REPORT AND RECOMMENDATION

LYNNETTE C. KIMMINS, Magistrate Judge.

Pending before the Court is the matter of Return of Property Held for Forfeiture in Defendant Alghaithi's criminal case. (Docs. 270, 275.) The matter has been referred to this Court by District Judge Jennifer G. Zipps for hearing and a Report and Recommendation pursuant to LRCrim 57.6.

This matter was originally set for a hearing on February 5, 2019, but was continued to allow witness Zakiriea Abdulkader Alghaithi to consult with his attorney and to permit defense counsel to obtain the services of a personal Arabic Interpreter. Evidence and argument were heard on March 21, 2019. (Doc. 297.) This matter was submitted following argument at the conclusion of the hearing. The Magistrate Judge recommends that the District Court release $37,000 to Zakiriea Abdulkader Alghaithi and retain the remaining funds pending further proceedings.

I. FACTUAL BACKGROUND

Defendant was indicted with the felony offenses of conspiracy to commit with intent to distribute controlled substances (Counts 1 and 3), possession with intent to distribute controlled substances (Count 2), and conspiracy to commit mail fraud (Count 4). (Docs. 3, 40, 53.) The superseding indictment alleged forfeiture of any property constituting or derived from proceeds of the offenses or intended to be used to commit the offenses, to include but not limited to real property at 3975 East Agate Knoll Drive, Tucson, AZ (Agate Knoll residence) and $87,597 in U.S. currency seized during execution of a search warrant at the Agate Knoll residence. (Docs. 40, 53.)

Defendant was arrested on July 27, 2016, and appeared for his initial appearance on July 28, 2016. (Docs. 13, 22.) At his initial appearance, after reviewing Defendant's financial affidavit, and pursuant to 18 U.S.C. § 3006A, Magistrate Judge Bruce G. Macdonald found that Defendant qualified for a court appointed attorney.

On November 1, 2018, a jury convicted Defendant of Counts 1, 2, and 3 of the superseding indictment and found him not guilty of Count 4 (mail fraud). (Doc. 250.) The jury was retained to determine the forfeiture of Defendant's Agate Knoll residence, the $87,597 in U.S. currency, and a 2015 Chevrolet Spark. The jury found only the Agate Knoll residence and vehicle forfeitable, determining that the residence and vehicle were not derived from any proceeds but were used or intended to be used in the commission of the crimes. (Doc. 258.)1

On December 17, 2018, Defendant lodged a proposed order for return of the $87,597 to Defendant. (Doc. 271.) The government filed a response to the lodged proposed order on January 8, 2019. (Doc 275.) After this matter was referred by District Judge Zipps, the Court ordered the parties to file briefing concerning Defendant's finances and whether the $87,579 seized, but not proven forfeitable, is available for reimbursement to the CJA fund for Defendant's attorney's fees. (Docs. 277, 280, 281.)

At the March 21 hearing, both Defendant and his son, Zakiriea Alghaithi, testified that $37,000 of the money seized from the Agate Knoll residence was Zakiriea's money. Zakiriea made a formal claim to DEA on October 12, 2016, for said funds. (RT 3/21/19 at 12-15, 19, 64; Exs. 31-32.)2 This testimony was not refuted by the government. Additionally, Defendant and Zakiriea testified that the Agate Knoll residence is a four-bedroom, three-bath home occupied by Defendant, his wife (Hebah, age 46) and two minor children, Zakiriea (age 29, owner of Royal Hookah Lounge), his wife and minor child, and Defendant's son Jibreel (age 25, currently attending school and not working). (RT at 11-12, 16-17, 24-25; PSR at 20.)3 Defendant indicated that he supports his wife and minor children, as well as his brother Adel's wife and children who reside in Tucson while Adel is studying English in New York. (RT at 24-25, 33; PSR at 19.) Defendant's wife is a legal permanent resident having been born in Yemen along with her minor children. (PSR at 20.) Defendant and his wife are culturally traditional such that she is not seen in public, is unable to drive, and does not work or speak English. (RT at 23, 31; PSR at 20.)

Defendant claimed that, of the remaining $50,579 seized from the Agate Knoll residence, approximately $30,000 was his wife's money, leaving $20,579 attributable to Defendant. (RT at 19, 55-56.) Defendant did not explain how or why this money would be only his wife's and not deemed community property. In fact, Defendant testified that he, after discussions with his wife, intended to use the $30,000 for business purposes but later decided he would use the money to purchase the residence at 6943 S. Copper Run Avenue. (RT at 55-56.)

