Midamar v. US

IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF IOWA

CEDAR RAPIDS DIVISION

MIDAMAR CORPORATION,

Plaintiff, No. 12-CV-111-LRR

vs. ORDER

UNITED STATES OF AMERICA,

Defendant.

____________________

TABLE OF CONTENTS

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND . . . . . . . . 1

III. SUBJECT MATTER JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . 2

IV. ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

A. 18 U.S.C. § 983(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3B. Equitable Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8C. Establishment Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11D. Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

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.

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

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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.

1 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] isentitled 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 Midamarmay seek relief under § 983(f).

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Pursuant to 18 U.S.C. § 983(f), a court may order the immediate return of seized

property if five conditions are satisfied:

(A) the claimant has a possessory interest in the property;

(B) the claimant has sufficient ties to the community toprovide assurance that the property will be available atthe time of the trial;

(C) the continued possession by the Government pendingthe final disposition of forfeiture proceedings will causesubstantial hardship to the claimant, such as preventingthe functioning of a business, preventing an individualfrom working, or leaving an individual homeless;

(D) the claimant’s likely hardship from the continuedpossession by the Government of the seized propertyoutweighs the risk that the property will be destroyed,damaged, lost, concealed, or transferred if it is returnedto the claimant during the pendency of the proceeding;and

(E) none of the conditions set forth in paragraph (8)applies.

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 monetaryinstrument, or electronic funds unless suchcurrency or other monetary instrument orelectronic funds constitutes the assets of alegitimate business which has been seized;

(B) is to be used as evidence of a violation of thelaw;

2 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 setforth 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 AttorneySean R. Berry. See Letter, Exhibit B to Affidavit of Jalel Aossey (docket no. 3-2).

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(C) by reason of design or other characteristic, isparticularly suited for use in illegal activities; or

(D) is likely to be used to commit additional criminalacts 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). Midamar does not disagree with the

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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

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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.

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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 returnof seized property after an indictment has been issued. However, a motion prior to the filing of criminal charges ismore properly considered a suit in equity rather than one underthe Rules of Criminal Procedure. Matter of Search of 4801

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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 actionfor return of property based on the general equitablejurisdiction 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 allowMidamar to review the affidavit(s)/recordedtestimony—something which is necessary for Midamar toassess whether the [g]overnment even had probable cause tojustify the seizure of its funds in the first place—the[g]overnment has clearly acted in callous disregard ofMidamar’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

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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.”).

3 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 camerareview of the seizure warrant affidavit, the court finds that granting such a request maycompromise an ongoing investigation.

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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

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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.

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Midamar v. US

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