Can the Government Seek Forfeiture of a Criminal Defense Attorney’s Fees? (Part 1)

March 27, 2020

Currency.By Sara Kropf

The Department of Justice’s Justice Manual (formerly the U.S. Attorney’s Manual) includes a section that describes “Attorney Fee Forfeiture Guidelines.” Although technically not binding on anyone, the guidelines offer a helpful understanding of when and how DOJ might try to forfeit your client’s fees.

Why Lawyers Are in a Bind

DOJ recognizes that there are policy limitations on the application of federal forfeiture law to attorney’s fees. Normally, if DOJ tries to seize a third party’s assets, the third party can assert rights to reclaim the assets. As part of that process, though, the third party would explain how the asset came into her possession and why the third party did not know that the asset was subject to forfeiture.

That’s easy if you are an arm’s length purchaser of real estate. It’s a lot more challenging if you are the lawyer. You almost certainly would need to disclose privileged information in that process.

Section 9-120.100 of the Justice Manual concedes that fact. DOJ recognizes that it is difficult for lawyers to meet this standard “without hampering their ability to represent their clients.” Therefore,

it is the policy of the Department that application of the forfeiture provisions to attorney’s fees be carefully reviewed and that they be uniformly and fairly applied.

That policy sounds good, but what does it really mean?

In sum, it means that, yes, DOJ can seek to forfeit fees paid to you by a client, but it has to jump through a fair number of hoops to do so.

DOJ Must Notify You in Writing

If the Department seeks to forfeit your fees, it will give you written notification of its intent to do so. The guidelines say that “such notice should be given only in extraordinary cases and may not be given without the approval of the Assistant Attorney General, Criminal Division.” (Section 9-120.111)

Your local U.S. Attorney’s Office cannot authorize seizure of attorney’s fees. The fact that this type of seizure needs such high approval, similar to the approval needed to authorize a search warrant for a lawyer’s office, means that these requests will be few and far between.

When Can Attorney’s Fees Be Seized?

The guidelines offer three standards for forfeiture of legal fees (Sections 9-120.102 to 9-120.104). Below is a handy-dandy chart summarizing them.

Forfeiture photo

PRO TIP: Track your time and establish a standard hourly rate so that you can show that the fee received was related to the work performed.

What Exactly Does “At the Time of the Transfer” Mean?

For DOJ, the timing of a lawyer’s knowledge about the forfeitability of an asset matters. (Section 9-120.106)

The guidelines say that if an asset is transferred to an attorney to be held in trust for the defendant, the relevant time period to judge the attorney’s knowledge is “the time at which the attorney renders the service and becomes entitled to the asset.”

This is simple if the lawyer is billing by the hour, since a lawyer is “entitled to the asset” when the work is done. But flat fees and retainers are a bit different.

When a lawyer first receives a retainer or a flat fee—at the start of the case—the lawyer doesn’t know very much. It would likely be impossible for the lawyer to know that the money received as a retainer is subject to forfeiture.

But, in DC at least, a flat fee is “earned” not at the start of the case but along the way (as decided by the lawyer and client in the engagement letter). Part of your fee may not be earned until trial begins or until the trial ends. The lawyer will have a lot more information then.

PRO TIP: The earlier a flat fee is “earned,” the harder it may be for the government to prove that the lawyer had “actual knowledge.” But, be mindful of the rules of professional conduct—you can’t simply “earn” a fee at the start of a case.

What Does It Mean to Have “Actual Knowledge” if an Asset Is Forfeitable?

DOJ concedes that the actual knowledge standard (criminal cases) is higher than the “reasonable cause to know” standard (civil cases), noting that “the quantum of evidence required to establish reasonable cause to know will be substantially less than that needed to establish actual knowledge.” (Section 9-120.110)

DOJ takes the position that the actual knowledge standard means that the lawyer must have actual knowledge that “the particular asset he/she received was subject to forfeiture.” Knowing that some of your client’s assets are subject to forfeiture or some of your client’s assets are proceeds of criminal misconduct is not enough. (Section 9-120.107)

The guidelines do try to define when a lawyer has actual knowledge. (Sections 9-120.108 and 9-120.109)

(a) When the government had asserted that the particular asset given to the lawyer is subject to forfeiture, or

(b) the particular asset given to the lawyer is from criminal misconduct.

When do you know when the government has asserted that a particular asset is subject to forfeiture? It’s not enough that there is a general forfeiture allegation in an indictment. (Thank goodness, because that is a  standard count to include in almost any white-collar criminal case.)

If, however, the indictment alleges that your client’s neon orange Ferrari is subject to forfeiture, and your client gives you his neon orange Ferrari in return for your legal services, then you better watch out. You have actual knowledge.

You should also watch out because you look like an idiot driving that car.

What about the second standard—that you know the fees are proceeds of criminal conduct?

The guidelines offer an example: the indictment alleges that “all profits and proceeds, including $200,000” are subject to forfeiture. If you know that the government has already restrained $200,000 from your client, then you can feel fairly comfortable accepting the fee from your client. The government can only prove that $200,000 is forfeitable and that has already been forfeited. So the money used to pay your fee is not forfeitable. (Section 9-120.109)

Of course, DOJ leaves itself some wiggle room here. The guidelines explain that even if there were no order restraining a particular amount of cash, then “circumstantial evidence may establish that the attorney had actual knowledge that the fee was paid from the proceeds of criminal misconduct.”

If the fees were paid “in a manner suggesting that it was the proceeds of drug trafficking,” then this may lead to the conclusion that the fees were from criminal misconduct.

(HALF-JOKING) PRO TIP: Do not accept fees in cash that have white powder on it.

Seriously, though, in a white-collar case, my clients have legitimate jobs. They have a salary and savings accounts and investment funds to draw upon. A wire transfer from a client to me is not going to meet this standard.

(REAL) PRO TIP: Accept your fees in a standard way that creates a paper trail. Ask for a check or a wire transfer. Cash is . . . just . . . dangerous.

Whatever we learn from our clients about the source of a fee is privileged. It would be extremely difficult for the government to obtain that information. But you should still be careful and do your diligence. Understand the source of the fee. Some lawyers include a statement in their engagement letter that the fee is not from criminal conduct. (BUT SEE the following post about what discovery may be allowed—the government may be able to obtain your engagement letter, including this representation.)

In the next post, we’ll discuss how DOJ could seek discovery. Yes, you may have to disclose your engagement letter.

Published by Kropf Moseley

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