Filed: Apr. 17, 2012
Latest Update: Feb. 22, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 08-2065 UNITED STATES OF AMERICA, Plaintiff - Appellee, v. JAMES EDGAR MUNSON, Movant - Appellant, and REAL PROPERTY LOCATED AT 6124 MARY LANE DRIVE, SAN DIEGO, CALIFORNIA, Defendant, and ANN MUNSON, Claimant. No. 08-2159 UNITED STATES OF AMERICA, Plaintiff - Appellee, v. ANN MUNSON, Claimant - Appellant, and REAL PROPERTY LOCATED AT 6124 MARY LANE DRIVE, SAN DIEGO, CALIFORNIA, Defendant, and JAMES EDGAR MUNSON, Movant. - TH
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 08-2065 UNITED STATES OF AMERICA, Plaintiff - Appellee, v. JAMES EDGAR MUNSON, Movant - Appellant, and REAL PROPERTY LOCATED AT 6124 MARY LANE DRIVE, SAN DIEGO, CALIFORNIA, Defendant, and ANN MUNSON, Claimant. No. 08-2159 UNITED STATES OF AMERICA, Plaintiff - Appellee, v. ANN MUNSON, Claimant - Appellant, and REAL PROPERTY LOCATED AT 6124 MARY LANE DRIVE, SAN DIEGO, CALIFORNIA, Defendant, and JAMES EDGAR MUNSON, Movant. - THO..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 08-2065
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
JAMES EDGAR MUNSON,
Movant - Appellant,
and
REAL PROPERTY LOCATED AT 6124 MARY LANE DRIVE, SAN DIEGO,
CALIFORNIA,
Defendant,
and
ANN MUNSON,
Claimant.
No. 08-2159
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
ANN MUNSON,
Claimant - Appellant,
and
REAL PROPERTY LOCATED AT 6124 MARY LANE DRIVE, SAN DIEGO,
CALIFORNIA,
Defendant,
and
JAMES EDGAR MUNSON,
Movant.
------------------------
THOMAS EDWARD VANDERBLOEMEN,
Amicus Supporting Appellant.
No. 08-4326
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
JAMES EDGAR MUNSON,
Movant - Appellant,
and
REAL PROPERTY LOCATED AT 6124 MARY LANE DRIVE, SAN DIEGO,
CALIFORNIA,
Defendant,
and
ANN MUNSON,
Claimant.
2
Appeals from the United States District Court for the Western
District of North Carolina, at Charlotte. Graham C. Mullen,
Senior District Judge. (3:03-cv-00580-GCM; 3:03-cv-00580-GCM-1)
Argued: January 24, 2012 Decided: April 17, 2012
Before SHEDD, DAVIS, and DIAZ, Circuit Judges.
No. 08-2065 dismissed; Nos. 08-2159 and 08-4326 affirmed by
unpublished opinion. Judge Davis wrote the opinion, in which
Judge Shedd and Judge Diaz joined.
ARGUED: Thomas E. Vanderbloemen, GALLIVAN, WHITE & BOYD, PA,
Greenville, South Carolina, for Appellants and Amicus Supporting
Appellant. William A. Brafford, OFFICE OF THE UNITED STATES
ATTORNEY, Charlotte, North Carolina, for Appellee. ON BRIEF:
Anne M. Tompkins, United States Attorney, Charlotte, North
Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
3
DAVIS, Circuit Judge:
These consolidated appeals arise out of the civil
forfeiture of real property located at 6124 Mary Lane Drive in
San Diego, California (“the Property”). When the Government
filed its complaint for forfeiture in rem on December 3, 2003,
Claimant-Appellant Ann Munson (“Ann”) and her son, Movant-
Appellant James Edgar Munson (“James”), held joint title to the
Property. The Government initiated forfeiture proceedings under
18 U.S.C. § 981 and 21 U.S.C. § 881 on the basis that James had
used the Property in conjunction with drug trafficking and money
laundering crimes. After Ann filed a verified claim asserting an
interest in the Property, she and the Government filed cross-
motions for summary judgment as to the forfeitability of her
interest. The district court granted summary judgment to the
Government, denied Ann’s motion for summary judgment, and
entered a final judgment of forfeiture. The district court also
denied several pro se motions that James had filed while
incarcerated in an attempt to assert a claim to the Property, as
well as his motion for reconsideration of the same.
