The California Legislature enacted the "freeze and seize" statute, which allows the government to freeze "any asset or property that is in the control" of a criminal defendant charged with certain white collar offenses.1 The statute, codified at Penal Code Section 186.11,2 was "intended 'to establish a process in which the assets of those alleged to have committed aggravated white collar crime could be frozen at the time of their arrest to secure the assets in order to pay restitution for the crime victims....'"3
Section 186.11 represents a marked expansion of previous civil and criminal forfeiture laws because it does not require the government to show any nexus between the property and criminal activity.4 Thus, the government can obtain a pretrial freeze of any of the defendant's assets, even those outside the court's jurisdiction.5
This powerful tool in the government's arsenal can be used to cripple the businesses of defendants, cut off their access to personal bank accounts, and even freeze their homes. However, with the great power of Section 186.11 comes a horde of procedural responsibilities, requiring the government to follow deadlines and standards usually reserved for civil law. The statute instructs prosecutors to publish notices in newspapers, appoint receivers when necessary,6 and properly record lis pendens, among other duties.7
Perhaps as a consequence of these procedures being so unusual in criminal proceedings, in actual practice, property is frequently frozen without governmental compliance with civil rules and in violation of due process protections.8 Thus, practitioners should carefully scrutinize any pretrial attempts by the government to freeze a defendant's property under Section 186.11. Defective freeze orders are often permitted to stand unchallenged because defense counsel, as well as prosecutors and judges, are all similarly unaware of the procedural requirements. While criminal practitioners and even courts may find Section 186.11's procedural requirements seemingly strange and foreign to criminal law practice, the statute must be fully understood so that all parties can ensure that the due process rights of defendants are protected.
Freezing Property under the Statute
The first hurdle arises when property that the government intends to levy is seized using a search warrant. The use of a search warrant to freeze property in possession of a third party or to physically seize property are two typical, but ultimately impermissible, scenarios under Section 186.11.
In the first scenario, the government will freeze a defendant's property--typically a bank account--through a search warrant. The search warrant generally will seek the seizure of the money in the accounts. Instead of actually seizing the funds, the affiant asks that the bank hold the accounts "in suspension," thereby effectively freezing them. However, a search warrant is not the proper procedure to freeze property in possession of a third party. Penal Code Section 1536 requires an officer to acquire and retain custody of items seized pursuant to a search warrant. Therefore, any attempt to seize a bank account, pursuant to a search warrant, and then leave the account in the possession of a third-party bank is not permissible by law and should be avoided or challenged.
In the second scenario, the government physically seizes property, by use of a search warrant, that it intends to hold until the court imposes a postconviction levy. This is unlawful because Section 186.11, while being known as the "freeze and seize" statute, does not actually allow for pretrial seizure of property.9 Instead, the statute intends for the court to enjoin the disposition of assets pending the outcome of a criminal case.10 Moreover, in People v. Green--one of the few cases to address the "freeze and seize" statute11--the court rejected the practice of seizing a defendant's property pursuant to a search warrant for future levy under Section 186.11. The Green court found that the only property that can be levied pursuant to Section 186.11 "is property that is subject to a preliminary injunction," not property seized pursuant to a search warrant.12 According to Green, "a preliminary injunction is a statutory precondition to a levy."13 The court even drew a bright line: "[N]o petition, no preliminary injunction; no preliminary injunction, no levy."14 If the government wants to use Section 186.11 to levy a defendant's property or assets after conviction, it must comply with Section 186.11's pretrial procedures. Simply seizing property pursuant to a search warrant is not sufficient.
There are two proper methods for freezing property under Section 186.11(e)(2). One is seeking a temporary restraining order pending a hearing on a petition for a preliminary injunction (which may be sought ex parte upon a showing of good cause). The other is pursuing a preliminary injunction to freeze property pending the outcome of the underlying criminal case. Both of these options prohibit a defendant from transferring any interest in the property.
Generally, for a temporary restraining order, due process dictates that defendants should be given notice and the opportunity to be heard before the government takes their property.15 However, in special circumstances involving overriding state interests, the government may be justified in postponing notice and hearing until after the taking has occurred:16
A temporary restraining order may be issued by the court, ex parte, pending that hearing in conjunction with or subsequent to the filing of the petition upon the application of the prosecuting attorney. The temporary restraining order may be based upon the sworn declaration of a peace officer with personal knowledge of the criminal investigation that establishes probable cause to believe that aggravated white collar crime has taken place and that the amount of restitution and fines established by this section exceeds or equals the worth of the assets subject to the temporary restraining order. The declaration may include the hearsay statements of witnesses to establish the necessary facts. The temporary restraining order may be issued without notice upon a showing of good cause to the court.17
To justify taking the unusual step of freezing a defendant's property without prior notice or an opportunity to be heard, the government must provide sufficient evidence to the court to show 1) probable cause that aggravated white collar crimes have taken place, and 2) good cause to issue the temporary restraining order without notice.18 In practice, many ex parte restraining orders fail to address why an ex parte hearing is necessary. These orders are signed with regularity despite the fact that they are devoid of the requisite showing of good cause. In People v. Sokol, a recent case in Los Angeles that remains ongoing,19 the government filed three successive ex parte petitions, in three different courts, without setting forth a single fact--or even mentioning--why there was good cause for an ex parte hearing. Yet, each court signed the order freezing the defendant's property, despite the obvious defect.
