IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Transcription

1 IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT UNITED STATES OF AMERICA, ) ) Plaintiff - Appellant, ) ) v. ) CHRISTOPHER KIM, AKA Chris ) Kim, AKA KJ Kim, AKA Kyung ) Joon Kim; et al., ) ) Claimants - Appellees ) ) ) LAW OFFICE OF ERIC HONIG, ) ) Intervenor-Appellee, ) ) and ) ) 475 MARTIN LANE, BEVERLY ) HILLS, CALIFORNIA, Real ) Property Located at, AKA ) Seal A, ) ) Defendant. ) ) Nos , , D.C. No. 2:04-cv ABC-PLA Central Dist. of California, Los Angeles APPELLEES JOINT ANSWERING BRIEF LAW OFFICE OF ERIC HONIG Eric Honig CA Bar No P.O. Box Marina del Rey, CA erichonig@aol.com (T) (F) Attorney for Kim Claimants- Appellees and Intervenors-Appellees Law Office of Eric Honig and Eric Honig

2 CORPORATION DISCLOSURE STATEMENT Pursuant to Fed.R.App.P and 28(a)(1), the undersigned counsel represents that Intervenor-Appellee Law Office of Eric Honig is a corporation organized under the laws of the State of California established on February 8, It has no parent corporation and there is no public corporation that owns 10% or more of its stock. Dated: January 21, 2014 Respectfully submitted, LAW OFFICE OF ERIC HONIG /s/ Eric Honig ERIC HONIG Attorney for Appellees i

3 TABLE OF CONTENTS CORPORATION DISCLOSURE STATEMENT... TABLE OF AUTHORITIES... I i v I. STATEMENT OF JURISDICTION...1 II. III. STATEMENT OF THE ISSUES...1 STATEMENT OF FACTS...2 IV. SUMMARY OF ARGUMENT V. ARGUMENT A. The parties attorney-client representation agreements provided that the CAFRA fee awards belonged to the Law Office, all were prior in time to the government s tax liens, and the awards never belonged to the taxpayers, the Kim Claimants It is undisputed that the assignments of ownership of attorney fee awards were valid under California law and were prior in time to the government s tax liens Since the attorney fee awards are merely payable to the Kim Claimants, the awards do not belong to them; thus, the federal tax liens do not attach to those awards The assignments vested at the moment the Kim Claimants prevailed in this case B. The Act does not apply to attorney fee assignments in civil forfeiture proceedings, and thus does not apply to the subject fee awards ii

4 1. The defense of a civil forfeiture proceeding is not a claim against the U.S. government, and thus the Act does not apply to the attorney fee award assignments to the Law Office The Act s inapplicability to civil forfeiture cases, and assignments of attorney fee awards therein, is consistent with public policy a. Assignment of an attorney fee award is not an evil the Act was designed to prevent b. The government s argument conflicts with the vast body of law establishing the importance of attorney fee contracts and the practical reality that attorneys are the beneficiaries and presumably the ultimate recipients of attorney fee awards The government nevertheless waived application of the Act to the attorney fee award assignments As the opening brief concedes, it no longer provides warrants for payment; thus, since it is impossible to comply with the terms of the Act, it does not apply to the subject assignments The Act, as interpreted by the government, violates the Separation of Powers doctrine, and thus does not apply to the assignment of the court-ordered attorney fee awards C. The government should be judicially and equitably estopped from enforcing its tax levies against the attorney fee awards D. The Law Office s interest in the assigned attorney fee awards nevertheless have superpriority over the government s tax liens iii

5 E. The additional attorney fee awards must be paid if the Act does not apply to the assignments F. The government should be judicially estopped from arguing that the two corporate claimants and claimants Erica Kim and Christopher Kim are not one in the same for the purpose of the attorney fee awards VI. CONCLUSION STATEMENT OF RELATED CASES CERTIFICATE OF COMPLIANCE PURSUANT TO FED.R.APP.P. 32(a)(7)(C) AND CIRCUIT RULE iv

6 TABLE OF AUTHORITIES FEDERAL CASES...1 FEDERAL STATUTES AND RULES STATE CASES...22, 29 STATE STATUTES AND RULES...24, 25 MISCELLANEOUS...27 v

7 I. STATEMENT OF JURISDICTION Appellees agree with Appellant that this Court has jurisdiction over this appeal under 28 U.S.C II. STATEMENT OF THE ISSUES 1. Whether the Anti-Assignment Act (( the Act ) invalidates the Kim Claimants assignments to the Law Office of attorney fee awards ordered in this case, despite the fact that the Act does not apply to civil forfeiture cases. 2. If the Court determines that the federal tax liens are superior in time to the assignments because of on non-compliance with the Act, whether the superpriority section of the tax code nevertheless requires the government to pay the fee awards directly to counsel. 3. If the Court agrees with the government s interpretation of the Act, whether the government nevertheless should pay 2/5 of the fee awards directly to counsel, instead of the 2/7 it previously paid, based on the government s judicially-admitted alter-ego tax liens. 1