Ann and James individually noted appeals from the district
court’s order granting summary judgment, which were docketed as
No. 08-2159 and No. 08-2065, respectively. James also noted an
appeal from the district court’s denial of his motion for
reconsideration, which was docketed as No. 08-4326. For the
4
reasons that follow, we dismiss No. 08-2065, affirm the district
court’s grant of summary judgment to the Government as to the
forfeiture of Ann’s property interest in No. 08-2159, and affirm
the district court’s denial of James’s motion for
reconsideration in No. 08-4326.
I.
On July 17, 1997, Ann Munson purchased the Property, a
house located at 6124 Mary Lane Drive in San Diego, California.
Although she was the sole owner of the Property, Ann allowed her
son, James Edgar Munson, and several other renters to live there
while she lived elsewhere. Ann explains that James had recently
graduated from college and she wanted to provide him with a
place to live that he might one day own. In October 1997, James
and several other individuals began packaging marijuana at the
Property for shipment to North Carolina and various other
locations. They also used the landline telephone at the Property
for calls relating to the drug trafficking operation and
accepted drug payments there. It is undisputed that all use of
the Property in connection with James’s criminal drug activity
had ceased by September 1999. Shortly thereafter, on October 12,
1999, Ann conveyed the Property to James by quitclaim deed and
gifted the equity to him.
5
Thereafter, in consequence of an ongoing investigation of
the drug trafficking operation, James was arrested on May 15,
2001, and subsequently indicted in Charlotte, North Carolina.
Ann contends, and the Government does not dispute, that she was
unaware of any criminal activity at the Property until the time
of James’s arrest. On January 16, 2002, during the pendency of
the criminal charges against him, James executed and recorded a
grant deed conveying the Property to him and Ann. In addition,
they executed a deed of trust in favor of IndyMac bank securing
a $240,000 indebtedness. Ann contends that she became co-owner
of the Property at this point in order to refinance the mortgage
to protect her financial interest following James’s arrest and
ensuing unemployment.
James was convicted in May 2003 and sentenced in December
2003. 1 After James’s conviction but prior to his sentencing, the
Government filed a civil forfeiture complaint in the U.S.
District Court for the Western District of North Carolina under
the Civil Asset Forfeiture Reform Act of 2000, Pub. L. No. 106-
1
James was prosecuted in the Western District of North
Carolina, No. 3:01-cr-66-2-V, and was initially sentenced to 121
months’ imprisonment. On appeal, a panel of this court remanded
for resentencing. United States v. Munson, 181 F. App’x 368 (4th
Cir. 2006). The district court resentenced James to eighty-seven
months’ imprisonment and we affirmed. United States v. Munson,
299 F. App’x 297 (4th Cir. 2008). James was released from prison
on September 16, 2009.
6
185, 114 Stat. 202 (2000) (“CAFRA”). The complaint sought
forfeiture of all rights, title, and interest in the Property
under 18 U.S.C. § 981(a)(1)(A) on the basis that the Property
was involved in James’s money laundering conspiracy, a violation
of 18 U.S.C. § 1956(h), and under 21 U.S.C. § 881(a)(7) on the
basis that the Property was used to commit, or to facilitate the
commission of, James’s drug conspiracy, a violation of 21 U.S.C.
§ 846. The complaint listed Ann and James, the Property owners
of record at the time of the filing of the complaint, as those
with potential claims of interest in the Property. The
Government posted notice of the forfeiture action at the
Property, served Ann, published notice in The Mecklenburg Times
and The San Diego Commerce newspapers, and attempted to serve
James by certified mail at his place of incarceration and
through his attorney in the related criminal case. The
Government also filed a notice of lis pendens in California.
Ann, acting through counsel, filed a claim to the Property,
asserting that she was “a co-owner of the defendant property
pursuant to a Grant Deed filed on 16 January 2002” and attached
a copy of the deed. 2 J.A. 115. In her answer, Ann asserted a
2
Ann initially filed her notice of claim on January 20,
2004 and her answer on February 8, 2004. Approximately eight
months later, the Government filed a motion to strike Ann’s
claim on the basis that it failed to comply with procedural
requirements in the Supplemental Rules for Certain Admiralty and
(Continued)
7
defense alleging that she originally purchased the Property in
1997; that she conveyed it to James in 1999 but continued to
provide funds toward mortgage payments; that James conveyed the
Property to her and himself on January 16, 2002; and that she
had no knowledge of any illegal activities at the property and
was therefore an innocent owner.
