Obtaining Legal Fees From Restrained Assets and New York County's "Legitimate Source" Requirement Under CPLR § 1312 (4)

             Pursuant to Article13-A of the CPLR, prosecutors in New York State increasingly use civil forfeiture, in conjunction with criminal prosecution, to “take the profit out of crime.”

            New York state civil forfeiture actions often start with the filing of a motion (usually by order to show cause) for an order of attachment pursuant to CPLR § 1312 and a temporary restraining order, pursuant to CPLR § 1316. When that happens, the defendant’s assets are “frozen” and a defendant must apply to the court to release some of the assets to pay legal fees.

            The court may grant an application for a provisional remedy, such as attachment, when the following three elements exist:

                        i.          There is a substantial probability that the Claiming Authority will prevail on the issue of forfeiture;

                        ii.          Failure to enter the order may result in the property being destroyed, removed from the jurisdiction of the court, or otherwise be unavailable for forfeiture; and

                         iii.          The need to preserve the availability of the property through the entry of the requested order outweighs the hardship on any party against whom the order may operate.

See CPLR 1312 (3)(a).

            These and other procedural safeguards found in Article 13-A are constitutionally required to satisfy minimum procedural due process requirements. See Morgenthau v. Citisource, 68 N.Y.2d 211,222, 508 N.Y.S.2d 152, 157, 500 N.E.2d 850 (1986) (“we conclude that the procedures provided in article 13-A satisfy minimum procedural due process requirements”).

            Courts have also held that the statutes authorizing attachment of a defendant’s assets must be construed strictly. See Brown v. Ryvkin, 78 A.D.3d 981, 983, 913 N.Y.S.2d 673, 675 (2d Dep’t 2010) (“’Because attachment is a harsh remedy, courts have strictly construed the statute in favor of those against whom it may be employed’” (Kornblum v. Kornblum, 34 A.D.3d 748,749, 828 N.Y.S.2d 404 (2d Dep't 2006)).

            In Morgenthau v. Citisource, 68 N.Y.2d211, 219, 508 N.Y.S.2d 152, 155, 500 N.E.2d 850 (1986), the Court of Appeals held that:

In order for the court to grant a provisional remedy, it must determine that there is a substantial probability that the claiming authority will prevail on the issue of forfeiture, that failure to enter the order may result in the property being destroyed, removed from the jurisdiction of the court or otherwise unavailable for forfeiture and that the need to preserve the availability of the property through the entry of the requested order outweighs the hardship on any party against whom the order may operate (CPLR 1312 (3)).

(emphasis supplied).

            CPLR § 1312 (3)(b) requires the court to consider whether “the need to preserve the availability of the property through the entry of the requested order outweighs the hardship on any party against whom the order may operate.”

            The Court of Appeals has specifically held that a defendant’s constitutional right to hire counsel of his choice is a “hardship” that the court must consider in weighing the need for a provisional remedy against the defendant. See Morgenthau v. Citisource, 68 N.Y.2d 211, 223, 508 N.Y.S.2d 152, 158, 500 N.E.2d 850 (1986) (“the statutory scheme of article 13-A adequately addresses this potential problem [of the defendant’s ability to hire counsel of his choice] by expressly requiring the claiming authority to prove that the need for the provisional remedy outweighs the hardship on any party against whom the order may operate”).

            New York courts recognize a broad constitutional right to counsel, which includes the defendant’s right to retain “counsel of his own choosing.” See People v. Arroyave, 49 N.Y.2d 264, 270, 425 N.Y.S.2d 282, 286, 401 N.E.2d 393 (1980) (“As a necessary corollary to this right, a defendant must be accorded a reasonable opportunity to select and retain his counsel.”); see also People v. Martinez, 151 Misc. 2d 641,574 N.Y.S.2d 467 (S.Ct. New York County 1991) (discussing New York’s right to counsel of choice in the context of Article 13-A).

1.     CPLR § 1312 (4) Authorizes The Release Of Funds For Attorney’s Fees And Living Expenses

            In order to protect a defendant’s constitutional right to counsel of his choice, the legislature enacted CPLR § 1312 (4), which authorizes the court to issue an order modifying or vacating any provisional remedy to permit the moving party to obtain funds for the payment of “bona fide attorney’s fees and expenses for the representation of the defendant in the forfeiture proceeding or in a related criminal matter relating thereto, payment for which is not otherwise available from assets of the defendant which are not subject to such provisional remedy.” (emphasis supplied). This section became effective on November 1, 1990.

            At least one court in New York County has strongly condemned the state’s practice of restraining a defendant’s assets in a manner that denies him the constitutional protections necessary to protect his right to counsel of his choice. See People v. Martinez, 151 Misc. 2d 641, 650, 574 N.Y.S.2d 467, 475 (S.Ct. New York County 1991) (noting that a state prosecutor’s attempt to “subvert” Article 13-A’s exemption of reasonable attorney’s fees from forfeiture proceedings, may result in “sanctions up to and including dismissal of the state prosecution unless provisions are made to satisfy New York State’s constitutional requirements.”).

