California Civil Forfeiture - Backgrounder

Litigation Backgrounder

Fighting Civil Forfeiture:

Federal & Local Law Enforcement Agencies Team Up to Profit by Subverting California State Law

Property Rights Sacrificed in States That Legalized Medical Marijuana When Federal & City Governments Cash In On Forfeiture

 

The Issue in a Nutshell

No one in America should have their property taken from them by law enforcement officials without first being convicted of a crime. And yet, that is exactly what the city of Anaheim and the federal government are colluding to do: take Tony Jalali’s small Anaheim office building through civil forfeiture even though he is an innocent owner of the property who merely rented out space to two marijuana dispensaries that could legally operate in the state of California.

The federal government is offering Anaheim a financial bounty to do an end run around state law on two fronts. Not only did California voters legalize the sale of marijuana, but state law also bars local or state officials from taking private property by civil forfeiture unless the property owner has been convicted of a crime, and that has not happened in this case. Simply put, by using “equitable sharing,” Anaheim and the federal government are looking to cash in on a $1.5 million bounty by evading state law.

Civil forfeiture turns the American idea that you’re innocent until you’re proven guilty on its head. In criminal forfeiture, you must be proven guilty before your property is taken, but under civil forfeiture, Jalali will lose his property unless he proves his innocence. That kind of a standard might be acceptable in nations like Iran, which Tony fled in 1978, but it should never happen in America.

Forfeiture was not supposed to be used as a punishment for a property owner who committed no crime, yet that is exactly how it is being used today—as an arbitrary punishment imposed only against those citizens who have something the government can take to pad their own budgets. In 2012, California law enforcement scored more than $82 million through the program, with the federal program paying out more than $450 million nationwide.

The Institute for Justice, a national public interest law firm that fights the injustice of civil forfeiture nationwide, is now representing Tony Jalali in defense of his property and his constitutional rights.

 
 
 
 
 
Introduction

Civil forfeiture—laws that allow the government to take and sell your property without ever charging you with a crime, let alone convicting you of one—is one of the greatest threats to property rights in the nation. To make matters worse, such forfeitures fund law enforcement officials’ budgets, giving them a direct financial incentive to abuse this power. To add to its sordid history, civil forfeiture is now being employed as the key strategy in the federal government’s battle against states that have legalized medical marijuana, threatening the property of small landlords who have broken no law.
Nowhere is the abuse of power and the conflict between federal, state and local officials more clear than in Anaheim, Calif., where Tony Jalali and his family face the loss of their office building because they rented out space to medical marijuana dispensaries that operated legally under California law.

Tony Jalali immigrated to the United States from Iran in 1978 with hope of a better life in the land of liberty. Tony has become a successful small business owner. Together with his wife, he owns a modest, two-story office building in Anaheim, which they hoped would fund their retirement. In 2012, the Jalalis took advantage of low interest rates to pay off the mortgage on their rental building by taking out a second mortgage on their family home.

Soon after the property was mortgage-free, however, the federal government served them with a lawsuit demanding forfeiture of the entire building. The Jalalis have no criminal history; neither has ever been arrested or charged with any crime.

Tony’s well-maintained property has a half dozen tenants, including a dental practice, an insurance company and other business offices. But because he also rented space to two medical marijuana dispensaries—one in 2011 and another in 2012—the government demands the property be forfeited for “facilitating” drug crimes. They make this demand even though medical marijuana dispensaries are legal under state law and even though Jalali evicted the dispensary located in the building immediately upon receiving the federal complaint. Indeed, the federal complaint threatening to take away his family’s life savings in the form of the building was the first notice Jalalis received from either the city or the federal government that there was a legal concern about the relatively common practice in California of renting out retail space to such dispensaries.

Incredibly, the profits from the property that law enforcement agents take by civil forfeiture is kept by those same agencies—going straight to the bottom line of their budgets. When local law enforcement agencies team up with federal agencies, the federal government takes the property and pays out up to 80 percent of the money to local or state law enforcement agencies—something it calls “equitable sharing” of forfeiture proceeds.

That is what is happening in this case: If the federal government succeeds in taking Jalali’s building through forfeiture—a building worth $1.5 million—it will split the proceeds between federal agencies and the Anaheim police department. Anaheim is colluding with the federal government to do an end run around state law on two fronts. Not only did California voters legalize the sale of medical marijuana, but also state law bars local or state officials from taking private property by civil forfeiture unless the property owner has been convicted of a crime. Simply put, by using equitable sharing, Anaheim and federal officials are looking to cash in on a $1.5 million bounty by subverting state law.

