Federal Judges in Two Jurisdictions Play ‘Hot Potato’ with Seized Backpage Attorneys’ Fees

1874 painting entitled 'French retreat from Russia in 1812,' by Illarion Mikhailovich Pryanishnikov, showing French soldiers stumbling through the snow
Artist conception: The Backpage defendants head back to California from Phoenix (public domain, via Wikimedia Commons [with posthumous apologies to Illarion Mikhailovich Pryanishnikov (1840–1894)])
A civil court judge in Los Angeles deferred the asset forfeiture dispute to the trial court judge in Phoenix. The Arizona judge punted it back.

“We are like the French troops in Russia when the snow started falling. The difference is we have winter coats and better lawyers.” –Michael Lacey, Backpage defendant, veteran newspaperman, and First Amendment stalwart

A federal judge in Phoenix has rejected an effort by defendants in the Backpage case to halt prosecutors from seizing bank accounts established to cover the cost of their defense.

On Friday, November 16, U.S. District Judge Steven P. Logan ruled from the bench that any challenge to warrants authorizing the seizures must be decided in California, because the U.S. Department of Justice sought and received the warrants from a federal judge there, despite the fact that the underlying criminal case will be tried in Judge Logan’s Arizona courtroom.

Reading from a prepared statement, Logan stated that his court “declines to exercise its discretion” in the matter. Citing legal precedent, he explained that district courts “should rarely interfere with the power of another court.”

The judge did not address the defendants’ main contention: that the government is violating their constitutional rights, including First Amendment protections for publishers and the Sixth Amendment’s guarantee of a defendant’s right to counsel.

He simply said the defense “did not set forth any persuasive reasons” for a federal judge in Phoenix to interfere with federal proceedings that originated in Los Angeles.

Logan brought the morning’s proceedings to a close by lifting the temporary stay he’d imposed on the seizures earlier in the week.

Though the government has characterized its annihilation of Backpage as a crucial victory in its supposed war on “sex trafficking,” so far its case has centered on efforts to strangle the defense.

One prosecution volley came a cropper on October 12, when Judge Logan denied a motion to disqualify longtime Backpage counsel from the law firm of Davis Wright Tremaine.

Now the government has evened the score, denying defendants access to funds they need in order to pay their attorneys’ fees.

The case began in April 2018, when a federal grand jury in Phoenix handed down an indictment alleging that seven current and former company executives committed crimes ranging from money laundering to conspiracy to promoting prostitution under the U.S. Travel Act. (There were no sex-trafficking charges.)

Federal agents arrested the defendants, seized Backpage, and shut down the website.

Among those arrested were Jim Larkin and Michael Lacey, veteran publishers who owned and ran the New Times chain of newsweeklies (later renamed Village Voice Media). The two business partners had started Backpage in 2004 in order to compete with Craigslist, which at the time was running roughshod over the newspaper business by hosting online classifieds free of charge.

(Disclosure: Larkin and Lacey are the publishers behind Front Page Confidential, which they founded in 2017 to provide coverage and commentary regarding free speech. [1]Click to read a postscript containing background on the Backpage case.)

Backpage CEO Carl Ferrer, who had purchased the website from Larkin and Lacey in 2015, cut a deal with prosecutors before the government unsealed its indictment, pleading guilty to one federal conspiracy charge, as well as to charges of money laundering in Texas and California. As part of a plea agreement, Ferrer signed over Backpage, surrendered millions of dollars in assets, and agreed to cooperate in the prosecution of his former bosses, fellow executives, and subordinates. In August, one of the arrestees, Backpage marketing director Dan Hyer, pleaded guilty to one count of conspiracy.

April 6, 2018, notice indicating that the federal government has seized backpage.com
The notice that has appeared on Backpage.com since the FBI seized the site (screenshot via Backpage.com)

As part of the Backpage takedown, prosecutors availed themselves of a different jurisdiction in California, seeking to seize an estimated $100 million in assets belonging to the defendants.

The government intends to hold on to those assets until the criminal charges are resolved — or potentially forever, if the prosecution prevails.

The defense contested the initial flurry of forfeiture proceedings, contending that the seizures were illegal. Chief among their arguments: the fact that as publishers, Backpage and its current and former owners are protected under the First Amendment. Citing U.S. Supreme Court precedent, the defendants argue that “the First Amendment prohibits pre-conviction seizures of publishing assets.”

