Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 1 of 12

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF IOWA CEDAR RAPIDS DIVISION MIDAMAR CORPORATION, Plaintiff, vs. UNITED STATES OF AMERICA, Defendant. ____________________ TABLE OF CONTENTS I. II. III. IV. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RELEVANT FACTUAL AND PROCEDURAL BACKGROUND . . . . . . . . 1 SUBJECT MATTER JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . 2 ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. B. C. D. V. 18 U.S.C. § 983(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Equitable Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Establishment Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 I. INTRODUCTION The matter before the court is Midamar Corporation’s (“Midamar”) “Petition for Immediate Return of Seized Funds or in the Alternative to Quash Seizure Warrant” (“Petition”) (docket no. 3). II. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND “Midamar is a leading U.S.A.-based Halal Food Brand and Global Supply Chain Management Company” based in Cedar Rapids, Iowa. Affidavit of Jalel Aossey (docket no. 3-2) ¶ 5. “Midamar’s core product is Halal foods, . . . [meaning foods] slaughtered according to Islamic Law as outlined in the Qur’an.” Id. ¶¶ 5-6. No. 12-CV-111-LRR ORDER

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 2 of 12

On October 16, 2012, United States Magistrate Judge Jon S. Scoles signed a warrant authorizing the United States government to seize up to $1,703,448 in Midamar’s Cedar Rapids Bank & Trust account. That same date, the government also obtained a warrant authorizing it to seize certain books and records from Midamar’s place of business. Thereafter, the government seized $454,136.86 from the Cedar Rapids Bank & Trust account pursuant to the warrant. The government also executed a search of Midamar’s place of business and seized the books and records identified in the second warrant. To date, the government has not filed a civil forfeiture complaint, and there has been no indictment returned against Midamar. On or about October 19, 2012, Midamar sent a written request to the government seeking release of the seized funds. The government did not respond to the request. On November 1, 2012, Midamar filed the Petition seeking a court order either requiring the government to return the seized funds or, alternatively, quashing the warrant authorizing the government to seize the funds. On November 5, 2012, the government filed a Resistance (docket no. 8). That same date, the court held a hearing on the Petition. Michael K. Lahammer and Mark F. Enenbach represented Midamar. Assistant United States Attorneys Richard L. Murphy and Martin J. McLaughlin represented the government. John L. Lane represented Jalel Aossey, an interested party, and Joe Schmall represented Cedar Rapids Bank & Trust, another interested party. On November 7, 2012, Midamar filed a Reply (docket no. 10) to the government’s Resistance. During the hearing, the government requested the opportunity to supplement its Resistance. The court finds that further briefing is unnecessary and that the matter is fully submitted and ready for decision. III. SUBJECT MATTER JURISDICTION The court has subject matter jurisdiction pursuant to 28 U.S.C. § 1356, which provides that “[t]he district courts shall have original jurisdiction, exclusive of the courts

2

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 3 of 12

of the States, of any seizure under any law of the United States on land or upon waters not within admiralty and maritime jurisdiction.” 28 U.S.C. § 1356; see also 28 U.S.C. § 1331 (“The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.”). IV. ANALYSIS In its Brief in Support of the Petition, Midamar argues that the court should order the government to release the seized funds or, alternatively, quash the warrant authorizing the government to seize the funds. Midamar identifies four grounds for its requested relief: (1) 18 U.S.C. § 983(f), which permits the court to order the government to release property under certain circumstances pending completion of forfeiture proceedings; (2) the court’s equitable jurisdiction; (3) the Establishment Clause of the First Amendment; and (4) the Due Process Clause of the Fifth Amendment. A. 18 U.S.C. § 983(f) First, Midamar contends that the government’s seizure of the funds caused a substantial hardship to Midamar and, consequently, the court may order the government to release the funds pursuant to 18 U.S.C. § 983(f).1 In response, the government argues: (1) 18 U.S.C. § 983(f) is inapplicable because the government has not seized the business and, moreover, if the court ordered the funds to be released, Midamar would use the funds to commit additional criminal acts; (2) Midamar failed to establish a hardship given its other sources of funds; and (3) Midamar failed to prove that the requested relief would alleviate the claimed hardship. Title 18, United States Code, Section 983 governs civil forfeiture proceedings. As noted above, the government has not initiated a civil forfeiture proceeding in this case. However, in its Resistance, the government notes that “it would appear [Midamar] is entitled to petition the court for release of the property pursuant to [§] 983(f)(3)(A), notwithstanding the fact that no forfeiture action has yet been initiated.” Resistance at 2. Given the government’s position, the court shall assume without deciding that Midamar may seek relief under § 983(f).
3
1