Allowing the police to keep the proceeds of forfeited property gives them a direct financial incentive to use civil forfeiture. No one in the United States should lose their property without being convicted of, or even charged with, any crime. But as this case shows, fair and impartial law enforcement cannot exist as long as we allow this policing for profit.

That is why the Institute for Justice is joining with Tony Jalali to defend his property rights and fight the perverse, unconstitutional incentives for law enforcement created by civil forfeiture and equitable sharing agreements.

 


The Attempt to Seize Tony Jalali’s Building: The Facts

Medical marijuana has been legal in California since 1996, when Proposition 215, called the Compassionate Use Act, decriminalized its sale and use with a doctor’s recommendation. In 2003, the state clarified the law by enacting a “Medical Marijuana Program,” establishing medical marijuana ID cards for qualified patients and guidelines for patients and medical marijuana dispensaries. It specifically included a right for dispensaries to locate throughout California’s communities in ordinary commercial buildings.1

When Tony Jalali was approached in 2011 by a medical marijuana dispensary as a prospective tenant, it was in the context of dozens of medical marijuana dispensaries operating in Anaheim for years.2 He was aware that medical marijuana was legal under state law and so had no concern about renting to a dispensary apart from ensuring that they would make good tenants. His attitude toward medical marijuana dispensaries was bolstered when another prospective tenant pointed out that the Anaheim Convention Center, owned and operated by the city of Anaheim, was hosting the world’s largest marijuana industry trade show in 2010. The convention center was once again the site of the trade show in 2011 and 2012, attracting an estimated 15,000 people each year, and it has been announced that it will host the event yet again in July of 2013.

Despite profiting from the marijuana industry, however, the city of Anaheim was working to oppose California’s medical marijuana policy.3 In 2011, unbeknownst to the Jalalis, city officials reached out to federal authorities to help them do what state law did not permit any California city to do: take through forfeiture the property of medical marijuana dispensaries and the properties of their landlords. The federal government stated repeatedly in recent years that it would not undermine state law by prosecuting medical marijuana dispensaries or their patients in the states that have made the activity legal.4 (President Obama himself told ABC News “We’ve got bigger fish to fry,” and in 2008, then Senator Obama said he was “not going to be using Justice Department resources to circumvent state laws” on medical marijuana. Following the election, U.S. Attorney General Eric Holder confirmed this would be the administration’s policy.) Despite these statements, U.S. Attorneys in California—prompted by and in cooperation with Anaheim and other municipalities hostile to their own state law—began a campaign in 2011 to threaten or take the property of dispensary landlords.5 In 2011, the city of Anaheim sent an undercover police officer into the dispensary located in Tony Jalali’s building to purchase medical marijuana. The officer presented a California Medical Marijuana ID card to a dispensary employee and made a $37 transaction—a legal transaction under state law. The city then turned that information over to the U.S. Attorney, who filed this action as part of its campaign.

The Jalalis have had no involvement with the dispensaries themselves apart from being landlords. Contrary to some other cases, where federal authorities talked directly with landlords to inform them that they might be at risk of forfeiture unless they evicted dispensary tenants, the Jalalis were not served with any warning. And although the government has expressed no interest in either the Jalalis’ tenant dispensaries or the patients who purchased medical marijuana from them, the federal government and the city of Anaheim are seeking to take the Jalali family’s $1.5 million building on the premise of enforcing the federal prohibition on medical marijuana. These governments have not only failed to act with integrity, but by using civil forfeiture they stand to profit from their duplicity. This kind of arbitrary, draconian enforcement of the law is not only wrong, it is unconstitutional.

 


Civil Forfeiture: Perverse Incentives Encourage Abuse

Civil forfeiture is the governmental power to take property suspected of involvement in crime. Unlike criminal forfeiture, in which the ill-gotten gains of criminal activity may be seized after an individual is convicted of the crime, police and prosecutors can use civil forfeiture to take away cash, cars, homes or other property without having to convict or even charge the owner of any wrongdoing. In this way, criminals actually get more consideration under the law than innocent owners of confiscated property.

Although its use is widespread throughout the United States, civil forfeiture is not widely recognized or understood. Because civil forfeiture proceedings are against the property, as if the property somehow acted to assist in the commission of a crime, the government can take it even where the owner himself is not guilty of a crime. That is why civil forfeiture cases have unusual names such as United States v. Real Property Located at 2601 W. Ball Road, Anaheim, Calif.—the case involving the Jalali family.

