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Court of Appeal Limits Scope of Law Allowing Court to ‘Freeze and Seize’ White-Collar Defendants’ Assets
By a MetNews Staff Writer
Prosecutors using California’s “Freeze and Seize” law in order to preserve victims’ interests in assets of defendants charged with serious economic crimes must prove that the defendants actually owned, and not merely controlled, the funds in order to defeat third-party claims, the Fourth District Court of Appeal ruled yesterday.
In a mixed decision on the law, Div. Two overturned a Riverside Superior Court judge’s order allowing seizure of funds from one relative of a couple who pled guilty to charges of grand theft and fraud, but upheld a similar seizure from another relative.
The claimants, Elham Cherfan and Marie Rose Semaan, are residents of Lebanon and the sisters-in-law of defendants Youssef and Liliane Semaan. Prosecutors, in charging the Semaans with 99 counts of credit card and check fraud in October 2002, charged them with the “aggravated white collar crime enhancement” authorized by Penal Code Sec. 186.11.
The statute provides that where a defendant is charged with fraud or embezzlement, and the amount involved allegedly exceeds $100,000, a court may order that assets of the defendant be seized. If the defendant is subsequently convicted, the seized assets are applied to the payment of fines and restitution.
If a third party claims a legitimate interest in the asset, the court holds an evidentiary hearing.
Among the assets seized in the Semaan case were more than $219,000 in a Wells Fargo bank account in the name of Marie Rose Semaan and more than $325,000 in a Wells Fargo account in Cherfan’s name.
Marie Rose Semaan claimed that the funds in the account came from the sale of the home she had shared with her deceased husband, and from her Social Security benefits. Cherfan said the money in her account came from the sale of the defendants’ residence and was remitted to her in order to repay a loan.
Following an evidentiary hearing, Superior Court Judge Gordon Burkhart rejected the claims of the sisters-in-law and ordered the funds retained for restitution. In a separate proceeding, Burkhart ordered payment of more than $1.6 million in restitution to the victims.
The latter order was affirmed by the Court of Appeal in an unpublished opinion last May.
In the appeal decided yesterday, the parties agreed that the burden in a “Freeze and Seize” case is on the third party claimant to establish legal title to the asset by preponderance of the evidence. But prosecutors argued that the claimants also had the burden of establishing that they had a legitimate interest in the funds, while the claimants argued that once they established legal title, the burden shifted to the prosecution to refute their claim of legitimacy by clear and convincing evidence.
Justice Barton Gaut, writing yesterday for a divided appellate panel, agreed with the claimants.
“While a showing of defendants’ control over an innocent third party’s property may be sufficient grounds for granting pendente lite orders to preserve the property, section 186.11 does not state that a showing of control alone constitutes sufficient grounds for taking an innocent third party’s property and using it for restitution,” Gaut explained.
Gaut cited Sec. 186.11(i)(3), which provides:
“In making its final order, the court shall seek to protect the legitimately acquired interests of any innocent third persons, including an innocent spouse, who were not involved in the commission of any criminal activity.”
The jurist said it was “clear from this language that, when ordering restitution, the court cannot take and use innocent third parties’ property for restitution,” and that when viewing the language in the context of the statute as a whole, it was clear that lawmakers intended to place the burden on the prosecution to refute a third party claim by a party holding legal title to the seized assets.
Noting that the trial judge did not make findings regarding the burden of proof, Gaut went on to conclude that both claimants established legal title, and that prosecutors had successfully refuted Cherfan’s claim but not Marie Rose Semaan’s.
In Marie Rose Semaan’s case, the justice explained, there was evidence that the defendants had access to, the bank account, from which they withdrew funds for their own benefit, and that the sale of the residence was transacted by Youssef Semaan using a forged power of attorney.
But this only established the defendants’ control over the account, Gaut said, adding that it was entirely possible that Marie Rose Semaan was another victim of the defendants rather than an accomplice concealing their interest in the funds.
“While it is possible defendants were using Marie’s account for money laundering, the People have not established by clear and convincing evidence that Marie did not have a legitimate interest in the money deposited in her bank account,” the jurist wrote. “The trial court thus erred in denying Marie’s property claim and ordering the funds in Marie’s bank account seized and used to pay restitution to defendants’ crime victims.”
As for Cherfan’s account, however, Gaut said prosecutors successfully contradicted her claim that the funds she obtained were being used to repay a loan.
Justice Art McKinster concurred in the opinion, but Justice Thomas Hollenhorst argued in dissent that neither claimant had a legitimate interest in the funds. Noting that Marie Rose Semaan never objected to the defendants’ use of her funds or control over her account, the dissenting justice argued it was reasonable for the trial judge to conclude that she was a willing participant in the defendants’ scheme and only claimed the funds in order to assist them.
The case is People v. Semaan, E035671.
Copyright 2005, Metropolitan News Company