United States v. Castello, No. 09-2784 (2d Cir. 2010)

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09-2784-cr United States v. Castello 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2009 (Argued: May 11, 2010 Decided: July 7, 2010) Docket No. 09-2784-cr - - - - - - - - - - - - - - - - - - - -x UNITED STATES OF AMERICA, Appellant, - v.JOSEPH A. CASTELLO, Defendant-Appellee, MICHAEL VARRONE, RAMON CALVO, ROLF ANDERSEN, DANA SCHWARTZ CASTELLO, Defendants. - - - - - - - - - - - - - - - - - - - -x Before: JACOBS, Chief Judge, WINTER and McLAUGHLIN, Circuit Judges. Defendant-Appellee Joseph Castello was convicted in the 35 United States District Court for the Eastern District of New 36 York (Wexler, J.), after a jury trial, of failing to file 37 thousands of Currency Transaction Reports in the course of 38 running his check-cashing business, in violation of 31 1 U.S.C. § 5313(a). 2 district court fixed the amount at $12,012,924.31, plus his 3 equity in certain real property. 4 affirmed the conviction but vacated the forfeiture order and 5 remanded to the district court for further fact-finding as 6 to whether the forfeiture was unconstitutionally excessive 7 under United States v. Bajakajian, 524 U.S. 321 (1998). 8 9 Forfeiture was mandatory, and the On appeal, this Court On remand, the district court vacated the forfeiture order in the judgment and fixed the amount of forfeiture at 10 zero. 11 (or concede) the unconstitutionality of the original amount, 12 but argues that some amount of forfeiture is mandated. 13 14 On this appeal, the United States does not contest We now vacate the revised order and remand for the district court to reinstate the initial forfeiture order. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 DIANE LEONARDO BECKMANN (David C. James, Laura D. Mantell, on the brief), Assistant United States Attorney s Office for the Eastern District of New York, for Benton J. Campbell, United States Attorney for the Eastern District of New York, Brooklyn, New York, for Appellant. MURRAY E. SINGER, Law Office of Murray E. Singer, Great Neck, New York, for Appellee. 2 1 2 3 DENNIS JACOBS, Chief Judge: 4 United States District Court for the Eastern District of New 5 York (Wexler, J.), after a jury trial, of failing to file 6 thousands of Currency Transaction Reports ( CTRs ) in the 7 course of running his check-cashing business, in violation 8 of 31 U.S.C. § 5313(a). 9 district court fixed the amount at $12,012,924.31, plus his Defendant-Appellee Joseph Castello was convicted in the Forfeiture was mandatory, and the 10 equity in his house (the First Order ). 11 Court affirmed the conviction but vacated the First Order 12 and remanded to the district court for further fact-finding 13 as to whether the forfeiture was unconstitutionally 14 excessive. 15 On appeal, this On remand, the district court s Second Order fixed 16 the forfeiture amount at zero. 17 States does not contest (or concede) the unconstitutionality 18 of the original amount; instead, the government argues that 19 some amount of forfeiture is mandated. 20 21 This appeal by the United We now vacate the Second Order and remand for the district court to reinstate the First Order. 22 23 3 I 1 2 Castello s check-cashing business cashed more than $600 3 million in checks over the period of the indictment: January 4 1, 1995 to November 30, 2004. 5 § 5313(a) and 31 C.F.R. § 103.22(b), Castello failed to file 6 CTRs for thousands of these checks exceeding $10,000. 7 Checks in amounts exceeding $10,000 constituted about $200 8 million of the total. In violation of 31 U.S.C. 9 On March 9, 2006, a federal grand jury returned a 10 superseding indictment charging Castello with conspiracy to 11 launder money (18 U.S.C. § 1956(h)); failure to file CTRs 12 (31 U.S.C. § 5313(a)); unlawfully structuring financial 13 transactions (31 U.S.C. § 5324); conspiracy to impair, 14 impede, obstruct, and defeat the Internal Revenue Service 15 (18 U.S.C. § 371); tax evasion (26 U.S.C. § 7201); and 16 obstruction of justice (18 U.S.C. § 1512). 