The PSR reported Defendant's Financial Condition as follows:

The PSR shows a Total Net Worth for Defendant in the amount of $309,021. The government notes in its Memorandum Regarding Defendant's Finances that the Agate Knoll residence is subject to forfeiture and recommends that Defendant's assets be reduced from $309,021 to $109,021 to reflect the stated value of the Agate Knoll residence ($200,000). (Doc. 280 at 2; PSR at 22.)

At the evidentiary hearing, Defendant's testimony regarding his current monthly expenses and cash flow4 was generally consistent with the PSR; however, he explained that his yearly income for 2018 and 2019 was slightly less, at approximately $22,500 a year ($1875 per month), and the current funds in his bank accounts are as follows:

(RT at 19-23, 25-30; Exs. 20-25.) Defendant also stated that he has income from property in Yemen which provides approximately $7,000-$9,000 a year. (RT at 28-29, 65-66.)

The government presented testimony regarding large deposits by Defendant from 2011 to 2014 into accounts with Bank of America, JP Morgan Chase Bank, Wells Fargo Bank, and Pima Federal Credit Union. These deposits included $83,866.64 in 2011; $127,102.56 in 2012; $175,763.66 in 2013; and $157,961.00 in 2014. (RT at 56-59, 69, 80-82.) Defendant did not deny these deposits, indicating the money came from his wages, Yemen property income, and bank loans. He further agreed that, from 2012-2013 he made repetitive loan payments of $5,000 either monthly or bimonthly to Independent Bank; in 2014, he wired $60,000 to Yemen; and from 2003-2005, when moving to the United States, he brought $320,000 from Yemen. (RT at 37, 60, 69-72, 74, 82-83.) Defendant went on to explain that, prior to 2015, before the war in Yemen, he was making approximately $20,000 to $30,000 a year on the Yemen property, which accounted for the extra funds. (RT at 29, 65, 69-72.) However, he has little savings left as he used the money to pay off the Agate Knoll residence and make repairs or improvements to the Yemen property. (RT at 66, 72-75). The government did not present evidence of any large deposits or accounts holding large sums of money after 2014.

The government presented evidence regarding the residence/property purchased by Defendant at 6943 S. Copper Run Avenue (Copper Run residence). This property is titled in Defendant's name as "a married man as his sole and separate property," and there is a related Gift Letter from his wife in the amount of $27,000.00 and a Disclaimer Deed signed by his wife, disclaiming any interest in the property. (RT at 52, 85-93; Exs. 5-10, 12.) Defendant acknowledged the purchase of the Copper Run residence stating that he is currently making the mortgage payments but he bought the house for his brother Adel and his family, expecting his brother to pay him back. (RT at 27, 33-34, 47-48, 50; Ex. 5.) The mortgage on the Agate Knoll residence has been paid in full. (RT at 35, 67-68.)

II. DISCUSSION

"The Criminal Justice Act provides that courts may `furnish [ ] representation for any person financially unable to obtain adequate representation.'" In the Matter of Gerald R. Smith, 586 F.3d 1169, 1171-72 (9th Cir. 2009) (quoting 18 U.S.C. § 3006A(a)). The Ninth Circuit, however, "has very little precedent regarding the CJA compensation system." Id. at 1173.

Title 18 U.S.C. § 3006A(c) provides that "[i]f at any time after the appointment of counsel the United States magistrate judge or the court finds that the person is financially able to obtain counsel or to make partial payment for the representation, it may terminate the appointment of counsel or authorize payment as provided in subsection (f), as the interests of justice may dictate." Additionally, § 3006A(f) states "[w]henever the United States magistrate judge or the court finds that funds are available for payment from or on behalf of a person furnished representation, it may authorize or direct that such funds be paid to . . . the court for deposit in the Treasury as reimbursement to the appropriation[.]" A sentencing court may order the payment or partial payment, or repayment of court-appointed attorney's fees and expenses if it finds that the defendant is financially able to pay such fees. 18 U.S.C. § 3006A(c) & (f); see United States v. Lorenzini, 71 F.3d 1489, 1494 (9th Cir. 1995).

