In May of last year we highlighted the decision by the United States Attorney for the Eastern District of North Carolina to dismiss a forfeiture case he’d brought against Lyndon McLellan, the owner of a small convenience store located in rural Fairmont, North Carolina. See, here. Originally, the Federal Government sought to forfeit more than $107,000 seized from Mr. McLellan’s business – L&M Convenient Mart – because the store’s cash deposits had allegedly been structured in an effort to avoid the filing of Currency Transaction Reports (CTRs) which are generated when one engages in a cash transaction with a bank where the total exceeds $10,000.
As the result of a change in the policy of the Department of Justice regarding structuring cases, the United States Attorney moved to dismiss the case seeking to forfeit Mr. McLellan’s money last May. But, the Government refused to make Mr. McLellan whole by paying his attorney’s fees. And, Mr. McLellan refused to back down quietly. He continued to insist that the Government pay the more than $20,000 in legal fees generated as part of his effort to get his money back. On February 2, Judge James C. Fox, Senior United States District Judge for the Eastern District of North Carolina, preserved McLellan’s right to seek attorney fees.
Mr. McLellan’s perseverance is unique and laudable, and it gives hope to those whose property and assets are wrongly seized by a Government unable or unwilling to prove its case in court. According to documents filed as part of the litigation, Mr. McLellan grew up working in his parents’ convenience store in Robeson County, North Carolina. In 2001 Mr. McLellan purchased his own store in Fairmont and expanded it to include a restaurant, lunch counter, walk-in-cooler, and long isles of packaged goods. He works long hours, often seven days a week, and rarely takes any type of vacation. The Government’s seizure of his cash risked the very existence of his company.
Because of his relatively poor education (according to his own court filings), Mr. McLellan relies upon a family member to handle the banking and finances of his business. In 2014, after documenting more than 300 deposits that appeared to violate the Federal structuring laws, the United States Attorney filed a Complaint for Forfeiture In Rem seeking to forfeit all of the cash in Mr. McLellan’s accounts as part of the Government’s investigation into the allegedly structured deposits. The complaint relied upon the sworn testimony of an IRS task force agent and was filed a little more than two months after the IRS itself changed its policy and announced it would no longer seize assets in cases in which the only violation of the law was a structuring offense. Nevertheless, the IRS and the United States Attorney went forward against Mr. McLellan and his store.
In March of 2015 the Department of Justice followed the IRS’s lead and announced it would not proceed in Civil Asset Forfeiture cases where the only provable violation was a structuring offense. But, rather than dismissing the McLellan case at the time of the policy shift, the United States Attorney filed his First Amended Complaint on April 30, 2015. In other words, he renewed his pursuit of Mr. McLellan’s money.
Throughout the pendency of the case, Government attorneys repeatedly made Mr. McLellan “generous” offers to settle his case for a portion – usually around 50% - of the funds seized. But, Mr. McLellan consistently refused and said he would litigate the matter. Facing inquiries from Congress and a media and public outcry, the United States Attorney moved to dismiss the Complaint in May of last year.
The Government moved to dismiss the Complaint without prejudice in a thinly veiled effort to preserve its right to avoid the attorney’s fees provisions in 28 U.S.C. § 2465(b)(1). Again, Mr. McLellan balked. Where many litigants would walk away relieved that the Government had dropped the case, Mr. McLellan asked that he be reimbursed for the cost associated with his defense. Ultimately, in its February 2nd Order, the District Court allowed him the right to pursue that claim. See, here.
In his Order, Judge Fox refused to allow the Government to walk away “without prejudice.” Denying the Government’s motion to dismiss as filed, he ordered the matter dismissed with prejudice and acknowledged that Congress included a provision for the award of attorney’s fees to address “the harsh realities of civil forfeiture practice, [and] sought to lessen the blow to innocent citizens who have had their property stripped from them by the Government. . . . [And] the court [declined] to discard lightly the right of a citizen to seek the relief Congress has afforded.” Id. at 7.
In our May news alert we advised that the Justice Department will continue to pursue asset forfeiture matters and that its pursuit poses continuing risks to individuals and businesses across the country. The Government’s decision to pursue Mr. McLellan, and to do so in the face of its own policy changes, underscores our concern. But, orders like the one issued by Judge Fox provide some after-the-fact protection and preserve the right to seek redress in Court with the Government paying the costs if it loses.
