Date: 08-31-2017

Case Style:

Case Number: 17-1096

Judge: Selya

Court: United States Court of Appeals for the First Circuit on appeal from the District of Rhode Island (Providence County)

Plaintiff's Attorney: Stephen G. Dambruch

Defendant's Attorney: Barbara Barrow

Description: This case requires us to answer
a question of first impression in this circuit — a question
involving the relative priority, as between the government and a
general creditor, with respect to claims relating to assets
forfeited as the proceeds of criminal activity. The district court
resolved this question in the government's favor and denied the
general creditor's claim. After careful consideration, we affirm.
The facts are straightforward. In April of 2007,
claimant-appellant David Vogel loaned an acquaintance, defendant
Juan G. Catala, $8,500 during a trip to Las Vegas. When Catala
did not repay the loan, the appellant sued him in a Rhode Island
state court. In April of 2012, a state judge entered a judgment
in the amount of $8,500, plus statutory interest and costs, in
favor of the appellant. The Rhode Island Supreme Court
subsequently affirmed that judgment. See Vogel v. Catala, 63 A.3d
519, 522-23 (R.I. 2013).
For several years, the appellant's efforts to collect
the judgment proved fruitless. A ray of hope appeared when, in
mid-2016, federal authorities charged the defendant with
distributing oxycodone and marijuana in violation of federal law.
See 21 U.S.C. § 841(a). As part of the investigation leading to
those charges, federal agents had searched the defendant's home
and seized $14,792 in cash.
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The case was docketed in the United States District Court
for the District of Rhode Island, and the defendant pleaded guilty
to the charges. The court determined that the $14,792 in cash
represented the proceeds of the defendant's illegal drug dealings
and was, therefore, subject to forfeiture. See 21 U.S.C. § 853(a).
Based on this determination, the court entered a preliminary order
of forfeiture.
Within a matter of days, the appellant filed a thirdparty
petition, in which he asserted a claim to the seized cash
under 21 U.S.C. § 853(n) and Federal Rule of Criminal Procedure
32.2(c). The government moved to dismiss his claim under Rule
32.2(c)(1)(A), which authorizes dismissal of a third-party
petition for, among other things, lack of standing or failure to
state a claim. The district court granted the government's motion,
ruling that the appellant had no legal right to the forfeited
proceeds.1 This timely appeal followed.
A motion to dismiss a third-party petition in a criminal
forfeiture proceeding is analyzed in the same way as a motion to
dismiss a complaint under Rule 12(b) of the Federal Rules of Civil
Procedure. See Willis Mgmt. (Vt.), Ltd. v. United States, 652
F.3d 236, 241 (2d Cir. 2011). Consequently, a third-party
1 The initial ruling was made by a magistrate judge and later
confirmed by a district judge. We do not distinguish between these
two judicial officers but, rather, take an institutional view and
refer throughout to the district court.
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petitioner under section 853(n) must plead "enough facts to state
a claim to relief that is plausible on its face." Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007). Where, as here, the district
court finds that the petition does not satisfy this standard, its
order of dismissal is reviewed de novo. See Nisselson v. Lernout,
469 F.3d 143, 150 (1st Cir. 2006).
Under section 853, individuals convicted of drugtrafficking
crimes must forfeit "any property constituting, or
derived from, any proceeds the person obtained, directly or
indirectly, as the result of such violation." 21 U.S.C.
§ 853(a)(1). They also must forfeit any instrumentalities used to
commit the crime. See id. § 853(a)(2).
In this appeal, the appellant takes issue with the
district court's application of section 853(n). Pertinently, the
statute sets forth the procedures through which a third party can
challenge a preliminary order of forfeiture. To initiate the
process, the third party must petition the court for a hearing to
evaluate his interest in the property that the government says is
subject to forfeiture. See 21 U.S.C. § 853(n)(2); United States
v. Zorrilla-Echevarría, 671 F.3d 1, 6 (1st Cir. 2011). At the
hearing, the third party must establish that he has standing within
the meaning of section 853 by "asserting a legal interest" in the
property. 21 U.S.C. § 853(n)(2); see United States v. Watts, 786