17 trial, Castello was acquitted of all charges except failure 18 to file CTRs. 19 Following a jury Forfeiture is mandatory for failure to file CTRs. 31 20 U.S.C. § 5317(c)(1)(A). The government sought forfeiture 21 of: $9,341,051.81 (which represented four percent of the 22 value of the checks exceeding $10,000 for which no CTRs were 4 1 filed)1 ; $2,671,872.50 (representing funds connected with a 2 Citibank account held in Castello s wife s name); and 3 Castello s equity in the family home in Greenwich, 4 Connecticut. 5 forfeiture on the grounds that the funds sought were not 6 involved in the offense and therefore were not subject to 7 forfeiture, and that in any event the amount of forfeiture 8 was grossly disproportional to the crime in violation of the 9 Excessive Fines Clause of the Eighth Amendment, as that Castello opposed the government s proposed 10 clause had been interpreted in United States v. Bajakajian, 11 524 U.S. 321 (1998). 12 By Memorandum and Order of September 17, 2007, the 13 district court concluded that the government s proposal 14 represents a proper amount subject to forfeiture because 15 it was properly representative of the fees earned by 16 Castello for cashing checks in excess of $10,000 for which 17 no CTRs were filed, and because the specific assets 18 identified are properly traceable to the crime. 19 States v. Castello, No. 04-336, 2007 WL 2778686, at *2 20 (E.D.N.Y. Sept. 17, 2007). United Separately, the court considered 1 Castello regularly charged a commission of between .75% and 5%. 5 1 the constitutionality of the forfeiture under Bajakajian and 2 held that it was fair, reasonable, and well-supported by 3 the evidence of record. 4 does not violate the Eighth Amendment. 5 Accordingly, the forfeiture sought Id. at *3. The First Order, entered September 25, 2007, imposed 6 forfeiture as sought by the government: $12,012,924.31, plus 7 the equity in the house. 8 statutory maximum of five years imprisonment, three years 9 supervised release, a $250,000 fine, and a $100 special 10 11 Castello was also sentenced to the assessment. Castello appealed his conviction and his sentence. The 12 conviction was affirmed by summary order. See United States 13 v. Castello, 308 F. App x 523 (2d Cir. 2009) (summary 14 order). 15 opinion. 16 Cir. 2009).2 17 forfeiture violated § 5317(c)(1)(A), Varrone, 554 F.3d at 18 330-31; it is therefore law of the case that the entire 19 amount deemed forfeitable in the First Order is properly 20 forfeitable under the statute. The forfeiture order was vacated in a separate See United States v. Varrone, 554 F.3d 327 (2d Varrone rejected Castello s argument that the 2 At the same time, Varrone Varrone also vacated the judgment s order of restitution, 554 F.3d at 335, but that issue is not before us on this appeal. 6 1 vacated the First Order and remanded, holding that the 2 findings were insufficient to test constitutionality: 3 4 5 6 7 8 9 10 11 12 13 [W]e lack an adequate factual record to determine whether the forfeiture ordered by the district court constitutes an excessive fine, and we therefore vacate the district court s order of forfeiture in the judgment and in its separate forfeiture order and remand to the district court to make factual findings regarding the four factors set forth in United States v. Bajakajian. Varrone, 554 F.3d at 328-29. On remand, the district court conducted a Bajakajian 14 analysis, held that the First Order cannot be upheld, 15 United States v. Castello, No. 04-336, 2009 WL 1505271, at 16 *2 (E.D.N.Y. May 21, 2009), and issued the Second Order, 17 which imposed no forfeiture at all. 18 The United States now appeals the Second Order. The 19 government does not concede (or contest) that the original 20 forfeiture amount was unconstitutionally excessive. 21 Instead, it argues that forfeiture in some (unspecified) 22 amount is mandatory. 23 24 II 25 We review the district court s legal conclusions de 26 novo and its factual findings for clear error. 27 524 U.S. at 337 n.10; United States v. Capoccia, 503 F.3d 7 Bajakajian, 1 2 103, 109 (2d Cir. 2007). The court in imposing sentence for any violation of 3 section 5313 --the statute Castello violated-- shall order 4 the defendant to forfeit all property, real or personal, 5 involved in the offense and any property traceable thereto. 