on appeal in the
Ninth Circuit. (Docs. 360, 456, 476, 507).
Backpage and Ferrer Proceedings, Backpage and its related
entities and Ferrer stipulated to seizures. (Ferrer
Proceedings, Docs. 22-23; Backpage Proceedings, Docs. 21-22,
44). Defendants in this case have filed petitions to
determine their interest in the property subject to
forfeiture in those two cases. (Ferrer Proceedings, Docs.
29-35; Backpage Proceedings, Docs. 28-34). They have also
motioned to stay the hearings to determine their interest in
the property subject to forfeiture. As of this date, those
hearings have not taken place, and the Defendants have not
asked this Court to conduct them. Rather, they have agreed to
or requested stays.
Ferrer Proceedings, the initial hearing to determine the
third-party interests in property subject to forfeiture was
scheduled for November 16, 2018. (Ferrer Proceedings, Doc.
43). Defendant Larkin filed a motion to stay that hearing
pending the outcome of an appeal to the Ninth Circuit of some
of the Central District of California seizure cases and a
case in Delaware Court of Chancery. (Id., Doc. 44). All
Defendants in this cased joined that motion. (Id.,
Docs. 45-50). The Government did not object to the stay.
(Id., Doc. 52). The Court reset the hearing for
December 7, 2018. (Id., Doc. 53). The Defendants and
Government then submitted a joint motion to continue the
hearing. (Id., Doc. 54). The Court granted the
motion and reset the hearing for January 25, 2019.
(Id., Doc. 56). The parties again requested a stay,
which was denied. (Id., Docs. 59-60). The parties
filed another motion on January 23, 2019, to stay the hearing
for at least four months, though they presented different
rationales for doing so. (Id., Doc. 62). The Court
reset the hearing for June 21, 2019. (Id., Doc. 64).
A similar process played out in the Backpage Proceedings.
(Backpage Proceedings, Docs. 28-41, 51-57, 59-62, 64-75, 82-
the assets Ferrer and Backpage stipulated to forfeit are
attorney trust accounts, commonly called IOLTA accounts. The
Government moved to seize these accounts in the Central
District of California (“CDCA”). It obtained
ex parte seizure warrants for Defendants Vaught and
Padilla's IOLTA accounts on October 31, 2018. The
Government informed counsel they can keep earned fees through
November 30, 2018. The Government also seized the trust
account of one of Defendant Lacey's attorney's in
August 2018. Defendants argue that these seizures, along with
other actions by the Government, infringe on their Fifth and
Sixth Amendment rights to due process and counsel of choice
and warrant dismissal of this case. In this proceeding,
Defendants previously asked the Court to stop the seizures.
(Docs. 360, 401). The Court ruled that the Defendants must
seek relief from the seizure warrants in the courts that
issued them. (Doc. 447). The seizure warrants have since
expired, but the Government has said they may renew them and
Defendants say they have not withdrawn from the accounts out
of fear of prosecution.
argue their constitutional rights were violated because the
seizures were executed in a manner to avoid judicial review
after the Government led them to believe it would not be
seizing IOLTA accounts, and after Defendants had agreed to
the proposed case management schedule without knowledge that
the Government would seek pre-trial forfeitures. Defendants
also take umbrage with the Government's motion to
disqualify certain counsel from representing Defendant Lacey
and Defendant Larkin, which the Court denied. (Doc. 338).
They believe they have been retaliated against for their
“vigorous” assertion of their rights, while the
cooperating defendants are still able to use tainted funds
for their counsel. Defendants further argue that the
cooperating defendants are especially unreliable, making the
seizures especially suspect. Defendants Padilla and Vaught
additionally argue that as employees of Backpage, they
reasonably expected to receive attorneys' fees as a
benefit. They contend the appropriate remedy for the
Government's actions is to dismiss the indictment against
Government responds by arguing that Defendants have no right
to use tainted funds for attorneys' fees. They also argue
that there is a remedy available for defendants to prevent
the seizures and future seizures of these funds through a
Monsanto hearing, where they would be able to prove
they could not fund their defense but for the seized assets
and that probable cause does not exist to seize the property.
See United States v. Monsanto, 491 U.S. 600 (1989).
Additionally, the funds were only seized after the CEO of
Backpage, along with Backpage and its related entities,
pleaded guilty to criminal conduct, and shut down the
Fifth and Sixth Amendments protect criminal defendants'
rights to due process and assistance of counsel. U.S. Const.
amends. V, VI. The rights are overlapping. “The
Constitutional guarantees a fair trial through the Due
Process Clauses, but it defines the elements of a fair trial
largely through the several provisions of the Sixth
Amendment[.]” Strickland v. Washington, 466
U.S. 668, 684-85 (1984); see Caplin & Drysdale v.
United States, 491 U.S. 617, 633 (1989) (stating the
court is “not sure that” the Fifth Amendment
argument “adds anything to petitioner's Sixth
Amendment Argument”). The Sixth Amendment right to
assistance of counsel includes the right “to select and
be represented by one's preferred attorney.”
Wheat v. United States, 486 U.S. 153, 159 (1988).
This right is not unlimited, as a “defendant may not
insist on representation by an attorney he cannot afford,
” id., and he has “no Sixth Amendment
right to spend another person's money for services
rendered by an attorney, even if those funds are the only way
that defendant will be able to retain the attorney of his
choice, ” Caplin, 491 U.S. at 626.
presents a unique problem for Fifth and Sixth Amendment
issues. Freezing defendants' assets prior to trial is
permissible if the assets would be subject to forfeiture upon
conviction. Kaley v United States, 571 U.S. 320, 340
(2014). To do so, the Government must show that there is
“probable cause to believe that the property will
ultimately be proved forfeitable.” Id.
(quoting United States v. Monsanto, 491 U.S. 600,
615 (1989)). Kaley also explains the
Government's interest in forfeitures. They “help to
ensure that crime does not pay, ” punish wrongdoing,
deter future illegality, and “lessen the economic power
of criminal enterprises.” Id. (citing
Caplin, 491 U.S. at 630). Forfeitures are also used
to “recompense victims of crime, improve conditions in
crime-damaged communities, and support law enforcement
activities like police training.” Id. (citing
Caplin, 491 U.S. at 629-30). The Government may not,
however, restrain criminal defendants' “legitimate,
untainted assets (those not traceable to a criminal offense)
needed to retain counsel of choice, ” even if the
Government was only doing so to preserve the assets for
payment of restitution and other criminal forfeitures.
Luis v. United States, 136 S.Ct. 1083, 1088 (2016).
The Seizures and Defendants' Fifth and Sixth
contend that the seizures are “unlawful.” (Doc.
476 at 2). They compare this case to U.S. v. Stein
(Stein I), 435 F.Supp.2d 330 (S.D.N.Y. 2006), and
the case affirming it, U.S. v. Stein (Stein
II), 541 F.3d 130 (2d. Cir. 2008). In Stein I
and II, the courts dismissed the indictment against
former employees and partners of an accounting firm because
the government pressured the firm to limit and condition the
payment of the defendants' attorneys' fees in order
to prevent the Government from indicting the firm. Prior to
that case, the firm's practice was to pay for its
partners and employees' legal fees for legal matters that
arose within the scope of their duties and responsibilities
to the firm. Stein I, 435 F.Supp. 2d. at 340. The
firm changed this policy in response to pressure from the
Government. Id. at 336. The result was that the
defendants were deprived of their reasonable expectation of