8 III. STATEMENT OF FACTS In 2004 and 2005, Appellant United States of America ( the government ) filed three civil forfeiture complaints in the Central District of California against numerous assets seized by the government. The three actions were consolidated under United States v. 475 Martin Lane, CV ABC. [CR 1 in CV ABC; CR 1 in United States v. 924 N. Beverly Drive, CV ABC; and 1 CR 1 in United States v. All Funds, CV ABC]. The government recorded a lis pendens in both of the cases filed against real property (thereby placing a cloud on the title of those homes), and served warrants of arrest in rem on the personal property, which included several bank accounts, vehicles, and household furniture. [CR 36; CR 23 in CR/CV , CR 6, 8, 20 and 34 in CR/CV ; CR 1009, ER 250]. The forfeiture complaints alleged that three members of the Kim family 1 CR means the Clerk s Record below in CV ABC, listed by the document control number. CR/CV " means the Clerk s Record in 924 N. Beverly Drive, and CR/CV " means the Clerk s Record in All Funds, CV ABC. CR/CV " means the Clerk s Record in the related wrongful levy case of Honig v. United States, CV ABC. ER means the Appellant U.S. government s excerpts of record. SER means the joint supplemental excerpts of record of the Kim Claimants-Appellees and Intervenors- Appellees Law Office of Eric Honig and Eric Honig. Each reference is listed by the volume and exhibit number (if applicable), and page numbers. 2

9 defrauded two Korean companies of over $30 million and wire-transferred approximately $24.8 million to bank accounts they controlled in the United States, and used said funds to obtain the assets seized by the United States. [CR 1 in ; SER ](Beverly Drive complaint, pp Five Kim claimants, along with two companies they incorporated, filed various claims to the seized homes and other assets: Christopher Kim and Alexandria Investment, Inc.; his wife, Bora Lee; his sister Erica Kim and First Stephora Avenue, Inc.; and her parents Se Young Kim and Young Ai Kim ( the parents )(together hereinafter referred to as the Kim Claimants ). [CR 1036, ER 2; CR 37 and 38 in CV ; CR 22 in CR/CV , SER ; CR in CR/CV , SER ]. In March 2006, the Kim Claimants retained attorney Eric Honig to defend against the government s three civil forfeiture actions. Claimant Erica Kim signed an agreement for Honig and his office ( the Law Office ) to represent all of the Kim claimants in the civil forfeiture cases. [CR 1009, , ER , 251]. Since nearly all of their assets were seized by the government, the Kim Claimants did not have the funds to pay attorney fees in advance, thus necessitating an agreement to defer payment until the case was resolved. [CR 20 in CR/CV , SER ](p. 32 of MSJ). In addition, the Kim Claimants faced parallel related civil lawsuits seeking damages filed by Korean corporations DAS 3

10 Corporation and Optional Capital, Inc., who had filed third-party claims in the forfeiture actions against all of the seized assets. [CR 849, SER ; CR 1036, ER 7](DAS motion to dismiss claims, p. 1) The agreement thus provided, inter alia, that assuming the Kim Claimants prevailed against the government in the case, if the Court ordered the government to pay statutory attorney fees, then those fees belonged and thus were assigned to the Law Office. [CR , 1009; ER , 251]. On May 24, 2006, the Kim Claimants moved for summary judgment against the government. [CR 162]. On March 14, 2007, they prevailed when the district court ( D.C. ) granted their motion and entered a final judgment in their favor. [CR 325, 326; CR 21 in CR/CV , SER ](p. 2 of Uncontroverted Facts). The government, along with DAS and Optional, appealed those judgments. [CR 376, 394, 400, 1036; ER 2]. On May 17, 2007, the Law Office and Erica Kim signed an additional representation agreement for legal services, this time to represent the Kim Claimants in their defense of the appeal. This agreement provided that the Law Office would be paid on an hourly basis, but would again defer payment from the clients and first seek payment of attorney fees through a statutory fee award against the government should they prevail again. The agreement also expressly 4

11 provided that any fees awarded by the court would belong to the Law Office and not the clients. [CR ; 1009, ER , 251]. On February 12, 2008, pursuant to 28 U.S.C. 2465(b), the fee-shifting statute passed as part of the Civil Asset Forfeiture Reform Act of 2000 ( CAFRA ), the D.C. granted the Kim claimants motion for attorney fees incurred in the D.C. On March 19, 2008 the D.C. found the government liable for a total of $1,172, in fees. [CR 1009; ER 252]. On April 9, 2008, the government appealed the D.C. s attorney fee award, CA No [CR 446]. On April 21, 2008, the Law Office and Erica Kim executed a representation agreement for legal services to represent the Kim Claimants in their defense of that appeal. This agreement also provided that the Law Office would be paid on an hourly basis, but would defer payment until the appeal s resolution and seek payment of attorney fees by the government through a statutory fee award if the clients prevailed on appeal. The agreement further expressly provided that any fees awarded by the court belonged to the Law Office and not the clients. [CR , 1009; ER , ]. On October 3, 2008, on appeal of the merits, this Court affirmed. [CR 485- th 4]. cite 9 Cir. Ruling). In a separate order issued the same day, the Court reversed the D.C. s earlier dismissal as to some properties and remanded the 5

12 action to the D.C. to determine the claims of the parties to those properties. [CR th 486-2]. Cite (9 Cir. Opinion). After the mandate was issued, on November 17, 2008 the parties filed a joint status report with the D.C. in which the government conceded that its claims to the summary judgment properties had been extinguished; however, it did not so concede as to the properties previously dismissed. In that report DAS and Optional stated their intentions to continue litigating as to all properties. [CR 488; SER ](11/17/08 joint status report). In January 2009 the Kim Claimants moved to dismiss the remaining claims of DAS and Optional as to the summary judgment properties, and for summary judgment as to all parties as to the other properties. [CR 510, 512]. On January 30, 2009 this Court granted the Kim Claimants application for attorney fees incurred in the government s appeal of the summary judgment. On February 11, 2009, the Court referred to the Appellate Commissioner the determination of the amount of the fees to be paid by the government. See CA No It was not until April 7, 2009, after the Kim Claimants already had prevailed against the government, and the government already had conceded that its claims to the summary judgment properties had been extinguished, and after both the 6

