On the take in the name of victims

By: on October 22, 2018 |

Maggie and Terry Reilly were a middle-class couple leading a peaceful life and running a number of businesses in their hometown of Orillia, Ontario until an unlucky day in September 2008 when a heavily armed police team suddenly raided and seized possession of two rental buildings the couple owned. The eight-unit apartment building and the ten-unit rooming house were each occupied by a class of tenant many landlords try to avoid: the uneducated, the un- or under-employed, the mentally ill, drug addicts and ex-convicts. But while governments largely wrung their hands over homelessness among such people, the Reillys had made it their mission to put affordable roofs over the heads of at least a few of them. And for the previous five years they had been quietly going about this business without significant problems.

The September 2008 raid ended all that and began a legal and financial ordeal that most Canadians would find hard to believe. Though they were never charged with (much less convicted of) any crime, the Reillys ultimately lost ownership of the two properties which today might easily be worth $1 million. Gone, too, was a decade’s worth of rental income. Their good names were besmirched and they fought a nearly 10-year-long Kafkaesque legal battle with Ontario authorities.

The police had acted on a little-known legal device, called civil forfeiture, that enables law enforcement agencies to seize property – ranging from cash and other financial assets to vehicles, boats and real estate – if the property is suspected of being used in or being proceeds of criminal activity. If you’ve never heard of this (nor of the Reillys), neither have most Canadians. Civil forfeiture is an unusual phenomenon: a provincial government program (used in most provinces) in which government’s tendency to grandstand over any meagre achievement falls curiously silent. Some provinces, in fact, seem almost ashamed of their use of civil forfeiture – as they should be.

Suing a thing rather than a person

It’s true that tenants such as those the Reillys rented to typically bring a host of problems. Many continue to use drugs after release from treatment centres or prisons. Some resort to selling drugs to subsidize their consumption. They often have poor money management skills and little respect for property. They tend to fall behind in their rent and they damage the premises. But the Reillys were no slumlords. Maggie had been involved in helping disadvantaged people since her teens, when her father, an Anglican priest, operated a youth shelter in Toronto. Terry, an insurance broker, had volunteered his time to work on the local homelessness committee in Orillia. As a couple, they had decided to dedicate two of their five rental properties to serving disadvantaged Orillians.

The Reillys’ explicit goal was to create an environment that would encourage these individuals to build self-respect and self-reliance. The Reillys improved the two buildings, brought them up to code and maintained them. Most of their tenants were referrals from social workers, counsellors and, occasionally, even the mayor of Orillia. The Reillys went out of their way to help their tenants, driving them to appointments, communicating with their social workers and sometimes even giving them jobs. In special circumstances they might even reduce the rent of a new tenant. Many were welfare recipients whose rent the Ontario government paid directly to the Reillys to prevent misspending.

But sometime in 2006 or 2007, someone in the Ontario Provincial Police’s Orillia detachment convinced him- or herself that the two Reilly buildings were “crack houses” (as the government’s later legal filings would put it) and that the Reillys’ rental revenue must be coming from tenants’ drug profits. Instead of using the many tools available to them to enforce the drug trafficking laws against specific tenants suspected of breaking the law, the OPP decided to pursue an easier target: the law-abiding, non-violent couple who owned the buildings.

The police turned to a relatively new law, the Civil Remedies Act (CRA), passed by the Ontario legislature in 2001. It allows property to be seized from its owner and forfeited to the Ontario government if it is either an “instrument of unlawful activity” or the “proceeds of unlawful activity”. It doesn’t matter who – if anyone – is behaving lawlessly. Indeed, it’s possible for the government to seek forfeiture even if nobody is charged with any offence. That’s because the lawsuit isn’t brought against a human being or corporation, but against the property itself. The Orillia OPP accused the Reillys’ buildings of being “proceeds of unlawful activity” because some of the occupants were allegedly using cash from drug sales to pay their rent.

Maggie Reilly stands outside her former rental property in Orillia, Ontario. (Image: Nathan Taylor)

The seizure was a shocking setback for a heretofore respectable business couple. One theory floated for the police action was that the town wanted one of the houses razed to provide parking for Orillia’s new, 40,000-square-foot library on which construction had just begun nearby. That will forever remain conjecture, for related Freedom of Information requests were rebuffed. In any case, the houses remained mired in litigation for almost a decade, so the library’s parking needs must have been resolved some other way.

How it all began

Bringing a lawsuit against a thing rather than a person dates back to the Middle Ages. In the 18th century, it was used when owners couldn’t be identified or were out of a court’s geographical reach – like smugglers and pirates. Still, the practice remained rare until the later decades of the 20th century.