6 31 U.S.C. § 5317(c)(1)(A) (emphases added). 7 amount of forfeiture, the statute thus affords no leeway: 8 All property involved in the failure to file CTRs is 9 forfeited as well as all property traceable to that offense. In fixing the 10 See Varrone, 554 F.3d at 330-31; United States v. Elfgeeh, 11 515 F.3d 100, 138-39 (2d Cir. 2008). 12 At the same time, this broad forfeiture provision is 13 limited by the Excessive Fines Clause of the Eighth 14 Amendment. 15 touchstone of the constitutional inquiry under the Excessive 16 Fines Clause is the principle of proportionality: The amount 17 of the forfeiture must bear some relationship to the gravity 18 of the offense that it is designed to punish. 19 The rule is that a punitive forfeiture violates the 20 Excessive Fines Clause if it is grossly disproportional to 21 the gravity of a defendant s offense. 22 rests on the defendant to show the unconstitutionality of See Bajakajian, 524 U.S. at 327-28. 8 Id. The Id. at 334. The burden 1 the forfeiture. 2 (1st Cir. 2007); United States v. Ahmad, 213 F.3d 805, 816 3 (4th Cir. 2000). 4 United States v. Jose, 499 F.3d 105, 108 Putting § 5317(c)(1)(A) and Bajakajian together: The 5 proper amount of forfeiture following a § 5313(a) conviction 6 is the total forfeitable amount required by the statute, 7 discounted by whatever amount is necessary to render the 8 total amount not grossly disproportional to the offense of 9 conviction. 10 Four factors, distilled from Bajakajian, guide our analysis: 11 12 13 14 15 16 17 18 19 Varrone, 554 F.3d at 331 (applying Bajakajian) (internal 20 quotation marks and brackets omitted). 21 factors work, it is useful to consider the Supreme Court s 22 approach in Bajakajian. 23 [1] the essence of the crime of the defendant and its relation to other criminal activity, [2] whether the defendant fit[s] into the class of persons for whom the statute was principally designed, [3] the maximum sentence and fine that could have been imposed, and [4] the nature of the harm caused by the defendant s conduct. To see how these Customs inspectors, using dogs trained to smell 24 currency, stopped Bajakajian as he awaited a plane to Italy 25 and advised him that under federal law anyone transporting 26 more than $10,000 in currency outside the United States must 9 1 file a report with the federal government. Bajakajian, 524 2 U.S. at 324. 3 his wife, $7000; but their bags contained over $350,000 in 4 cash. 5 failing to report, in violation of 31 U.S.C. § 5316, 6 5322(a). 7 forfeiture statute nearly identical to § 5317(c)(1)(A),3 the 8 district court determined that forfeiture of the whole 9 $350,000, as mandated by statute, would be grossly Bajakajian claimed that he had only $8000 and Id. at 324-25. Bajakajian was convicted of willfully Bajakajian, 524 U.S. at 325. Acting pursuant to a 10 disproportionate to the offense in question, and 11 accordingly limited the forfeiture to $15,000. 12 524 U.S. at 326 (internal quotation marks omitted). 13 Bajakajian, The Supreme Court affirmed, id. at 344, and its 14 analysis tracked the four factors listed above. 15 essence of [the defendant s] crime was a reporting 16 violation wholly unrelated to any other illegal activities. 17 The money was the proceeds of legal activity and was to be 18 used to repay a lawful debt. 19 defendant d[id] not fit into the class of persons for whom Id. at 337-38. 3 First, the Second, the The forfeiture statute at issue in Bajakajian was 18 U.S.C. § 982(a)(1), which provides for forfeiture of any property, real or personal, involved in such offense, or any property traceable to such property. 10 1 the statute was principally designed: He [wa]s not a money 2 launderer, a drug trafficker, or a tax evader. 3 Third, under the Sentencing Guidelines, the maximum 4 sentence that could have been imposed . . . was six months, 5 while the maximum fine was $5,000. 6 minimal level of culpability. 7 omitted). 