13 D.C. and this Court granted applications for attorney fee awards, that the IRS served levy notices alleging $24.2 million in federal tax debts by claimants Christopher Kim/Alexandria Investment, LLC and Bora Lee, and $1.2 million in tax debts by Erica Kim/First Stephora, Inc. for tax years These levies were served more than five years after the government filed its first civil forfeiture cases against the Kim Claimants assets, and four years after filing the last. [CR 1036; ER 4-5]. The levies related to notices of federal tax liens filed by the IRS in June 2008 and February 2009 against Erica Kim and her alter ego First Stephora, and in April 2009 against Christopher Kim (and his alter ego Alexandria Investment) and Bora Lee. No levies were filed as to any tax liens by the parents. Id. On May 25, 2009, promptly after service of the tax levy notices, the Law Office moved for recognition of the priority of its liens vis-a-vis the government. [CR 584]. The D.C. denied the motion [CR 603]. On October 19, 2009 the Law Office filed a separate wrongful levy action, Honig v. United States, CD/CA CV ABC, which the D.C. related to the forfeiture cases on the trial court docket sheet. [CR 1 in CR/CV ; ER 345; SER ](docket sheet, p. 2). On October 9, 2009, this Court granted the Kim claimants motions regarding the seized assets, and on October 13, 2009 entered a final judgment 7

14 dismissing the summary judgment properties and ordering execution of the March 14, 2007 final judgment (based on the affirmed summary judgment), and a final judgment dismissing the May 2004 properties and ordering the government to release the assets to the Kim Claimants, inter alia. [CR 604, 605, 606]. The government did not appeal those judgments, although DAS and Optional did. [CR 607, 608; ER ]. On November 2, 2009, the Law Office filed a motion to intervene in the forfeiture actions, providing the D.C. and the government with copies of the March 2006 and May 2007 representation agreements containing the assignments of the attorney fee awards. [CR 635; SER ] Exhs. 7 and 8)]. On December 17, 2009, the D.C. denied intervention, agreeing with the government that the Law Office had a potential remedy to have its interests recognized in the wrongful levy action. [CR 654; SER ]. On January 25, 2010, the D.C. ordered the government to pay an additional $282,650 in attorney fees incurred by the Kim Claimants, and to deposit the fees with the Clerk of Court pending the Law Office s wrongful levy action. [CR 657]. The government did not appeal this order. [ER ]. On March 8, 2010, the Law Office and the government filed cross-motions for summary judgment in the wrongful levy action. On July 19, 2010, since the 8

15 government had not tried to execute pursuant to the levies, the D.C. granted the government s motion and denied the Law Office s motion without prejudice. [CR 70 in CR/CV ]. On the same date, however, the D.C. reconsidered its earlier denial of intervention to the Law Office, and on July 19, 2010 issued an order granting intervention. The court determined that the government had changed its positions regarding the appropriate forum, and ultimately held that the fee awards are payable directly to the Law Office. [CR 689, SER ].(pp. 5-9) The D.C. also issued a minute order expressing its disappointment in the government s ever-shifting positions. [CR 690, SER ] On September 21, 2010, pursuant to a stipulated judgment between the government and the Law Office, the D.C. awarded fees in the amount of $159, directly to the Law Office for fees associated with the Law Office s intervention and the wrongful levy action. The judgment ordered the government to pay half of the fees within 45 days, and the other half within 45 days after a final determination affirming that the CAFRA fee awards belong to Law Office. [CR 701, 702, SER ]. On November 24, 2010, the Commissioner awarded the Kim Claimants $190,770 in attorney fees against government due to its unsuccessful appeal of the summary judgment, C.A. No [CR 1036, ; ER 3, ]. The 9

16 Commissioner stayed payment of those fees pending the disposition of the government s appeal (No ) of the D.C. s initial attorney fee award. See C.A. No On December 15, 2010, this Court reversed the D.C. s grants of summary judgment and dismissal as to the claims of DAS and Optional, and remanded for further proceedings. See C.A. No In its appeal of the D.C. attorney fee award, on May 8, 2012 the government filed a joint motion with the Law Office to vacate the D.C. s decision finding that the CAFRA fee awards belong to the attorney, not the clients, and to remand to the D.C. for further proceedings in light of this Court s order in U.S. v. $186, in th U.S. Currency, 642 F.3d 753 (9 Cir. 2011), holding that fee awards under CAFRA are payable to a claimant. See July 12, 2012 Order, C.A. No In the motion, the parties requested a remand to permit the D.C. to address, in the first instance, whether the government s [tax] liens or the prevailing claimant s attorney s [Honig s] liens have priority as to the fee award. The motion also stated that [a]lthough Honig raised alternative arguments in the D.C. to support his claim of entitlement to the Fee Award based on the purported priority of his lien over that property, the D.C. never reached those arguments. Vacating the judgment and remanding is therefore necessary in this case to permit 10

