The Second Circuit has recently held that the Government must account for rental income it denied a property owner during a period of illegal seizure even though the Government was able to establish probable cause at a post-seizure hearing.  The appeal stemmed from a decades-long sanctions and civil forfeiture action in which the U.S. Department of Justice has sought to forfeit, among others, a 36-story skyscraper located at 650 Fifth Avenue in Midtown Manhattan co-owned by the Alavi Foundation, an entity accused of laundering money for Iran.

The Government brought the civil action seeking to forfeit Alavi’s assets—including the building, valued at nearly $1 billion—to distribute proceeds to victims of bombings and other attacks linked to Iran.  The Government alleged that the property was traceable to violations of the International Emergency Economic Powers Act, money laundering statutes, and Iranian sanctions promulgated by the U.S. Department of Treasury’s Office of Foreign Assets Control.

The case has been vigorously litigated for more than 13 years, involving extensive motion practice and years of discovery among hundreds of litigants, and producing several appeals, including an appeal from a judgment for the Government following a month-long jury trial that the Second Circuit vacated in 2019.

In the latest appeal, Alavi challenged the district court’s finding of probable cause for the forfeiture, and argued that, even if probable cause existed, Alavi was entitled to the rental income the Government seized before the district court’s determination of probable cause.  The Second Circuit affirmed the probable-cause finding but agreed with Alavi on the second point.

18 U.S.C. § 983 sets forth the “[g]eneral rules for civil forfeiture proceedings.”  It permits courts to issue a protective order to “seize, secure, maintain, or preserve the availability of property subject to civil forfeiture,” and such orders may be entered prior to judgment.  Id. § 983(j)(1).  18 U.S.C. § 985, however, states that “real property that is the subject of a civil forfeiture action shall not be seized before entry of an order of forfeiture.”  Id. § 985(b)(1)(A), (f)(1).  Section 985 contains two exceptions to this prohibition on pre-judgment seizures of real property:  (1) where, on the Government’s application, the court conducts a pre-seizure probable cause “hearing in which the property owner has a meaningful opportunity to be heard” or (2) where the court determines “that there is probable cause for the forfeiture and that there are exigent circumstances that permit the Government to seize the property without prior notice and an opportunity for the property owner to be heard.”  Id. § 985(d)(1)(B)(i)-(ii).

The Government argued that the specific provisions in § 985 that require a pre-seizure hearing or showing of exigent circumstances apply only to seizures of real property and not, as here, to a seizure of rental income, and thus the protective order at issue was governed by § 983, not § 985.  The Court disagreed.  It held that a seizure of rental income is subject to the statutory due process restrictions in § 985 as well as the Due Process Clause of the Fifth Amendment.  Because the Government’s seizure of the rental income without a pre-deprivation notice and hearing violated constitutionally protected due process rights, the Court found no need to reach the statutory due process issue, describing it as “academic.”  The Court thus concluded that the building had been unlawfully seized until the district court’s hearing on probable cause in October 2020.

The Court then turned to the remedy for the period of illegal seizure.  The Government argued that as long as a court eventually determines that probable cause for forfeiture exists, previously unlawfully seized rental income should not be released.  The Court disagreed, joining a majority of other circuits holding that the remedy for an illegal seizure where the Government fails to provide pre-deprivation notice and hearing but the property is later found to be subject to forfeiture after due process has been afforded is return of rents or lost profits during the period of illegal seizure.  Because the district court did not hold a hearing on probable cause until October 13, 2020, all rental income seized by the Government before that date must be released to Alavi.

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Photo of Seetha Ramachandran Seetha Ramachandran

Seetha Ramachandran is a partner in the Litigation Department, and a member of the White Collar and Asset Management Litigation practices. An experienced trial and appellate lawyer, Seetha has conducted 10 criminal jury trials, argued 10 appeals before the U.S. Court of Appeals…

Seetha Ramachandran is a partner in the Litigation Department, and a member of the White Collar and Asset Management Litigation practices. An experienced trial and appellate lawyer, Seetha has conducted 10 criminal jury trials, argued 10 appeals before the U.S. Court of Appeals for the Second Circuit, and handled ancillary civil proceedings in forfeiture cases.

