The Draconian Intersection of Substitute Assets and Joint and Several Liability

 In Criminal

Last week the United States Supreme Court heard arguments pertaining to the forfeiture of substitute assets of a convicted drug conspirator in Honeycutt v. United States.

Substitute Assets Joint Several Liability

The substitute assets provision, codified under 21 USC 853(p), allows the Government to forfeit any asset of a convicted defendant when the property that is subject to forfeiture has been dissipated or put beyond the reach of the convicting court. However, the substitute asset provision is only triggered when the original property is unavailable due to a particular act or omission of the defendant.

Learn more about substitute assets.

Honeycutt v. United States

In Honeycutt, the Government prosecuted Terry Honeycutt and his brother for allowing the sale of iodine-based water purifiers which were used to make methamphetamine. Both Honeycutt and the brother were convicted for their participation. Their convictions included criminal forfeiture of the proceeds of the drug conspiracy.

However, Terry Honeycutt was simply a salaried employee of the store that sold the purifiers. Honeycutt’s brother owned the store. Terry Honeycutt was also the person who called the police after becoming concerned that “edgy looking folks” were buying large amounts of their iodine–based water purification products. After an investigation, Honeycutt was arrested and charged with distributing iodine when he knew or should have reasonably known the iodine was being used to manufacture methamphetamine.

The appeal challenges whether Terry Honeycutt received any proceeds of the conspiracy or whether he was capable of placing such proceeds beyond the reach of prosecutors.

Particularly, Justice Kennedy noted that it was “odd” that the Government would demand substitute assets from Honeycutt who did not have control over the store’s profits or cashflow, when it entered into a plea agreement with his brother-owner, which entailed only the forfeiture of a portion of the proceeds. Justices Kagan and Roberts also had concerns regarding the applicability of substitute assets in a case where Honeycutt was not shown to take steps to dissipate or secrete assets related to the offense.

Joint and Several Liability in Federal Conspiracy Cases

The Honeycutt case illustrates concerns about joint and several liability within federal conspiracy cases.

Typically, in federal cases, whether the underlying offense is a white collar crime such as tax evasion, bank fraud, or wire fraud, or narcotics cases, defendants are held to be jointly and severally liable for losses to victims and for money judgments.

Simply put, joint and several liability means that all defendants are equally responsible for the overall loss as a result of a conspiracy. For example, if several people engage in a pump and dump stock scheme where they frivolously generate a high level of sales activity to elevate the price of a penny stock knowing full well that the stock will be falsely overvalued and ultimately crash, then all of the participants are liable for the losses to every investor.

This means that someone solicited five unwitting victim investors for a total of $25,000 would be equally responsible for the overall loss as someone who solicited 500 unwitting victims for a loss amount of $2.5 million. Additionally, such liability could be applicable to other participants such as back office administrative assistants who simply processed sales orders, etc.

Put simply, lower level participants, relative to their gain from committing an offense, receive a greater punishment under joint and several liability than higher level participants.

Take the Honeycutt matter. In that case, a salaried employee was held equally responsible for the overall proceeds of that drug conspiracy (the overall scope of which is unknown) as his owner-brother and other participants in the drug ring. The fact that he didn’t cook meth or own the company receiving profits from the sale of the purifier, or ever sold an ounce of meth doesn’t relieve him as a target of forfeiture for the entire value of the conspiracy.

The combination of joint and several liability with the Government’s attempt to use the substitute assets provision of federal forfeiture jurisprudence certainly caught the attention of several justices in Honeycutt.

The concerns articulated by Chief Justice Roberts as well as Justices Kagan and Kennedy are part of a growing trend of concerns regarding asset forfeiture. This trend appears to be generating efforts to reform asset forfeiture at the state level around the country.

The Justices’ concerns are also in-step with Justice Thomas’ recent opinion in the Leonard case denying Supreme Court review of a Texas State forfeiture inviting further litigation to reform asset forfeiture.

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