17 the D.C. in the first instance to address those arguments. See Motion, C.A. No , pp. 4, This Court granted the motion on July 12, See Order, C.A. No On July 31, 2012, the Appellate Commissioner awarded $61,115 in attorney fees against the government due to its unsuccessful appeal of the D.C. attorney fee award. The Commissioner also held that the D.C. must consider in the first instance the same questions regarding the ownership of the fee award and the priority of the Law Office and government liens with respect to the award. It stated that a review of the D.C. pleadings shows that the Law Office argued in the D.C. that all of the fee agreements between the Kim Claimants and Honig contained an express agreement that any fees awarded by the court belong to the Law Office. The Law Office had further argued that those fee agreements gave his attorney s liens priority over the government s tax liens. The Commissioner held that the final determination of those questions would apply to both Circuit attorney s fees awards. The Commissioner stayed the government s payment of the fees awarded in that order pending final determination of the priority of the liens. See Order, C.A. No , at p. 17; [CR ; ER ] On remand, on August 30, 2012 the Law Office moved to determine ownership of all the attorney fee awards ordered in this case. [CR 1008; ER

18 248]. The government s opposition conceded that the provision in the D.C. representation agreement regarding payment of the fee awards was valid and effective so that the share of the attorney fee awards allocated to the parents belongs to Honig. [CR 1015, SER ](govt opp to motion to determine ownership, 5-6, On September 17, 2012, prior to the D.C. s determination of that motion, the government filed a stipulation recognizing and ratifying the validity of the Law Office s ownership of attorney fee awards provided for in each of the three representation agreements, and agreeing to partial payment of the awards directly to the Law Office. The government agreed that for each award of attorney s fees, judgment was awarded to the Kim claimants, of which 1/7 belongs to Se Young Kim and 1/7 belongs to Young Ai Kim. These parties in turn have assigned their share of the awards to Eric Honig. The government further agreed that [t]his resolves the remand from the Ninth Circuit for docket numbers , , and , and resolves the claims in intervention of the United States of America, the Law Offices of Eric Honig, and Eric Honig as to the portions of the attorney s fees awards to be distributed pursuant to this stipulation. [CR 1020; ER ]. On October 5, 2012, the D.C. entered an order determining ownership of the 12

19 attorney fee awards in favor of the Law Office. The court found that the $186, in U.S. Currency panel s citation to Gilbrook v. City of Westminster, 177 F.3d 839 (9th Cir. 1999), indicated that assignments of attorney fee awards are effective: In the absence of a contractual assignment to counsel, 1988 requires that attorney fee awards be made directly to the prevailing party. Gilbrook, 177 F.3d at 875 (emphasis added). The D.C. further noted that the Supreme Court, construing the Equal Access to Justice Act s fee-shifting provision in Astrue v. Ratliff, 560 U.S. 586, 130 S.Ct. 2521, 2527, 2529 (2010), acknowledged the nonstatutory (contractual and other assignment-based) rights that typically confer upon the attorney the entitlement to payment of the fees award the statute confers on the prevailing litigant. [CR 1036; ER 8-9]. The D.C. s order then rejected the government s argument that the attorney fee awards were not final under 28 U.S.C. 2414, and thus could not be assigned pursuant to the Anti-Assignment Act, 31 U.S.C. 3727, because the U.S. Attorney General did not certify their finality by choosing not to appeal further. The court said that the Act makes no mention of finality and none of the Act s three requirements appear to incorporate a finality requirement. [CR 1036; ER 9-12]. The court noted that if the government were correct in its view that the Act rendered the assignments void, then the Act would also have voided the 13

20 assignments on behalf of the parents. The government, however, agreed in the stipulation to pay the portion of the fees attributable to the parents, because they have assigned their share of the awards to Eric Honig. Since the government stipulated that the parents portions of the fees belonged to the Law Office, the court held that it was clear that the government has taken inconsistent positions on whether the Act voided the clients agreements. [CR 1036; ER 10-11, n. 2]. The D.C. concluded that the Kim Claimants assignments of their fee awards to the Law Office were effective. Because these assignments occurred before the IRS filed its NFTLs, they are effective as against any attempt by the IRS to satisfy its later-filed NFTLs against those fee awards. Because these fees belong to the Law Office, they shall be paid directly to the Law Office. [CR 1036; ER 12]. Finally, the D.C. noted that 26 U.S.C. 6323(b)(8) expressly gives an attorney s lien upon a contract for reasonable compensation super priority over federal tax liens, except to the extent that the government offsets such judgment or amount against any liability of the taxpayer to the United States. The D.C. reiterated that the Law Office holds a valid attorney s lien on any judgment awarded the Kim Claimants as of March 19, Thus, under section 6323, the government s tax liens shall not be valid as against the Law Office s lien in 14

