UK Surveillance Oversight Board Says It's All Cool When GCHQ Hacks Basically Anyone

Court Won't Let Government Screw Forfeiture Victim Out Of Legal Fees

from the no,-WE'LL-decide-how-this-case-is-dimissed dept

Fri, Feb 12th 2016 6:18pm — Tim Cushing

The government has made one last attempt to screw over a victim of an IRS bank account seizure. The screwing began in December of 2014, when the IRS -- despite stating it would not perform forfeitures if there was no clear evidence of wrongdoing -- lifted $107,000 from convenience store owner Lyndon McLellan. This was yet another one of the IRS's "structuring" cases, predicated solely on the fact that multiple deposits under $10,000 were made. ($10,000 triggers automatic reporting to the federal government.)

After the IRS announced it would not be pursuing questionable structuring seizures -- thanks mainly to several rounds of negative press -- it still continued to pursue McLellan's case, despite IRS Commissioner John Koskinen telling a Congressional subcommittee that this was exactly the sort of case the IRS would no longer be pursuing.

The prosecutor in charge of McLellan's case was less than enthused about the public discussion of the McLellan "investigation." He claimed the public discussion only made IRS investigators angrier and more likely to act vindictively (I'm paraphrasing) and claimed the "final offer" would only be 50% of the seized funds.

The "final offer" turned out not to be all that "final." The IRS eventually dropped the case and returned all $107,000 to McLellan. However, it did not feel McLellan was entitled to compensation for legal fees because he did not "substantially prevail" in his case against the IRS seizure.

The government's argument against the awarding of fees was basically nothing more than it illustrating how easy it is for it to rig the game. All it takes is a more sympathetic -- or less attentive -- judge.

The government tried to dismiss the case without prejudice, knowing that caselaw would side with it on the denial of fees.

Under CAFRA (Civil Asset Forfeiture Reform Act), a claimant can recover his reasonable attorney fees and litigation costs only if he has "substantially prevailed" in a civil forfeiture proceeding. 28 U.S.C. § 2465(b)(1 ). A number of courts have held that a claimant has not substantially prevailed where the forfeiture proceeding was voluntarily dismissed without prejudice.

[...]

Indeed, this court can find no examples of any court reaching the opposite conclusion. Those courts that have considered the issue primarily rely on the Supreme Court's rationale regarding fee-shifting provisions found in Buckhannon Bd & Care Home,. Inc. v. W Va. Dept of Health & Human Res., 532 U.S. 598 (2001). In Buckhannon, the Court held that prevailing party status requires an "alteration in the legal relationship of the parties." Id at 605. Thus, an enforceable judgment on the merits and a court-ordered consent decree carry the necessary "judicial imprimatur" to convey prevailing party status, while a voluntary change in a party's conduct -- despite being inspired by a lawsuit -- does not.

The government argued in its brief that the case should only be dismissed without prejudice, raising several of its own claims as apparent legal strawmen, but refusing to address the solitary argument raised by McLellan -- that dismissal without prejudice would preclude him from seeking legal fees.

The court, fortunately, repays the government's refusal to address McClellan's sole argument by refusing to entertain its unrelated defense of its "dismissed without prejudice" strategy.

Certainly, the damage inflicted upon an innocent person or business is immense when, although it has done nothing wrong, its money and property are seized. Congress, acknowledging the harsh realities of civil forfeiture practice, sought to lessen the blow to innocent citizens who have had their property stripped from them by the Government. Through CAFRA, Congress provided for relief in such cases. This court will not discard lightly the right of a citizen to seek the relief Congress has afforded...

[...]

Therefore, a voluntary dismissal without prejudice would likely preclude prevailing party status under CAFRA, depriving Claimants of their right to bring a claim under that statute. Further, the court considers this likelihood of deprivation great enough to constitute a substantial legal prejudice. Accordingly, this action is DISMISSED with prejudice.