In determining whether funds are available for reimbursement, a Court must consider the defendant's present ability to repay the funds. United States v. Danielson, 325 F.3d 1054, 1077 (9th Cir. 2003). "Such a finding must be based on the defendant's current assets, not on his ability to fund payment from future earnings." Id. A "[d]istrict court must base the reimbursement order on a finding that there are specific funds, assets, or asset streams (or the fixed right to those funds, assets, or asset streams) that are (1) identified by the court and (2) available to the defendant for the repayment of the court-appointed attorneys' fees." United States v. Moore, 666 F.3d 313, 322 (4th Cir. 2012); see Guide to Judiciary Policy and Procedures, Volume 7, Chapter 2, Part A, Section 210.40.40 (2010).5

Under the CJA, a defendant bears the burden of persuading the district court that he is financially unable to obtain counsel. United States v. Ellsworth, 547 F.2d 1096, 1098 (9th Cir. 1976). Under § 3006A(f), a defendant also bears the burden of establishing by a preponderance of the evidence that he is financially unable to reimburse the cost of representation. United States v. Frandsen, No. CR-08-10-M-DWM, 2008 WL 5348235, at *1 (D. Mont. Dec. 19, 2008) (quoting United States v. Evans, 155 F.3d 245, 252 n.8 (3d Cir. 1998) (citing United States v. Lefkowitz, 125 F.3d 608, 621 (8th Cir. 1997); United States v. Harris, 707 F.2d 653, 660 (2d Cir. 1983))) (internal quotation marks omitted).

The test for determining a defendant's ability to repay his attorney's fees in a criminal case "is whether repayment would cause such financial hardship as to make it impractical or unjust." Museitef v. United States, 131 F.3d 714, 716 (8th Cir. 1997) (citing United States v. Bracewell, 569 F.2d 1194, 1199 (2d Cir. 1978)). The determination must be made "in light of the liquidity of the individual's finances, his personal and familial needs, or changes in his financial circumstances." Id. (citations omitted). Federal courts have recognized "that `CJA funds are a necessarily limited resource' and that the public has a `strong interest in how its funds are being spent in the administration of criminal justice.'" United States v. Stevenson, Criminal No. 10-120, 2012 WL 1038832, at *3 (W.D. Pa. Mar. 28, 2012) (quoting United States v. Parker, 439 F.3d 81,109 (2d Cir. 2006)).

A district court's decision to order reimbursement under 18 U.S.C. § 3006A(f) is discretionary. Danielson, 325 F.3d at 1076-77; United States v. Griggs, 240 F.3d 974 (11th Cir. 2001) ("As with fee determinations, payment orders under § 3006A(f) . . . are left to the discretion of the trial [or magistrate] judge[.]"); United States v. Durka, 490 F.2d 478, 480 (7th Cir. 1973). While § 3006A(f) does not specify how a district court should calculate the repayment of fees and expenses, the Ninth Circuit has held that a district court did not abuse its discretion in awarding attorney's fees and calculating defendant's reimbursement at the then-current CJA rates. See United States v. Waldron, 270 F. App'x 531, 534 (9th Cir. 2008) (affirming district court order to repay attorney's fees at CJA rates).

The Ninth Circuit in Waldron and courts both inside and outside our circuit have ordered reimbursement payments of attorney's fees. See United States v. Meyer, No. CR-13-00777-PHX-ROS, 2013 WL 3353771, at *2-3 (D. Ariz. July 3, 2013) (access to annuity providing for an $8,000 annual disbursement schedule sufficient to permit payments of up to $3,000 per year toward defense cost)6; United States v. Hamilton, No. CR-14-00865-011-PHX-DJH, Doc. 1502 (D. Ariz. Nov. 28, 2017) (PSR recommended a $7,500 fine based on defendant's six properties valued at $453,000, with monthly income of $7,850 and monthly expenses of $4,924, for a monthly cash flow of $2,926; court further found the fine was better allotted to reimburse the Treasury for CJA attorney fees and ordered a lump sum payment of $17,000.00 in attorney's fees upon sale of one of the defendant's properties and/or quarterly installments); United States v. Ochoa, No. CR-18-00493-001-PHX-DLR, Doc. 27 (D. Ariz. Oct. 26, 2018); see also Stevenson, 2012 WL 1038832, at *4-5 (defendant able to contribute $13,024.25 in attorney's fees with $200,000-$300,000 in liquid assets, plus an 89-acre parcel of real estate, no debt, and no dependents); United States v. Page, 2011 WL 2224674, at *2-3 (S.D. Ill. June 8, 2011) (defendant ordered to reimburse attorney's fees in a total amount of $10,676.64 for representation in his dog fighting and perjury cases after the court learned defendant provided a false financial affidavit indicating a yearly income of $7,000 as a substitute teacher with property valued at no more than $7,000 when in fact he owned multiple properties with a value of anywhere between $397,756 and $770,985 and later retained a team of attorneys to represent him on the dog fighting case); United States v. Wilson, 597 F.3d 353, 358 (6th Cir. 2010) (defendant ordered to repay $52,305 for federal public defender legal services after acquittal when the court learned defendant had significant assets at the time of trial including an income of $134,000, a $44,000 legal fund created by friends, and had spent over $18,000 in restaurant/wine tabs and $10,000 for a hotel during trial (after turning down the government's offer of free accommodations).