Additionally, they maintain that in its zest to undertake the seizures, the government neglected to actually link the seized assets to Backpage. In fact, the defendants assert, many of the assets had nothing to do with Backpage. Taking the argument a step further, their attorneys assert that the government’s seizure of legitimate assets violates the defendants’ rights under the Sixth Amendment, in that it deprives them of the ability to retain counsel of their own choosing. ([2]Click to read a postscript containing background on government forfeiture laws.)

On October 23 in Los Angeles, U.S. District Judge R. Gary Klausner declined to address those arguments, granting the prosecution’s request for a stay on the matter until the criminal case is resolved in Arizona.

In his order punting the case to Judge Logan, Klausner reasoned that because the same funds that are the subject civil forfeiture proceedings in his courtroom are involved in criminal forfeiture proceedings in Phoenix, any ruling he made could potentially affect the outcome of the underlying criminal case.

“On the other hand,” Klausner noted, “the court sees no reason why the movants’ pending motions could not be brought in the criminal action.”

Meanwhile, Back in Phoenix…

A week after Judge Klausner ruled, prosecutors in California successfully petitioned a federal magistrate to issue a series of new warrants to seize bank accounts associated with the Backpage case.

Backpage and its lawyers had set up the accounts in order to cover the substantial costs of complex civil and criminal litigation that had been going on for years in several jurisdictions, and in anticipation of legal challenges that likely lay ahead.

In Arizona, defense attorneys Michael Piccarreta and Stephen Weiss filed an emergency motion on behalf of their respective clients, former Backpage managers Andrew Padilla and Joye Vaught; the attorneys’ accounts were among those that were targeted in the latest round of seizures.

(Though many of the filings in the case are under seal, the government stated in one unsealed document that the most recent harvest yielded “twelve seizure warrants for funds in 17 different bank accounts, which were held in the names of fifteen different law firms.”)

The emergency motion precipitated the November 16 proceedings in Judge Logan’s courtroom, and it was Piccarreta, a former president of the State Bar of Arizona, who led the charge during oral arguments, speaking on behalf of all of the Backpage defendants.

Noting that Klausner, the district judge in Los Angeles, had passed the seizure challenge to Arizona, Piccarreta said the government  was “bouncing us back and forth like a Ping Pong ball.”

He said the prosecutors are intentionally avoiding the looming First Amendment issues, a strategy that is destined to drain the defense of what resources it possesses and forces him and his fellow defense attorneys to fight on two fronts simultaneously.

“It may not be done for tactical advantage, but the result is the same,” Piccarreta said of the legal maneuvering, which he called a pattern of “overreaching.”

color photo of criminal defense attorney Paul Cambria in suit and tie
Paul Cambria, attorney for former Backpage.com co-founder Michael Lacey, speaking to reporters outside Phoenix’s federal courthouse in April 2018 (photo by Stephen Lemons)

On behalf of Lacey and  Larkin, attorneys Jim Grant and Paul Cambria argued that every single seizure since the case began has been illegal.

Grant called the seizures a “profound constitutional violation.” He went on to describe how the government botched the process, erroneously taking additional, unrelated funds from Davis Wright Tremaine. Grant said it took two and a half months to get the government to let go of the money it had inadvertently frozen, characterizing it as a “draconian” ordeal.

In response, Assistant U.S. Attorney John Kucera, who is based in Los Angeles, denied that the government is trying to strangle the defense. He asserted that the warrants were justified, that the California court is the proper venue for defense attorneys to raise objections, and that the government has not seized all of the bank accounts that the defendants had earmarked for attorneys’ fees.

In a curious aside, Kucera claimed that the defense was mischaracterizing the prosecution’s behavior as what he called “jack-booted, thuggish.”

When the judge asked Kucera to explain what he meant, Kucera replied that the phrase “came out of Ruby Ridge” — a reference to the infamous eleven-day siege in 1992 that pitted agents from the U.S. Marshals Service against an ex-army engineer named Randy Weaver. The botched standoff, which took place in backwoods Idaho, resulted in the death of Weaver’s wife, his fourteen-year-old son, and a U.S. marshal. In retrospect, many view it as a defining moment in the rise of the modern militia movement and an enduring embarrassment to federal authorities.