21 those same fees. Moreover, the government admitted that it was not seeking to offset the judgment against the Kim Claimants tax debts: the Kim claimants citation to 31 C.F.R is not relevant as it deals with offsets. An offset is a collection tool...distinct from liens and levies...in this case, the government has recorded notices of federal tax liens (NFTLs) and issued levies. The rules for offsets are separate and distinct from liens and levies, and the Kim s argument to the contrary is irrelevant. [CR 1036; ER 13]. Thus, the D.C. held, because the government said it was not seeking an offset, the attorney lien in the fee judgment has superpriority over the tax liens. The court ordered that the government s claim to the fee awards was inferior and the fee award should be paid directly to the Law Office. [CR 1036; ER 13-14]. The government has appealed that order. [CR 1061]. On October 8, 2013, the D.C. entered an order on the stipulation between the government and the Law Office to pay a portion of the assigned attorney fee awards directly to the Law Office. [CR 1037; SER ]. On November 13, 2013, in part because the government did not file an opposition per the D.C. s local rules, the court awarded $39, in attorney fees earned by the Law Office and incurred by the Kim Claimants in moving to have the fee ownership issue determined. [CR 1086, 1087; ER 17-21]. On November 16, 2012, the government moved for relief from that judgment, which 15

22 the Law Office and Kim Claimants opposed on November 23, [CR 1089, 1091]. After the government filed a reply on December 3, 2012, the court denied the motion on March 15, 2013 and awarded $8, in additional fees. [CR 1094, 1106; ER 22-25]. The government filed notices of appeal on March 28, [CR 1108, 1109]. Neither the government s excerpts of the record or anything in the district or appellate courts records in this case indicate that the government has ever allowed the attorney fee awards to be paid or issued a warrant for payment of the fees. [CR, ER]. IV. SUMMARY OF ARGUMENT At the time the Law Office in March 2006 was retained by the Kim Claimants to contest the government s taking of their assets, the government had not filed or served any notice of any federal tax debt on the Kim Claimants. Since the government had seized all of the Kim Claimants assets, they had no funds to pay counsel s fee in advance, so the Law Office agreed to defer payment of its fee. The Law Office agreed to look to a statutory attorney fee award for payment, and the clients assigned such fee awards to the Law Office, since it was the attorney who would be performing the work and earning the fees. 16

23 The Law Office then litigated the case intensively and extensively on behalf of its clients for the next year. The result: complete victory against the government by way of summary judgment in March After the government appealed, the Kim Claimants agreed that any statutory attorney fee awards belong to and should be paid directly to the Law Office, which again agreed to defer payment of the fees and the clients. The government still had not filed or served any notice of any federal tax lien. While the appeal was pending, the D.C. ordered the government to pay an attorney fee award pursuant to 28 U.S.C. 2465, which holds the government liable for attorney fees a claimant incurs while defending against civil forfeiture. When the government appealed that award, the Law Office again agreed to defer payment and the clients agreed that any statutory fee awards belong to and shall be paid directly to the Law Office. The government still had not filed or served any notice of any tax lien. After this Court affirmed the summary judgment against the government but remanded to the D.C. to determine other parties claims, the government conceded its claims to most of the assets had been extinguished. The Kim Claimants moved for final judgment as to the claims of all parties, the government still had not filed or served any notice of any federal tax lien. 17

24 When this Court later awarded attorney fees incurred in the government s appeal of the summary judgment, the government still had not filed or served any notice of any federal tax lien. It was not until months later, 1) more than three years after the D.C. assignment was executed and perfected, 2) more than two years after the Kim Claimants prevailed against the government on summary judgment, 3) more than a year after the D.C. entered its initial attorney fee award, and 4) six months after this Court affirmed the summary judgment, that the government finally filed and served a notice of a federal tax debt on some of the Kim Claimants. After the D.C. and this Court entered additional fee awards compensating the Law Office s work in fighting off the government s continued attempts to salvage something from its losing case, the D.C. held that the assignments of the fee awards pre-existed and had priority over the government s late- and later-filed tax liens. In the instant appeal, the government in essence has argued that no attorney has the right to be paid for his work through an attorney fee award unless the government consents. The government argued that the antiquated Anti- Assignment Act ( the Act ) automatically invalidates all clients assignments of attorney fee awards to their attorneys. The government s theory is specious, for 18

25 many reasons. 1. The attorney fee awards never belonged to the Kim Claimants, since they agreed in their attorney-client representation contract that the fee awards belonged to the Law Office. The Law Office s ownership of the fee awards vested at the moment the Kim Claimant substantially prevailed in this case against the government in the D.C., which pre-dated the government s tax liens. 2. All circuit courts that have addressed the issue has held that the Act is inapplicable to civil forfeiture cases, because a property owner s effort to defend against the government seeking to forfeit her property is not a claim against the government otherwise proscribed by the Act. Since an attorney fee award derived from the defense is part of the government s civil forfeiture proceeding, the Act is inapplicable to the fee awards in this case. 3. Attorney fee award assignments nevertheless are not the evil the Act was designed to prevent, and thus the Act does not invalidate them. The government s interpretation of the Act seriously conflicts with established precedent citing the importance of attorney fee contracts and emphasizing that attorneys are and should be the beneficiaries of attorney fee awards. If the government can unilaterally invalidate attorney fee payment terms of private attorney-client contracts, that would chill representation of clients who cannot 19

26 afford to pay attorney fees in advance. Moreover, it likely would create additional, unnecessary litigation between attorneys and clients should clients refuse to honor assignments after receiving payment of the fees. 4. The government waived application of the Act in this case, since it recognized and ratified the assignments by admitting that a portion of the awards belong to and thus should be paid directly to the Law Office. 5. As the opening brief judicially admitted, it is impossible for any attorney or client to comply with the terms of the Act, since the government no longer provides warrants for payment. 6. Application of the Act to attorney fee awards would violate the Separation of Powers doctrine, since it ostensibly empowers the government to unilaterally decide whether or not to comply with court orders. 7. The government should be judicially and equitably estopped from invoking the Act because of its improper conduct in choosing to seek civil forfeiture of the Kim Claimants assets until it lost on appeal, and then reversing course and filing tax liens and levies after nearly all of the successful litigation work was performed. 8. If the Act is applicable, thus making the government s tax liens superior in time, then the superpriority section of the tax code still requires the 20