In the early 1980s the U.S Congress, seeking to rev up the War on Drugs, strengthened the government’s power to seize property believed to be the profits from crime, whether or not any human being was charged. The theory was to cut crime by reducing its profitability. The new law’s purported targets were drug kingpins and other organized crime leaders. Among the new law’s most important features – and the source of much future misery – was that not all proceeds from the eventual sale of forfeited property went into the federal Treasury. A portion would go to the police forces that had conducted the seizures, almost like a commission. The temptation to corruption should have been obvious to all.

U.S. law enforcement agencies quickly recognized that seizing property could produce windfalls for their organizations, and for many the focus shifted from reducing crime to generating cash. This process of corruption is amply documented, including in “Policing for Profit: the Abuse of Civil Asset Forfeiture (2nd Edition)”, published by the Institute for Justice.

Stories of civil forfeiture abuse eventually made it into the U.S. news media. The Pittsburgh Press published a front-page exposé in February 1991 headlined “Government Seizures Victimize Innocent”. By that time, there were thousands of seizures weekly across the U.S., for lawmakers at the state and even municipal levels were mimicking the feds. Cash, cars, boats and homes were being taken from people not charged with any crime and who often lacked the wherewithal to mount the necessary legal defence. And the local police force was getting a slice of the “take”.

An investigation by the Mesa Tribune, an Arizona newspaper, strongly suggested ordinary Americans, not organized crime kingpins, were most affected. The average cash seizure among nine Arizona police departments in the study period, 1991-1993, was only $3,063. One would expect raids on drug lords to yield six- or seven-figure hauls. Of the 1,100 vehicles seized, 72 percent were taken from people who were never charged and only 5 percent of seizure targets went to jail.

The problem metastasized. By the 2000s reports began filtering out of highway stretches where police would stop vehicles for a minor violation, then have drug-sniffing dogs circle the vehicle. If the dog reacted, all cash was seized. But because at least 80 percent of U.S. paper currency is contaminated with cocaine residue, an astonishing statistic confirmed by reputable studies, virtually anyone’s cash is vulnerable if this is taken to indicate involvement in the drug trade. Because the cost of mounting a legal challenge almost always exceeded the value of the seized cash, most people just drove away from an experience virtually indistinguishable from highway robbery.

What starts in the U.S. eventually comes to Canada

Canadian politicians eventually noticed U.S. authorities raking in vast sums without the trouble and expense of criminal prosecutions or maintaining convicted criminals in jail. Ontario became the first Canadian province to venture into this racket. In August 2000 the province’s then Attorney-General, Jim Flaherty (later the federal Minister of Finance under Stephen Harper) announced enthusiastically that Ontario would adopt civil suits against property.

Flaherty said the government was unhappy with the “nickels and dimes” it was getting through criminal convictions. By switching from the criminal standard, requiring proof beyond a reasonable doubt, to a civil standard, which rested merely on a balance of probabilities (anything over 50 percent likelihood), the justice system would no longer be hamstrung by a “cumbersome criminal process” to demonstrate that property had been used in or derived from crime. Flaherty predicted the law would discourage credit-card and car theft rings, telemarketing fraud, insurance scams, stock market manipulation, even murder-for-hire.

Opposing voices were few. A cautionary article by this writer published in the National Post in December 2000 was one. “The result could well be that individuals acquitted of a criminal offence under federal law will nevertheless forfeit their property to the Ontario government,” the column stated. “Indeed, it could affect people who are ultimately never charged criminally.” It also noted Flaherty’s argument lacked “even a shred of evidence that civil asset forfeiture laws have anywhere reduced the volume of organized criminal activity.”

Flaherty (who died in 2014) responded in a letter to the editor with a promise that virtually none of the negative consequences observed in the U.S. would be replicated in Canada. “Our proposal protects and helps victims as a first priority,” he wrote. “Proceeds of the forfeitures would go into a compensation fund to be administered by the province and be distributed to victims of crime. If there is money left over after victims are satisfied, there will be a process for the police to apply for grants.”

Ontario’s legislation was passed in 2001 and was even farther-reaching than the original proposal. First, it made it impossible for dispossessed property owners to counter-sue the government for damages so long as the forfeiture process was carried out “in good faith”. Proving bad faith is often a difficult task, especially so when the defendant is a government. Second, not only could proceeds or instruments of crime be seized, but also proceeds or instruments of other “unlawful activity”. This could include provincial offences and even bylaw breaches.

Other provinces watched, then followed, starting with Alberta the very same year. By 2010 only Prince Edward Island, Newfoundland and Labrador, and the three territories remained free of such legislation (and still do today). The only significant known pushback against impending legislation came when activists succeeded in having a draft civil forfeiture bill in Yukon withdrawn in 2010.