Civil forfeiture was originally adopted in America from British admiralty law. It may have had its purpose as used in the 19th century as a means for fighting piracy on the high seas or in customs law, where one might never be able to arrest a criminal but could at least take away the ill-gotten gains of criminal activity, but modern civil forfeiture is no longer tied to the practical necessities of enforcing maritime or customs law. Now the forfeiture power applies to a broad range of crimes. Nearly all states and the federal government frequently use civil forfeiture laws.

The use of civil forfeiture has expanded dramatically in the modern era since the 1980s as a part of the “war on drugs,” culminating with the campaign of the Department of Justice that has led to this case.6 When civil forfeiture is stretched to seize property from people like the Jalalis, who did not understand and could not foresee the conflict between federal and state law concerning medical marijuana, and who had no role in the operation of any medical marijuana dispensary apart from being their landlord, it is simply unconscionable and unlawful. The Jalalis’ ownership of their property has nothing whatsoever to do with “ill-gotten gains” from criminal activity.

Forfeiture was not supposed to be used as a punishment for property owners who committed no crime, yet that is exactly how it is being used today—as an arbitrary punishment imposed only against those citizens who have something the government can take to pad their own budgets.

 

Three factors work in combination to set up the outrages common to civil forfeiture:


Profit Motive

When law enforcement agencies grab assets in forfeiture actions, this money may be used for better equipment, nicer offices, newer vehicles, trips to law enforcement conventions and even police salaries, bonuses or overtime pay. Thus, law enforcement agencies benefit in a very direct way from every dollar in assets and currency they manage to seize and forfeit. This profit motive forms the rotten core of forfeiture abuse.

 

Standard of Proof

The second way civil forfeiture abuses property owners is by establishing a lower “standard of proof” under which the government can take the property. As most people know, the standard of proof in a criminal proceeding is “guilty beyond a reasonable doubt.” That is, the government must demonstrate to the jury that evidence shows that the accused individual committed the crime beyond a reasonable doubt. Under federal law, however, the government only needs to suspect that a crime occurred on your property to seize it. That standard says nothing, however, about whether the owner or the property itself is actually guilty of any wrong doing.

 

Innocent Owner Burden

Finally, civil forfeiture turns the American ideal of innocent until proven guilty on its head. In criminal forfeiture, you must be proven guilty before your property is taken, but under civil forfeiture the Jalalis will lose their property unless they prove their innocence. The increased burden (including substantial legal costs) of proving one’s innocence can result in owners abandoning rightful claims to seized property. And if owners do not fight civil forfeiture and the government wins by default, law enforcement agencies are more likely to engage in it.

The net effect of these three factors—all of which are in play in Tony Jalali’s plight—is to increase the use of forfeiture by law enforcement agencies by making it profitable for the agencies that engage in it, by making it easier to keep seized property (by lowering the standard of proof), and by making it more expensive and difficult for owners to challenge the action (by shifting the burden of proof to the innocent owner).

These are some of the reasons why federal forfeiture has exploded over the past three decades. A March 2010 report from the Institute for Justice, Policing for Profit: The Abuse of Civil Forfeiture, shows just how widespread police profit from civil forfeiture has become. Prior to 1985, when federal forfeiture revenue went to the general revenue fund of the United States, forfeiture revenue was modest. It became a runaway source of revenue, however, once law enforcement agencies were allowed to keep and profit from all of the property they seize. Statistics provided by the federal government do not separate criminal from civil forfeiture, but in 1986 the federal government took in just $93.7 million in forfeiture revenue. Those revenues surpassed one billion dollars for the first time in 2008, and the government collected more than $2 billion through forfeiture in 2011 and more than $4 billion in 2012.

 


Equitable Sharing: Undermining State-based Reforms

Through so-called “equitable sharing agreements,” federal law extends this profit incentive to state and local law enforcement agencies. In equitable sharing cases, the DOJ may pay up to 80 percent of the proceeds of forfeiture to state and local law enforcement agencies.

Equitable sharing agreements between the federal government and state and local law enforcement agencies are responsible for another huge expansion of civil forfeiture. This is in part because equitable sharing agreements allow local law enforcement agencies to benefit financially from forfeitures that they could not achieve under state law. As state legislatures have sought to reign in abuse of civil forfeiture by imposing laws that rightfully increase the burden of proof required to seize property, or by prohibiting proceeds of forfeitures from going directly to the budget of the local law enforcement agency, such agencies have increasingly done an end-run around state law, entering into the more profitable and more lenient equitable sharing arrangements with federal law enforcement agencies in which the federal government prosecute the cases, but local law enforcement agencies cash in on the bounty.

