UNITED STATES of America, Plaintiff-Appellee, v. Nawaf M. HASAN, Defendant-Appellant.
No. 12-4442.
United States Court of Appeals, Fourth Circuit.
Argued: March 28, 2013. Decided: June 6, 2013.
718 F.3d 338
The bankruptcy court‘s comprehensive findings were based on its examination of the parties’ presentations and on the credibility of witnesses, particularly the unsupported testimony of Marinucci. See Parris v. Lynch, 35 F.3d 556 (table), 1994 WL 486549, at *1 (4th Cir.1994) (“assessing the weight of evidence and the credibility of witnesses is within the sole province of the fact-finder“). These factual findings are entitled to our deference. As a result, the court‘s award of damages for SG Homes was not clearly erroneous.
Finally, we conclude that the bankruptcy court did not err in determining that the judgment debt was nondischargeable under
IV.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
Before GREGORY, DUNCAN, and AGEE, Circuit Judges.
Affirmed by published opinion. Judge AGEE wrote the opinion, in which Judge GREGORY and Judge DUNCAN joined.
AGEE, Circuit Judge:
Nawaf Hasan was convicted of various offenses related to the trafficking of contraband cigarettes. Hasan challenges his convictions on the basis that the conduct of the government agents investigating this case was so outrageous as to violate his due process rights. Separately, Hasan argues that the district court applied the wrong statutory rule to calculate the amount of the civil forfeiture adjudicated against him. For the reasons explained herein, we reject both challenges and affirm the judgment of the district court in its entirety.
ARGUED: Marvin David Miller, Alexandria, Virginia, for Appellant. Richard Daniel Cooke, Office of the United States Attorney, Richmond, Virginia, for Appellee. ON BRIEF: Neil H. MacBride,
I.
Significant state-by-state disparities in the amount of taxes levied against the sale of a pack of cigarettes has created an interstate black market in the trafficking and distribution of cigarettes. Typically, cigarettes are purchased in a state with low taxes and then subsequently sold in another state where such taxes are much higher, but without the payment of the higher levy at point of sale. In this way, contraband cigarette traffickers seek to evade applicable state and local taxes on cigarettes while profiting from the tax disparity.
In response to this potential for state tax evasion, Congress enacted a statutory scheme to ensure that cigarettes are taxed
a quantity in excess of 10,000 cigarettes, which bear no evidence of the payment of applicable State or local cigarette taxes in the State or locality where such cigarettes are found, if the State or local government requires a stamp, impression, or other indication to be placed on packages or other containers of cigarettes to evidence payment of cigarette taxes[.]
In 2008, agents with the Federal Bureau of Alcohol, Tobacco, and Firearms (“ATF“) began an investigation, in conjunction with other state and federal authorities, into a ring of alleged traffickers of contraband cigarettes.2 For more than two years, ATF agents and other law enforcement officers participated in undercover transactions involving the sale of untaxed and unstamped cigarettes to members of the conspiracy, including Hasan. The government alleges that between June 2009 and April 2011, undercover agents sold nearly 40,000 cartons of untaxed or unstamped cigarettes to Hasan and other members of the conspiracy. Most of these contraband cigarettes were purchased from ATF agents in Virginia before being transported to New York for sale.3
In 2011, Hasan was indicted in the United States District Court for the Eastern District of Virginia on six counts: one count of conspiracy to purchase, possess, transport, and distribute contraband cigarettes, in violation of
Prior to trial, Hasan filed a motion to dismiss the indictment, or in the alternative, to exclude the evidence collected against him on the basis that the undercover sales of untaxed cigarettes by ATF agents constituted government conduct so outrageous as to violate his due process rights. The district court denied the mo
The court explained that the ATF had congressional authorization to possess and distribute untaxed cigarettes in furtherance of the ATF‘s law enforcement mission. The court also saw no merit in Hasan‘s argument that the undercover operation was “outrageous” because the ATF “let the cigarettes walk,” and allowed those items to be distributed on the black market rather than confiscating them. The court reasoned that the government‘s failure to recover the contraband does not render an undercover operation unlawful because often, in order to gather more evidence, law enforcement is required to delay intervention in unlawful activity. The court observed an “important distinction” between cases involving undercover distribution of illegal narcotics and distribution of contraband cigarettes, “which, apart from being untaxed and/or unstamped, are otherwise legal commodities.” (J.A. 165.)
