Monday, July 25, 2016

The Gaming Control Board, Fraud and the Motion for Return of Property

This post examines an opinion from the U.S. District Court for the District of Nevada:  U.S. v. Kane, 2016 WL 1411353 (2016).  The judge begins her opinion by explaining how, and why, the prosecution arose:
On January 19, 2011, Kane and his co-defendant were indicted on two counts of conspiracy to commit wire fraud and fraud in connection with computers. . . . The indictment also contains four forfeiture allegations involving `any property which constitutes or is derived from proceeds traceable to’ the offenses charged in the indictment, seeking `an in personam criminal forfeiture money judgment up to $1,500,000.00.’ . . . The indictment alleges that, from about April 2009 to September 2009, Defendants devised a way to exploit video poker machines to defraud casinos, which involved changing the playing credits to a higher denomination, accessing the previous winning hand of cards that were wagered at the lowest denominations, and triggering a jackpot without playing or paying at the higher denomination. . . .

According to Kane, on July 3, 2009, after he won a $10,000 jackpot at the Silverton Hotel and Casino (`Silverton’) and before he could be paid, Gaming Control detained him for allegedly committing the fraud asserted in count 2 of the indictment. . . .

At the time, he had $27,000 in his pocket (`the Property’) and approximately $1,200 in credit on the machine he was playing, which Gaming Control cashed out. . . . Gaming Control seized the Property and cash `as evidence.’ . . . A criminal action was initiated in Las Vegas Justice Court, where Kane made this initial appearance on September 1, 2009 (`State Case’). . . . The State Case was subsequently dismissed in January 2011, when the Government filed a complaint and the indictment was issued in this case. . . .  Kane contends that the Property belongs to him and was not part of the proceeds of any alleged fraud. . . .
U.S. v. Kane, supra.
The opinion then takes up the “procedural history” of the case, explaining that
[i]n October 2012, in response to Defendants' motions to dismiss, the Magistrate Judge recommended dismissal of counts 2 and 3 of the indictment. . . . The Government initially objected but subsequently moved to dismiss these two counts. . . . The Government later moved to dismiss the remaining conspiracy count without prejudice. . . .  Both motions were granted. . . . The Court issued the final dismissal order on November 25, 2013. . . .

Over a year later, on June 10, 2015, Kane filed a motion for return of property taken by Gaming Control and FBI agents. . . . In its response, the Government indicated it would return items seized by the FBI, excluding the money seized by Gaming Control. (Dkt. no. 124 at 1.) At the hearing on the motion, the parties advised the Magistrate Judge that the matter was resolved . . . accordingly, the Magistrate Judge denied the motion without prejudice. . . .
U.S. v. Kane, supra.
Motions for the return of property taken by the government as part of a criminal investigation are authorized by Federal Rules of Criminal Procedure Rule 41(g), which provides that
[a] person aggrieved by an unlawful search and seizure of property or by the deprivation of property may move for the property's return. The motion must be filed in the district where the property was seized. The court must receive evidence on any factual issue necessary to decide the motion. If it grants the motion, the court must return the property to the movant, but may impose reasonable conditions to protect access to the property and its use in later proceedings.
Getting back to the District Court Judge’s opinion, it goes on to explain that
Kane's counsel subsequently contacted Gaming Control for the return of the Property. . . . In a letter dated July 31, 2015, Gaming Control informed Kane that he had `thirty (30) days to file a written claim with the State Gaming Control Board (Board) for return of the evidence seized in the above-referenced matter [the State Case].’ . . . The letter also outlines the procedures for resolving any disputed claims to the seized Property pursuant to Nevada Revised Statutes § 465.110. . . . Kane responded to assert a claim to the Property, as did Silverton. . . . The Government asserts no claim to or interest in the Property. . . .

