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DINAN v. UNITED STATES

May 7, 1997

CHRISTOPHER D. JOHNSON and JOHN M. DINAN, in their capacity as Official Liquidators of an unnamed offshore financial institution, Petitioners,
v.
UNITED STATES OF AMERICA, Respondent.



The opinion of the court was delivered by: LECHNER

 LECHNER, District Judge

 This matter was commenced by the filing of a petition (the "Petition") for return of property, pursuant to Federal Rule of Criminal Procedure 41(e). The petitioners, Christopher D. Johnson and John M. Dinan (collectively the "Petitioners") are "Joint Official Liquidators of an Unnamed Financial Institution, formerly a bank and trust company organized under the laws of the Cayman Islands, with offices in George Town, Grand Cayman" (the "Offshore Bank"). Petition at 1-2. Petitioners seek the "return of one or more computer tapes" (the "Tape") containing operating records of the Offshore Bank. *fn1"

 Facts

 On 18 January 1995, the government of the Cayman Islands, upon the recommendation of the "Inspector of Financial Services," appointed an interim controller (the "Interim Controller") to take control the affairs of the Offshore Bank. Joint Stip., P 2; Johnson Aff., P 4. At that time, the Offshore Bank had approximately "1,000 clients/customers, including corporations, trusts and individuals of which some but not all were residents of the United States." Johnson Aff., P 14. Prior to the Interim Controller's assumption of control of the Offshore Bank, an unnamed United States citizen (the "Individual Defendant") had occupied the positions of chairman and managing director of the bank. Joint Stip., P 2. The authority of the Individual Defendant over the affairs of the Offshore Bank ceased upon the appointment of the Interim Controller. Id., P 3; see Johnson Aff., P 9. After appointment of the Interim Controller, the Individual Defendant had "no entitlement to possession or right of access of the property, books or records (including computerised (sic)) of the [Offshore] Bank or copies thereof." Johnson Aff., P 9.

 On 24 January 1994, the Offshore Bank's "category 'B' Bank & Trust company licences" were revoked by the government of the Cayman Islands and the bank was closed by the Interim Controller. Joint Stip., P 2; Johnson Aff., P 4. On the same date, the government of the Cayman Islands filed a petition (the "Cayman Petition") with the Grand Court of the Cayman Islands for an order to wind-up the affairs of the Offshore Bank because of "serious irregularities" identified in the conduct of the Offshore Bank's business. Johnson Aff., P 4. Also on the same date, by order of the Grand Court of the Cayman Islands, Messrs. G. J. Cleaver and Allan Gee were appointed as Joint Provisional Liquidators (the "Joint Provisional Liquidators"), pending the hearing of the Cayman Petition. Johnson Aff., P 4.

 On 10 February 1995, the Cayman Petition was heard by the Grand Court of the Cayman Islands. Johnson Aff., P 7. The Grand Court of the Cayman Islands ordered that the Offshore Bank be "wound up (liquidated) ...." Id.

 Petitioners are partners in the firm Coopers & Lybrand. Joint Stip., P 1. Petitioners were appointed to their positions as "Joint Official Liquidators" of the Offshore Bank by order of the Grand Court of the Cayman Islands, effective 10 February 1995. Id. Petitioners have the power

 
a. to take possession of, collect and get in all property or assets of whatever nature to which the [Offshore Bank] is or appears to be entitled;
 
b. to do all such things as may be necessary or expedient for the protection of the [Offshore Bank's] assets;
 
c. to do all such things as may be necessary or expedient for the beneficial realisation (sic) of the property or assets of the [Offshore Bank]....

 Johnson Aff., P 8 & Exh. B, P 5.

 By the terms of the order appointing Petitioners as "Official Liquidators" of the Offshore Bank, "the Individual Defendant was not permitted 'to enter the premises of the [Offshore Bank];' 'to have access, whether directly or by way of copy or otherwise, to any books, records or other documents (including computerized records) of the [Offshore Bank];' or 'to deal with any of the assets or other property of the [Offshore Bank], ... without the prior consent of the Inspector of Financial Services or an order of the Grand Court of the Cayman Islands ....'" Joint Stip., P 3; Johnson Aff., Exh. B, P 7.

 "In or about the month of March or April, 1995, the Individual Defendant left the Cayman Islands ...." Joint Stip., P 4. After leaving, the Individual Defendant apparently did not reenter the Cayman Islands at any time. See Johnson Aff., P 9.

 On 21 June 1996, a Federal Grand Jury sitting in Newark, New Jersey returned a multi-count indictment charging the Individual Defendant and others with conspiracy and money laundering. Joint Stip., P 5. The Individual Defendant was subsequently arrested in the United States by agents of the Federal Bureau of Investigation (the "FBI"). Id.

 In June of 1996, the Individual Defendant gave the FBI the Tape. Joint Stip., P 6. The Tape contains "copies of certain computer back-up tapes containing detailed financial and operating records of the [Offshore] Bank." Joint Stip., P 6. The Individual Defendant voluntarily gave the Tape to the FBI "without the issuance of a warrant, subpoena or other compulsory process." Id. The Tape remains in the possession of the FBI or other "elements of the Department of Justice." Id.

 
D3 The [Offshore] Bank's work files containing transactions posted in these files on a daily basis before being posted onto the appropriate accounts (D5 below) at the end of each banking day.
 