The government then filed a motion for a preliminary order of forfeiture in the amount of $604,220, which represented the gross proceeds Hasan realized through the contraband trafficking offenses charged in the indictment. The government represented that its proposed forfeiture order was supported by the plain language of
In cases involving illegal goods, illegal services, unlawful activities, and telemarketing and health care fraud schemes, the term “proceeds” means property of any kind obtained directly or indirectly, as the result of the commission of the offense giving rise to forfeiture, and any property traceable thereto, and is not limited to the net gain or profit realized from the offense.
Hasan objected to the proposed forfeiture order and argued that the forfeiture amount should only be $130,000-the profits he realized from the cigarette smuggling scheme. He relied upon
The district court overruled Hasan‘s objection and concluded that “[t]his is a case involving illegal goods, illegal services, unlawful activities. Undercover sales of cigarettes were, as soon as they were taken to New York, contraband.” (J.A. 223.) The court adjudicated Hasan as guilty of the charges against him, adopted the government‘s proposed forfeiture order, and imposed a twenty-four month sentence of incarceration. Hasan has timely appealed and we have jurisdiction pursuant to
II.
Hasan raises two assignments of error on appeal. He first argues that the district court erred in denying his motion to dismiss the indictment or suppress the evidence against him based on the conduct of the government agents investigating this case. Hasan‘s second claim of error is that the court miscalculated the amount of
A.
Hasan first contends that the district court erred in denying his motion to suppress the evidence against him on the basis that his due process rights were violated. The facts of this case are uncontested, and we review the legal issues underlying the denial of a motion to suppress de novo. See United States v. Cain, 524 F.3d 477, 481 (4th Cir.2008).4
Hasan is essentially raising a generalized due process claim that the law enforcement conduct at issue here was either unlawful or so outrageous as to violate fundamental notions of fairness. He seeks to invoke what the district court aptly described as a “seldom-addressed category of constitutional violations,” J.A. 158, first articulated in United States v. Russell, 411 U.S. 423, 93 S.Ct. 1637, 36 L.Ed.2d 366 (1973). In Russell, a criminal defendant argued outrageous government conduct where an undercover agent supplied narcotics manufacturers with a legal, but difficult to obtain, chemical that was essential to the methamphetamine manufacturing process. Id. at 431, 93 S.Ct. 1637. After flatly rejecting the defendant‘s claim to an entrapment defense, the Supreme Court also denied a due process claim and observed that
[w]hile we may some day be presented with a situation in which the conduct of law enforcement agents is so outrageous that due process principles would absolutely bar the government from invoking judicial processes to obtain a conviction, ... the instant case is distinctly not of that breed.
Id. at 431-32, 93 S.Ct. 1637 (internal citation omitted).
A plurality of the Supreme Court expounded upon (and greatly limited) the application of an “outrageous conduct” due process violation in Hampton v. United States, 425 U.S. 484, 96 S.Ct. 1646, 48 L.Ed.2d 113 (1976). In Hampton, a government informant allegedly sold heroin to the defendant, who later sold it to government agents. Although the Court acknowledged that “the Government played a more significant role in enabling petitioner to sell contraband in this case than it did in Russell,” id. at 489, 96 S.Ct. 1646, the Court nevertheless rejected the defendant‘s claim that his due process rights were violated, id. at 490, 96 S.Ct. 1646.
To sustain petitioner‘s contention here would run directly contrary to our statement in Russell that the defense of entrapment is not intended to give the federal judiciary a ‘chancellor‘s foot’ veto over law enforcement practices of which it did not approve....