On August 17, 2015, Kane filed a second motion for return of property, seeking a return of the Property (`the Motion’). . . . After a hearing on the Motion, the Magistrate Judge issued the [Report & Recommendation] to which Kane now objects.
U.S. v. Kane, supra. 
As this site explains, a U.S. District Court Judge, like the judge who has this case, can refer certain matters to a U.S. Magistrate Judge, which means the Magistrate Judge will take steps to do what he or she needs to do to draft a Report & Recommendation that will recommend that the District Court Judge take certain action, such as granting or denying a motion for return of property.  The District Court Judge should review the recommendation(s) the Magistrate Judge makes in the R&R and either accept them, and the action predicated on them, or reject both.
Getting back to the opinion, the District Court Judge begins her analysis of the issues raised by the Magistrate Judge’s recommendation by explaining that the parties to this litigation
do not address the standard of review of the Magistrate Judge's recommendation. The Magistrate Judge issued an R&R because the ruling is equivalent to an order of dismissal for lack of jurisdiction, which is dispositive and may not be finally determined by a magistrate judge. . . . This Court `may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.’ 28 U.S.Code § 636(b)(1).  Where a party timely objects to a magistrate judge's report and recommendation, then the court is required to `make a de novo determination of those portions of the [report and recommendation] to which objection is made.’ 28 U.S. Code § 636(b)(1).   In light of Kane's objection, the Court will engage in a de novo review to determine whether to accept the Magistrate Judge's R&R.
U.S. v. Kane, supra. 
The District Court Judge went on to explain that the Magistrate Judge recommends that
the Court decline to exercise jurisdiction over Kane's Motion and deny the Motion without prejudice to Kane, which would allow him to pursue recovery of the Property under state law. . . . Kane contends that the Magistrate Judge is right on the law but wrong in its application. . . . The gist of Kane's argument is that because the Property was seized as `evidence’ in this case, and because the Government sought its forfeiture in this action, the Property has a nexus to this case, not the State Action. Kane also raises arguments that go to the merits of his Motion. However, because the Court agrees with the Magistrate Judge's recommendation to decline to exercise equitable jurisdiction, the Court does not address the merits of the Motion.
U.S. v. Kane, supra. 
She goes on to explain that Kane is seeking a return of
the Property pursuant to Rule 41(g) of the Federal Rules of Criminal Procedure. Rule 41(g) provides for `[a] person aggrieved by an unlawful search and seizure of property or by the deprivation of property [to] move for the property's return.’ Rule 41(g).  While Rule 41(g) is generally used to facilitate the return of seized property after an indictment has been filed, `district courts have the power to entertain motions to return property seized by the government when there are no criminal proceedings pending.’ Ramsden v. United States, 1 F.3d 322, 324 (U.S. Court of Appeals for the 9th Circuit 1993) (referencing Rule 41(e), as amended in 1989, which addressed motions for return of property). Such motions, however, `are treated as civil equitable proceedings and, therefore, a district court must exercise ‘caution and restraint’ before assuming jurisdiction.’ Id. (quoting Kitty’s East v. United States, 905 F.2d 1367, 1370 (U.S. Court of Appeals for the 10th Circuit 1990)).
U.S. v. Kane, supra. 
The opinion then explains that
[t]o ensure that the district courts refrain `from exercising their equitable jurisdiction too liberally,’ the Ninth Circuit, like other circuit courts, has adopted four factors for the district court to consider in deciding the threshold question of jurisdiction. Ramsden v. United States, suprasee United States v. Comprehensive Drug Testing, Inc., 513 F.3d 1085, 1103 (U.S. Court of Appeals for the 9th Circuit 2008) (noting that the district court may exercise equitable jurisdiction to entertain a Rule 41(g) motion only after analyzing the four-factor test articulated in Ramsden). `These factors include: 1) whether the Government displayed a callous disregard for the constitutional rights of the movant; 2) whether the movant has an individual interest in and need for the property he wants returned; 3) whether the movant would be irreparably injured by denying return of the property; and 4) whether the movant has an adequate remedy at law for the redress of his grievance.’ Ramsden v. United States, supra. If the `balance of equities tilts in favor of reaching the merits’ of a Rule 41(g) motion, the district court should exercise its equitable jurisdiction to entertain the motion. Ramsden v. United States, supra.
U.S. v. Kane, supra. 
The District Court judge went on to explain that she
agree[d] with the Magistrate Judge that a balance of these factors counsels against reaching the merits. The Court accordingly declines to exercise equitable jurisdiction. The first factor—whether the Government has demonstrated a callous disregard for Kane's constitutional rights—is at best neutral. There is no dispute that the Government did not seize the Property, did not take actual possession of the Property after the initiation of this case, and does not claim an interest in the Property. At the hearing before the Magistrate Judge, the Government suggested that because the Property was not seized pursuant to a federal warrant, the Court should allow the dispute to be resolved through the process established under state law. . . . Kane insists that the Government's contention, if accepted, would allow the Government to abdicate responsibility any time the Government works with state or local agencies. . . .