8 caused was also minimal and only the government was 9 affected (and in a relatively minor way ): There was no 10 fraud on the government, and the public fisc suffered no 11 loss. 12 full forfeiture was unconstitutionally excessive.4 Id. at 338. Such penalties confirm a Id. at 338-39 (citations And fourth, [t]he harm that [the defendant] Id. at 339. For these reasons, the Court held that 4 The only issue before the Court in Bajakajian was whether full forfeiture violated the Excessive Fines Clause. Bajakajian, 524 U.S. at 339 n.11. The Court s affirmance of the $15,000 forfeiture reflect[ed] no judgment that a forfeiture of even $15,001 would have suffered from a gross disproportion, nor d[id] it affir[m] the reduced $15,000 forfeiture on de novo review. . . . Nor, indeed, d[id it] address in any respect the validity of the forfeiture ordered by the District Court. . . . [The defendant] did not cross-appeal the $15,000 forfeiture ordered by the District Court. The Court of Appeals thus declined to address the $15,000 forfeiture, and that question [wa]s not properly presented [to the Supreme Court] either. Id. A natural reading of Bajakajian suggests that a forfeiture of some amount greater than zero but less than the full amount required by statute is permissible, but the above-quoted language at least provides a caution before assuming what would otherwise seem obviously to be true. Cf. United States v. U.S. Currency in the Amount of $119,984.00, More 11 III 1 2 Applying Bajakajian here, it is clear that the Second 3 Order, imposing no forfeiture, must be vacated. The full 4 measure of forfeiture calculated in the First Order could be 5 limited, if at all, only by the Excessive Fines Clause. 6 Thus a forfeiture of zero would be proper only if a 7 forfeiture of even $1 would be grossly disproportional to 8 the offense of conviction, which is clearly not the case 9 here. As the ensuing sections explain, application of the 10 four Bajakajian factors establishes that the forfeiture 11 imposed in the First Order was not grossly disproportional 12 to the crime for which Castello was convicted. 13 we vacate the Second Order and remand for the district court 14 to reinstate the First Order. Accordingly, 15 16 17 A The first Bajakajian factor requires consideration of 18 the essence of the crime of the defendant and its relation 19 to other criminal activity. 20 (internal quotation marks and brackets omitted). Varrone, 554 F.3d at 331 Castello or Less, 304 F.3d 165, 175 n.7 (2d Cir. 2002) (stating, in dicta, that Bajakajian does not appear to bar forfeiture of some amount less than the entire sum ). 12 1 knowingly and willfully failed to file the CTRs, Castello, 2 308 F. App x at 524 ( Castello argues that the evidence 3 produced at trial was insufficient to prove the requisite 4 mental state, i.e., that he knowingly and willfully failed 5 to file CTRs for checks made out in amounts over $10,000. 6 We disagree. ), but--like Bajakajian--he was convicted of no 7 other crime. 8 weigh against the constitutionality of full forfeiture. 9 The Supreme Court determined that these facts In other ways, however, Castello s crime is far more 10 serious than Bajakajian s. 11 required CTRs thousands of times, and his doing so enabled 12 his customers to commit various acts of fraud, whereas 13 Bajakajian committed a single offense, once, for a purpose 14 that was not nefarious. 15 (noting the district court s finding of fact that the 16 defendant failed to report because of fear stemming from 17 cultural differences: [Defendant], who had grown up as a 18 member of the Armenian minority in Syria, had a distrust for 19 the Government (internal quotation marks omitted)). 20 Castello failed to file the See Bajakajian, 524 U.S. at 326 This first factor therefore weighs in favor of full 13 1 forfeiture.5 2 3 B 4 The second Bajakajian factor considers whether the 5 defendant fit[s] into the class of persons for whom the 6 statute was principally designed. 7 (brackets omitted). 