Payments from the federal government to state law enforcement agencies under equitable sharing agreements have risen to more than $450 million per year, which includes $82M to California law enforcement agencies in 2012.7 As shown further by IJ’s 2011 report Inequitable Justice: How Federal “Equitable Sharing” Encourages Local Police and Prosecutors to Evade State Civil Forfeiture Law for Financial Gain, these equitable sharing payments warp law enforcement priorities by allowing local law enforcement officers to benefit from forfeitures that they could not accomplish under state law.8

Tony Jalali’s case is a striking example of the warped priorities. California specifically prohibits the forfeiture of real property, such as Jalali’s, where the property owner has been convicted of no crime. State law certainly did not intend for property owners to have their commercial property taken because a small part of the space was rented to tenants operating medical marijuana dispensaries—a use that is legal under state law. By colluding with the federal government, however, and taking advantage of its more lax standards of prosecution, the Anaheim police department is able to ignore the policies written into law by the California legislature and approved by initiative by its residents, all so that they can hold on to a million dollar-plus payout from forfeiture.

As one recent study, published in in The Journal of Criminal Justice, concluded, “When state laws make forfeiture more difficult and less rewarding, agencies are even more apt to turn to the federal government’s easier and more generous forfeiture procedures.”9 Federal equitable sharing policy thereby provides both a means and an incentive for state and local law enforcement officials to circumvent unfavorable state forfeiture procedures, undermining attempts at reform by citizens and state legislatures.

 


The Legal Challenge

The Institute for Justice is representing the Jalalis in the defense of their private property. This case involves three constitutional challenges to the attempt to seize the Jalalis’ property. First, the equitable sharing program violates the Tenth Amendment to the Constitution. The Tenth Amendment protects the power of a state to enforce its own laws on subjects not delegated to the federal government by the Constitution. The Jalalis’ property cannot be subject to forfeiture under state law, and Anaheim would have no way of profiting from such a forfeiture but for working with the federal government to circumvent state law. Under California law, medical marijuana dispensaries are legal and the Jalalis could not lose their property unless convicted of a crime. Yet, even though they have not been charged with any crime, the federal equitable sharing program allows the city of Anaheim and federal government to team up, evade state law, and split the proceeds of forfeiture. This end-run around California law prevents the people of California from effectively reigning in civil forfeiture, impairing state sovereignty. By encouraging state and local law enforcement agencies to ignore their duties and limits under state law, the equitable sharing program violates the Tenth Amendment.

Second, taking the Jalalis $1.5 million property where they have been convicted of no crime and were mere landlords to tenants operating a business that is legal under state law is a violation of the Eighth Amendment’s “Excessive Fines” clause and a violation of the Civil Asset Forfeiture Reform Act of 2000, which requires that forfeitures not be grossly disproportionate to the property owner’s conduct.

Third, the federal government’s prosecution of the Jalalis violates their right to Due Process under the Fifth Amendment. The Due Process clause demands that there be a substantial connection between the government’s prosecution and a significant governmental interest: The arbitrary prosecution of individuals is wrong and unconstitutional. The government may claim that it seeks to deprive the Jalalis of their entire building in order to enforce a federal prohibition on medical marijuana, despite the fact that the Jalalis are mere landlords. But it makes no sense to seek the financial destruction of the Jalali family as a means to that end, when the federal government has said that there is no federal interest in pursuing dispensaries that are legal under state law at all.

More than 1,000 dispensaries and their landlords in California and other states have been threatened with forfeiture during the past year.10 Moreover, the federal government has said that it is still considering its policy to enforce a prohibition on marijuana in Washington and Colorado, which recently made marijuana legal for recreational, as well as medicinal, use. By fighting for their rights, the Jalalis will not only defend their own property but their case will go a long way to laying down constitutional ground rules protecting the rights of property owners caught in these and future conflicts between federal and state law.

 


The Institute for Justice: A History of Protecting Private Property

The Institute for Justice litigates in support of constitutionally protected individual rights, including the right to own private property free from unconstitutional governmental interference. IJ has scored significant victories on behalf of individuals and businesses throughout the nation. A few of the important property rights cases IJ has litigated include:

United States v. 434 Main Street, Tewksbury, Mass—IJ defended the Caswell family against the attempt of the United States and local police to take their budget motel through civil forfeiture to pad their agency budgets by more than a million dollars. In a sweeping victory for the Caswells, a federal judge dismissed the case after a trial, declaring that the Caswells were innocent owners of the property who did not know of the drug crime that occurred behind closed doors and did all that they could reasonably do to maintain a crime-free motel. In a 60-page ruling, the government’s allegations were described as “gross exaggerations” and without “a scintilla of evidence.”

