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The federal government wanted Charles Schulze’s house. The 68-year-old D.C. lawyer wants to know why. After all, Schulze says he did everything federal prosecutors had asked. He testified before a grand jury investigating a local cocaine dealing ring that ultimately convicted his stepbrother. At the urging of prosecutors, Schulze wrote a letter to the D.C. Bar describing the criminal investigation and his own drug use. For his efforts, Schulze was given immunity from criminal prosecution. And the bar took no action. In November � two years after his cooperation � the U.S. Attorney’s Office in the District filed a lawsuit to seize Schulze’s Northwest D.C. home. In court papers filed in the U.S. District Court for the District of Columbia, prosecutors claimed the property was used as a base for cocaine distribution and cited Schulze’s D.C. Bar letter as evidence. In doing so, the government made public Schulze’s own drug use. But now the government appears to be backing away. After being contacted for comment by Legal Times, the U.S. Attorney’s Office abruptly moved to dismiss the action on Jan. 14, though it preserved the right to refile the case. Prosecutors gave few reasons for the change of mind. Principal Assistant U.S. Attorney Channing Phillips issued a one-sentence statement: “While there is a wholly legitimate basis for the civil forfeiture proceedings in this matter, after balancing the equities, we have decided not to pursue the case any longer.” Stevan Bunnell, the chief of the office’s Criminal Division and the person who made the decision to dismiss the case, says his office often uses both criminal charges and the threat of asset forfeiture as leverage to secure cooperation. Once someone agrees to cooperate, the government will usually drop charges. The difference here, however, is that Schulze began cooperating with prosecutors from the U.S. Attorney’s Office in the Eastern District of Virginia on the cocaine case nearly two years ago. Yet the forfeiture action wasn’t filed until November � long after Schulze testified before a grand jury. In explanation, Bunnell says: “Sometimes when you’re dealing between districts, not everything is communicated as quickly.” Federal prosecutors routinely seize cash and property, such as homes and vehicles, that can be tied directly to profits received from a criminal enterprise. However, federal law also gives them the authority to go after assets used in the commission of most crimes where the penalty is more than one year in prison. The burden of proof for the government to prevail in a civil forfeiture action � like the one filed against Schulze’s home � is significantly lower than in a criminal case. In the past, federal prosecutors in the District have used civil forfeiture to shut down known drug houses in the city. So while Schulze has not been accused of dealing drugs himself or profiting from them being used at his house, the government claimed it could take his home because it was used to violate drug laws. Schulze says the house, near American University, is worth more than $1 million. Robert Eaton Jr., who ran the asset forfeiture section of the U.S. Attorney’s Office in the District for 15 years before retiring last year, says federal prosecutors in the District file only about a dozen civil forfeiture cases a year. While the number of filings may not be high, the success rate is. Since 1989, Eaton says he remembers losing just one case. “The main reason we win most of our cases is we didn’t proceed unless we had the evidence,” says Eaton, adding he has no knowledge of the Schulze case. Eaton says each case would be vetted internally and approved by him. Since his retirement, those decisions have been made by the deputy chief of the Criminal Division, currently Eileen Mayer. Phillips said Mayer was out of the office last week and unavailable for comment. Eaton says most matters would be resolved via settlement or summary judgment. He says the government rarely moved to dismiss a case. CAUGHT IN THE NET Schulze, a name partner in D.C.’s two-lawyer Schulze & Pederson, says his troubles began in 1992 when he allowed his stepbrother Kenton Schulze to stay with him. At the time, the 38-year-old stepbrother was unemployed and out of money. Schulze, who lived alone in a two-bedroom duplex, told Kenton he could stay in the basement. Schulze says the basement had its own entrance, but adds that his stepbrother had access to the entire house. “He was supposed to stay with me two weeks, and it lasted seven years,” says Schulze, who still lives in the house. During that time, Kenton would throw parties at the house for holidays, such as Halloween and Christmas, and for other events, like the Super Bowl. During these parties, Kenton and his friends would use cocaine, according to the government’s complaint. Schulze would attend some of the parties and use the drug. Schulze says at most he would use cocaine two to three times a year. According to the government’s forfeiture complaint, the Immigration and Customs Enforcement Agency (then known as the Customs Service) launched a criminal investigation in the fall of 1999 into the drug-trafficking activities of D.C. resident Herbert Leininger. D.C. and Virginia police also assisted in the probe. The complaint states that the investigation targeted several friends and associates of Leininger’s who bought cocaine from him or used cocaine with him. Schulze and his stepbrother were identified as being tied to Leininger. Kenton Schulze’s lawyer, Leon Demsky, did not return calls seeking comment. D.C. lawyer Jensen Barber, who represented Leininger, declines comment. In November 1999, Schulze says, he received a letter in the mail stating that a search warrant had been obtained for a storage facility that had Schulze’s name on the lease. Schulze says he never rented any storage space and suspected the warrant involved his stepbrother. Schulze says he then told Kenton to move out. Another three years passed before Schulze says he was contacted by prosecutors. This time, they subpoenaed Schulze to testify before a grand jury investigating a drug conspiracy involving seven individuals, including Kenton. Schulze, a civil litigator, hired Alexandria, Va., lawyer Charles Kramer, who helped work out an immunity deal with Assistant U.S. Attorney Mark Grider of the Eastern District of Virginia. Schulze says there was never any talk about the possibility of losing his house. “That never even came up because no one had ever thought about this,” Schulze says. Kramer could not be reached for comment. Frank Shults, a spokesman for U.S. Attorney Paul McNulty, declines comment on behalf of Grider and the office. Schulze