Last-minute screwing averted. McLellan has a chance to recover $22,000 in legal fees along with any interest accrued on the $107,000 while in the government's possession. The Institute of Justice, which took on McLellan's case, is hoping this decision will aid them in its battle to recover fees from another questionable IRS seizure.

The Institute Justice is seeking CAFRA compensation in a similar structuring case involving Carole Hinders, an Iowa restaurant owner who got her money back after I.J. took up her cause. The U.S. Court of Appeals for the 8th Circuit will hear oral argument in that case next Tuesday. "The government cannot turn a citizen's life upside down and then walk away as if nothing happened," says Wesley Hottot, an I.J. attorney who is representing Hinders. "Now that Lyndon has been vindicated, we look forward to holding the government to account in Carole's case as well."

Hinders' interest recovery should certainly be larger, if not the legal fees themselves. All told, the IRS seized $315,000 from the owner of a small, cash-only restaurant -- again, based on nothing more than sub-$10,000 deposits that traced back to a wholly legal enterprise.

ECF No 35 Order Denying Motion to Dismiss IJ075527xA6322 (PDF)ECF No 35 Order Denying Motion to Dismiss IJ075527xA6322 (Text)

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Filed Under: doj, forfeiture, irs, legal fees, lyndon mclellan

35 Comments

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Anonymous Anonymous Coward, 12 Feb 2016 @ 7:00pm

Balance is nice
It is nice to hear about courts acting as if justice mattered.

It is sad to know that imperious government agencies (I cannot think of one that doesn't think they aren't) still think justice does not matter, and behave accordingly.
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Anonymous Coward, 12 Feb 2016 @ 8:23pm

Hide everything to stay legal.
Doing everything under the table now seems to be the only way to run a business. When the gov can take everything you own when you follow the law, there doesn't seem to be any other choice.
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That Anonymous Coward (profile), 12 Feb 2016 @ 10:45pm

It would be nice to see this sort of thinking expanded... have seen far to many cases dismissed at the 11th hour without prejudice to deny any shot at getting fees spend on a long battle back.
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Anonymous Coward, 12 Feb 2016 @ 11:01pm

Bonus Round
The ultimate bonus justice would be if everyone involved in the unaccountable bureaucracies loses their job and any pension they may have. That will be the perfect cure to vindictive behavior in light of their crimes being exposed.
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Anonymous Coward, 13 Feb 2016 @ 12:18am

God Bless The USA. Really?
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Anonymous Coward, 13 Feb 2016 @ 3:51am

RICO
The victim needs to press a fraud charge with RICO rider. It is after all an organized crime syndicate albeit under Gov. sponsorship. That would return some balance to the process. Triple damages all around.
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PRMan, 13 Feb 2016 @ 8:14am

Re: Hide everything to stay legal.
How do you think they got on the IRS radar to begin with? Notice that these ARE cash-only businesses. Even if there's no evidence, they wanted to punish them somehow.
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PRMan, 13 Feb 2016 @ 8:21am

Re: RICO
Only if they win, which they wouldn't.
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madasahatter (profile), 13 Feb 2016 @ 9:11am

Re: Re: Hide everything to stay legal.
Many very legitimate businesses will be essentially cash only dependent on the demographics and local area they serve. The problem is with bureaucrats who do not actually try to understand how many businesses work and why.
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Anonymous Coward, 13 Feb 2016 @ 10:01am

Re: Re: Hide everything to stay legal.
Depositing that money in a bank account automatically means it's not being done under the table because then the IRS can and, for large amounts, likely will track it. The IRS isn't going to go through the trouble of working forward and tracking every little purchase you've made to see if you are maybe slightly cheating on your taxes. However, they track your bank accounts, car purchases, house purchases, etc.. If you are reporting that you make 10k a year but you are here owning ten cars including million dollar cars, a large expensive yacht, and 10 million dollars worth of property the IRS will start questioning where did you get all that money and they work backwards. I know a few wealthy people that make millions and, by and large, they pay their taxes. They better.
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Anonymous Coward, 13 Feb 2016 @ 10:04am