Speaking to reporters after the hearing, Cambria said Logan’s ruling would send the defense back to California and Judge Klausner.

“Now we’re gonna go back and say, ‘Okay, Arizona says it’s you: Vacate the stay and get to the merits,'” Cambria summed up, adding that there are  attorneys on the case who won’t get paid until the issue is resolved.

As he made his way to the courthouse elevator, Piccarreta said it seemed “fundamentally unfair” for the government to seize accounts seven months into its prosecution, thereby rendering his client “impecunious.” He said banishing the attorneys best equipped to fight the case by starving them of fees would make the government’s job a lot easier, calling the situation “Kafkaesque.”

Michael Lacey detected a different metaphor at play.

“Nothing surprising. We are like the French troops in Russia when the snow started falling [in 1812],” the newsroom vet said.

“The difference is, we have winter coats and better lawyers.”

For Further Reading:
“Lawyers, Guns, and Money (And to Hell with Free Speech)” [Commentary by Michael Lacey]
“Michael Lacey And Jim Larkin Speak Out in Reason.Com Profile”
“Beware the Free Speech Rattler”

***

Postscript 1: Behind the Backpage Prosecution

While the federal government continues to publicize its prosecution of seven former Backpage executives and managers  as a blow against sex trafficking, that crime is nowhere to be found among the nearly 100 charges leveled against the defendants.

In fact, the case centers on an infinitely more mundane offense: prostitution.

At the time the government seized Backpage, the site was the world’s second-largest platform for online classifieds. Users were able to place ads for a plethora of goods and services, including the gamut of legal sex work.

The indictment, however, zeroed in on one illicit profession, calling Backpage “the internet’s leading source of prostitution ads” and alleging that the site’s operators knowingly facilitated that crime.

Backpage had shuttered its entire adult section more than a year earlier, bowing to pressure from federal lawmakers. Moreover, over the past ten years, state and federal courts across the nation had ruled numerous times that Backpage’s owners and operators were protected from prosecution.

Invariably, those rulings pointed to Section 230 of the 1996 Communications Decency Act, which states, “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

In other words, the law made it clear that Backpage and its operators could not be held responsible for the content of ads that were posted by users.

Over the past several years, however, Congress has been crafting legislation to blast away that First Amendment protection. And mere days after the Backpage arrests made headlines nationwide, President Donald Trump signed the Fight Online Sex Trafficking Act (FOSTA), which excluded from Section 230 protection any person who “owns, manages, or operates an interactive computer service (or attempts or conspires to do so) to promote or facilitate the prostitution of another person.”

Notwithstanding the legislation’s title, “sex trafficking” and “prostitution” are far from synonymous. Sex trafficking is a federal crime defined as “a commercial sex act…induced by force, fraud, or coercion, or in which the person induced to perform such act has not attained 18 years of age.” Prostitution is consensual commercial sex among adults, a transaction that typically is prosecuted locally as a misdemeanor in the United States — except in certain Nevada counties, where it is legal. (Click to return to main story.)

Postscript 2: Civil Asset Forfeiture, the Government’s Cudgel

U.S. civil-forfeiture laws make it easy for a law-enforcement agency to seize a defendant’s assets long before a case goes to trial, simply by alleging that the money, personal property, or real estate was purchased with ill-gotten gains.

More often than not, the fate of the assets isn’t decided until after the case is concluded. And people who have had their assets seized — many of whom are not defendants themselves — are unable to get back their money or property.

A multitude of horror stories recounting asset forfeiture abuse on both the state and federal levels has gradually nudged the matter into the public eye, forcing some agencies, courts, and legislatures to acknowledge that the process is fraught with conflicts of interest. Generally speaking, though, the government has virtually no incentive to reform a process that it is able to wield in a manner that simultaneously fills its coffers and hamstrings the ability of the accused to mount a viable defense in court — not to mention the added expense incurred in a fight to return assets that have been confiscated. (Click to return to main story.)

About Stephen Lemons

Stephen Lemons is an award-winning investigative journalist with more than 20 years of experience covering everything from government corruption to white-supremacist gangs. In addition to Front Page Confidential, his work has appeared in Phoenix New Times, the Los Angeles Times, Salon.com, and the Southern Poverty Law Center’s Intelligence Report magazine.

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