§960 Forfeitures, Innocent Owner Defense
Supreme Court holds lack of knowledge that home was purchased with drug proceeds is defense to forfeiture. (960) In a plurality opinion announced by Justice Stevens, the Supreme Court concluded that an owner’s lack of knowledge of the fact that her home had been purchased with the proceeds of illegal drug transactions constituted a defense to a forfeiture proceeding under the statute. In 1982 respondent received $240,000 from her boyfriend to purchase a home. In 1989 the government filed an in rem action against the parcel of land on which the home was located. There was probable cause to believe that the funds used to buy the house were proceeds of illegal drug trafficking, but respondent swore she had no knowledge of its origins. The plurality concluded that the “innocent owner” protection is not limited to bona fide purchasers. In addition, the government is not the owner of a property before forfeiture has been decreed. The two concurring Justices concluded that the result was correct because the “relation back” principle recited in 21 U.S.C. section 881(h) is the familiar, traditional one and the term “owner” in section 881(a)(6) bears its ordinary meaning. U.S. v. Parcel of Land Bldgs., Appurtenances and Improvements, Known as 92 Buena Vista Ave., Rumson, N.J.,, 507 U.S. 111, 113 S.Ct. 1126 (1993).
1st Circuit upholds denial of attorneys’ fees to claimants who presented successful innocent owner defense. (960) In a forfeiture action against property jointly owned by three siblings, the government eventually stipulated that two of the siblings were innocent owners. Nevertheless, the 1st Circuit upheld the denial of attorneys’ fees under the Equal Access to Justice Act (EAJA). The government’s decision to seize the property was warranted because there was probable cause to believe that it was used for illegal activity. Once probable cause is established, it is the claimant’s burden to prove the innocent owner defense. It would be unreasonable to require the government to foresee an owner’s possible affirmative defenses. The government also had substantial justification for the manner in which it seized the property under 21 U.S.C. 881. Even if the statutory procedures were ultimately found to be insufficient, the government was reasonable in using those procedures. Although the 2nd Circuit recently found constitutional problems with section 881, the government was not required to follow the 2nd Circuit. U.S. v. One Parcel of Real Property with Buildings, Appurtenances, and Improvements, Known as Plat 20, 960 F.2d 200 (1st Cir. 1992).
1st Circuit rules that claimant’s failure to furnish cross-statement of facts constituted admission of government’s assertions. (960) The 1st Circuit rejected claimant’s contention that he was an innocent owner. The burden of proving the defense of innocent ownership rests with the claimant. Claimant’s initial opposition to the government’s motion for summary judgment included no affidavits, only a general denial of some allegations in the forfeiture complaint and a “weasel-worded challenge” to the thrust of the detailed affidavits supporting the forfeiture complaint. Moreover, claimant failed to furnish the required cross-statement of facts. Thus, his unexcused omissions had the legal effect of admitting the government’s factual assertions. U.S. v. Parcel of Land and Residence at 18 Oakwood Street, 958 F.2d 1 (1st Cir. 1992).
2nd Circuit rejects innocent owner defense where drug paraphernalia was found in plain sight in shared bedroom. (960) A forfeiture action was brought against claimant’s residence based upon her husband’s drug activities. The 2nd Circuit rejected claimant’s innocent owner defense since drugs and drug paraphernalia were found throughout their shared bedroom and some drug paraphernalia was found in plain sight. Even if claimant’s husband had exclusive control of the dresser, closet and jewelry box where drugs were found, the fact that a sifter, grinder, sheets of paper, and funnel were in plain view on top of the dresser belied claimant’s ignorance of drug activities in the bedroom. Her purported ignorance was at best “willful blindness,” and at worst perjurious. The abundance and visibility of the narcotics evidence contradicted any contention that claimant took all reasonable steps to prevent the illegal use of the property. Judge Van Graafeiland dissented. U.S. v. One Parcel of Property, Located at 755 Forest Road, 985 F.2d 70 (2nd Cir. 1993).