Re: Re: Re: Hide everything to stay legal.
(but what many people try and do is they try to sell their properties during years that their net income is lower so they can pay the taxes for it at a lower tax bracket).
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Anonymous Coward, 13 Feb 2016 @ 10:16am

Worst part of this is that the money was held in PRIVATE government employee accounts and they have the benefit of the interest from that money (as well as being able to use the value of their account to convince banks to offer them lower rated mortgages).
When the government pays back the interest, effectively that will come out of taxpayers pockets, and the government employee gets to keep their illegally obtained interest.
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Anonymous Coward, 13 Feb 2016 @ 10:18am

Re: Re: Hide everything to stay legal.
Must also remember that there may be 'friends' of the IRS agents who started this whole forfeiture off who are business rivals of those targetted.

Therefore, possible anti-competitive abuse needs to ALSO be investigated.
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nasch (profile), 13 Feb 2016 @ 2:34pm

Re: RICO
It is after all an organized crime syndicate albeit under Gov. sponsorship.

It appears what the IRS is doing is legal. You may think it's wrong, but that isn't enough for a RICO suit.
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nasch (profile), 13 Feb 2016 @ 2:35pm

Re:
Worst part of this is that the money was held in PRIVATE government employee accounts

Are you saying it was kept in the personal bank accounts of IRS employees? I would like to read more about that if so.
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Anonymous Anonymous Coward, 13 Feb 2016 @ 2:37pm

Re: Re: Re: Hide everything to stay legal.
At the rate the credit card companies charge merchant fees many business seek to be cash only. There is nothing illegal about that, nothing funny, nothing nefarious. The business owner has to make a risk/reward decision about potential lost business from not accepting credit/debit cards. If most of the business is local, everyone will know to bring cash. If the business includes a lot of transients, or high prices, there could be business related benefit from accepting payment cards. Online only is another reason to accept something other than cash.

Besides, these days many people don't use credit/debit cards in stores simply because they don't want to be tracked, and there is nothing illegal or funny or nefarious about that either. Sad, but nothing wrong.

The IRS needs to have something more than just cash deposits under $10,000 to make these charges, yet they don't. Either they don't take the investigative time to find them, or they are playing the odds that that poor peon they just stole from won't make too much noise or fight very hard.
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Anonymous Coward, 13 Feb 2016 @ 4:11pm

End the War on Drugs and problem solved.
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Rekrul, 13 Feb 2016 @ 4:30pm

Re: Re: Hide everything to stay legal.
How do you think they got on the IRS radar to begin with? Notice that these ARE cash-only businesses. Even if there's no evidence, they wanted to punish them somehow.

"Cash only" does not automatically mean "under the table". The phrase "under the table" means unreported. In other words, the money is being hidden from the government.

As long as the money is being reported and a record of all transactions are kept, there is nothing illegal or even shady about running a cash only business.
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Anonymous Coward, 14 Feb 2016 @ 6:40am

Re: Re: Re: Hide everything to stay legal.
I must have missed that part of the article where the convenience store owned "ten cars including million dollar cars, a large expensive yacht, and 10 million dollars worth of property".
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Anonymous Coward, 14 Feb 2016 @ 7:29am

Re: Re: Re: Re: Hide everything to stay legal.
I never said that, I was just making a general statement
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Anonymous Coward, 14 Feb 2016 @ 8:54am

Re: Re:
It's rather easy to go around making wild ass claims, I doubt OP will deliver.
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Anonymous Coward, 14 Feb 2016 @ 11:16am

Re:
Except there's a War on Cash now as well... it's more difficult to track, and like the government, corporations hate not being able to mine your historical purchasing habits.
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Anonymous Coward, 15 Feb 2016 @ 1:33am

Re: Re:
One problem at a time.
Remove the War on Drugs and you cut the bad guys' income in half. That will make it a lot easier to solve all of the other problems.
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Bergman (profile), 15 Feb 2016 @ 2:17am

Re: Re: Re: Re: Re: Hide everything to stay legal.
Irrelevant general statements are irrelevant. We're discussing a specific case here, where your general statement is at best misinformation.
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Anonymous Coward, 15 Feb 2016 @ 6:29am

Re: Re: Re: Re: Re: Hide everything to stay legal.
You never said what? -- this?