After reviewing the record and evidence presented, coupled with the information in the PSR, the Court finds Defendant may be financially able to make at least partial reimbursement for his legal representation. However, at this time there remain outstanding issues and unanswered questions that prevent the Court from fully addressing whether such repayment would cause financial hardship to Defendant and his family.

Defendant's wife, Hebah Alghaithi, has filed a petition claiming a community property interest in the Agate Knoll residence. See supra note 1. Her claim is unresolved and remains pending before the Court. Should Mrs. Alghaithi have a valid claim to the Agate Knoll residence, presumably only a one-half interest in the residence could be forfeited. That would require subsequent decisions regarding how the government would receive its forfeited interest in the house. This could include using funds such as all or a part of the remaining seized U.S. currency as substitute property for the forfeiture. In the alternative, should Mrs. Alghaithi not have a valid claim or interest in the house, the Court would need to assess financial hardship to Defendant, Mrs. Aghaithi, and their family, in light of the loss of their home and/or any of the remaining seized funds. Defendant testified at the hearing that he did not have alternative housing arrangements, and did not have funds to buy another house, but was discussing the cost of a rental house. (RT 34.) The Copper Run residence remains Defendant's property which could be used as a residence for his family or as substitute property.

The Ninth Circuit considers criminal forfeiture an in personam judgment against the individual person convicted of a crime. United States v. Lester, 85 F.3d 1409, 1413 (9th Cir. 1996) (citing United States v. $814,254.76 in U.S. Currency, 51 F.3d 207, 210-211 (9th Cir. 1995); 18 U.S.C. § 853(c) and (n)). Under Arizona law, a debt or obligation incurred by one spouse while acting for the benefit of the marital community is a community debt or obligation whether or not the other spouse approved the debt or the conduct giving rise to the obligation and irrespective of any pecuniary benefit to the marital community.7 Although Defendant claims that $30,000 of the $50,579 is his wife's money, Defendant failed to prove how or why that money is separate and distinct to his wife and should not be considered community property. Further, a spouse's community property interest may not be subject to forfeiture, Lester, 85 F.3d at 1414 (citing United States v. Jimerson, 5 F.3d 1453, 1454 (11th Cir. 1993); United States v. Certain Real Property at 2525 Leroy Lane, 910 F.2d 343, 347-349 (6th Cir. 1990)); however, neither party addressed whether or not community property funds can be used to pay an individual spouse's attorney's fees. The Court's research shows that community property funds can and should be used in Arizona for debts of a spouse. It is not clear whether attorney's fees are considered such a debt. Thus, there remains a question whether attorney's fees are a debt of the marital community. The resolution of this question, the wife's third party claim to the Agate Knoll residence, and the possible use of the U.S. currency as substitute property for forfeiture goes directly to the Court's assessment of undue financial hardship to Defendant and his family. Therefore, further briefing is required.

III. RECOMMENDATION

Based upon review of Defendant's current financial condition and the outstanding legal issues, and after the District Court's independent review of the record,

IT IS RECOMMENDED that the District Court release $37,000 of the $87,579 to Zakiriea Abdulkader Alghaithi.

IT IS FURTHER RECOMMENDED that the District Court retain the remaining $50,579 pending 1) the outcome of Hebah Alghaithi's third party claim regarding the forfeiture of the Agate Knoll residence and vehicle (as relevant to the issue of community property, financial hardship, and substitute property), and 2) a further Report and Recommendation regarding whether community property is liable for the debt of attorney's fees for a spouse.

IT IS FURTHER RECOMMENDED that the District Court keep the referral of these pending matters with the Magistrate Judge so that a further Report and Recommendation can be issued once all briefings and the third party claim to property subject to forfeiture are resolved.

Pursuant to Federal Rule of Criminal Procedure 59(b)(2), any party may serve and file written objections within 14 days of being served with a copy of this Report and Recommendation. A party may respond to the other party's objections within 14 days. No reply brief shall be filed on objections unless leave is granted by the district court. If objections are not timely filed, they may be deemed waived.