In 2016, the Canadian Constitution Foundation (CCF) released a report grading each province on the fairness of its legislation and jurisprudence, its openness, and the flow of seized money to actual victims of crime. B.C., Manitoba and Ontario all got an F, the other provinces Cs and Ds. The situation in Canada is, admittedly, not as bad as in the U.S. This is likely due in part to the fact that the worst perverse incentive – allowing police directly to keep a portion of seized assets – wasn’t implemented by the provinces. Significant sums do, however, find their way back from provincial “special accounts” to police departments and projects intended to help crime victims—although not necessarily victims of the crimes for which the property was seized.

From boarding houses to crack houses

After seizing the Reillys’ two buildings, Ontario obtained a court order to manage them. This imposed a duty on the province’s salaried “asset administrator” to maintain the properties and preserve their value, including their income stream. The administrator was supposed to generate rental revenue, prevent unlawful activity and make inspections, repairs and improvements. According to the counterclaim eventually filed by the Reillys and their lawyers (assertions that were never tested at trial because the case ultimately settled), none of this happened.

Instead, the Reillys say, their buildings deteriorated into boarded-up wrecks with broken windows and doors, one with a porch near collapse from the weight of snow that was never removed. Garbage, shopping carts and discarded furniture accumulated uncleared. The province was apparently the landlord from hell: it failed to provide adequate heat, allowing pipes to freeze, and a bedbug infestation took hold. Not surprisingly, the properties also went from fully occupied with waiting lists to virtually empty.

The Reilly rental property as it looked after a few years of management by the Ontario government.

Over more than eight years of “managing” the properties, the administrator allegedly not only failed to advertise them for rent but rejected all the potential tenants provided by the Reillys – hundreds of people, including students, nurses and teachers. The rooming houses filled with squatters, addicts, drug dealers and drug paraphernalia, as shown in photographs taken by a private investigator the Reillys hired. The very things the Reillys’ had been accused of allowing on their watch now appeared to be in full swing. Despite the neglect, the administrator claimed that its maintenance expenses had mounted to the point that the province’s lawyer moved for a court order to sell the properties. The province’s forfeiture claim hadn’t even come to trial but, over the Reillys’ objections, the court ordered the properties sold.

The tide finally turns

Although Ontario appeared to be slowly gaining ground throughout the legal process, the Reillys’ won occasional skirmishes. In 2014, a court rebuffed the Attorney General’s motion to order the properties’ forfeiture in the middle of the lawsuit. “The paltry evidence yielded when the premises were comprehensively secured pursuant to the preservation order and months of police surveillance is somewhat at odds with the Applicant’s evidence as to a near frenzy of illegal activity,” wrote Madam Justice Mullins. “Relatively empowered, police were able to make few arrests and realized little contraband when they secured the properties after many months of concerted surveillance.”

The seemingly never-ending ordeal was, unsurprisingly, hard on the previously gregarious couple. The stress contributed to marital problems, and they are now permanently separated. Maggie Reilly’s “health took a beating” and she started to require a walker to get around. “It was like having a dark cloud hanging over my head that whole time,” recalled Maggie, now 57, in a recent interview. “This has made me distrust the government, the police, and the Attorney General’s department. I always thought the police were there to serve and protect, but the corruption was startling. The police and the Attorney General’s office have no moral compass. It has shaken me to the core.” Terry has called the ordeal “a bloody nightmare” and said the financial damage made him fear that retirement would be impossible. He eventually moved to Sudbury where, at age 79, he now operates some rental properties.

One thing that buoyed the Reillys was the unwavering loyalty of their primary lawyer, Shawna Fattal, a sole practitioner in Toronto, as well as the significant work later put in by Ben Grant of Conway, Baxter, Wilson LLP in Ottawa. In 2014, the CCF came to the Reillys’ aid, providing advice, publicity, moral support and eventually agreeing to fund a portion of their legal fees. Asked why this legal ordeal might have been initiated against the Reillys, Grant said, “I never use malice as an explanation when incompetence is an adequate explanation.”

The dilapidated houses finally sold in 2017, fetching a shockingly low price. Ontario immediately asked the court to allocate the proceeds to the province’s management expenses. Had the court acceded, it would have left only $3,900 to argue over. The court declined, leaving a kitty of roughly $371,000. The two buildings were subsequently gutted and renovated by their new owners and are apparently again being rented out, but not to the sort of tenants the Reillys once accepted. Maggie Reilly estimates their current combined value to be about $1.1 million.

Finally, this past summer, following an apparently coincidental change of lawyers in the Attorney General’s office (unconnected to Ontario’s change in government) and several newspaper articles publicizing this disgraceful case, the province put forward a settlement offer and the Reillys accepted. A gag clause prevents either side from disclosing its terms. Did the Reillys split the slim proceeds with the province? Did they get it all, plus costs? Did they receive additional compensation for their ten-year loss of rental income and/or loss of property value? We’ll likely never know.

The Reilly case was a disaster from start to finish. It was not only fundamentally unjust but directly counter to vaunted provincial goals of reducing homelessness, cutting crime and compensating victims. Instead it produced waste, misery and an excruciating ordeal for the Reillys. Provincial civil servants in the thick of the fiasco continued to draw their taxpayer-funded salaries with impunity.