2nd Circuit finds that claimants knew of drug trafficking on their property. (960) The 2nd Circuit upheld the forfeiture of real property, finding that there was probable cause and that claimants were not innocent owners. Due to the extraordinary volume of drug transactions occurring on, nearby, or directly related to the premises (66 drug-related arrests over a three-year period), the trial court correctly found probable cause that the property had been used to facilitate drug trafficking. Further, the court did not err in rejecting claimants’ improbable testimony that they had no knowledge of drug-trafficking on their property and had not consented to it, particularly given their own drug-related arrests on the site and their presence during arrests for various other drug transactions. A claimant who has knowledge that his property is being used for drug-related purposes must take reasonable steps to prevent this illicit use in order to show a lack of consent. Claimants failed to show that they took those steps. That similar drug activity may have pervaded the neighborhood did not excuse them. U.S. v. All Right, Title, and Interest in Real Property and Appurtenances Thereto Known as 785 St. Nicholas Ave., 983 F.2d 396 (2nd Cir. 1993).
2nd Circuit instructs district court to comply with recent decision concerning innocent owner defense. (960) The district court instructed the jury that in order to be an innocent owner, claimant must prove two things: (a) that she did not have actual knowledge of drug activity at her property; and (b) that she did not consent to the illegal drug activity. After this instruction the 2nd Circuit decided U.S. v. 141st Street Corp., 911 F.2d at 878 (2nd Cir. 1990) which held that a claimant may avoid forfeiture by establishing either that she had no knowledge of the narcotics activity or, if she had knowledge, that she did not consent to it. The case was remanded on other grounds, and in the event of a new trial, the district court was directed to give an instruction consistent with 141st Street Corp. U.S. v. Certain Real Property and Premises, Known as 8890 Noyac Road, 945 F.2d 1252 (2nd Cir. 1991).
3rd Circuit holds that wife had no interest in property solely owned by husband. (960) Claimant’s husband was the sole record owner of certain property he purchased during his marriage to claimant. She claimed to have an ownership interest in the property for purposes of the innocent owner defense by virtue of the definition of “marital property” in the Divorce Chapter of the Pennsylvania Domestic Relations Act. The 3rd Circuit rejected this interpretation. After reviewing relevant decisions of the Pennsylvania Supreme Court and those of federal courts interpreting analogous state law, it concluded there was no indication that the Pennsylvania Supreme Court would interpret the marital property provision of the Divorce Chapter to confer a present ownership interest in the property on claimant solely by virtue of her marriage. Thus, claimant could not assert the federal forfeiture statute’s innocent owner defense. U.S. v. Premises Known as 717 South Woodward Street, 2 F.3d 529 (3rd Cir. 1993).
3rd Circuit finds claimant’s bare denial of knowledge sufficient to withstand summary judgment. (960) One claimant and her husband owned a residence and a food market as tenants by the entireties. The husband also owned a club in which a second claimant had an interest by virtue of his contribution to the down payment. In a forfeiture action against the three properties based on the husband’s drug dealings, claimants asserted the innocent owner defense. The 3rd Circuit held that the claimants’ bare denial of knowledge was sufficient to create a genuine issue of fact and thus summary judgment was inappropriate. A rational jury could believe the second claimant’s testimony that he had no knowledge of the husband’s drug dealings at the club. Similarly, a rational jury could believe the wife’s testimony that she had no knowledge of her husband’s drug dealing from their house or market. No evidence was tendered placing the wife at her residence or at the scene of any drug-related transaction. Judge Seitz concurred and dissented. U.S. v. Premises Known as 717 South Woodward Street, 2 F.3d 529 (3rd Cir. 1993).
3rd Circuit gives innocent spouse right to exclusive use and possession of property during her lifetime. (960) Claimant and her husband owned the property as tenants by the entirety. A tenant by the entirety has title to the whole property. In a forfeiture action based on the husband’s drug activities, the government conceded that claimant had a valid innocent owner defense. The district court then dismissed the forfeiture complaint, ruling that as an innocent owner, claimant was entitled to retain her title to the entire property. The government then moved to amend the judgment, arguing that it had a right to the husband’s interest, but that claimant could retain exclusive use of it during her lifetime, and the right to obtain title in fee simple absolute if her husband predeceased her. The 3rd Circuit reversed the district court’s ruling and adopted the government’s interpretation. That interpretation best served the dual purposes of 21 U.S.C. section 881(a)(7), permitting the immediate forfeiture of the interest of the guilty spouse, and fully protecting the property rights of the innocent owner under the tenancy by the entireties. U.S. v. Parcel of Real Property Known as 1500 Lincoln Avenue, 949 F.2d 73 (3rd Cir. 1991).