D5 Code tables and master files containing the entire body of the Bank's permanent accounting records and client records.
 
E1 Historical transaction files which list chronologically each transaction on each account.
 
E2 Securities records (the respective holding of each client).

 Joint Stip., P 7; Hill Aff., P 4.

 On or about 16 February 1997, the Offshore Bank's records had been copied onto the Tape and the Tape was subsequently delivered to the Individual Defendant by "an unknown individual or individuals, approximately one month after the appointment of the Interim Controller on [18 January 1995] and after the [Offshore] Bank had been closed by order of the Grand [Cayman] Court on [24 January 1995] and the Individual Defendant's authority was discontinued." Joint Stip., P 9.

 Because the Tape was encrypted, the FBI communicated with the Royal Cayman Islands Police (the "Cayman Police") and sought assistance in its efforts to gain access to the information stored on the Tape. Joint Stip., P 8. On or about 31 July 1996, Petitioners were informed by the Cayman Police the FBI possessed the Tape and were attempting to gain access to the information contained on the Tape. Id.; see Hill Aff., PP 3-7.

 On 6 August 1996, Johnson filed a formal, written complaint of the "theft" of the Tape to the Cayman Police. See Johnson Aff., Exh. D. Johnson informed the Cayman Police that Petitioners believed the Individual Defendant "may have instructed a former member of his staff ... to secretly obtain [the Tape] for him." Id. The notice to the Cayman Police further provided:

 
I would emphasise (sic) my particular concern about the consequences of this breach in security because, as you know, the information apparently stolen is now in the hands of the FBI and, it would seem inevitable that this will sooner or later be passed to the Internal Revenue Service for the purpose of investigating and, where appropriate, prosecuting any bank clients subject to U.S. taxation. I believe these events will be potentially very damaging to the wider public profile of this jurisdiction and the reputation of the banking industry.

 Johnson Aff., Exh. D (emphasis added). *fn2"

 In response to an application from Petitioners, the Grand Court of the Cayman Islands authorized Petitioners, by an order, filed 5 September 1996, to seek recovery of the Tape through legal process in courts of the United States. See Johnson Aff., P 21 & Exh. E. On 25 October 1996, Petitioners commenced the instant action.

 Discussion

 I. Federal Rule of Criminal Procedure 41(e)

 Federal Rule of Criminal Procedure 41(e) ("Rule 41(e)") provides in pertinent part:

 Id.

 Rule 41(e) is understood to provide "that an aggrieved person may seek return of property that has been unlawfully seized, and a person whose property has been lawfully seized may seek return of property when aggrieved by the Government's continued possession of it." See id., Advisory Committee's Note. Rule 41(e) provides a framework under which a court may order either the originals or copies of seized documents be returned to their owner and permit the Government access and/or use of the information. See id.

 While Rule 41(e) motions are generally brought after an indictment has been issued, "district courts have the power to entertain motions to return property seized by the Government when there are no criminal proceedings pending against the movant." Ramsden v. United States, 2 F.3d 322, 324 (9th Cir. 1993), cert. denied, 511 U.S. 1058, 128 L. Ed. 2d 349, 114 S. Ct. 1624 (1994). These motions "are treated as civil equitable proceedings and, therefore, a district court must exercise 'caution and restraint' before assuming jurisdiction." Id. (citing Kitty's East v. United States, 905 F.2d 1367, 1370 (10th Cir. 1990)); see United States v. Dean, 80 F.3d 1535, 1542 (decision to invoke equitable jurisdiction is only appropriate in exceptional cases), modified on other grounds, 87 F.3d 1212 (11th Cir. 1996).

 The Fifth Circuit has listed four factors that a district court should consider in deciding whether to entertain a Rule 41(e) motion made prior to the initiation of criminal proceedings. 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 [or she] 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 [or her] grievance.

 Richey v. Smith, 515 F.2d 1239, 1243-44 (1975); see Ramsden, 2 F.3d at 324-25 (adopting the Fifth Circuit's Analysis); see also Kitty's East, 905 F.2d at 1370-71 (movant must establish irreparable injury and lack of adequate remedy at law); In re Sixty Seven Thousand Four Hundred Seventy Dollars, 901 F.2d 1540, 1544-45 (11th Cir. 1990) (the exercise of equity jurisdiction only appropriate where the circumstances demand intervention); Matter of Search of 4801 Fyler Avenue, 879 F.2d 385, 387 (8th Cir. 1989) (aggrieved party must establish callous disregard for constitutional rights, irreparable injury if relief is not granted and lack of an adequate remedy at law), cert. denied, 494 U.S. 1026 (1990); In re Singh, 892 F. Supp. 1, 3 (D.D.C. 1995).

 1. Constitutional Rights

 In the instant case, the Government has not shown a "callous disregard" to any constitutional rights of Petitioners or any clients of the Offshore Bank. First, the Government played no role in the procurement of the Tape. As indicated, the Tape was voluntarily provided to the Government by the Individual Defendant. See McCarthy Aff., P 7. Second, because there was no Government involvement in the procurement of the Tape, no constitutional rights are at issue in the instant case. Accordingly, although it appears the Individual Defendant may have illegally come into possession of the ...


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