F.3d 152, 160 (2d Cir. 2015). He must then show his entitlement
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to relief on the merits by establishing (as relevant here) that
the order of forfeiture is invalid because any right to the
property "was vested in [him] rather than the defendant or [that
his right to the property] was superior to any right . . . of the
defendant at the time of the commission of the acts which gave
rise to the forfeiture." 21 U.S.C. § 853(n)(6)(A).2
If the court determines that the third party has standing
and that his interest is valid and superior to that of the
defendant's interest within the meaning of section 853(n), it may
amend the preliminary order of forfeiture accordingly. See Fed.
R. Crim. P. 32.2(c)(2). If, however, the court concludes that the
third party lacks a valid and superior interest, the preliminary
order of forfeiture becomes final. See id.
Against this backdrop, we turn to the appellant's claim.
Before examining the merits of that claim, we pause to assay his
standing to raise it.
This case implicates two different types of standing:
Article III standing and statutory standing. Article III standing
is a critical component of the Constitution's case-or-controversy
2 Although the statute also affords relief to a third party
who can show that he "is a bona fide purchaser for value of the
right, title, or interest in the property and was at the time of
purchase reasonably without cause to believe that the property was
subject to forfeiture," 21 U.S.C. § 853(n)(6)(B), the appellant
does not argue that he is entitled to any relief under this
provision. Consequently, we do not probe this point.
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requirement. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560
(1992); see also U.S. Const. art. III, § 2. Because Article III
standing is a sine qua non to federal judicial involvement, a
federal court must resolve any doubts about such standing before
proceeding to adjudicate the merits of a given case. See Steel
Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998); cf.
Restoration Pres. Masonry, Inc. v. Grove Eur. Ltd., 325 F.3d 54,
59 (1st Cir. 2003) (noting that rule requiring courts to address
jurisdictional questions at the outset is not "absolute" outside
of Article III context). This requirement applies both in the
trial court and at all stages of review. See Arizonans for
Official English v. Arizona, 520 U.S. 43, 67 (1997). Indeed, the
requirement applies even when neither party has raised the issue.
See McCulloch v. Vélez, 364 F.3d 1, 5 (1st Cir. 2004).
Article III standing requires a plaintiff to identify an
actual injury, traceable to the adverse party's conduct, that
likely can be redressed by a favorable decision. See Lujan, 504
U.S. at 560-61; Nisselson, 469 F.3d at 150. Those requirements
are plainly satisfied in this case.
Statutory standing is a horse of a different hue. It
relates to whether the plaintiff has a cause of action under a
particular statute. See Lexmark Int'l, Inc. v. Static Control
Components, Inc., 134 S. Ct. 1377, 1387-88 n.4 (2014). Unlike
Article III standing, though, the existence of statutory standing
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is not a prerequisite to a court's power to adjudicate a case.
See id. Thus, an inquiring court may opt, in the interest of
efficiency, to forgo an inquiry into statutory standing and reject
a claim on the merits. See First State Ins. Co. v. Nat'l Cas.
Co., 781 F.3d 7, 10 n.2 (1st Cir. 2015). For simplicity's sake,
we choose to follow that path and bypass this facet of the standing
paradigm. Accordingly, we assume (without deciding) that the
appellant has met the statutory standing requirement of having a
"legal interest" in the property to be forfeited, 21 U.S.C.
§ 853(n)(2), and proceed to the merits of the appellant's claim.
To prevail on the merits under section 853(n)(6)(A), a
third party must prove that, at the time the acts giving rise to
the forfeiture were committed, the right to the property to be
forfeited was either vested in him rather than the defendant or
that his interest in it was superior to the defendant's interest.
See 21 U.S.C. § 853(n)(6)(A); see also Watts, 786 F.3d at 166.
This provision cannot be read in a vacuum but, rather, must be
read in tandem with section 853(c). See United States v. Timley,
507 F.3d 1125, 1130 (8th Cir. 2007). The latter provision, which
embodies the relation-back doctrine, specifies that the right to
all property used in committing, and any proceeds derived from, a