4th Circuit holds lienholder is entitled to assert innocent owner defense. (960) The 4th Circuit reaffirmed its decision in In re Metmor Fin., Inc, 819 F.2d 446 (4th Cir. 1987) and held that a lienholder is an “owner” within the meaning of 21 U.S.C. section 881 and is thus entitled to assert the innocent owner defense. This interpretation was consistent with recent decisions by at least two other courts of appeals and was supported by the legislative history. In this case, because claimants were lienholders, and because the government had conceded their innocence, their interests in the subject property could not be forfeited. The lienholders were entitled to recover outstanding principal, unpaid pre-seizure interest, and post-seizure interest. In addition, if the mortgage documents so provided, costs and attorneys’ fees would be available. The case was remanded for a determination of whether claimants’ mortgage documents provided for the recovery of attorneys’ fees and costs. U.S. v. Federal National Mortgage Association, 946 F.2d 264 (4th Cir. 1991).
5th Circuit rejects innocent owner defense for purchaser of illegally imported goods. (960) Claimant purchased goods that were imported into the United States in violation of Customs law. The 5th Circuit rejected an innocent owner defense to the forfeiture of the goods. Cases suggesting the existence of a constitutional innocent owner defense to customs violations all involved situations where the owner of the property subject to forfeiture attained ownership rights prior to the illegal use of the property. In contrast, claimant’s ownership of the goods arose only after the unauthorized importation. It would render useless the current system of public recordation if purchasers of imported items could ignore the listings and obtain good title simply by asking their sellers, as claimant did, whether the imports were authorized. U.S. v. Eighty-Three Rolex Watches, 992 F.2d 508 (5th Cir. 1993).
5th Circuit upholds forfeiture of sheep under Lacey Act because Pakistan law prohibited export. (960) The 5th Circuit affirmed summary judgment in favor of the government in a forfeiture action brought against a sheep imported by claimant into the United States from Pakistan. The action was brought under the forfeiture provisions of the Lacey Act. The court held that the forfeiture statute provides for strict liability, and contains no “innocent owner” defense. Once the government establishes probable cause, the burden shifts to the claimant to establish either that a defense to the forfeiture applies or that the property is not subject to forfeiture. Thus, the government needed to establish only that importation of the sheep violated the laws of Pakistan. The Pakistani Imports and Export Act prohibited the sheep’s export out of Pakistan. Although defendant possessed an export permit issued by the province of Baluchistan, this permit was void to the extent it conflicted with the Imports and Export Act. U.S. v. One Afghan Urial Ovis Orientalis Blanfordi Fully Mounted Sheep, 964 F.2d 474 (5th Cir. 1992).
5th Circuit upholds forfeiture because claimant did not perfect ownership interest in automobile under state law. (960) Claimant, an attorney, made an oral agreement with his client to represent the client for $50,000. The client offered $6,500 in cash and his 1977 Porsche Carrera 911. Claimant then entered into a written form contract in which the client agreed to pay a retainer in the amount of $50,000. The contract did not mention the car. Nonetheless, that day, claimant took physical possession of the car. Although the client had obtained the car several months before, he did not register his title to it until after claimant obtained possession of the car. The certificate assigning title to claimant remained unrecorded during a subsequent forfeiture action against the car based on the client’s drug activities. The 5th Circuit held claimant’s possessory interest gave him standing to challenge the forfeiture, but rejected his innocent owner defense because his interest in the vehicle was not valid against third parties under Texas law. Since neither claimant or his client had a perfected title in the car when it was seized, claimant acquired the car subject to the forfeiture interest of the government. U.S. v. 1977 Porsche Carrera, 946 F.2d 30 (5th Cir. 1991).
6th Circuit reverses summary judgment against spouse who denied knowledge of drugs in home. (960) Claimant’s husband was convicted of drug offenses, and claimant was tried but acquitted. Subsequently, the government sought to forfeit the family’s mobile home and the tract on which it sat, as well as other property owned by the family. The district court granted summary judgment to the government, but the 6th Circuit reversed with respect to claimant’s interest in the parcel. The only evidence tying drug activity to the home was proof that a bag of marijuana and a jar containing several thousand marijuana seeds were found in the mobile home. At her criminal trial and in an affidavit in the forfeiture action, claimant denied knowing that these items were in her home. A reasonable trier of fact could have concluded that claimant satisfied the innocent-owner defense. U.S. v. Three Tracts of Property Located on Beaver Creek, 994 F.2d 287 (6th Cir. 1993).