The Court need not resolve these hypothetical scenarios because evaluation of the first factor is necessarily fact specific. The Property was seized as `evidence’ by Gaming Control in the State Action, which was initiated and only dismissed after the complaint was filed and the indictment returned in this case. The Property was not seized by any agency of the federal government. And Kane did not seek a return of the Property when the State Action was dismissed—he even failed to inquire as to the status of the Property at the time. Kane further argues that the Government in this case sought to forfeit the very Property that the Government claims it did not possess. . . .

However, as the Government aptly points out, the forfeiture allegations are for a general `criminal forfeiture money judgment up to $1,500,000.00’ . . ., not for forfeiture of the Property in particular. . . .  This distinction makes a difference in the Court's evaluation of the callousness of the Government's action under the first factor.
U.S. v. Kane, supra. 
The District Court Judge then went on to parse the remaining factors courts consider in deciding whether to exercise equitable jurisdiction:
There is no dispute that Kane has an interest in the return of the Property, which is a substantial sum of money. The second factor thus favors the exercise of equitable jurisdiction.

However, the third and fourth factors counsel against the exercise of equitable jurisdiction. Kane will not suffer irreparable injury because he has an adequate remedy under state law. In fact, Gaming Control has informed Kane of the process for resolving disputed claims to seized evidence as established in Nevada Revised Statutes § 465.110(2)(b). Section 465.110(2) provides, in pertinent part, that `evidence seized by an agent of the [Gaming Control] Board which does not result in a complaint charging a violation of the law and evidence for which an order of disposition is not entered pursuant to subsection 1 [addressing disposal of evidence]’ must be resolved pursuant to an established process. . . . First, Gaming Control must notify potential claimants of their right to file—and their deadline for filing—a claim, which it has done here. Nevada Revised Statutes § 465.110(2)(a). Where more than one claimant asserts a claim, the dispute must be resolved pursuant to the following process: (1) the claimants may agree on how to divide the evidence, subject to Gaming Control's approval; (2) the claimants may submit the dispute to binding arbitration; or (3) Gaming Control may interplead the evidence. Nevada Revised Statutes § 465.110(2)(b)(1)-(3).  This process has been initiated in this case, thus giving Kane an adequate remedy to pursue a return of his claimed property.

Kane argues that the process established in subsection 1, not subsection 2, of Nevada Revised Statutes § 465.110 applies. . . . Subsection 1 provides that `[a]fter the final adjudication of . . . any other complaint involving the seizure of evidence by an agent of the Board, the court may enter an appropriate order disposing of all physical evidence pertaining to the complaint.’ Nevada Revised Statutes § 465.110(2)(a). But the complaint in the State Action was not adjudicated; it was dismissed when federal charges were filed. More important, even assuming that dismissal of the State Action amounts to a `final adjudication,’ Kane's remedy is to seek relief from the court in the State Action pursuant to Nevada Revised Statutes § 465.110(1).

In sum, `the balance of the equities tilts’ against reaching the merits of Kane's request under Rule 41(g). . . .The Court must therefore `exercise ‘caution and restraint,’ and refrain from exercising equitable jurisdiction to entertain Kane's Motion. . . .
U.S. v. Kane, supra. 
The Judge therefore ordered that
the Magistrate Judge's Report and Recommendation . . . is adopted in full. Kane's objection to the R&R . . . is overruled. The Court declines to exercise equitable jurisdiction to entertain Kane's second motion for return of property. Kane's second motion for return of property . . . is denied without prejudice.
U.S. v. Kane, supra. 

As Wikipedia explains, when a motion is denied “without prejudice,” it means the party who filed that motion can try again, in another motion.

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