criminal offense "vests in the United States upon the commission
of the act giving rise to [the] forfeiture." 21 U.S.C. § 853(c);
see Watts, 786 F.3d at 166; United States v. Hooper, 229 F.3d 818,
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822 (9th Cir. 2000). It follows inexorably that a third party
asserting an interest in forfeited property must establish that
his interest in that specific property existed before the
commission of the crime that led to the forfeiture. See Hooper,
229 F.3d at 821-22.
Here, then, the appellant must show that his interest in
the forfeited cash existed before the defendant engaged in the
drug distribution that sparked his arrest. The relation-back
doctrine stands in his way. A third party cannot have an interest
in proceeds that do not yet exist. See Timley, 507 F.3d at 1130.
Since proceeds from a crime "do not precede [the commission of]
the crime," the government's interest in proceeds forfeited
pursuant to section 853(a)(1) will almost always pre-date that of
a third party who is a general creditor. Hooper, 229 F.3d at 822;
see Watts, 786 F.3d at 166 (explaining that "a petitioner is
unlikely ever to prevail . . . where the forfeited property
consists of 'proceeds' derived from or traceable to a criminal
offense"). Thus, section 853(n)(6)(A) claims are generally
successful only when the third party can claim an interest in the
instrumentalities of a crime pursuant to section 853(a)(2), which
sometimes can preexist the crime itself. See Watts, 786 F.3d at
167; see also Hooper, 229 F.3d at 822 (explaining that a claimant
may prevail under section 853(n)(6)(A) even though her spouse used
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the family car for drug trafficking by showing that her interest
in the vehicle predated the criminal activity).
These principles are dispositive here. There is no
suggestion that the forfeited cash came from any source other than
the defendant's drug-trafficking activities. So viewed, the
government's interest in the forfeited cash vested as soon as the
defendant began selling drugs and before any proceeds started to
reach him. See 21 U.S.C. § 853(c). To the extent that the
appellant had any interest in the defendant's ill-gotten gains,
that interest could not possibly have predated the defendant's
acquisition of the funds and, thus, could not have predated the
government's interest. See Watts, 786 F.3d at 166-67. Moreover,
since the appellant's $8,500 loan to the defendant did not
constitute a discrete "instrumentality" used in his drugtrafficking
activities, the appellant cannot claim that he had a
prior, superior interest under section 853(n)(6)(A) and section
853(a)(2).
In an effort to blunt the force of this reasoning, the
appellant contends that because he had a valid, preexisting legal
interest in the defendant's finances — an interest resulting from
the state court judgment — he is entitled to repayment from the
cash that the government proposes to forfeit. This contention
lacks force. While the appellant has an obvious interest in
obtaining satisfaction of the outstanding judgment, his interest
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is, at most, that of a general creditor. See United States v.
Reckmeyer, 836 F.2d 200, 206 & n.3 (4th Cir. 1987). Such an
interest is not sufficient to accord priority to the appellant's
claim to a specific chunk of cash (the $14,792 that was
attributable to the defendant's drug-trafficking activities and
seized when he was arrested). See United States v. One-Sixth Share
of James J. Bulger in All Present & Future Proceeds of Mass
Millions Lottery Ticket No. M246233, 326 F.3d 36, 44 (1st Cir.
2003).
This result conforms not only to the letter of the
forfeiture statute but also to the policies behind it. After all,
if a criminal defendant's forfeited cash could be used to defray
his debts to general creditors, the defendant would continue to
benefit from his illicit activities. Such a result would be at
cross-purposes with the goals of criminal forfeiture, such as
"separating a criminal from his ill-gotten gains" and "lessen[ing]
the economic power" of unlawful activities. Honeycutt v. United
States, 137 S. Ct. 1626, 1631 (2017) (alteration in original)
(quoting Caplin & Drysdale, Chartered v. United States, 491 U.S.
617, 629-30 (1989)). We refuse to carve such a gaping hole into
the forfeiture framework.
We need go no further. For the reasons elucidated above,
the judgment of the district court is

Outcome: Affirmed.

Plaintiff's Experts:

Defendant's Experts:

Comments: