Editor’s Note: The author of this post is the former West Coast Chair of the Securities Enforcement Practice at DLA Piper and recently founded his own boutique firm.
By Nicolas Morgan, Zaccaro Morgan
Sila Luis owned and operated two health-care companies, serving patients in their homes until the federal government criminally indicted her in 2012, alleging that her two companies fraudulently received $45 million in Medicare reimbursements.
But the Department of Justice didn’t just indict Ms. Luis. The DOJ simultaneously filed a civil lawsuit against her, obtaining a temporary restraining order and asset freeze prohibiting her from using any assets for any purpose, including hiring a lawyer to defend herself. The government took the position that the asset freeze covered any assets traceable to the $45 million in allegedly (but as yet unproven) ill-gotten Medicare reimbursements and to the millions of dollars in “untainted” funds that Ms. Luis’s companies received from sources other than Medicare.
As widely reported last month, more than three years after the indictments and asset freeze, the U.S. Supreme Court told the DOJ that it had gone too far. It turns out the federal government was not permitted to prohibit Ms. Luis from using her “untainted” funds to pay her criminal defense lawyers.
Practitioners in the white collar and regulatory space will recognize the government’s tactics — attempting to cut off funding of criminal defense counsel through means outside the criminal case. Coming immediately to mind is the 2006 criminal tax shelter case involving the DOJ’s notorious attempt to induce KPMG to stop funding the defenses of its former partners and employees. In that case, U.S. District Court Judge Lewis A. Kaplan vociferously criticized the government’s heavy-handed interference with criminal defense funding, calling it “intolerable in a society that holds itself out to the world as a paragon of justice.”
Given the “criminalization” of many areas of the law where the possibility exists for parallel civil actions with broad asset freezes, the Supreme Court’s decision in Luis will have far reaching effects. As one academic study pointed out, “over the last several decades Congress has enacted a variety of laws that criminalize a broad range of conduct associated with business organizations and provide greater criminal penalties. These statutes are often passed in the wake of the scandal of the day, with highly publicized business sector meltdowns drawing the most attention from federal investigators and prosecutors.”
Given the broad statutory mandate and the political incentives to prosecute these cases aggressively, the academic study points out that there has been “some skepticism expressed” about whether the occasional judicial set-back will change “practices within the DOJ” that seek to cut off criminal defense funding in violation of the Constitution’s 6th Amendment. Judge Kaplan’s outrage in the KPMG matter ruled out one such DOJ attack on funding. The Supreme Court’s ruling in Luis rules out another DOJ barrier to financing a criminal defense: freezing untainted assets in a parallel civil action.
It remains to be seen whether even this will be enough to temper the DOJ’s hostility to a well-funded criminal defense.