Moreover, since the government can obtain the orders ex parte, these "temporary" orders are often kept in place for months, or even years, without the filing of a petition for a preliminary injunction. Temporary restraining orders are, as the name implies, meant to be a holding action until the government can obtain a preliminary injunction. They should last only for a limited time, which is usually that period in the case pending a court's consideration whether to order a preliminary injunction.20
The temporary order terminates automatically when a preliminary injunction is issued or denied.21 Under Section 186.11, a temporary restraining order is meant to be filed "in conjunction with or subsequent to the filing of the petition [for preliminary injunction]."22 Thus, the statute itself contemplates that the temporary restraining order will not be the sole pretrial basis for the freeze.23
Determining what constitutes proper notice for the preliminary injunction requires a careful reading of the "freeze and seize" statute. Section 186.11(e)(3) specifically states to whom and how the notice must be supplied:
A notice regarding the petition shall be provided, by personal service or registered mail, to every person who may have an interest in the property specified in the petition. Additionally, the notice shall be published for at least three successive weeks in a newspaper of general circulation in the county where the property affected by an order issued pursuant to this section is located. The notice shall state that any interested person may file a verified claim with the superior court stating the nature and amount of their claimed interest. The notice shall set forth the time within which a claim of interest in the protected property is required to be filed.24
A failure of notice may constitute a denial of due process.25 Further, Section 186.11(g)(1) specifically states that the court lacks the authority or jurisdiction to issue a preliminary injunction or appoint a receiver if the government fails to follow the notice requirements in Section 186.11(e)(3). The type of notice required by the statute, which includes publication, is not the usual mandate for a district attorney's office to follow. As a result, notice under the statute is often not done properly.
To compound this problem, when a court determines that the government has failed to comply with the notice requirements, the government sometimes simply dismisses and refiles the orders while continuing to freeze the property. In the Sokol case, a Los Angeles deputy district attorney admitted in response to a question that she, and others in her office, had dismissed and refiled these orders "numerous times" while holding a defendant's property.26
Nothing in Section 186.11 authorizes subsequent petitions. In fact, to find that it does so would be in direct contradiction to the time requirements set forth in the statute. If the government were allowed to freeze property and then, faced with its failure to comply with the statute's procedural requirements, permitted to simply and repeatedly dismiss and refile while holding defendants' property, the defendants would be denied their right to a hearing within 10 days.27 This would be contrary to the procedural requirements not only of Section 186.11 but also basic notions of due process, because the property of defendants would be taken without a timely hearing.
While procedural problems seem to plague Section 186.11 freeze orders, defendants have been properly served with a petition for preliminary injunction in a number of cases. If this happens, defendants must act quickly to protect their rights. A defendant can file a "verified claim stating the nature and amount of his or her interest in the property or asset."28 This should be filed within 30 days of the first publication of the notice or within 30 days of receiving actual notice.29 Section 186.11 specifically provides that an innocent third party, including a spouse, can also file a verified claim to the frozen asset within the same time.30
Once a defendant, or third party, has filed a verified claim, he or she has "the right to have the court conduct an order to show cause hearing within 10 days of the service of the request for hearing upon the prosecuting agency....Upon a showing of good cause, the hearing shall be held within two days of the service of the request for hearing upon the prosecuting agency."31
At the hearing, the court is permitted to use any reliable evidence, including possible hearsay, to "weigh the relative degree of certainty of the outcome on the merits and the consequences to each of the parties of granting the interim relief. If the prosecution is likely to prevail on the merits and the risk of dissipation of assets outweighs the potential harm to the defendants and the interested parties, the court shall grant injunctive relief."32 The statute also sets forth a list of factors to aid the court in making this determination.33
The court may also consider "a defendant's request for the release of a portion of the property affected by this section in order to pay reasonable legal fees in connection with the criminal proceeding, any necessary and appropriate living expenses pending trial and sentencing, and for the purpose of posting bail. The court shall weigh the needs of the public to retain the property against the needs of the defendant to a portion of the property."34 A court may properly freeze a defendant's property pending trial only after it analyzes and addresses all these considerations.