Lyndon McLellan, a convenience store owner in rural Robeson County, became an emblem for the many ways that IRS seizure and civil forfeiture laws have dogged run-of-the-mill business owners who operate with cash.
For nearly a year, the 50-year-old Fairmont man has been fighting the federal government to recover the $107,702.66 seized from his business account without any allegations of crime.
On Wednesday, nearly two weeks after The New York Times profiled his struggle with the government, McLellan received a welcome call from his lawyer.
U.S. Attorney Thomas Walker, the top federal prosecutor for the Eastern District of North Carolina, had dismissed the case that since July had blocked his access to his money.
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“It was the best news I’ve probably heard in a long time,” McLellan said in a telephone interview later, adding that he didn’t know exactly when he would regain access to his account. “Hopefully this will help stop them from doing this to other people.”
McLellan’s case is one of hundreds that have been highlighted recently by the Institute for Justice, a Washington-based public interest law firm seeking to reform civil forfeiture practices.
Robert Everett Johnson, an attorney with the firm, said there are many small-business owners who, unlike McLellan, find themselves ensnared in the seizure dragnet and either don’t have the money or the courage to fight for what they believe to be theirs.
Under the practice of civil forfeiture, law enforcement agents can seize property suspected of having ties to crime, even if no charges are filed – and then begin forfeiture proceedings in which the burden of proof is on the owner.
McLellan’s money was seized under a part of the law that governs cash deposits under $10,000, the threshold at which banks are required to report the transaction to the government.
Willfully keeping cash deposits under $10,000 to avoid such reporting requirements is known as “structuring,” and is illegal.
Often a mere bank statement is enough for investigators to obtain a seizure warrant.
In pursuing a case against McLellan, Andrew Pappas, a special agent with the State Bureau of Investigation assigned to a special task force with the U.S. Department of Treasury and IRS Criminal Investigation, detailed a pattern of 301 deposits into the bank account that was seized.
The court order states that agents began looking into McLellan’s deposits as early as 2008. Agents visited him, according to the dismissal order, and McLellan then signed a document stating that he had been notified about the $10,000 reporting threshold and understood that willfully violating the rule was illegal.
Prosecutors also contend that McLellan’s niece, who keeps the books for her uncle, knowingly kept deposits under $10,000 to avoid the reporting procedure.
Johnson, McLellan’s attorney, said Wednesday he was “very pleased” the government was dismissing the case, but he disagreed with some of the characterizations in the order about the understanding level that McLellan and his niece had of the forfeiture law.
McLellan's niece, according to Johnson, had been told about the limit by a bank worker, but thought that by keeping the deposit under $10,000 she also was forgoing paperwork that would have made her transaction take longer and hold up lines at the bank.
“It’s kind of a thumb in the eye at the door to say all these things without giving Lyndon a chance to respond,” Johnson said.
McLellan said Wednesday he was amazed at how something he had worked to build for 13 or 14 years was taken so quickly.
“If it hadn’t been for Robert, I’d still be behind the eight-ball so to speak,” he said.
McLellan, a lifelong Fairmont resident, turned a gas station on the edge of town into a country mart and grill known for dishing up pizza, hot dogs, hamburgers and catfish sandwiches– for $2.75.
“It’s the last stop on the way out of town,” McLellan said of the L & M Convenient Mart.
Early in his fight, McLellan hired a local lawyer to help him and paid a $3,000 retainer fee. He also paid $19,000 to an accountant to help audit his books and provide him with financial information.
Johnson, who said his firm was representing McLellan at no cost to the small-business owner, said the way the case was settled means his client will not have access to the interest and attorneys fees the government is supposed to provide after losing such cases.
But they plan to pursue that in further legal proceedings.
The law, legal analysts say, was designed to catch drug traffickers, racketeers and terrorists by tracking their cash.
Since cases similar to McLellan’s have been exposed and received public scrutiny, the .IRS and U.S. Justice Department have changed their policies.
In October, the IRS announced it no longer would pursue structuring cases unless the money was tied to some other illegal activity.
The Justice Department followed suit in March. But the policy changes were not retroactive, and McLellan’s case was already in the system.
Nevertheless, Walker cited the Justice Department policy as a reason for seeking dismissal in the case. He declined to comment further about the action.