A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit today vacated a lower court’s order halting a First Amendment challenge by ex-Backpage owners Michael Lacey and Jim Larkin to the federal government’s seizure of millions of dollars of their assets.

Ruling just three weeks after oral arguments were held in Pasadena, California on the case, the Ninth Circuit panel sent the matter back to Judge R. Gary Klausner of the Central District of California, who issued a stay in October 2018 at the request of the government, thus precluding any hearing on the constitutionality of the seizures.

The appeals panel ruled that because the lower court had made no findings regarding the government’s request, the panel saw “no basis” for a stay. The jurists did not directly address the defense’s argument that the pre-trial seizure of proceeds from a publishing enterprise, minus an adversarial hearing on the matter, was impermissible under the First Amendment.

However, the appeals court also rejected the government’s request for a “limited remand” that might have impeded a First Amendment challenge to the seizure warrants.

Contacted via email, Lacey’s attorney Paul Cambria stated that based on the court’s comments during the oral arguments in Pasadena, it was clear that the court would rule as it did.

“We now will go back to the district court and ask that the seizures be vacated,” he wrote.

Asked about the significance of the court slapping down the government’s “limited remand” request, Cambria indicated that now all of the arguments in the defense’s quiver could be used on remand.

“It means that all issues we raised are now before the court — the complete question of the illegality of the government’s seizures of the clients’ assets to prevent them from funding their defense,” he explained.

Attorneys for the U.S. Department of Justice had asserted that any hearing challenging the seizures would adversely affect them at the criminal trial of Lacey, Larkin and four others on 100 counts related to the facilitation of prostitution, money laundering and conspiracy, now scheduled for May 5, 2020 in Phoenix, Arizona.

Prosecutors want to hold defendants liable for adult ads posted by third parties on the now-defunct listings site, which the government seized and removed from the internet on April 6, 2018, the same date the defendants were arrested and indicted, in an egregious act of direct government censorship.

To hamper the defense in what was sure to be a prolonged and expensive legal struggle, DOJ lawyers obtained civil seizure warrants in California, freezing numerous bank accounts belonging to Lacey and Larkin, the lead defendants.

When Lacey and Larkin’s attorneys argued that the seizures were improper under the First Amendment and demanded a hearing, the government asked Klausner to issue the stay, locking the pair’s funds in limbo until the conclusion of the criminal trial.

Klausner did so, advising the defense that it could always raise its objections in Phoenix during the criminal proceedings. But when defense attorneys tried to do just that, the U.S. District Judge in charge of the criminal case at the time, Steven P. Logan, followed the advice of the prosecutors during a November 2018 hearing and declined to interfere with another court’s warrants.

For a moment, it seemed as if the government’s scheme of seizing the defense’s assets in another state might work. Defendants pinned their hopes on the appeal of Klausner’s stay to the Ninth, which was underway.

Prosecutors first argued that the Ninth Circuit lacked jurisdiction to hear the case. Nevertheless, the court set a date for oral arguments on the defense’s appeal.

Suddenly, in what the defense in one filing called a “tactical admission of error,” the government changed course, agreeing that a hearing was necessary and asking for a “limited remand” back to the lower court for that hearing.

Granted, the Ninth Circuit did not take up the First Amendment issues, as the defense was hoping.

But as the Ninth Circuit panel noted in its decision, the government conceded that the defendants “were entitled to some review of their claims prior to the imposition of the stay.”

So the appeals court sent it back to Klausner, so he could “conduct further proceedings.”

The government has been outmaneuvered for the moment, though it took nine months to get to this point and Lacey and Larkin still don’t have access to their money, which they need to mount an adequate defense against an adversary with unlimited resources.

As one wag put it to me, off the record, “It’s like the defense asked for a pony for Christmas, but there was a new bike beneath the tree instead.”

Still, a new bike is nothing to sneeze at.

For more on the fight over the seized assets, please read:
Ninth Circuit Hears First Amendment Challenge to Feds’ Seizure of Millions from Backpage’s Former Owners

and

Ninth Circuit Judges Mull First Amendment Challenge to Seizures of Ex-Backpage Owners’ Assets