James did not timely file a claim to the Property,
ostensibly because the Government’s attempts at service of
notice of the forfeiture action through prison officials at the
Mecklenburg County Jail and James’s criminal attorney had been
unsuccessful. Although James eventually learned of the pending
forfeiture through his mother, who had power of attorney over
his affairs while he was incarcerated, he avers that he
erroneously believed her attorney was also representing his
interests.
Maritime Claims (“Supplemental Rules”) because it was not
verified by her and did not identify her interest in the
defendant Property. Ann did not respond to this motion and the
court struck her claim. Ann subsequently filed a motion for
relief explaining that she had never received the Government’s
motion to strike. The court found that Ann’s failure to respond
was justified and granted the motion. Ann subsequently filed a
response to the Government’s motion to strike, as well as a
motion for leave to file a verified claim. The district court
permitted Ann to file a claim, reasoning that no prejudice to
the Government would result. Ann filed the operable verified
claim on September 22, 2005.
8
Ann and the Government filed cross-motions for summary
judgment. After Ann and the Government moved for summary
judgment, but before the district court ruled on the motions,
James filed several pro se pleadings in the district court
asserting procedural arguments relating to alleged deficiencies
in the Government’s service of notice. 3 The district court denied
James’s motions, finding that he had failed to timely file a
claim and could not credibly assert that he was an innocent
owner of the Property. James sought reconsideration, which the
district court also denied. James’s timely appeal from the
district court’s denial of his motion for reconsideration is now
before us. 4
Ruling on the cross-motions for summary judgment, the
district court first determined that the Property was subject to
forfeiture because it had undisputedly been used to facilitate a
criminal drug conspiracy. The court then found that, in order to
3
James filed motions to stay, to set aside default
judgment, and for miscellaneous relief. The district court did
not rule on James’s motion to set aside default judgment;
however, no default judgment was entered, so the issue is moot.
4
Even if the district court’s order denying James’s motion
for reconsideration was an interlocutory order from which no
appeal lies, James’s appeal of that order is merged into the
final judgment and is open to review on his appeal from that
judgment. See Hellerstein v. Mr. Steak, Inc., 531 F.2d 470, 474
(10th Cir. 1976) (“The general rule is that an interlocutory
order from which no appeal lies is merged into the final
judgment and open to review on appeal from that judgment.”).
9
establish that her current ownership interest in the Property is
not subject to forfeiture as a matter of law, Ann had to prove
that she had been an innocent owner under 18 U.S.C. § 983(d)(3)
when she acquired a partial ownership interest by way of the
2002 grant deed. The district court found that Ann could not
establish innocent ownership under § 983(d)(3) as a matter of
law because, given that James had gifted an interest in the
Property to her after his arrest, she was neither a bona fide
purchaser for value nor was she without knowledge and reasonably
without cause to believe that the Property was subject to
forfeiture. Accordingly, the district court entered an order
granting the Government’s motion for summary judgment and
denying Ann’s motion for summary judgment. James timely appealed
the order.
Meanwhile, Ann moved to alter and amend the order on the
basis that the district court had erroneously stated that
James’s role in the drug conspiracy ended in 2000, while the
Government conceded that he withdrew from the conspiracy no
later than September 1999. The district court granted Ann’s
motion in part, amended its order to reflect that James had
participated in the conspiracy “from October 1997 [through] at
least September 1999,” and entered the amended order granting
summary judgment to the Government. J.A. 385. Ann timely
appealed from the amended order. The district court entered the
10
final judgment of forfeiture in rem on October 22, 2008. 5 Neither
James nor Ann appealed the final forfeiture order. The Property
was sold on August 1, 2009, for $332,000. Approximately $264,304
was applied to pay off the mortgage and other costs. The balance
of $67,696 is being held pending resolution of these
consolidated appeals.
II.
A.
We begin by addressing James’s contention that the district
court erred in denying his motion for reconsideration. He argues
that, due to deficiencies in service, the Government failed to
provide him with adequate notice of the forfeiture proceedings.