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 4 of 12

Pursuant to 18 U.S.C. § 983(f), a court may order the immediate return of seized property if five conditions are satisfied: (A) (B) the claimant has a possessory interest in the property; the claimant has sufficient ties to the community to provide assurance that the property will be available at the time of the trial; the continued possession by the Government pending the final disposition of forfeiture proceedings will cause substantial hardship to the claimant, such as preventing the functioning of a business, preventing an individual from working, or leaving an individual homeless; the claimant’s likely hardship from the continued possession by the Government of the seized property outweighs the risk that the property will be destroyed, damaged, lost, concealed, or transferred if it is returned to the claimant during the pendency of the proceeding; and none of the conditions set forth in paragraph (8) applies.

(C)

(D)

(E)

18 U.S.C. § 983(f)(1).2 Paragraph 8 provides: This subsection shall not apply if the seized property— (A) is contraband, currency, or other monetary instrument, or electronic funds unless such currency or other monetary instrument or electronic funds constitutes the assets of a legitimate business which has been seized; is to be used as evidence of a violation of the law;

(B)

Before a claimant may file a petition with the court, the claimant must first “request possession of the property from the appropriate official, and the request must set forth the basis on which the requirements of paragraph (1) are met.” 18 U.S.C. § 983(f)(2). In this case, Midamar filed such a request with Acting United States Attorney Sean R. Berry. See Letter, Exhibit B to Affidavit of Jalel Aossey (docket no. 3-2).
4

2

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 5 of 12

(C) (D)

by reason of design or other characteristic, is particularly suited for use in illegal activities; or is likely to be used to commit additional criminal acts if returned to the claimant.

18 U.S.C. § 983(f)(8). The claimant bears the burden of proving that the conditions in 18 U.S.C. § 983(f)(1) are satisfied. See 18 U.S.C. § 983(f)(6) (providing that the claimant must demonstrate that the requirements of paragraph 1 have been met); see also United States v. Undetermined Amount of U.S. Currency, 376 F.3d 260, 264 (4th Cir. 2004) (placing the burden on the petitioning party); United States v. All Funds on Deposit, No. 3:12CV213TSL-MTP, 2012 WL 1948874, at *1 (S.D. Miss. May 22, 2012) (“The movant bears the burden of proving that the hardship provisions of § 983(f) are met.”). In this case, the government argues that Midamar has failed to demonstrate that “none of the conditions set forth in paragraph 8 applies,” 18 U.S.C. § 983(f)(1)(E). The government argues that subparagraph A of paragraph 8 applies because the property in question is “electronic funds,” 18 U.S.C. § 983(f)(8)(A), and the electronic funds do not constitute the assets of a legitimate business that the government has seized. In support of its argument, the government cites a number of district court cases holding that the exception in subparagraph A applies only when the government has seized the business itself—not just the currency or other monetary instrument. See, e.g., All Funds on Deposit, 2012 WL 1948874, at *1 (“[R]eturn of the currency is prohibited because [the movant] has not shown that a legitimate business, as opposed to its assets, has been seized.”); United States v. Approximately up to $15,034,6633 in Funds Contained in Ten Bank Accounts, 844 F. Supp. 2d 1216, 1218 (D. Utah 2011) (“[B]ecause the United States has seized one of [the petitioner’s] bank accounts and not the business itself, the court cannot order release of [the petitioner’s] funds.”); United States v. Contents of Account No. 4000393243, No. C-1-01-729, 2010 WL 3398142, at *2 (S.D. Ohio Jan. 2, 2010) (interpreting subparagraph A’s language).
5