There are some signs beyond the confidentiality of the Reilly settlement that the Civil Remedies Act is finally beginning to embarrass Ontario. In its early years, the province sometimes published boastful news releases concerning amounts seized, numbers of alleged grow-ops frozen or forfeited, grants made to police agencies or sums awarded for victims’ programs. No such releases turn up in internet searches beyond 2013, and that one boasted only about seizures without mentioning how the proceeds were being used. As recently as 2016, it was possible to look up online all the personnel in the Civil Remedies for Illicit Activities (CRIA) Office, and their work phone numbers, but the office’s staff directory has now been scrubbed from the internet.

Although the Reillys prevailed, things aren’t getting better

Perhaps Ontario’s last such press release didn’t mention how many victims were compensated because most civil forfeitures are drug-related. Unless things go wrong in such transactions, drugs and money change hands to the satisfaction of both parties. Regardless of how venal being a drug-dealer may be, and how foolish and self-destructive drug abuse seems to most Canadians, both parties are willing participants and come away from deals without mutual grievance. Nobody is in need (or deserving) of compensation. So the government pockets most of the proceeds taken through such forfeitures.

Results from a Freedom of Information request in late 2016 indicated that only 7 percent of the CRIA Office’s expenditures in fiscal 2014-15 and 20 percent in 2015-16 were paid to victims. Also conspicuously absent from the CRIA’s reports are any indication whether the system has reduced crime. Measuring organized crime is an extraordinarily challenging task, according to Statistics Canada. There may never be any evidence to demonstrate that civil forfeiture has had the salutary effects predicted by Flaherty almost two decades ago. In light of this ignorance, one cannot help but question whether it has been worthwhile overturning centuries of legal tradition to adopt a civil standard of proof before punishing criminal suspects (who in many cases are at one remove from the underlying crime), rather than requiring proof beyond a reasonable doubt. As the Reilly case demonstrates, innocent people are suffering as a result.

Conditions may be even worse in B.C. That province’s legislation permits “administrative forfeiture” when a targeted property’s fair market value is under $75,000. The government just takes people’s stuff and then publishes (and mails) a notice that they’ve done so. It’s up to the individual whose property was seized to initiate proceedings to get it back – a genuine reverse onus accompanying a virtual presumption of guilt. This represents further abandonment of centuries-old criminal law due process safeguards aimed at protecting the innocent. Consequently, B.C.’s program has been raking in significantly more money than Ontario’s, despite having started four years later and involving a much smaller population.

Although B.C. is also becoming more secretive, it still lists its active administrative cases online in cryptic fashion. Scanning some of them raises disturbing questions. For example, in a case catalogued as file CFO-1805427, Vancouver police seized cash of Cdn$115 and US$15. These trivial amounts hardly seem the stuff of drug lords, nor of crime at all. Why would police seize such amounts? Is the answer simply: “Because they can, with no adverse consequences to themselves”?

What is to be done?

These programs cry out for a full audit, probably by each province’s Auditor General, to determine whether they are accomplishing their original goals of reducing crime and compensating victims. It should not be enough to determine merely that the programs are working “efficiently” – that is, generating more revenues than expenses for the province. If the provinces are indeed generating a profit that can be allocated in any way they please, then the provinces have effectively made themselves complicit in profiting from the proceeds of crime.

While little is being done in Canada to roll back civil forfeiture, there is modest good news from the place where it all began, the U.S. In September the Institute for Justice announced that a class action lawsuit on behalf of property seizure victims had been resolved, with the city of Philadelphia paying damages of $3 million but, far more important, agreeing to dismantle the most egregious features of its civil forfeiture bylaw. The triggering case bears some similarity to the Reillys’: a home was seized after the owners’ son was caught selling US$40 worth of drugs outside. The case drew national media attention and appears to have shamed Philadelphia into dropping its forfeiture case against the parents’ house. It’s still unclear whether this will prove part of a larger trend – and whether this, too, will eventually make its way to Canada.

Among the many sad effects of the Reilly saga is that it has permanently altered the former couple’s behaviour as well as attitude. “After this, I feel it’s too risky to go out of my way to do something nice for other people,” says Maggie. “The people who are hardest to love are the ones who need it the most, but I wouldn’t do anything big and public like this ever again.” Although civil forfeiture rarely makes the news, it’s likely there are other innocent victims of the procedure in every province where such laws are on the books.

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About Karen Selick

Karen Selick is a retired lawyer and freelance writer living in rural Ontario who has written about civil forfeiture since before Ontario enacted its legislation and, in her former capacity as Litigation Director for the Canadian Constitution Foundation, was instrumental in bringing the Reilly case on board for the CCF’s assistance.