8 intended to facilitate the government s efforts to uncover 9 and prosecute crime and fraud. Varrone, 554 F.3d at 327 The CTR statute is a reporting statute By forcing financial 10 institutions to [file CTRs], Congress hoped to maximize the 11 information available to federal regulatory and criminal 12 investigators. The overall goal of the statute was to 5 This first factor also considers how the offense of conviction may bear upon other criminal activity engaged in by the defendant. Accord United States v. Cheeseman, 600 F.3d 270, 284 (3d Cir. 2010); United States v. Browne, 505 F.3d 1229, 1282 (11th Cir. 2007). This inquiry seems sufficiently broad to include within it acquitted conduct. See Bajakajian, 524 U.S. at 338 (referring to any other illegal activities ); Varrone, 554 F.3d at 331 (referring to other criminal activity ). Cf. United States v. Vaughn, 430 F.3d 518, 527 (2d Cir. 2005) (explaining that a sentencing court has the authority, with some limits not relevant here, to find facts relevant to sentencing by a preponderance of the evidence, even where the jury acquitted the defendant of that conduct ). Our analysis does not consider these issues, however, because the First Order was constitutional regardless of whether the government proved other criminal activity by a preponderance of the evidence. 14 1 interdict the laundering of illegally obtained and untaxed 2 monies in legitimate financial institutions. 3 v. St. Michael s Credit Union, 880 F.2d 579, 582 (1st Cir. 4 1989); see also Cal. Bankers Ass n v. Shultz, 416 U.S. 21, 5 27 (1974) ( The absence of such records . . . was thought to 6 seriously impair the ability of the Federal Government to 7 enforce the myriad criminal, tax, and regulatory provisions 8 of laws which Congress had enacted. ). 9 statute expressly applies to a cashier of . . . checks, 31 United States Moreover, the CTR 10 U.S.C. § 5312(a)(2)(K), so Castello falls squarely within 11 the class of persons whose conduct the statute is intended 12 to regulate. 13 The district court recognized that Castello [clearly] 14 fits within the class of persons for whom this reporting 15 statute was designed, but afforded this factor only 16 neutral weight because Castello was not convicted of the 17 offenses that the statute aims to expose.6 6 Castello, 2009 The district court observed: To the extent that the statute seeks to punish third parties involved in different criminal activities, outside the scope [of] the original check cashing, the court holds that there is insufficient evidence to hold that this factor weighs in favor of Constitutionality. While the government charged Castello with the crimes of money laundering, tax evasion, and obstruction of justice, the jury did not convict Castello of these crimes. Castello, 2009 WL 1505271 at *2. 15 1 WL 1505271 at *2. 2 whether Castello was the kind of person to whom the statute 3 is directed--as he clearly is. 4 We disagree. The inquiry in this case is Castello draws an analogy to Bajakajian, which 5 concluded that the defendant did not fit into the class of 6 persons for whom the statute [31 U.S.C. § 5316] was 7 principally designed: He is not a money launderer, a drug 8 trafficker, or a tax evader. 9 True, Castello is not a money launderer, a drug trafficker, Bajakajian, 524 U.S. at 338. 10 or a tax evader; but his acts facilitated such conduct in 11 just the way the statute was designed to frustrate, while 12 Bajakajian, who was carrying his own earned money to use for 13 lawful purposes, was none of those things, and did not 14 facilitate such offenses. 15 16 Factor number two therefore weighs in favor of full forfeiture. 17 18 C 19 Third, Bajakajian considers the maximum sentence and 20 fine that could have been imposed. Varrone, 554 F.3d at 21 331. 22 but the applicable Guidelines are more indicative. Statutory penalties reflect severity in a general way, 16 In 1 Bajakajian, the maximum statutory sentence was five years 2 imprisonment and a $250,000 fine, which (as the Supreme 3 Court observed) suggests that [Congress] did not view the 4 reporting offense as a trivial one. 5 But since the Guideline penalty applicable to Bajakajian was 6 only six months imprisonment and a $5000 fine, id. at 338, 7 the level of culpability was found to be minimal, id. at 8 339. 