"If you are reporting that you make 10k a year but you are here owning ten cars including million dollar cars, a large expensive yacht, and 10 million dollars worth of property the IRS will start questioning where did you get all that money and they work backwards."

What is the intent of your general statement? To me, it is obviously an attempt to smear - a vague innuendo followed by disavowing any malicious intent, this is typical cheap shot material.
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Anonymous Coward, 15 Feb 2016 @ 1:15pm

Re: Re: Re: Re: Re: Re: Hide everything to stay legal.
To point out that just because a business is mostly cash based doesn't mean it can be inferred (ie: by the IRS or otherwise) they are cheating on their taxes because the IRS still has other indirect ways to know if they are.

It doesn't appear the IRS went after this business because of other signs that would indicate they are cheating on their taxes. It seems the IRS went after them because they frequently deposited money in increments under 10K dollars. Which alone is a stupid reason for the IRS to go after them. The IRS should first see how much they are reporting on their taxes and see if what they report is consistent with what they deposit before going after them. If it's not consistent then they can go after them. If it is then they should do nothing.
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Anonymous Coward, 15 Feb 2016 @ 1:18pm

Re: Re: Re: Re: Re: Re: Hide everything to stay legal.
The point is that the business got on the IRS's radar not for being a cash only business. It's not that the IRS was punishing them for being a cash only business. The IRS was going after them for frequently depositing money in increments of under 10K. Which is also a stupid reason to go after them. Perhaps many businesses just don't like to carry more than 10K on them at a time because it's dangerous. Safer to put that money in the bank pronto.
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Anonymous Coward, 15 Feb 2016 @ 1:21pm

Re: Re: Re: Re: Re: Re: Re: Hide everything to stay legal.
In fact many businesses prefer to deal with debit and credit cards because they just don't like to deal with the dangers associated with carrying a lot of cash around. This may depend on things like the neighborhood the business is in as well and just the nature of the owners. Many people don't like to carry too much cash around because they see it as a risk. A restaurant that deals with a lot of cash may be wise not to leave too much of it lying around lest they get robbed.
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Anonymous Anonymous Coward, 15 Feb 2016 @ 5:12pm

Re: Re: Re: Re: Re: Re: Re: Hide everything to stay legal.
Any business that does a good job of tracking and forecasting their business will make up daily deposits. That does not mean they go to the bank every day, but they make up their deposits in daily increments for bookkeeping purposes. I have gone to the bank with several days deposits all at one time, with each days business bundled as one deposit. This is the way you can compare to the daily cash register readings and track business for your profit and loss statement. This is the way an auditor can compare deposit statements to the records from the cash register and other bookkeeping records.

If the business does less than $10,000 in business per day, then each of those daily deposits would be less than $10,000, not one of more than $10,000 with several days receipts commingled.
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Anonymous Coward, 15 Feb 2016 @ 5:37pm

Re: Re: RICO
The premise for the IRS assumptions are fraudulent, therefore their case is also. Based on the way they use this law they commit fraud, even after investigation and refund of assets they deny causing damage. Indeed they again "rinse and repeat" ad-infinitude. How can this NOT be a syndicated criminal organization given what they practice? Ergo: misapplied laws are fraud and therefore illegal, when done repetitively by an organization this qualifies as a RICO violation in spite of the legal side of the "business". It is all about greed, personal or institutional.
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nasch (profile), 16 Feb 2016 @ 8:05am