Van Meter v. Turner—IJ represented Georgia citizens to hold local law enforcement agencies—the Atlanta Police Department, Fulton County Police Department and Fulton County Sheriff—accountable under Georgia’s forfeiture reporting law. Georgia law requires that law enforcement agencies publish a report each year of all forfeitures they conduct and indicate how the money they receive is used. Despite the clear legal requirement to do so, these agencies never made such information public until IJ brought them to state court.

State of Texas v. One 2004 Chevrolet Silverado—The State of Texas took the truck of an innocent owner through civil forfeiture and refused to give it back. To right this outrage and attack various unconstitutional aspects of Texas’ civil forfeiture laws, the Institute for Justice is representing small businessman Zaher El-Ali, a man the state admits had nothing to do with the alleged criminal activity that led to his truck’s seizure.

Utahns for Property Protection—IJ represented a group of Utah citizens that filed a “notice of claim” with the attorney general of Utah, successfully forcing him to take immediate action to secure the return of the funds for forfeitures that should have gone to public education.

Kelo v. City of New London—IJ litigated the landmark eminent domain abuse case before the U.S. Supreme Court on behalf of homeowners from New London who faced the destruction of their homes through eminent domain for private gain. Despite losing the case in court, now, nearly 10 years after the ruling, 44 state legislatures have reformed their laws to better protect property rights and nine state supreme courts have restricted the use of eminent domain for private parties.

 


The Litigation Team

The Jalali family is defended by Institute for Justice Senior Attorney Scott Bullock, who leads the IJ’s Civil Forfeiture Initiative and litigates property rights and economic liberties cases nationwide, IJ Attorney Larry Salzman and IJ-Florida Executive Director Justin Pearson, who also litigate property rights and economic liberties cases. Lake Forest, Calif., attorney Matthew S. Pappas, is assisting as local counsel. Bullock is a co-author of the groundbreaking IJ study of civil forfeiture, Policing for Profit. He argued the landmark U.S. Supreme Court property rights case, Kelo v. City of New London, one of the most controversial and widely discussed Supreme Court decisions in decades. Salzman is a co-author of Inequitable Justice: How Federal “Equitable Sharing” Encourages Local Police and Prosecutors to Evade State Civl Forfeiture Law for Financial Gain, the 2011 report focused on equitable sharing in California and Massachusetts.

 


The Institute for Justice

The Institute for Justice is the national law firm for liberty. IJ is a public interest law firm that advances a rule of law under which individuals can control their destinies as free and responsible members of society. Through litigation, communication, outreach and strategic research, IJ secures protection for individual liberty and extends the benefits of freedom to those whose full enjoyment is denied by the government.

The Institute for Justice is based in Arlington, Va. IJ has state chapters in Arizona, Washington, Minnesota, Florida, and Texas, as well as a Clinic on Entrepreneurship at the University of Chicago Law School.

For more information, contact:

John E. Kramer
Vice President for Communications
Institute for Justice
901 Glebe Road, Suite 900
Arlington, VA 22207
jkramer@ij.org
(703) 682-9320 ext. 205

 


[1] See http://www.cdph.ca.gov/programs/mmp/Pages/default.aspx.

[2] See http://articles.latimes.com/2011/aug/20/local/la-me-dispensaries-20110820

[3] See http://www.anaheim.net/administration/PIO/news.asp?id=1400

[4] See http://www.justice.gov/opa/documents/medical-marijuana.pdf and http://www.businessinsider.com/obama-says-targeting-legal-marijuana-users-would-not-make-sense-2012-12

[5] See http://www.justice.gov/usao/cac/Pressroom/2011/144a.html

[6] See http://www.justice.gov/usao/cac/Pressroom/2011/144a.html

[7] See http://www.justice.gov/jmd/afp/02fundreport/2012affr/report2b.htm and http://www.justice.gov/jmd/afp/02fundreport/2012affr/states/california.xml.

[8] See http://www.ij.org/inequitablejustice

91] J.E. Holcomb, et al., Journal of Criminal Justice 39 (2011), p. 282.

[10] See http://losangeles.cbslocal.com/2012/08/15/l-a-city-attorney-warns-marijuana-dispensaries-to-close-by-sept-6/


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