First the feds stole $107,000 from Lyndon McLellan, saying his bank deposits of money from his North Carolina convenience store were suspiciously small, as if he were trying to avoid the reporting requirement for transactions involving $10,000 or more. Then the feds refused to return the money, even after the IRS and the Justice Department announced that they would no longer pursue such "structuring" cases unless they involved proceeds of illegal activity. Offering to return half the money last March, a federal prosecutor warned McLellan's lawyer that calling public attention to the case would only make the government less inclined to reach a settlement. Two months later, the feds finally agreed to give McLellan his money back but without interest and without compensating him for the $22,000 he had paid his lawyer and a forensic accountant before the Institute for Justice took the case pro bono. This week a federal judge completed McLellan's vindication by dismissing the forfeiture case with prejudice, making him eligible to recover his costs and the interest on his purloined savings under the Civil Asset Forfeiture Reform Act (CAFRA).

"The damage inflicted upon an innocent person or business is immense when, although it has done nothing wrong, its money and property are seized," wrote U.S. District Judge James Fox. "Congress, acknowledging the harsh realities of civil forfeiture practice, sought to lessen the blow to innocent citizens who have had their property stripped from them by the Government. Through CAFRA , Congress provided for relief in such cases. This court will not discard lightly the right of a citizen to seek the relief Congress has afforded."

Under CAFRA, the owner of a seized asset is entitled to attorney fees, litigation costs, and interest if he "substantially prevails" in challenging a forfeiture. Dismissal with prejudice, which means the government is barred from bringing the case again, makes it much easier to satisfy that standard. The Justice Department argued that Fox should ignore that issue in deciding how to dismiss the case. Fox disagreed.

Fox's ruling, which was issued on Tuesday, "recognizes that Lyndon should not have to pay for the government's outrageous use of civil forfeiture laws against a totally innocent property owner," says Institute for Justice attorney Robert Everett Johnson. "The government took Lyndon's property even though he did nothing wrong, forcing him into a prolonged and expensive legal nightmare. Now the government will have to comply with its obligation to make Lyndon at least partly whole."

The Institute Justice is seeking CAFRA compensation in a similar structuring case involving Carole Hinders, an Iowa restaurant owner who got her money back after I.J. took up her cause. The U.S. Court of Appeals for the 8th Circuit will hear oral argument in that case next Tuesday. "The government cannot turn a citizen's life upside down and then walk away as if nothing happened," says Wesley Hottot, an I.J. attorney who is representing Hinders. "Now that Lyndon has been vindicated, we look forward to holding the government to account in Carole's case as well."