says he testified before the grand jury in either late 2002 or early 2003 and that he told the grand jury about individuals who would come to his house to see his stepbrother and use cocaine. Schulze says the government’s main target was an individual named Jeffrey Council, who is now serving a four-year jail term. Council’s lawyer, Ivan Davis, did not return a call seeking comment. “All I could tell them was that I used drugs there,” Schulze says. “And that I had gone down to the basement and had seen them using drugs.” Schulze also says Grider told him to write a letter to the D.C. Bar telling it about his role in the criminal case and admitting his own drug use. Such a letter, Schulze says Grider advised him, would build his credibility with a jury if he were called to testify. Normally such letters to the bar are confidential, but Schulze says he gave a copy to Grider. In a letter to the bar’s Lawyer Counseling Program dated March 23, 2003, Schulze stated that he allowed his stepbrother to host parties on his property where drugs were used. In that letter, Schulze stated that he had no knowledge of any drug sales at his home. (Schulze later met with an addiction counselor, and the bar ultimately concluded that Schulze did not have a drug problem. The bar’s Web site lists Schulze as a member in good standing.) Schulze’s stepbrother was indicted by an Alexandria grand jury on drug-trafficking charges in February 2003. Evidence the government planned to use at trial included testimony from Schulze, as well as photos of Schulze’s home, according to information filed in the criminal case. In May 2003, Kenton Schulze pleaded guilty to conspiracy to distribute five kilograms or more of cocaine and was sentenced to six and a half years in prison. Prosecutors also filed a criminal forfeiture action for Kenton’s Bethesda, Md., condominium. Two other targets � one of them being Leininger, the other being Council, according to court papers � pleaded guilty to drug crimes. A third pleaded guilty to making false statements to investigators. The case appeared to be over. UNWELCOME SURPRISE In November, Schulze says, he received a letter in the mail noting that prosecutors from the U.S. Attorney’s Office in the District were seeking the forfeiture of his home. Until this letter, Schulze says, he hadn’t heard from prosecutors since testifying before the Alexandria grand jury. “I couldn’t figure it out,” Schulze says. “I couldn’t understand it.” In its complaint, the government outlined nine years’ worth of drug use and drug dealing at Schulze’s home � activity the government says lasted through 2001, two years after Kenton Schulze moved out. Schulze maintains that he knows of no such conduct after 1999. As evidence, prosecutors cited Schulze’s 2003 letter to the D.C. Bar. In addition, the various targets of the drug case, whom Schulze helped put away, were being used by the government as witnesses to drug activity taking place at Schulze’s home. The complaint made no reference to Schulze assisting the government in its criminal drug case. D.C. Metropolitan Police Detective William Buss signed a form attached to the complaint verifying that the allegations were true and correct. Buss did not return a call seeking comment. Schulze retained Alexandria, Va., lawyer David Smith for $5,000 to fight the action. In December, Smith, who is known among defense lawyers as an expert on asset forfeiture and helped run the Justice Department’s asset forfeiture section more than 20 years ago, answered the complaint, arguing that nearly every allegation of drug dealing and drug use took place before November 1999. A complaint based on those allegations would be barred by a five-year statute of limitations. Smith, a partner at English & Smith, added that any drug crimes after that date would have been committed without Schulze’s knowledge. Schulze has no criminal record. Smith says that Assistant U.S. Attorney Michael Humphreys of the District, who was overseeing the case, was well aware of Schulze’s cooperation in the Virginia case. “He knew my client testified before the grand jury,” Smith says. “I told him my client had testified under a grant of immunity.” Humphreys referred calls to Phillips. Smith says prosecutors gave no hint of backing down. Prosecutors and defense lawyers point out that immunity from criminal prosecution in the Eastern District of Virginia would not necessarily bar prosecutors in the District from filing a civil forfeiture case. Defense lawyers say some evidence used by prosecutors in the forfeiture case � such as testimony by Schulze or others from the earlier criminal investigation � could be limited by the immunity agreement. That, however, would depend upon the wording of the immunity agreement. Schulze says he cannot locate the immunity letter, but says he remembers that it only exempted him from criminal prosecution in the drug case. On Jan. 13, Principal Assistant U.S. Attorney Phillips was contacted for comment on the case by Legal Times. The next day, Phillips said the office had reviewed the matter and decided to dismiss it. That afternoon, the government filed a motion to dismiss without prejudice, meaning the government could refile the case at a later time. According to Phillips, the decision to dismiss was made by Criminal Division Chief Bunnell and Deputy Chief Mayer. Acting U.S. Attorney Kenneth Wainstein was also notified of the case. “What is rare is to have a criminal case being run by one U.S. Attorney’s Office and a forfeiture being brought by a different U.S. attorney,” Bunnell says. “The important thing is when you realize that maybe there wasn’t a full understanding between all sides about what was going on, you fix it and move on.” An official involved with the criminal investigation says the U.S. Attorney’s Office for the Eastern District of Virginia “did not initiate the civil action against Schulze.” “Virginia didn’t ask D.C. to do it,” says the official, who asked not to be named. As of Jan. 21, U.S. District Judge Rosemary Collyer had yet to rule on the motion to dismiss. Criminal defense lawyers say the case serves as a cautionary tale for anyone looking to strike a deal with the government. “It sends a message to people who might otherwise cooperate that you can get burned,” says Nancy Luque, a partner in the D.C. office of DLA Piper Rudnick Gray Cary. For his part, Schulze says he still has no idea why his house was targeted to begin with. “I didn’t know if they were upset over my testimony [in the criminal matter],” says Schulze. “I didn’t think they had sufficient evidence to go forward. They know I’m not a drug dealer.” Reach Tom Schoenberg at [email protected].

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