9 sentence to which [the defendant] was subject were but a 10 fraction of the penalties authorized [by statute], the 11 disparity undercuts any argument based solely on the 12 statute, because [the Guideline sentence] show[s] that [the 13 defendant s] culpability relative to other potential 14 violators of the reporting provision--tax evaders, drug 15 kingpins, or money launderers, for example--is small 16 indeed. 524 U.S. at 339 n.14. Because the maximum [Guideline] fine and Guideline Id. at 339 n.14. 17 Here, the statutory maximum penalties are five years 18 imprisonment and a $250,000 fine, 31 U.S.C. § 5322(a); and 19 that is the sentence that Castello received. 20 observed, the statutory maximum fine was a small fraction of 21 the $12 million, so that the First Order raised a 22 constitutional issue. 554 F.3d at 332. 17 As Varrone But the relevant 1 metric is the top of the Guidelines for the fine and for 2 imprisonment; in this case, while the maximum Guidelines 3 fine may not exceed the statutory maximum, the Guidelines 4 range of imprisonment was far greater.7 5 Sentencing Proceedings at 13 (September 25, 2007) 6 (Castello s lawyer explaining that the guideline range from 7 the presentence report is obviously way beyond the five-year 8 maximum that the Court can impose for this conviction and it 9 is way beyond that five-year maximum because of the amount 10 of money involved. ); see also id. (noting that the five- 11 year statutory maximum was well below the guidelines 12 range ). 13 14 See Tr. of For these reasons, the third factor weighs in favor of full forfeiture. 15 16 7 Varrone considered only the statutory fine in arriving at its conclusion that this factor weighs against the constitutionality of full forfeiture. This observation was premised both on the Eleventh Circuit s decision in United States v. 817 Northeast 29th Drive, Wilton Manors, Florida, 175 F.3d 1304, 1309 n.9 (11th Cir. 1999), and on an ambiguity in Bajakajian itself, which refers to the maximum fine without clearly differentiating the statutory maximum from the Guidelines maximum. We consider this wrinkle for the first time in this opinion. 18 1 2 D Finally, Bajakajian invites an analysis of the nature 3 of the harm caused by [Castello s] conduct. Varrone, 554 4 F.3d at 331. 5 exists so that the government can track the flow of cash 6 transactions [and] these large amounts of cash are not 7 funneled into criminal activities. . . . 8 1505271 at *3. 9 that Castello was not convicted of involvement in [any As the district court said, the CTR statute Castello, 2009 WL The court added, however, that [t]he fact 10 other] crimes makes this factor weigh against a finding that 11 the forfeiture was Constitutionally proportionate to the 12 crime of which Castello was convicted. 13 Id. We disagree. Bajakajian was convicted of a single failure to report, 14 which affected only one party, the Government, and in a 15 relatively minor way. 16 States, and [the defendant] caused no loss to the public 17 fisc. 18 said here. 19 There was no fraud on the United Bajakajian, 524 U.S. at 339. The same cannot be Castello cashed thousands of checks in excess of 20 $10,000, totaling over $200 million, without filing the 21 required CTRs, and he did so knowingly and willfully. 22 Castello, 308 F. App x at 523. 19 Castello s refusal to file 1 CTRs helped his customers evade taxes, cash fictitious 2 checks, and commit securities fraud. 3 private parties as well as the federal government. 4 Ahmad, 213 F.3d at 816-17 (noting that the defendant 5 committed multiple reporting violations that harmed both the 6 federal government and private parties). 7 emphasizes, he was acquitted of tax fraud and the related 8 crimes with which he was charged; but his failure to file 9 the CTRs allowed others to commit crimes that, had he filed 10 the CTRs, the government could have prevented or prosecuted. 11 12 The victims included Cf. As Castello Accordingly, this final factor weighs in favor of full forfeiture. 13 CONCLUSION 14 15 The Second Order, imposing no forfeiture, is vacated. 16 We remand for the district court to reinstate the First 17 Order requiring forfeiture of $12,012,924.31 and the 18 defendant s equity interest in his home in Greenwich, 19 Connecticut. 20

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