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Megaupload’s Kim Dotcom is indeed a fugitive — and his failure to surrender himself to U.S. authorities on charges of racketeering and criminal copyright infringement will cost him an estimated $67 million.
On Friday, in the most significant legal development in the case since the U.S. government decided in 2012 to crack down on Megaupload, then one of the world’s biggest internet sites, the 4th Circuit Court of Appeals affirmed a lower court’s decision to allow the feds to seize assets tied to what’s been deemed a “Mega Conspiracy.” The opinion rejects Dotcom’s jurisdictional challenges to how the court made an order on property outside its reach and rejects the contention that a federal statute disentitling fugitives from defending property claims against government forfeiture actions is a violation of due process rights.
The decision marks a huge victory for the U.S. Justice Department as it eyes assets tied to foreign corruption — and represents a massive blow to Dotcom, who, while still in New Zealand fighting extradition in a case now four years old, could find purse strings a big tighter.
In 2012, the feds indicted Dotcom and alleged co-conspirators, causing the shutdown of Megaupload. However, the government found getting them to a Virginia federal court to answer charges more difficult than it imagined. Getting antsy and under time sensitivities, the government in 2014 brought a civil complaint for forfeiture in rem, a maneuver to firmly establish hold over money from bank accounts, luxury cars, big televisions, watches, artwork and other property allegedly gained by Megaupload in the course of crimes. The following year, a judge let the government seize the assets.
On appeal, Dotcom’s lawyers made several challenges.
One was jurisdiction. The defendant pointed to the federal fugitive disentitlement statute to make the case that statutory language on jurisdiction spoke merely to venue, and that a court could only exert its will if it had sufficient control over the assets to do more than render an advisory opinion over ownership. An argument also came that the Virginia federal court didn’t have sufficient minimum contacts with the property at issue.
Writing for the majority (here’s the full opinion), 4th Circuit chief judge Roger Gregory rejects those arguments. He notes that there’s a circuit split throughout the nation’s appellate courts on the question of how to read the jurisdictional issue here, but says that legislative history and the plain meaning of the statutory text support an interpretation that a Virginia federal court had authority to rule.
As to the question of whether a seizure order really amounts to a nonbinding advisory opinion because other foreign courts are free to do as they will, Gregory writes that “the cooperation (or lack thereof) of foreign nations in enforcing any of the district court’s orders ‘determines only the effectiveness of the forfeiture orders of the district courts, not their jurisdiction to issue those orders'” and further, with reference to how the assets have already been placed in custody in New Zealand and Hong Kong, “the government has demonstrated that it is likely, rather than speculative, that these courts will honor a forfeiture order from the United States.”
Gregory also believes Virginia has sufficient contacts with the property. The digital nature of the alleged crime helps him get to this conclusion.
“The alleged Mega Conspiracy was a file-sharing scheme in which copyrighted files were illegally transferred to users around the world through the servers located in Ashburn, Virginia,” the judge writes.
Next, the 4th Circuit turns to the issue of fugitive disentitlement, which he notes began as a doctrine that allowed appeals courts to dismiss appeals from criminal fugitives who failed to surrender to authorities. In 1996, the Supreme Court struck down a use of disentitlement in a civil forfeiture action. Four years later, Congress passed the Civil Asset Forfeiture Reform Act, giving federal courts this authority again. Dotcom’s lawyers asserted that seizures under CAFRA violated due process rights by stripping him of a right to be heard.
Gregory rejects such an argument. He writes that the guarantees of due process don’t mean that defendants must get a hearing on the merits of a claim, only an opportunity to be heard before the government deprives them of property. “A party’s failure to take advantage of that opportunity waives the right it secures,” he adds.
Applying the principle to the case in question, the judge says the district court could factor Dotcom’s resistance to extradition to support its finding that the defendant had specific intent to evade prosecution and thus waived his right.
“Moreover, the district court did not rely solely on the claimants’ resistance to extradition. Instead, it reviewed each claimant and noted additional evidence of an intent to avoid prosecution,” he adds. ” For example, Kim Dotcom posted a message to Twitter stating ‘HEY DOJ, we will go to the U.S. No need for extradition. We want bail, funds unfrozen for lawyers & living expenses.’ The court rightly found this and other public statements to strongly suggest Dotcom was resisting extradition to posture for criminal proceedings, using the ability to avoid prosecution as leverage.”
Not all of the judges on the 4th Circuit agreed with Friday’s conclusion.
Circuit Judge Henry Floyd wrote in dissent that he thought the jurisdictional analysis was in error. Yes, a Virginia court may theoretically have Congressionally authorized jurisdiction, but there are still limits — like those limiting courts to proceed on cases that have actual adversarial issues (“justiciability“). Important in that consideration, he adds, is the topic of “bindingness.”
“The defendant in this action — the res [a legal term referring to the property] — is outside of the United States and beyond the control of the district court,” Floyd writes. “Absent control, no order of the district court can be binding on the res because the fate of the res is ultimately not in the hands of the district court. Instead, the res in this case is subject to the control of the courts of New Zealand and Hong Kong ….”
Given the advisory nature of a seizure order, and what he sees as the irrelevance of the question of foreign cooperation, Floyd states that under Article III of the U.S. Constitution, he would reverse. On Friday, he was outvoted. An petition to view the case before a fuller appellate panel or up to the Supreme Court is possible.
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