James argues in the alternative that, even if he had been
properly served, the district court should have permitted him to
file an out-of-time claim on the basis of excusable neglect.
Legal questions concerning insufficient service of process are
reviewed de novo, while any related factual findings are
reviewed for clear error. See United States v. Elmes, 532 F.3d
5
Once this judgment was entered, the earlier notices of
appeal by James and Ann, even though premature, are deemed
timely appeals of a final order for purposes of appellate
jurisdiction. See In re Bryson,
406 F.3d 284, 287-89 (4th Cir.
2005). The district court had jurisdiction over the forfeiture
action under 28 U.S.C. §§ 1331 and 1335. We have jurisdiction
under 28 U.S.C. §§ 1291 and 1294.
11
1138, 1141 (11th Cir. 2008). A district court’s decision to deny
permission to file a claim “out of time” in forfeiture
proceedings is reviewed for abuse of discretion. United States
v. Borromeo, 945 F.2d 750, 754 (4th Cir. 1991).
The district court stated in its Order denying James’s
motion for reconsideration that:
Mr. Munson alleges that his substantive and
procedural due process rights have been violated. But
Mr. Munson neither filed a timely claim in this
matter, nor can he claim to be an innocent owner of
the property, therefore, he is not a party to this
case. Further, since he is not a party to this case,
he has no due process rights in this matter.
Mr. Munson has filed numerous petitions before
this Court, all of which have been denied for lack of
standing. Similar to these previous motions, Mr.
Munson fails to assert any basis of standing in his
most recent motion, therefore his motion for
reconsideration is DENIED.
J.A. 330. It appears from the district court’s admonition that
James “neither filed a timely claim, nor can he claim to be an
innocent owner of the property,” and its references to James’s
“fail[ure] to assert any basis of standing,” that the court
collapsed Article III standing requirements with the procedural
requirements for statutory standing under CAFRA and the merits
of the “innocent owner” affirmative defense to forfeiture
codified at 18 U.S.C. § 983(d). 6
6
In other words, James had a due process right to notice of
the forfeiture action by virtue of his facially colorable
(Continued)
12
In order to contest a government forfeiture action, a
claimant must have the Article III standing required for any
action brought in federal court. United States v. $515,060.42 in
United States Currency, 152 F.3d 491, 497 (6th Cir. 1998). In
order to establish Article III standing, a claimant must have a
colorable ownership, possessory or security interest in at least
a portion of the defendant property. See, e.g., United States v.
16510 Ashton,
47 F.3d 1465, 1470 (6th Cir. 1995); United States
v. $321,470.00 in United States Currency,
874 F.2d 298, 302 (5th
Cir. 1989) (explaining that a claimant need not prove the merits
of his underlying claim to achieve standing, but he must claim a
facially colorable interest in the seized property); United
States v. $122,043.00 in United States Currency,
792 F.2d 1470,
1473 (9th Cir. 1986). Both Ann and James have Article III
standing in this case given that they were the owners of record
when the Government filed its forfeiture complaint and during
the pendency of the subsequent forfeiture proceedings until the
ownership interest in the Property arising from the 2002 deed.
The question whether James filed a timely claim (a prerequisite
to statutory standing) is not properly determined without
reference to whether the Government provided adequate notice,
thereby triggering the statutory requirement that James file a
verified claim within fourteen days after execution of process,
as required under Supplemental Rule C(6)(A)(i)(A).
13
sale of the Property. Accordingly, James was entitled to notice
of the forfeiture proceedings against the Property.
The Government contends that it satisfied all statutory and
constitutional notice requirements in this case by sending
copies of the complaint and related papers by certified mail
addressed to James at the Mecklenburg County Jail and to Claire
Rauscher, Esq., James’s attorney in the related criminal case,
at her office. James avers that neither attempt at notice
actually reached him. The Government does not assert that James
actually received either mailing, but rather emphasizes that
actual notice is not required. For the reasons that follow, we
find that James received adequate notice of the forfeiture
action and that his attempt to assert a claim by filing a motion
to stay on April 11, 2007, and each of his subsequent attempts,
were untimely.
CAFRA provisions governing civil forfeiture of real
property provide that “[t]he Government shall initiate a civil
forfeiture action against real property by,” inter alia,
“serving notice on the property owner, along with a copy of the
complaint.” 18 U.S.C. § 985(c)(1)(C); see also Fed. R. Civ. P.,
Supp. R. G(3)(a) (providing that “[i]f the defendant is real
property, the government must proceed under 18 U.S.C. § 985”).