2.     The “Legitimate Source” Rule For Attorney’s Fees In New York County

            In New York County, all cases seeking forfeiture of criminal proceeds or other remedy pursuant to Article 13-A of the CPLR are assigned to a single Justice, the Honorable Martin Shulman. See New York State UnifiedCourt System – Assignments and Case Management. Therefore, it is important for anyone involved in a civil forfeiture case in New York County to be fully familiar with Justice Shulman’s published Decisions & Orders.

            When it comes to the release of funds to pay for attorney’s fees under CPLR § 1312 (4), Justice Shulman has repeatedly held that money for attorney’s fees must be from a “legitimate source.” See, e.g., Vance v. Flouras, 2013 N.Y. Misc. LEXIS 1871 *5-6, 2013 NY Slip Op30957(U) (S.Ct. New York County 2013) (Shulman, J.S.C.) (“Consistent with its prior rulings, this court agrees that the escrowed funds cannot be released to pay [the defendant’s] attorney’s fees because he fails to establish that they are derived from a legitimate source.”); see also Vance v. Aglialoro, 2014 N.Y. Misc.LEXIS 2172 *16, 2014 NY Slip Op 31240(U) (S.Ct. New York County 2014) (Shulman,J.S.C.) (requiring defendant to provide “supporting documentation of the source of his funds”).

            A Westchester County case from 1989 (the year before §1312 (4) was enacted) also held that assets seized under Article 13-A may only be released to pay attorney’s fees upon a showing of “a legitimate derivation for the money.” See Vergari v. Lockart, 144 Misc. 2d 860, 545 N.Y.S.2d 223 (S.Ct. Westchester County 1989).

            In Flouras, the defendants moved under CPLR§ 1312 (4) for the release of restrained assets to pay past and future legal fees in the forfeiture action and in the underlying criminal action. The People opposed the motion, inter alia, on the ground that the defendants had not demonstrated a “legitimate source” of the money. The defendants argued that CPLR § 1312 (4) does not contain a requirement that the defendant establish that the funds sought to be released were unrelated to any criminal activity.

            Although the court acknowledged that “CPLR §1312 (4) does not expressly require such a showing,” it ultimately relied on Corporacion Nacional del Cobre de Chile v. Orrego Hirsch, 242 A.D.2d 183, 673 N.Y.S.2d 681 (1st Dep’t 1998) to conclude that “’there is no constitutional right in criminal cases for a defendant to spend someone else’s money for his defense.” Flouras, 2013 N.Y. Misc. LEXIS 1871 at *6.

            Corporacion Nacional, however, was not a civil forfeiture case brought under Article 13-A and the defendants were not seeking the release of funds to pay for legal fees in a related criminal matter, which would have implicated constitutional right to counsel issues, under both the United States and New York State constitutions. Instead, the Corporacion Nacional defendants sought the release of restrained assets to pay counsel in a civil case. In Corporacion Nacional, the First Department relied on Caplin & Drysdale v. United States, 491 U.S. 617, 109 S. Ct.2646, 105 L. Ed. 2d 528 (1989) to conclude that since the United States Supreme Court had held that criminal defendants did not have a Sixth Amendment right to spend ill-gotten funds for attorney’s fees, “A fortiori, defendants herein do not have a constitutional right to hire counsel in a civil case.” Corporacion Nacional, 242 A.D.2d at 185,673 N.Y.S.2d at 683.

            There does not appear to be any appellate decision or other controlling authority that requires a defendant in a civil forfeiture action to prove that funds for attorney’s fees must be from a “legitimate source,” under § 1312 (4). On the other hand, at least one other court has explicitly disagreed with the “legitimate source” requirement imposed in New York County.

            In Schneiderman v. Costa, et al., Index No. 00682-2012 (S.Ct. Suffolk County 2014), New York State Supreme Court Justice John B. Collins issued a decision and order in which the court explicitly declined to adopt Justice Shulman's decision in Flouras.

As the court stated in Costa:

This Court declines to adopt the position asserted by the Attorney General, and articulated in the New York City trial decision Vance v. Flouras, Index No. 4021-12 (Sup. Ct. NY Cty, May 1, 2013), which requires that the defendants prove the attached funds/assets are derived from a ‘legitimate source.’³ The Court finds that this additional ‘hurdle’ does not apply, as there is no indication that the legislature intended to add such a requirement and there is no appellate authority requiring same. The statute itself and controlling case law are very clear with respect to the requirement to release said funds.

(footnote omitted, citing to the treatise “New York Criminal and Civil Forfeitures,” §4.12 by Steven L. Kessler). See Costa at page 5. In Costa, the court ordered the release of $300,000 for legal fees in a pharmaceutical diversion case.

            Until there is resolution by the appellate courts, different standards will be applied to motions for the release of funds pursuant to § 1312 (4).