Civil forfeiture is a powerful tool for dismantling criminal enterprises. Eliminating the profit from crime decreases the incentive to break the law. And drying up a criminal organization’s financial resources can hasten its demise.
But with great government power comes the potential for abuse. 18 U.S.C. § 981 et seq. authorizes the federal government to seize money and property without a criminal conviction and under the lower preponderance of the evidence standard. Many states have enacted similar statutes.
The potential for government overreach has caught the media’s attention. John Oliver’s sixteen minute HBO rant, as well as other outlets such as The New Yorker and Business Insider, have chronicled the plight of citizens targeted under the forfeiture laws. What is more, some government officials have actually admitted to using forfeiture laws as a profit center.
The federal government alone seized $4.2 billion in 2012, according to Roger Pilon of the Cato Institute. Mr. Pilon also reports that, “since 2001, the federal government has seized $2.5 billion without bringing a criminal conviction or issuing a warrant.”
Efforts to curb the government’s forfeiture power have taken hold in Montana and New Mexico. This past summer, those states changed the law to require a criminal conviction before forfeiture.
At the federal level, the Senate Judiciary Committee has taken notice of potential problems, and forfeiture reform is starting to garner bipartisan support.
Some federal agencies, however, appear resistant. Forbes has reported that the federal government is threatening to exclude California from sharing in federal forfeiture funds if California reforms its own forfeiture statute. The federal government has already taken this step with New Mexico.
Even if legislative reform proves impossible, federal judges have recently bolstered the rights of citizens to assert the “innocent owner defense.” This defense comes from 18 U.S.C. § 983(d)(1), which provides that an “innocent owner’s interest in property shall not be forfeited under any civil forfeiture statute.” Three recent cases interpreting this defense are of interest.
United States v. 246 Main Street, __ F. Supp.3d __, 3:13-CV-1210-J-39PDB, 2015 WL 4254381 (M.D. Fla. July 13, 2015)
In United States v. 246 Main Street, a civil forfeiture decision handed down last July, Judge Brian J. Davis of the Middle District of Florida rejected a narrow view of the innocent owner defense advanced by the government and entered summary judgment in favor of the claimant.
The case concerned the validity of a quit claim deed to real property in New York. Daniel Williams, the deed’s grantor and a fraudster, conveyed the property to settle a potential lawsuit by the grantee, who was one of the victims of Williams’ fraud. One month later, the United States sued to invalidate the quit claim deed and to forfeit the grantee’s interest in the real property. The government claimed that the Williams’ had previously “defrauded a number of investors through an elaborate embezzlement scheme” and that the property at issue was purchased “in whole or in part, with funds traceable to the illicit scheme.” United States v. Real Prop., Including All Improvements Thereon & Appurtenances Thereto, Located at 246 Main St., Dansville, Livingston Cnty., New York, No. 3:13-CV-1210-J-39PDB, 2015 WL 4254381, at *1 (M.D. Fla. July 13, 2015).
Shortly after the government filed its forfeiture case, a grand jury indicted Williams for wire fraud. Meanwhile, the grantee was not able to record the deed because Williams failed to sign tax documents required for recording in New York. Id. at *3.
The grantee, represented by Bryan Cave LLP and the authors of the blog post, successfully invoked the “innocent owner defense” under 18 U.S.C. § 983. The court’s forty-page opinion is noteworthy for three reasons.
First, the court held that the innocent owner defense applied so long as the grantee did not know that the specific property at issue was purchased with money obtained through fraud. Knowledge that the grantor was a criminal and had committed fraud does not by itself defeat the innocent owner defense. Nor does knowledge that the grantor perpetrated frauds against the claimant. The claimant prevailed on the innocent owner defense because the record was undisputed that he believed that the grantor’s “ownership of the [real property] was entirely legitimate and completely unrelated to any of [the grantor’s] fraudulent activities.” 2015 WL 4254381 at *3. Consequently, the innocent owner defense survives so long as the claimant does not know that the specific property at issue “was subject to forfeiture.” Id. at *18 (citing 18 U.S.C. § 983(d)(3(A)(ii)).
Second, 246 Main Street adopted a claimant-friendly interpretation of the bona fide purchase requirement. Where the claimant acquires the property at issue after the conduct giving rise to forfeiture, the claimant must be a bona fide purchaser for value. 18 U.S.C. § 983(d)(3)(A)(i).
In 246 Main Street, the claimant did not pay money in exchange for the quit claim deed. The claimant instead released potential fraud claims. The claimant also unwound an investment in a company run by the fraudster. This entailed returning to the fraudster shares of stock that the claimant had previously purchased. The United States argued that none of this was sufficient consideration to make the claimant a bona fide purchase. According to the government, “the transaction satisfied a pre-existing obligation that Williams owed to [the claimant].” 2015 WL 4254381, at *14 (M.D. Fla. July 13, 2015). The United States further contended that returning the stock was not a valuable exchange because “a person’s shares in a company and the value of a lawsuit are by their very nature speculative and prone to vacillation, such a transaction precludes status as a bona fide purchaser for value.” Id. at *14.
Judge Davis disagreed and held that the grantee had given value in exchange for the deed by releasing claims for fraud against the grantee and re-conveying the stock. It made no difference that the claims for fraud were, as the government contended, an “antecedent debt” owed by Williams to the claimant. 2015 WL 4254381 at *16. This ruling demonstrates that no exchange of money is necessary to invoke the innocent owner defense. Forgiving a prior loan, for example, should suffice.
Third, Judge Davis held that the grantee’s inability to record the quit claim deed was of no consequence. The innocent owner defense applies even where the ownership interest is founded upon a deed that has not yet been recorded. 2015 WL 4254381 at *10-*11. Further, the grantee had standing to defend against forfeiture even though he never maintained possession of the property. The grantee exercised sufficient “dominion and control” over the property by, among other things, negotiating for the quit claim deed and hiring counsel to enforce his rights under that deed and to defend against forfeiture. Id. Judge Davis rejected the government’s contention that recording was necessary to show “dominion and control” for purposes of standing. Id. at *8.
In sum, 246 Main Street rejected a number of road blocks that the government attempted to throw up in the way of proving the innocent owner defense.
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