Midamar does not disagree with the

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 6 of 12

government’s interpretation of the statutory language but, instead, argues that this case is distinguishable from the authority the government cites because the government seized all of Midamar’s operating capital and Midamar is unable to obtain other credit due to the warrant. Midamar further notes that, in addition to seizing Midamar’s operating funds, the government also seized books and records Midamar needs for its ongoing business operations. Thus, Midamar contends that the government has constructively seized the business. The court finds that Midamar has failed to prove that the government constructively seized the business. Although Jalel Aossey, a director at Midamar, avers that “[t]he funds in the [Cedar Rapids Bank & Trust account] constitute one of the largest assets of Midamar,” Affidavit of Jalel Aossey ¶ 10, and that the government’s seizure of those funds has caused a substantial hardship to Midamar, the court finds that this alone is not tantamount to a constructive seizure of the business. If the court were to hold that a business is constructively seized when the government seizes funds and thereby causes hardship, § 983(f)(8)(A)’s requirement that the government seize the business would be meaningless in light of § 983(f)(1)’s hardship requirement. See Contents of Account No. 4000393243, 2010 WL 3398142, at *3 (finding that the mere seizure of funds combined with a showing of hardship is insufficient to demonstrate that the business itself has been seized “because a contrary conclusion would render extraneous § 983(f)(1)(C)’s required showing of ‘substantial hardship . . . such as preventing the functioning of a business’” (quoting 18 U.S.C. § 983(f)(1)(C))). In its Reply, Midamar argues that this case is distinguishable from cases such as Contents of Account No. 4000393243 because the government has “seize[d] effectively 100% of [Midamar’s] financing.” Reply at 4. Midamar contends that, in addition to not being able to access the seized funds, Midamar has also been unable to obtain other credit as a result of the warrant. First, the court is hesitant to hold that a secondary, and likely

6

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 7 of 12

unintended, effect of a seizure warrant—that Midamar is unable to obtain other funding due to the stigma of the warrant—is a basis for finding that the government seized the business itself. More importantly, as discussed below in more detail, Midamar has failed to prove that it has no means of obtaining other funding, such as liquidating assets, mortgaging real property or taking out personal loans from its co-directors or president. At the hearing, Midamar also pointed out that the government seized more than just the funds in the Cedar Rapids Bank & Trust account. Specifically, Midamar complains that the government also seized books and records, which Midamar claims are critical to its continued functioning. The government, however, stated that it took primarily historical records. The government further stated that it copied computer files but did not physically take a majority of Midamar’s computers, and, for those computers the government did physically seize, the government returned them within a week. Finally, the government noted that it was amenable to allowing Midamar to inspect and copy any records Midamar deems necessary for its continued functioning. Accordingly, the court does not find that the government’s seizure of business records, in combination with its seizure of the funds in the Cedar Rapids Bank & Trust account, constitutes a constructive seizure of the business itself. Even if the court found that the government had seized the business, the court would nevertheless find that Midamar has failed to satisfy other requirements of 18 U.S.C. § 983(f). First, Midamar has not proven that the seizure has caused a “substantial hardship . . . , such as preventing the functioning of a business,” 18 U.S.C. § 983(f)(1)(C). At the hearing, the government admitted into evidence three Personal Financial Statements, see Government Hearing Exhibits 1 through 3 (docket nos. 11, 11-1 and 11-2), reflecting the net worth of Midamar’s co-directors, Jalel Aossey and Yahya Aossey, as well its president, William B. Aossey, Jr. Furthermore, the government presented evidence regarding various other assets held by the Aosseys or companies owned by the Aosseys.