The limitations of the Due Process Clause of the Fifth Amendment come into play only when the Government activity in question violates some protected right of the defendant. Here, as we have noted, the police, the Government informant, and the defendant acted in concert with one another. If the result of the governmental activity is to implant in the mind of an innocent person the disposition to commit the alleged
Id. at 490, 96 S.Ct. 1646 (internal citation and quotation marks omitted).5
After Hampton, the “outrageous conduct” doctrine survives in theory, but is highly circumscribed. As we explained in United States v. Goodwin, 854 F.2d 33, 37 (4th Cir.1988), a due process violation may only be found when the conduct at issue “is outrageous, not merely offensive.” Id. at 37. And as the district court observed, this Court has never held in a specific case that the government has violated the defendant‘s due process rights through outrageous conduct. In United States v. Osborne, 935 F.2d 32, 36 (4th Cir.1991), this Court opined on the “high shock threshold” of the appellate courts in the context of the “outrageous conduct” due process violation, and the Court‘s reluctance to vacate a conviction based on outrageous government conduct that does not otherwise violate a defendant‘s rights. Id. at 36. The Osborne court cited with approval several cases, including United States v. Simpson, 813 F.2d 1462 (9th Cir.1987), wherein the Ninth Circuit upheld the conviction of a defendant who had provided heroin in exchange for sexual favors from a woman who had been manipulated into doing so by the FBI. 935 F.2d at 36. Thus, the Osborne court articulated what has become the test in this circuit for whether government conduct is so outrageous as to offend due process: the conduct must be “shocking,” or “offensive to traditional notions of fundamental fairness.” Id. at 37. In refining the standard for an “outrageous conduct” due process claim, however, the court again concluded that the government conduct at issue failed to satisfy that threshold. With these general standards in mind, we turn now to Hasan‘s specific arguments.
Hasan first contends that the district court erred in concluding that Congress authorized the ATF to undertake the investigation that lead to his apprehension. He implies that the multiple sales of cigarettes to him by the ATF, anticipating the cigarettes would later be resold without payment of state taxes are outrageous acts, per se, because the ATF effectively distributed “contraband cigarettes.” We disagree.
As noted earlier, the CCTA specifically exempts from the definition of “contraband cigarettes” unstamped cigarettes that are in the possession of an “officer, employee, or other agent of the United States ... having possession of such cigarettes in connection with the performance of official duties.” See
Hasan‘s argument, however, is based on a misreading of the exemption language of the CCTA. The CCTA does not, as such, “authorize” federal agents to possess contraband cigarettes. Rather, under the plain language of the statute, when unstamped cigarettes are in the possession of federal agents (in the course of their official duties) the cigarettes are not “contraband” as a matter of law. This distinction is a significant one. Since the untaxed cigarettes are not contraband in the possession of federal agents, the subsequent distribution through undercover sales to cigarette traffickers is not a distribution of contraband cigarettes by the agents. The untaxed cigarettes only become contraband when they are then possessed by someone, like Hasan, not exempted from the statutory definition. See
Moreover, Congress has explicitly authorized federal law enforcement to conduct commercial endeavors in the context of undercover investigations, and to use the proceeds from these transactions to offset the costs of the undercover operation. See Departments of State, Justice, and Commerce, the Judiciary and Related Agencies Appropriations Act of 1992, Pub.L. No. 102-395, § 102(b)(1)(B), (D) (authorizing the Federal Bureau of Investigation and Drug Enforcement Administration to use appropriated funds to establish, inter alia, “business entities as part of an undercover investigative operation,” and authorizing “proceeds from such undercover operation [to] be used to offset necessary and reasonable expenses incurred in such operation“). This statutory authorization has also been specifically extended to the ATF. See Consolidated and Further Continuing Appropriations Act of 2012, Pub.L. No. 112-55 § 207 (“Public Law 102-395 section 102(b) shall extend to the [ATF] in the conduct of undercover investigative operations[.]“).