Re: Re: Re: RICO
Ergo: misapplied laws are fraud and therefore illegal,

Fraud involves intentional deceit. Do you think the IRS knows it's misapplying the law, and is attempting to deceive its targets into thinking that it's not? Because I cannot see that claim ever holding up in court.
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JBDragon, 16 Feb 2016 @ 4:17pm

Re:
Bigger the government gets, the more corrupt it gets! Politicians is office way, way to long I think is the biggest problem. So out of touch with the country and the constitution. Government Stealing more and more of your money under threat of a GUN and JAIL!!!
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JBDragon, 16 Feb 2016 @ 4:37pm

Re: Re: Re:
Saw how the War on Alcohol worked!! Then you get criminals like Al Capone. With the War on Drugs, we have this huge drug cartels killing thousands of people.

Hey, why end it. Think of all the money City's get for it. All the jobs for the Police, and the jailers, and the whole system.

We have this whole abortion issue right? The right of the woman and what she can do to her own body. Ignore that she's killing another human that can't stand up for themselves. Doesn't the person taking Drugs doing it to their own body, and why should it matter what a person does to themselves? If anything there's a bigger problem with Alcohol abuse and yet that's allowed!!!

So it's OK to murder a human life with Abortion. It's OK to drink Alcohol which is just as bad if not worse, Yet Oh now, Drugs are evil.

I can go out and buy as much Alcohol as I want. Yet I rarely drink. A beer once in a while. I have beer right now in my fridge that's been there over a year!!! I've smoked weed before. If it was legal would I start smoking up a storm, NO. It's called self control. Some people have it and some don't, but throwing people in jail for doing drugs solved nothing. Now if they're on drugs and are wasted, well it's a DUI like with Alcohol. Same rules!!!

With drugs LEGAL, all that money wasted trying to stop it ends. In fact now you can Tax it like everything else and make money. Jails clear out for just the real criminals. Drug prices drop greatly. Drug cartels are done with. Competition puts them out of business. I really don't care what the drug of course is either. Have it all LEGAL!

Like the War on Poverty, this War on Drugs will NEVER end! It's as dumb as saying You can never have SEX. It's time to end this sillyness.

Some of the money saved from ending the drug war and making in taxes on the drugs can be used to help those that really want help with their drug addiction. Others can never be helped. Not like people aren't already dying from illegal drug use!!!
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Anonymous Coward, 17 Feb 2016 @ 11:22am

"Think of all the money City's get for it. All the jobs for the Police, and the jailers, and the whole system. "

See: Broken Window Fallacy

The rest of your rant seems to be GOP talking points, debunked many times by many people on numerous occasions.
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Tanner Andrews (profile), 17 Feb 2016 @ 6:52pm

Re: Re: Re: Re: RICO
Do you think the IRS knows it's misapplying the law, and is attempting to deceive its targets into thinking that it's not?

That would be a fair conclusion from the stated facts, which are that
1. depositing more than $10K in cash without extensive silly paperwork is illegal
2. Store avoided depositing more than $10K in cash thereby avoiding silly requirement
3. Deposits flowed naturally from store's business pattern
4. IRS attempted to punish them by taking their money despite being aware of these other things
So, yeah, I'd say they are culpable.

Is it fraud? Well, fraud requires a misrepresentation of material facts, intention that the other side rely on the misrepresentation, and the other side relying on those facts, to their detriment. No doubt there was a mispresentation of material fact, to wit, the claim that they reasonmably could seek forfeiture. The other side was intended to rely on it, in that the hope is for a default or court victory letting the IRS keep the money.

The other side did not rely on the false representations. Instead, they fought. From that I conclude that this element is not met, and there is no fraud.

That does not mean the IRS is blameless. Far from it, they have acted reprehensibly. Were they not working for the govt, the IRS attys would be subject to bar discipline for deliberate false representations to the court.

What we call ``fraud upon the court'' is not the same as an actionable fraud. In US attorney offices, I expect it is more in the nature of standard practice than anomalous acts by rogue employees.
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