Government Wins Finders Keepers: Criminal Forfeiture Cannot Be Used to Repay a Las Vegas Debt

October 24, 2017

business concept. money with handBy: Sara Kropf

What happens if a defendant’s cash is subject to forfeiture but he also owes someone else money? Who gets the forfeited cash?

In a recent case out of the First Circuit, the court applied the forfeiture statutes to deny a general creditor payment of the defendant’s debt.

This holding (an issue of first impression for the court) has implications whether you represent someone who is owed money by a defendant or the defendant himself.

The Las Vegas Debt

The facts here are straightforward. In April 2007, David Vogel (the “claimant” in this case), loaned Juan Catala $8500 during a trip to Las Vegas. The opinion doesn’t specify how Mr. Catala used the money.

I guess what happens in Vegas, stays in Vegas.

Ultimately Mr. Catala did not repay the loan, and Mr. Vogel suit him in Rhode Island state court. Mr. Vogel won and had in hand a final judgment for $8500 plus interest and costs.

Mr. Vogel wasn’t able to collect on the judgment for several years. In May 2016, however, the government charged Mr. Catala with distributing oxycodone and marijuana. During the investigation, federal agent searched his home and seized $14,792 in cash.

Mr. Catala pleaded guilty. The court found that the $14,792 in cash constituted the proceeds of his illegal drug activity and was subject to forfeiture. The court entered a preliminary order of forfeiture under § 853(a).

Mr. Vogel Wants His Vegas Money Back

Mr. Vogel had apparently been keeping an eye on the docket. Within a few days after the preliminary order was entered, he filed a third-party petition asserting a claim to the cash under § 853 and Federal Rules of Criminal Procedure 32.2(c).

He filed a third-party petition, which is allowed under § 853(n)(2):

Any person, other than the defendant, asserting a legal interest in property which has been ordered forfeited to the United States pursuant to this section may, within thirty days of the final publication of notice or his receipt of notice under paragraph (1), whichever is earlier, petition the court for a hearing to adjudicate the validity of his alleged interest in the property. The hearing shall be held before the court alone, without a jury.

The government moved to dismiss. Motions to dismiss a third-party petition in a criminal forfeiture are analyzed the same way as a civil motion to dismiss. So, Mr. Vogel had to plead facts sufficient “to state a claim that is plausible on its face, “per Twombly.

The district court dismissed Mr. Vogel’s claim. He appealed to the First Circuit.

Avoiding the Standing Issue

The court of appeals briefly addressed whether Mr. Vogel had standing to raise his claim. It easily concluded that he had Article III standing.

It then offered the best quote the opinion, noting that “statutory standing is a horse of a different hue.” Statutory standing is whether the claimant has a right to bring the claim under the particular statute at issue.

Standing in this case is an interesting issue but the court sidestepped it. Instead, it went right to the merits, assuming without deciding that Mr. Vogel had standing. That’s an issue for another day, for all you appellate lawyers out there.

The Merits: Section 853 Generally

The court of appeals decision offers a nice primer on third-party claims under § 853 at issue in the case.

First, individuals convicted of drug trafficking crimes must forfeit “any property constituting, or derived from, and any proceeds the person obtained, directly or indirectly, as the result of such violation.” 21 U.S.C. § 853(a)(1). The defendant must also forfeit any “instrumentalities” used to commit the crime. § 853(a)(2).

Second, the statue describes the procedures by which a third-party can challenge your preliminary order a forfeiture. To do so, Mr. Vogel must petition the court for a hearing to evaluate his interest in the property that the government believes is subject to forfeiture. At the hearing Mr. Vogel would have to establish that he has standing and that he was entitled to relief on the merits.

Third, Mr. Vogel could show that he was entitled to relief by showing that his 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 forfeiture.” 21 U.S.C. § 853(n)(6)(a).

Fourth, if the court determines that Mr. Vogel has standing and that his interest is valid in superior to the dependence interest in the property, it may amend the preliminary order a forfeiture. Rule 32.2(c)(2). (That’s what Mr. Vogel was hoping for.) On the other hand, if the court concludes that the third-party either lacks standing or does not have a valid interest, the preliminary order of forfeiture will become final.

Fifth, to win on the merits under § 853(n)(6)(A), Mr. Vogel had to show that when the acts “giving rise to the forfeiture were committed,” his right to the property “was either vested in him rather than the defendant or that his interest in it was superior to the defendant’s interest.”

Sixth, and critical here, the “relation-back doctrine” in § 853(c) provides that the right to all property used to commit a crime, or property that is the proceeds of a crime, “vests in the United States upon the commission of the act giving rise to [the] forfeiture.”

The Government Was Here First

With these principles in mind, the court of appeals had an easy time disposing of Mr. Vogel’s claim and affirming the district court.

Mr. Vogel could not have an interest in property that did not exist,even though the defendant already owed him money. As a general rule, a creditor of a defendant could have an interest in the instrumentalities of a crime because those interests “can preexist the crime itself.”

Here, however, the $14,792 was the proceeds of the defendant’s drug activity and was not an instrumentality of the crime. The court concluded:

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. To the extent [Mr. Vogel] had any interest in the defendant’s ill-gotten gains, that interest could not have predated the defendant’s acquisition of the funds and, thus, could not have predated the government’s interest.

Moreover, since [Mr. Vogel’s] $8500 loan to the defendant did not constitute a discrete “instrumentality” used in his drug-trafficking activities, [Mr. Vogel] cannot claim that he had a prior, superior interest under Section 853(n)(6)(A) and Section 853(a)(2).

I assume Mr. Vogel could have argued that the defendant used his money as an instrumentality of drug trafficking, but that argument makes him susceptible to the government poking around to figure out if he was a knowing participant in the drug trafficking. That argument therefore creates more problems than solutions. (There’s no indication in the opinion that the court thought Mr. Vogel had committed any wrongdoing.)

The court also rejected Mr. Vogel’s argument that he had a “valid, preexisting legal interest in the defendant’s finances.” His interest was that of a general creditor. This does not give him priority over the government’s interest.

The court of appeals made a final, policy point: If a defendant could use forfeiture to “defray his debts to his general creditors, the defendant would continue to benefit from his illicit activities.” Because forfeiture is meant to “lessen the economic power” of unlawful activities (citing Honeycutt v. United States, 137 S. Ct. 1626, 1631 (2017)).

All in all, this decision makes sense. It’s too bad that Mr. Vogel—quite a persistent guy—lost in the end. But it’s hard to see how it could have ended any other way.

Published by Kropf Moseley

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