Seetha is a leading expert in anti-money laundering (AML), Bank Secrecy Act, economic sanctions and asset forfeiture matters. Her practice focuses on white collar and regulatory enforcement defense, internal investigations, and compliance counseling. She represents banks, broker dealers, hedge funds, private equity funds, online payment companies, and individual executives and officers in high stakes and sensitive matters. Seetha has deep experience representing institutions and individuals in financial penalty phase of criminal and regulatory matters, and is often retained to litigate forfeiture and restitution claims on behalf of victims and third parties in criminal cases, as well as handling these issues for individual defendants.

Seetha served as a federal prosecutor for nearly 10 years, including as Deputy Chief in the Asset Forfeiture and Money Laundering Section (AFMLS), Criminal Division, U.S. Department of Justice. She was the first head of DOJ’s Money Laundering & Bank Integrity Unit, where she supervised DOJ’s first major AML prosecutions, and oversaw all of the Criminal Division’s AML cases. In that role, Seetha coordinated closely with state and federal banking regulators, including FinCEN, the OCC and the New York State Department of Financial Services, giving her deep experience with how these agencies work together, especially in matters involving civil and criminal liability. Her work developing and charging criminal cases under the Bank Secrecy Act (BSA) formed the model for AML enforcement that regulators and prosecutors follow today.

Seetha also served as an Assistant U.S. Attorney for the Southern District of New York for nearly six years, in the Complex Frauds, Major Crimes and Asset Forfeiture units where she investigated and prosecuted white-collar cases involving a wide range of financial crimes, including bank fraud, mail and wire fraud, tax fraud, money laundering, stolen art and cultural property, and civil and criminal forfeiture cases.

Seetha is a frequent speaker and prolific author on topics including enforcement trends in the financial services industry, OFAC sanctions, effective AML programs and asset forfeiture.

Photo of Lucas Kowalczyk Lucas Kowalczyk

Lucas Kowalczyk is an associate in the Litigation Department and a member of the firm’s nationally recognized Appellate Practice Group, which has been named to the National Law Journal’s Appellate Hot List. Lucas has authored dozens of briefs in federal and state appellate…

Lucas Kowalczyk is an associate in the Litigation Department and a member of the firm’s nationally recognized Appellate Practice Group, which has been named to the National Law Journal’s Appellate Hot List. Lucas has authored dozens of briefs in federal and state appellate and trial courts, and at the certiorari and merits stages in the Supreme Court of the United States, and has argued cases in state and federal appellate courts. He litigates cases in a wide range of subject areas, including antitrust, bankruptcy, healthcare, labor, employment, and constitutional law. He also co-authored chapters of the treatise Principles of Appellate Litigation: A Guide to Modern Practice, published in 2021 by PLI and revised annually.

Among his notable appellate representations, Lucas helped obtain a critical victory at the U.S. Supreme Court for the Financial Oversight and Management Board for Puerto Rico in an appeal concerning the Board’s sovereign immunity. Lucas also prevailed at the First Circuit for the Board in four related appeals seeking to overturn the $18-billion plan of adjustment for the Sales Tax Financing Corporation, a critical component of Puerto Rico’s historic fiscal recovery.

Lucas is also a member of the firm’s White Collar Defense and Investigations Group, focusing on government and internal investigations, and criminal and regulatory matters. Among other representations, Lucas helped secure a full release of nearly $20 million worth of interest in assets seized from the firm’s client by the U.S. Department of Justice.

Finally, Lucas is a member of the firm’s Commercial Litigation Practice, and has successfully represented clients in high-stakes contractual disputes involving financial services, life sciences, consumer goods, telecommunications, and other industries in trial courts and arbitrations in a number of jurisdictions.

Lucas also maintains a diverse pro bono practice and has represented indigent clients in immigration, family, and appellate courts, and in death-penalty proceedings. Among his notable representations, Lucas prevailed in a Second Circuit appeal addressing the showing the government must make to justify the continued detention of a noncitizen in removal proceedings. In 2019, Lucas received the Legal Aid Society’s Pro Bono Publico Award and Proskauer’s Golden Gavel Award for obtaining a critical victory for his client—an indigent grandmother acting as guardian for her two learning-disabled grandchildren—in an appeal, argued by Lucas, to the New York State Appellate Division, First Department. The court held that an amendment to New York’s Subsidized Kinship Guardian Program applied retroactively and required an award of benefits to the client’s grandchildren.

Lucas is a graduate of the National Trial Advocacy College.