7

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 8 of 12

Thus, the court is not persuaded that Midamar does not have other sources of financing, including personal loans, available to it. Second, the court finds that Midamar has failed to establish that releasing the funds will alleviate the alleged hardship. At the hearing, Jalel Aossey testified that, if the court were to order the government to release the funds, Midamar would give those funds to Cedar Rapids Bank & Trust to satisfy Midamar’s obligations. If this is true, the court fails to understand how the release of the funds would allow Midamar to pay employees and suppliers and thereby continue operating, which is the basis of its hardship request. The court finds it unnecessary to address the government’s remaining argument—that, if the court were to return the funds to Midamar, Midamar would use the funds to commit additional criminal acts. In light of its findings above, the court concludes that Midamar has failed to satisfy the requirements under 18 U.S.C. § 983(f) and shall deny the Petition to the extent it seeks the return of the seized funds on this ground. B. Equitable Jurisdiction Next, Midamar petitions the court pursuant to the court’s “equitable jurisdiction and/or Federal Rule of Criminal Procedure 41(g)” for the return of the funds. Brief in Support of Petition (docket no. 3-1) at 6. At the hearing, the government argued that Federal Rule of Criminal Procedure 41(g) is not an appropriate basis for relief because this is a civil case. As the government pointed out at the hearing, Federal Rule of Criminal Procedure 1(a)(5)(B) specifically provides that civil forfeiture proceedings are not governed by the Federal Rules of Criminal Procedure. In Black Hills Institute of Geological Research v. United States Department of Justice, 967 F.2d 1237 (8th Cir. 1992), the Eighth Circuit Court of Appeals noted: Rule 41[(g)] is the typical instrument to seek the return of seized property after an indictment has been issued. However, a motion prior to the filing of criminal charges is more properly considered a suit in equity rather than one under the Rules of Criminal Procedure. Matter of Search of 4801
8

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 9 of 12

Fyler Avenue, 879 F.2d 385, 387 (8th Cir. 1989), cert. denied, 494 U.S. 1026, 110 S. Ct. 1470, 108 L. Ed. 2d 608 (1990). Federal courts have recognized an independent cause of action for return of property based on the general equitable jurisdiction of the federal courts. Id. at 1239. Such a remedy, however, “should be exercised cautiously and subject to general equitable principles.” Id. A court may exercise its equitable jurisdiction “only upon a showing of callous disregard of the [F]ourth [A]mendment, irreparable injury if relief is not granted, and lack of an adequate remedy at law.” Matter of Search of 4801 Fyler Ave., 879 F.2d at 387; see also Blacks Hills Inst. of Geological Research, 967 F.2d at 1239-40 (identifying factors courts should consider before granting equitable jurisdiction). Midamar argues that it has satisfied the three requirements that permit a court to exercise equitable jurisdiction. First, Midamar alleges: By continuing to retain Midamar’s funds and failing to allow Midamar to review the affidavit(s)/recorded testimony—something which is necessary for Midamar to assess whether the [g]overnment even had probable cause to justify the seizure of its funds in the first place—the [g]overnment has clearly acted in callous disregard of Midamar’s Fourth Amendment . . . rights. Brief in Support of Petition at 8. Second, Midamar contends that, “[w]ithout [the seized] funds, Midamar’s ability to conduct its business has been and will continue to be substantially diminished and harmed” and, thus, Midamar will be irreparably injured if the court does not order the government to release the funds. Id. at 9. Finally, Midamar argues that it “has no legal remedy to obtain the release” of the funds because the government has not initiated forfeiture proceedings. Id. at 11. Preliminarily, the court notes that there is an adequate remedy at law in this case—a claimant may petition the court to return the funds pursuant to 18 U.S.C. § 983(f), which

