SCOTUS: Kaley v. United States

The Supreme Court handed down its decision in Kaley v. United States back in February and I’ve been digesting the opinion for a few weeks now. The petitioners in the case, Kerri and John Kaley, were charged with stealing and reselling prescription medical devices and laundering the profits. The prosecution froze the Kaleys' assets, including a $500,000 certificate of deposit they intended to use to pay their attorneys, and it is the pre-trial seizure of the Kaleys’ assets that brought the case to the Supreme Court. 

The central conflict of the case revolves around the grounds on which the petitioners could challenge the restraining order. The Kaleys did not argue that their assets were not connected to the alleged crimes, but that the government’s case was baseless and the prosecution was unlikely to prevail at trial. They argued that they were constitutionally entitled to an adversarial hearing where the government would have to justify denying the defendant’s counsel of choice by showing they were likely to win a trial. The prosecution argued that the trial was the only adversarial hearing the defendants were entitled to and that the Kaleys could only challenge the pre-trial restraining order on the basis of the property’s connection to the crime. 

Ultimately, the Supreme Court agreed with the government and affirmed the appellate court’s decision denying the Kaleys’ request for an adversarial pre-trial hearing. Since the pre-trial restraining order was based on the grand jury’s determination of probable cause in the criminal case, and grand jury decisions have historically been unreviewable, the Kaleys are not allowed to dispute the finding of probable cause the restraining order rests upon. Allowing defendants to challenge a grand jury’s findings would have “strange and destructive consequences” in the eyes of the court because of the possibility of a judge presiding over a trial in which they disagree with the findings of the grand jury responsible for the indictment.

The decision appears reasonable on its face, but several problems are highlighted in Chief Justice Roberts’ dissent. He summarizes the majority’s logic as follows: “First, to freeze assets prior to trial, the Government must show probable cause to believe that a defendant has committed an offense giving rise to forfeiture. Second, grand jury determinations of probable cause are nonreviewable. Therefore, the Kaleys cannot “relitigate [the] grand jury finding” of probable cause to avoid a pretrial restraint of assets they need to retain their counsel of choice.” Essentially, the Kaleys can’t challenge the order because the grand jury made the connection between the crime and the property when they passed the indictment down and grand jury findings are nonreviewable. 

This a strange logical choice because the court concedes that grand jury findings are reviewable when it comes to pre-trial property restraint. After all, the grand jury found probable cause that the property and crime are connected in the indictment but that’s not preventing the Kaleys from challenging the traceability of the property. The government and the court already allows the grand jury’s decision to be challenged to an extent and preventing the defendant from challenging the veracity of the criminal conduct that lead to the seizure opens the door for prosecutors to use pre-trial asset restraint to “hamstring [their] target by preventing him from paying his counsel of choice”. In fact, the factual background of the case illustrates this exact problem.

Kerri Kaley worked as a sales representative for a medical device company and she occasionally received outdated and surplus medical supplies from the healthcare facilities she worked with. She sold those excess supplies to a company in Florida and split the money between herself and other sales representatives. Mrs. Kaley and her husband learned in 2005 that a federal grand jury was investigating their sales and the couple obtained counsel to prepare for any potential criminal charges. They also took out a $500,000 line of credit on their home and used it to purchase a $500,000 certificate of deposit with the intention of using the CD to pay their attorneys in event they were charged.

A grand jury returned a seven count indictment in 2007 charging them with stealing medical supplies and selling them for profit. The indictment sought a monetary judgement of $2 million and an ex parte order was obtained to prevent the Kaleys from transferring or disposing of the property connected to the alleged crimes, including the $500,000 CD. The Kaleys moved to vacate the order and contended that it violated their Sixth Amendment right to counsel. The prosecution conceded to the Magistrate Judge that it had only been able to trace $140,000 of criminal proceeds to the alleged crime and the judge restricted the order as it applied to the CD to that amount. 

Two days later the prosecution returned with a superceding indictment that added money laundering charges and included the Kaleys’ home as a forfeitable asset, in addition to the property listed in the original indictment. The addition of the money laundering charge expanded statutory the scope of forfeiture beyond what was possible in the first indictment. The original forfeiture provision included property that “constitutes or is derived from pro­ceeds traceable to” a criminal offense and the superceding indictment’s statute allows the forfeiture of any property “involved in” or “any property traceable to” property involved in the crime.

That sequence of events does not present the prosecution in a positive light. They could only trace $140,000 to the alleged crimes yet attempted to confiscate $2.5 million and when they limited by the court they respond by expanding the amount of property they wanted to take. Either they were being greedy or they were actively trying to deny the Kaleys their choice of counsel, the same lawyer who represented them for two years in negotiations with the federal government.

Moreover, the prosecution initially named Jennifer Gruenstrass, one of Kerri Kaley’s coworkers, as a co-defendant, but singled out the Kaleys for forfeiture. Ms. Gruenstrass’ case was eventually severed from the Kaleys and she was acquitted at trial. One of the biggest hurdles for the prosecution in that case was establishing ownership of the property the defendant sold. This was the crux of the Kaleys’ claim of baselessness. How could they be selling stolen property if the property they sold didn’t have an owner and was never properly stolen? The Kaleys were not allowed to argue this point to challenge the propriety of the restraining order, an order based on only a grand jury indictment and the sealed statement of a single federal agent.

The decision will have its biggest impact in the prosecution of white collar crime and has the potential to be particularly troubling in cases where, like the Kaleys, the alleged conduct is a legal gray area. Asset restraint at such an early stage of trial is a necessity in many cases of financial crime, even when it imposes on the defendant's right to counsel. However, prosecutors should not be able to use a grand jury's indictment as a cudgel and deprive a defendant of their preferred attorney. The prosecutors in the Kaley case clearly went far beyond what they could trace to the crime and the Kaleys should have been allowed to challenge the propriety of the restraining order on the facts of the case and not limited to issues of traceability.