27 government to pay the attorney fee awards directly to the Law Office. 9. If the Act is applicable and superpriority is not, the Court should find that since the government contends that the companies owned by Mr. Kim and Ms. Kim are their alter egos for the purpose of its tax liens, then the same is true for the purpose of payment of attorney fees, so that the individual and their business together constitute one person. Therefore, there are only five total clients, not seven, so that the fee awards should be divided by five for the purpose of distribution. V. ARGUMENT Standard of Review A D.C.'s findings of fact are reviewed for clear error. Freeman v. Allstate Life Ins. Co., 253 F.3d 533, 536 (9th Cir.2001). Clear error review is deferential to the D.C., requiring a definite and firm conviction that a mistake has been made. Easley v. Cromartie, 532 U.S. 234, 242, 121 S.Ct. 1452, 149 L.Ed.2d 430 (2001). If the D.C.'s findings are plausible in light of the record viewed in its entirety, the appellate court cannot reverse even if it is convinced it would have found differently. United States v. Working, 224 F.3d 1093, 1102 (9th Cir.2000)(en banc). 21

28 A D.C.'s conclusions of law are reviewed de novo. Freeman, 253 F.3d at 536. However, if the application of the law to the facts requires an inquiry that is essentially factual, review is for clear error. Koirala v. Thai Airways Int'l, Ltd., 126 F.3d 1205, 1210 (9th Cir.1997). A. The parties attorney-client representation agreements provided that the CAFRA fee awards belonged to the Law Office, all were prior in time to the government s tax liens, and the awards never belonged to the taxpayers, the Kim Claimants. The Kim Claimants valid, prior-in-time attorney-client representation agreements establish that the attorney fee awards belong to and must be paid directly to the Law Office. 1. It is undisputed that the assignments of ownership of attorney fee awards were valid under California law and were prior in time to the government s tax liens. In applying a federal revenue act, state law controls in determining the nature of the legal interest which the taxpayer had in the property. Morgan v. Commissioner, 309 U.S. 78, 82, 60 S.Ct. 424, 426, 84 L.Ed. 585 (1940). Federal law determines the priority of competing liens and generally, the rule of first in time, first in right applies. United States v. New Britain, 347 U.S. 81, 86-87, 74 S.Ct. 367, , 98 L.Ed. 520 (1954). In California, different liens upon the same property have priority according to the time of their creation. California Civil 22

29 Code Section In California, a lien may be created by contract, and an agreement may provide for a lien to be created as security for property to be acquired in the future. California Civil Code Sections 2881 and In particular, a lien for legal services rendered in favor of an attorney upon the proceeds of a prospective judgment in favor of his client may be created either by express contract or may be implied if the retainer agreement between the lawyer and client indicates that the former is to look to the judgment for payment of his fee. Cetenko v. United California Bank, 30 Cal.3d 528, 531, 638 P.2d 1299 (Cal. 1982)(lien contained in retainer agreement had priority over third party's judgment lien because it was created earlier in time; court rejected claim attorney had invalid secret lien ). The opening brief admitted to the validity under California law of the attorney fee award assignments as of the dates of the representation agreements (March 2006, May 2007, and April 2008): [T]he agreements would appear to be sufficient as a matter of California law to give Honig a lien on the fee awards. Opening Brief, pp ; see also Waltrip v. Kimberlin, 164 Cal.App.4th 517, , 79 Cal.Rptr.3d 460 (Cal.App. 3 Dist. 2008)( attorney's contractual lien is created and takes effect when the fee agreement is executed. ); see also In re Freeman, 489 F.2d 431, (9th Cir. 1973)(assignor completely and 23

30 irrevocably parted with her interest in transferred property, so since local law recognizes validity of the assignment as of its date, the Act did nothing to disturb this result). The government further admitted that it did not file any tax lien notices against the Kim Claimants until June 2008 and February 2009 (Erica Kim), April 2009 (Christopher Kim and Bora Lee) and April 2010 (alter ego claims). Opening Brief, pp Thus, it is undisputed that the attorney-client agreements assigning ownership of the attorney fee awards in this case to the Law Office were valid under California law and first in time vis-a-vis the subject federal tax liens. 2. Since the attorney fee awards are merely payable to the Kim Claimants, the awards do not belong to them; thus, the federal tax liens do not attach to those awards. The subject attorney fee awards never belonged to the Kim Claimants, but only were payable to them. In United States v. $186, in U.S. Currency, 642 F.3d 753 (9th Cir. 2011), this Court merely held that under CAFRA, attorney fee awards are payable to the claimants. The government has argued that since the attorney fee awards ordered in this case are payable to the Kim Claimants, then the Act can be used to invalidate their agreements that the fee awards belong to the Law Office. The government wants to take those awards using federal tax liens filed against three 24