With this statutory foundation, it simply cannot be said that the actions undertaken by the ATF in this case were unlawful.
There is also no merit to Hasan‘s claim that ATF agents in this case otherwise engaged in behavior that is “offensive to traditional notions of fundamental fairness.” Osborne, 935 F.2d at 37. As we observed in Goodwin, “[o]utrageous is not a label properly applied to conduct because it is a sting or reverse sting operation involving contraband.” 854 F.2d at 37. We further reasoned in United States v. Milam, 817 F.2d 1113, 1116 (4th Cir.1987), that “Justice Powell‘s concurrence in Hampton recognized that the practicalities of law enforcement sometimes compel officers to provide supplies to drug manufacturing operations, or even to supply ‘contraband itself,’ and suggested that due process does not necessarily prohibit use of these and similar investigative techniques.” Thus, the mere fact that ATF sold untaxed cigarettes does not render their investigation outrageous.
In sum, we see no merit to Hasan‘s argument that the conduct of ATF agents in this case was unlawful, or otherwise “shocking,” or “offensive to traditional no
B.
Hasan also contends on appeal that the district court miscalculated the forfeiture amount by calculating the sum based on the gross proceeds, rather than profits, realized by the contraband cigarette distribution scheme. We find that his claim lacks merit and the district court did not err.
This Court reviews the district court‘s interpretation of statutory provisions de novo, Scott v. United States, 328 F.3d 132, 137 (4th Cir.2003), but will reverse its findings of fact only if we find them clearly erroneous. See, e.g., HSBC Bank USA v. F & M Bank N. Va., 246 F.3d 335, 338 (4th Cir.2001); see also United States v. Funds Held in the Name or for the Benefit of Wetterer, 210 F.3d 96, 106 (2d Cir.2000) (reviewing legal determination de novo and factual findings for clear error in applying civil forfeiture statute).
Pursuant to
The district court applied
In cases involving illegal goods, illegal services, unlawful activities, and telemarketing and health care fraud schemes, the term “proceeds” means property of any kind obtained directly or indirectly, as the result of the commission of the offense giving rise to forfeiture, and any property traceable thereto, and is not limited to the net gain or profit realized from the offense.
Hasan contends using subsection A was error and the district court should have instead applied subsection B, which states
In cases involving lawful goods or lawful services that are sold or provided in an illegal manner, the term “proceeds” means the amount of money acquired through the illegal transactions resulting in the forfeiture, less the direct costs incurred in providing the goods or services. The claimant shall have the burden of proof with respect to the issue of direct costs. The direct costs shall not include any part of the overhead expenses of the entity providing the goods or services, or any part of the income taxes paid by the entity.
In conducting our independent analysis into the categorization of “contraband cigarettes,” for forfeiture purposes, we look primarily to the statutory definition of that term. As explained supra, the CCTA defines “contraband cigarettes” as “a quantity in excess of 10,000 cigarettes, which bear no evidence of payment of the applicable State or local cigarette taxes in the State or locality where such cigarettes are found[.]”
By contrast, courts have found
Hasan also invokes the law of the case doctrine by arguing that the district court should have been bound by the statement it made in denying his motion to dismiss, that “apart from being untaxed and/or unstamped, [contraband cigarettes] are otherwise legal commodities.” (J.A. 165). He argues that this constitutes, in effect, a concession by the court that contraband cigarettes are lawful goods sold in an illegal way.
Once again, however, Hasan fails to recognize that contraband cigarettes, as defined by statute, are inherently unlawful goods. The district court‘s statement, that cigarettes are otherwise lawful (i.e., when they are properly taxed) is correct, but the cigarettes to which the court referred were not contraband cigarettes.
We therefore conclude that the district court properly calculated the order of forfeiture in this case.10
III.
For the foregoing reasons, the judgment of the district court is affirmed.
AFFIRMED