7th Circuit holds that manager’s knowledge of drug activities could not be imputed to corporation. (960) A corporation owned the defendant property, and three individuals owned stock in the corporation. A husband and wife owned 2/3 of the stock, and their son owned the remaining 1/3. The son’s shares were a gift from his parents. The son lived on the property and directed its day-to-day operations while his parents lived elsewhere. Without the knowledge or consent of his parents, the son began engaging in drug transactions on the property in his personal residence. He never used corporate funds to purchase drugs and never put any drug proceeds into the corporation. In a forfeiture action against the property, the 7th Circuit reversed a summary judgment in favor of the government and held that the corporation was an innocent owner. The son’s knowledge of his own criminal activity could not be imputed to the corporation to defeat the corporation’s innocent owner defense. Section 881(a)(7) focuses on the claimant’s actual knowledge of the illegal activities, not whether the claimant should have known of the illegal activities. Thus, the son’s knowledge of his own illegal activities would not be imputed to the corporation because the son was dealing drugs to benefit himself, and not the corporation. Judge Posner dissented. U.S. v. One Parcel of Land Located at 7326 Highway 45 North, 965 F.2d 311 (7th Cir. 1992).
8th Circuit rules government did not prove corporation’s willful blindness of employee’s drug dealings. (960) The government sought forfeiture of a Jeep owned by claimant, a family-owned corporation, based on drug dealing by Mark, a minority shareholder who used the Jeep as his company car. In granting summary judgment, the district court rejected the corporation’s innocent owner defense, finding that it could not prove the absence of willful blindness. The 8th Circuit ruled that the government did not prove willful blindness as a matter of law, and remanded for trial. “Willful blindness involves an owner who deliberately closes his eyes to what otherwise would have been obvious and whose acts or omission show a conscious purpose to avoid knowing the truth.” Here, the record showed that Mark had difficulty with drugs over a period of time and had been treated several times. He was allowed to return to work because the family felt he was no longer using drugs. Family members were monitoring Mark’s work and attendance. Moreover, Mark had a personal car in addition to the Jeep. U.S. v. One 1989 Jeep Wagoneer, 976 F.2d 1172 (8th Cir. 1992).
9th Circuit rejects innocent owner defense even though owner moved before marijuana was found. (960) The claimant separated from the woman with whom he had been living and moved out of the mobile home in August, 1987. The woman continued to live in the mobile home, and the claimant continued to operate a shake mill on the property. On several occasions after he moved out, he was allowed to use the telephone in the mobile home and once or twice, the bathroom. Two years after the claimant had moved out, federal agents executed a search warrant at the mobile home. They found 66 live marijuana plants, equipment for a marijuana-growing operation, and various quantities of processed marijuana. Based on the claimant’s knowledge of the smell of marijuana, the boarded up windows, and his visits inside the mobile home after he had moved out, the 9th Circuit upheld the district court’s finding that he was not an “innocent owner.” U.S. v. Real Property Located at Section 18, 976 F.2d 515 (9th Cir. 1992).
10th Circuit holds innocent lienholder is entitled to recover attorneys’ fees if provided for in pre-existing deed of trust. (960) The 10th Circuit held that where a pre-existing deed of trust gives a lienholder the right to recover attorneys’ fees, the innocent lienholder is entitled to recover such fees even though the fees are incurred after the acts giving rise to the forfeiture and after the government’s seizure of the property. In such a situation, a lienholder’s right to recover attorneys’ fees is secured by the property, and its right to recover such fees is an interest in the property. This is true even if the fees are incurred after the acts giving rise to the forfeiture. The lienholder’s right to reimbursement of attorneys’ fees were created at the time the deed of trust was formed. This right predated the commission of the bad acts that gave rise to the forfeiture. U.S. v. Real Property Located at 2471 Venus Drive, 949 F.2d 374 (10th Cir. 1991).
11th Circuit remands to determine whether county tax collector could be innocent owner. (960) The district court rejected the argument that a tax lien resulting from unpaid ad valorem property taxes provided the county tax collector with standing as an innocent owner to challenge a civil forfeiture under 21 U.S.C. section 881(a)(6) and (a)(7). The 11th Circuit remanded for reconsideration in light of U.S. v. A Parcel of Land, Buildings, Appurtenances and Improvements, Known as 92 Buena Vista Avenue, 113 S.Ct. 1126 (1993). The district court concluded that the innocent owner defense applies only to owners whose interests vest before the act giving rise to the forfeiture. The court thus relied on the relation-back doctrine, under which a judgment of forfeiture relates back to the time of the unlawful act, cutting off the rights of subsequent lienholders or purchasers. However, this doctrine was rejected by the Supreme Court in Buena Vista. U.S. v. 2350 N.W. 187 Street, 996 F.2d 1141 (11th Cir. 1993).