31 of the Kim claimants and their alter egos. But see, Astrue v. Ratliff, 560 U.S. 586, 130 S. Ct. 2521, 2529, 177 L. Ed. 2d 91 (2010)(stating that recent U.S. Supreme Court cases recognize the practical reality that attorneys are the beneficiaries and, almost always, the ultimate recipients of the fees that the statute awards to prevailing parties, however these cases emphasize the nonstatutory (contractual and other assignment-based) rights that typically confer upon the attorney the entitlement to payment of the fees award the statute confers on the prevailing litigant. ). As support for its argument, the opening brief sought to rely on 26 U.S.C. 6321, which provides that the amount of federal tax owed by a person shall be a lien in favor of the government upon all property and rights to property belonging to such person. 26 U.S.C In this case, however, it is undisputed that the attorney-client agreements containing the assignments of attorney fee awards were executed prior to the filing of the tax liens, and that the government recognized that these agreements were valid and effective under California law. The remaining unpaid portion of the attorney fee awards are merely payable to the Kim Claimants, and have never belonged to the Kim Claimants. [ER 229, 233, 238]. Accordingly, since the attorney fee awards were assigned before the federal 25

32 tax liens arose and never belonged to the Kim Claimants, those liens cannot attach to any of those awards. Thus, the D.C. s judgment that the awards belong to and should be paid to the Law Office should be affirmed. 3. The assignments vested at the moment the Kim Claimants prevailed in this case. The representation agreements expressly provided that attorney fee awards ordered in this case belong to the Law Office. The government admitted these assignments are valid and enforceable as between the Law Office and its clients. Only one other condition had to be fulfilled before the assignment became fully executory and the Law Office s ownership of the fee awards vested, i.e., the Kim Claimants had to prevail against the government. They did, by summary judgment on March The government s first tax lien, however, was not filed until more than a year later. Once the Kim Claimants prevailed, their right to a statutory attorney fee award was triggered. At that same moment, the Law Office s ownership of such awards automatically vested because of the attorney-client contract. Gilbrook, 177 F.3d at (lawyers can protect their interest in a fee award simply by executing contracts, and the ultimate disposition of the award dependent on the contract between the lawyer and the client). Once the Kim Claimants moved for 26

33 attorney fee awards, determination of the amount of the fees then became merely a ministerial or administrative act. The government s tax liens have no effect as against the attorney fee awards, since at the moment the government lost its case, the attorney fee awards belonged to and were payable to the Law Office. Consequently, the D.C. s orders should be affirmed. B. The Act does not apply to attorney fee assignments in civil forfeiture proceedings, and thus does not apply to the subject fee awards. The Act defines an assignment as a transfer or assignment of any part of a claim against the United States Government or of an interest in that claim, or the authorization to receive payment of any part of that claim. 31 U.S.C. 3727(a). The Act also states that an assignment may be made only after a claim is allowed, the amount of the claim is decided, and a warrant for payment of the claim has been issued. The Act further provides that the assignment shall specify the warrant, must be made freely, and must be attested to by two witnesses, and the person making the assignment shall acknowledge it before an official who may acknowledge a deed, who shall certify the assignment by stating that he completely explained it when it was acknowledged. 31 U.S.C. 3727(b). The Act was intended to prevent traffic in government claims, which would 27

34 breed corruption and influence-peddling, and to avoid the proliferation of claims and claimants, which would increase the government's risks and burdens in the handling and payment of claims. United States v. Aetna Casualty & Surety Co., 338 U.S. 366, 373, 70 S.Ct. 207, 211, 94 L.Ed. 171 (1949)(Act s primary purpose was undoubtedly to prevent persons of influence from buying up claims against the United States, which might then be improperly urged upon officers of the government, and to prevent possible multiple payment of claims, to make unnecessary the investigation of alleged assignments, and to enable the government to deal only with the original claimant). Other courts later found another purpose of the statute, to save to the United States defenses to claims by an assignor by way of set-off or counter claim that might not be applicable to an assignee. United States v. Shannon, 342 U.S. 288, , 72 S.Ct. 281, 284, 96 L.Ed. 321 (1952). As shown below, the defense against a civil forfeiture action is not a claim against the U.S. government, so the Act is inapplicable to civil forfeiture actions and inapplicable to the Kim Claimants assignment the Law Office of the attorney fee awards derived from defending against the government s forfeiture action. Even if the Act applied to civil forfeiture cases, the government admitted that warrants no longer exist, so no litigant could even comply with the Act. In 28

35 addition, the government s control of whether to allow a claim violates the separation of powers doctrine. Moreover, the government s brief never identified who is an official who may acknowledge a deed. Nevertheless, the government waived application of the Act to the attorney fee awards, since it recognized and ratified the assignments by admitting a portion of the fees should be paid directly to the Law Office pursuant to those assignments, and has paid nearly 30% of those fee awards directly to the Law Office. Although the opening brief admitted that the Act does not absolutely prohibit the assignment of claims, its position in this appeal is that the Act invalidates in every single attorney-client representation agreement all assignments by clients of attorney fee awards to their attorney, unless the government chooses to waive the terms of the Act. The government s arguments are wholly without merit. 1. The defense of a civil forfeiture proceeding is not a claim against the U.S. government, and thus the Act does not apply to the attorney fee award assignments to the Law Office. A property owner who defends against a civil forfeiture action prosecuted by the government does not make a prohibited claim against the U.S. government, but makes merely a claim to the property in dispute, and thus an assignment of the proceeds from the forfeiture claimant s success in a forfeiture 29