9

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 10 of 12

Midamar has done. The court will not exercise its equitable jurisdiction merely because it has denied relief under such statute. Even if § 983 were not an available means for relief in this case, the court would find no basis for exercising its equitable jurisdiction. The government abided by the requirements of the Fourth Amendment—it obtained a warrant before seizing the funds. Midamar contends that the government has demonstrated a “callous disregard of Midamar’s Fourth Amendment . . . rights,” Brief in Support of Petition at 8, by refusing to produce the affidavit and supporting testimony Judge Scoles relied on in issuing the warrant. Midamar, however, does not cite any authority, and the court is unaware of any authority, requiring the government to disclose the contents of an affidavit sealed pursuant to a court order.3 See October 16, 2012 Order (docket no. 7) (sealing seizure warrant affidavit). Accordingly, on these facts, the court cannot find that the government has shown a “callous disregard of the [F]ourth [A]mendment.” Matter of Search of 4801 Fyler Ave., 879 F.2d at 387. Furthermore, for the same reasons that the court found a lack of hardship, the court finds that Midamar has failed to establish irreparable injury. Finally, the court finds that, even apart from its § 983 petition, Midamar has an adequate remedy at law. Midamar will have the opportunity to contest any civil forfeiture the government may seek, and, additionally, if the government should institute criminal proceedings against Midamar, Midamar will have the opportunity to challenge the warrant in the form of a motion to suppress. See Matter of Search of 4801 Fyler Ave., 879 F.2d at 389 (“[S]hould criminal proceedings be instituted, [the claimant] will have an adequate remedy to challenge the search, namely a motion to suppress any evidence that has been improperly seized.”). To the extent Midamar is requesting that the court order the government to disclose the contents of the affidavit, the court declines to do so. After an in camera review of the seizure warrant affidavit, the court finds that granting such a request may compromise an ongoing investigation.
10
3

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 11 of 12

Therefore, the court shall deny the Petition to the extent it asks the court to exercise its equitable jurisdiction. C. Establishment Clause Next, Midamar argues that the court must quash the warrant because, according to Midamar, the government presumably intends to seek an indictment charging Midamar with fraud, and any fraud charges would require the court to define Halal, a religious term without an agreed-upon meaning, in violation of the Establishment Clause of the First Amendment of the United States Constitution. The court finds that such argument is unavailing. Midamar cites no authority in support of its contention that this is an appropriate basis to quash a warrant. Moreover, such an argument is premature. The government has not filed any charges against Midamar and, consequently, the court is without jurisdiction to consider the constitutionality of any potential fraud charges. See Minn. Pub. Utils. Comm’n v. FCC, 483 F.3d 570, 582 (8th Cir. 2007) (“A claim is not ripe for adjudication if it rests upon contingent future events that may not occur as anticipated, or indeed may not occur at all.” (quoting Texas v. United States, 523 U.S. 296, 300 (1998)) (internal quotation marks omitted)). Midamar is, of course, free to raise such an argument if and when the government files any charges. Thus, the court shall deny the Petition to the extent it asks the court to quash the warrant on First Amendment grounds. D. Due Process Finally, Midamar contends that “[t]he [g]overnment’s continued denial of Midamar’s access to its funds without providing Midamar an opportunity for a prompt and meaningful hearing, including a hearing on Midamar’s hardship request . . . , is also in direct violation of Midamar’s Fifth Amendment Due Process rights.” Brief in Support of Petition at 11-12. Notably, Midamar does not allege that the government has violated any statutory requirement for initiating a forfeiture proceeding. Under 18 U.S.C. § 983, the

11

Case 1:12-cv-00111-LRR Document 12 Filed 11/19/12 Page 12 of 12

deadline for the government to file a civil forfeiture complaint, or an indictment that includes a forfeiture allegation, has not yet passed. Moreover, the court held a hearing in this matter and Midamar had the opportunity to present evidence and argument in support of its hardship request. Given the government’s compliance with the applicable statutory procedures and the fact that the court held a hearing, the court finds that Midamar’s Due Process argument is without merit. Thus, the court shall deny the Petition to the extent it requests relief on Due Process grounds. V. CONCLUSION In light of the foregoing, the “Petition for Immediate Return of Seized Funds or in the Alternative to Quash Seizure Warrant” (docket no. 3) is DENIED. IT IS SO ORDERED. DATED this 19th day of November, 2012.

12

Sign up to vote on this title
UsefulNot useful