11th Circuit rules that lender had no actual knowledge that drug proceeds were traceable to mortgage property. (960) At the request of a long-time customer, claimant loaned money to a shell corporation as a bridge loan pending the sale of the corporation’s sole asset, a residence. The loan was secured by a first mortgage on the property. The undisclosed true owner of the property was a drug dealer, who had purchased the property four years earlier with drug proceeds. In a forfeiture action against the property, the district court rejected claimant’s innocent owner defense. The 11th Circuit reversed, ruling that claimant proved it had no actual knowledge that drug proceeds were traceable to the mortgaged property. It was uncontradicted that the drug dealer was not known to the claimant and played no role in the mortgage process. He was never a record owner of the property. There was no evidence that when the lender made the loan in 1987, it knew that four years earlier a drug dealer purchased the land and constructed the residence with drug proceeds. U.S. v. One Single Family Residence Located at 6960 Miraflores Avenue, 995 F.2d 1558 (11th Cir. 1993).
11th Circuit holds that innocent owner must prove either lack of knowledge or lack of consent to drug activities. (960) The innocent owner provisions in 21 U.S.C. section 881(a)(7) provides a defense to the forfeiture of property for those owners who can prove that they had no knowledge of illegal activity occurring on their property or who did not consent to that activity. The 11th Circuit held that this means an owner can avoid forfeiture by proving either ignorance or non-consent. Cases which require owners to prove both non-consent and ignorance read section 881(a)(7) incorrectly. U.S. v. One Parcel of Real Estate at 1012 Germantown Road, 963 F.2d 1496 (11th Cir. 1992).
11th Circuit holds that lack of consent requires proof that claimant made all reasonable efforts to prevent illicit use of his property. (960) The jury was presented with a special interrogatory concerning claimant’s innocent owner defense which asked whether claimant proved, by a preponderance of the evidence, that he did everything that he could reasonably be expected to do to prevent the subject property from being used for drug activity. The 11th Circuit held that this accurately stated the law in the circuit under 21 U.S.C. section 881(a)(7). The same standard applies to actions under section 881(a)(6). Nonetheless, the court erred in failing to instruct the jury on the definition of consent and the “all reasonable efforts” standard. The court should have made clear that the standard does not require the claimant to make all efforts, but merely all reasonable ones. The “all reasonable efforts” standard can be satisfied by contacting and cooperating with law enforcement authorities, especially when a claimant is unable to halt drug traffic on his own. U.S. v. One Parcel of Real Estate at 1012 Germantown Road, 963 F.2d 1496 (11th Cir. 1992).
11th Circuit finds genuine issue of fact concerning claimant’s knowledge of husband’s drug activity. (960) The government brought a civil forfeiture action against property jointly owned by claimant and her husband, which was used by her husband as a drop-off point for cocaine deliveries. The district court denied claimant’s motion for summary judgment. The 11th Circuit dismissed claimant’s appeal for lack of jurisdiction, but then ruled that if it had jurisdiction, it would affirm the district court’s denial of the summary judgment motion. Claimant failed to show there was no issue of fact as to her innocent owner status. Defendant was present when the police arrived to search the home but elected to leave during the search. The evidence also indicated that defendant’s husband used the home regularly for illegal drugs. This raised an inference that the claimant was not entirely ignorant of the circumstances surrounding her husband’s activities. U.S. v. Certain Real and Personal Property Belonging to Ronald Jerome Hayes, 943 F.2d 1292 (11th Cir. 1991).
New York District Court rules shareholders have no standing to assert “innocent owner” defense. (960) The government filed an in rem forfeiture action against a restaurant, alleging it had been used in drug and money laundering violations. Twenty-six shareholders of the corporation that owned the restaurant filed claims, alleging that they were “innocent owners.” District Judge Glasser ruled that the shareholders had no standing to file claims, because “shareholders do not hold legal title to any of the corporation’s assets.” The court noted that if shareholders had standing, “drug dealers could set up a corporation and sell stock to innocent shareholders or to those acting in concert, who could then assert an innocent owner defense in any pending forfeiture proceeding.” “Strawmen” and “nominal” holders of legal title do not have standing, and neither do shareholders. U.S. v. New Silver Palace Restaurant, 810 F.Supp. 440 (E.D.N.Y. 1992).