36 case does not violate the Act. Consequently, any attorney fee awards ordered as a result of the property owner s successful defense against civil forfeiture are derived from that defense within the same proceeding, and also are not claims against the government. Every Circuit court to address this issue has held that the defense of a civil forfeiture action is not a claim against the U.S. government and therefore assignments in civil forfeiture actions are not barred by the Act. For example, in United States v Pounds of Semi-Precious Stones, 7 F.3d 480 (6th Cir. 1993), the Sixth Circuit held: [T]he Assignment of Claims Act was not designed to apply to forfeiture actions. A forfeiture action is brought by the United States as plaintiff against an inanimate object as defendant. Any person with a claim to the inanimate object intervenes as a claimant. These intervenors have claims that compete with the claim of the United States, but there are no claims against the United States in a forfeiture in rem action brought by the United States. Therefore, the assignment to [intervening assignee] Newport was not barred by the Assignment of Claims Act. Id. at 484 (emphasis added); see also, United States v. Thirteen Thousand Dollars in U.S. Currency, 733 F.2d 581, 584 (8th Cir. 1984)(since forfeiture claimant did not assign a claim against the United States to his attorneys, compliance with the Act was not necessary); United States v. Currency Totaling $48,318.08, 609 F.2d 210, 213 (5th Cir. 1980)(since the Act applies only to assignments of any claim 30

37 upon the United States, it did not apply to assignment to attorney to pay for legal services); see also, United States v. $22, in Currency, 332 F. Supp (E.D. La. 1971)(same). The $22, court held that an IRS jeopardy assessment and notice of levy given to the U.S. Marshal was ineffective against the defendant currency, which had been previously assigned to the attorneys, since the assessment was made against the property owners: The rights of the United States are good only against property owned by those taxpayers at the time the levy was made. See 26 U.S.C Prior to that time, ownership of the $20, had been conveyed to the claimants attorneys. 2 It cannot be disputed that the overwhelming body of federal case law holds that the Act does not apply to assignments of attorney fees in civil forfeiture cases. Thus, none of the non-civil forfeiture cases cited in the opening brief (pp ) 2 The operative civil forfeiture statute confirms that the government is the prosecuting party and the property owner merely seeks to defend his property against forfeiture, and thus civil forfeiture defense is not a claim against the U.S. government. See, e.g., 18 U.S.C. 983(a), (b), (c), (d) and (g)(if property owner contests a seizure, government must file its judicial forfeiture action within 90 days or return the property to the person from whom it was seized; appointment of counsel to property owners who are financially unable to obtain representation by counsel to defend against government s forfeiture action; burden of proof on government to establish that property is subject to forfeiture; owners may assert innocent owner affirmative defense to forfeiture action; and court shall reduce or eliminate the forfeiture as necessary to avoid a violation of the Excessive Fines Clause of the Eighth Amendment of the Constitution). 31

38 are relevant to the instant case. Since the Act does not bar assignments of portions of the property in dispute, it follows that if a property owner forced to defend against the government s forfeiture action substantially prevails against the government, and is awarded attorney fees incurred and derived in that defense, then the Act does not bar assignment of those fee awards to the attorney who earned the fees. CAFRA specifically provides that in any civil proceeding to forfeit property under any provision of Federal law in which the claimant substantially prevails, the U.S. shall be liable for reasonable attorney fees and other litigation costs reasonably incurred by the claimant. 28 U.S.C. 2465(b)(1)(A); United States v. $60, U.S. Currency, 291 F. Supp. 2d 1126, 1129 (C.D. Cal. 2003) amended in part sub nom. United States v. $60, in U.S. Currency, 2003 WL (C.D. Cal. June 18, 2003)(CAFRA states that reasonable attorney fees shall be awarded to claimant in any civil proceeding to forfeit property... in which the claimant substantially prevails. ). Therefore, it cannot be disputed that the Act does not apply to the assignment of attorney fees ordered under CAFRA. 3 3 Even if all the circuit courts were wrong and the defense against the government s civil forfeiture case could be considered to be a claim against the government under the Act, an attorney fee award itself is not. Schwartz v. United States, 16 Cl.Ct. 182, 190 (1989)(court explicitly contrasted its result with case where Federal Circuit ruled that attorneys fee award could be made directly to the 32

39 Accordingly, the Act does not bar the Kim Claimants assignment of the attorney fee awards to the Law Office in the instant case. 2. The Act s inapplicability to civil forfeiture cases, and assignments of attorney fee awards therein, is consistent with public policy. Assignment of an attorney fee award in a civil forfeiture proceeding to the attorney who performs the work, by clients whose entire assets were seized and who thus cannot afford to retain counsel, is consistent with public policy. Thus, the Act does not apply to the subject attorney fee award assignments. a. Assignment of an attorney fee award is not an evil the Act was designed to prevent. At one time, the Court construed the Act strictly, but [t]he rigor of this rule was very early relaxed in cases which were thought not to be productive of the evils which the statute was designed to obviate. Aetna Casualty & Surety Co., 338 U.S. at 373; see also, Saint John Marine Co. v. United States, 92 F.3d 39, (2d Cir. 1996)(lien on subfreights operates in a way that does not expose the government to the evils addressed by the Act, since the risks of competing claims and double payment are minimal; the lien was contractual, and driven by the underlying transactional purposes rather than by the will to acquire or cede a claim attorney, i.e., finding the Act would not apply to an application for attorneys' fees under a fee-shifting statute at the conclusion of litigation). 33