In order to comport with constitutional due process
requirements, the Government’s service of notice must be
14
“reasonably calculated, under all the circumstances, to apprise
the petitioner of the action.” Dusenberry v. United States, 534
U.S. 161, 173 (2002) (citing Mullane v. Cent. Hanover Bank &
Trust Co.,
339 U.S. 306, 314 (1950)) (quotation marks omitted).
This analytical framework presents a “straightforward test of
reasonableness under the circumstances,”
id. at 167, and does
not require actual notice,
id. at 170-71.
In Dusenberry, the Supreme Court held that the Government
satisfied this “straightforward test of reasonableness” when it
sent notice of forfeiture proceedings by certified mail to the
property owner’s place of incarceration. 534 U.S. at 172-73. The
Government relies upon Dusenberry for the proposition that its
attempt to serve notice on James by sending the complaint via
certified mail to the Mecklenburg County Jail was per se
constitutionally sufficient, irrespective of whether James
actually received notice. This argument fails to recognize,
however, that the particular details of the correctional mail
system at issue in Dusenberry were critical to the Court’s
analysis. 7 In this case, the Government concedes that officials
7
The correctional facility in Dusenberry had the following
standard mail-delivery practices: A mailroom staff member would
sign for the certified letter at the post office and it would be
entered into a logbook at the prison; a different staff member,
one assigned to the section of the prison in which the inmate
lived, would sign the letter out from the mailroom; and finally
a staff member would deliver the letter to the prisoner during
(Continued)
15
at the Mecklenburg County Jail refused delivery of the
forfeiture complaint in keeping with the institution’s general
policy of refusing letters sent by certified mail. In light of
this policy, the Government’s attempt to serve James by
certified mail addressed to him at the jail was not “reasonably
calculated, under all the circumstances” to apprise him of the
forfeiture action. See Nunley v. Dep’t. of Justice, 425 F.3d
1132, 1137 (8th Cir. 2005) (“[T]here is no irrebuttable
presumption that a prison’s internal mail-distribution
procedures are reasonably calculated to provide notice.”).
We need not decide whether the Government’s attempt to
serve James at his place of incarceration alone passes
constitutional muster, however, because the Government also sent
notice of the complaint by certified mail to James’s attorney in
the related criminal case 8 and James had actual knowledge of the
“mail call.” See 534 U.S. at 168-69. The Court determined that
the procedures established by the prison were sufficient for due
process purposes, but never stated that such procedures were
constitutionally obligatory.
Id. at 172-73.
8
Although we recognize that Supplemental Rule G was not in
effect when the Government attempted to serve notice in this
case, we note that the rule now clearly provides that notice
“may be sent to . . . the attorney representing the potential
claimant with respect to the seizure of the property or in a
related investigation, administrative forfeiture proceeding, or
criminal case.” Fed. R. Civ. P., Supp. R. G(4)(b)(iii)(B)
(effective Dec. 1, 2006).
16
forfeiture proceedings more than one year prior to filing his
initial pro se motion seeking to assert an interest in the
Property. See, e.g., United States v. One Star Class Sloop
Sailboat, 458 F.3d 16, 22 (1st Cir. 2006) (“A putative
claimant’s actual knowledge of a forfeiture proceeding can
defeat a subsequent due process challenge, even if the
government botches its obligation to furnish him with notice.”)
(citations omitted). In a letter from James to Ann’s attorney
dated February 2, 2006, he mentioned “the civil suit on the
house,” J.A. 279, indicating that he had knowledge of the
forfeiture case no later than that date. Nevertheless, James did
not file his first pro se motion asserting a claim to the
Property until April 11, 2007.
James argues that, even if he received adequate notice, the
district court should have allowed him to file an out-of-time
claim on the basis of excusable neglect. Under Borromeo, “[e]ven
where a claimant is properly served, or perhaps has ‘actual
notice,’ a court may allow a claim to be filed out of time on a
showing of excusable neglect. Fed. R. Civ. P. 6(b)(2).” 945 F.2d
at 753. Relevant factors include:
when the claimant became aware of the seizure, whether
the claimant was properly served, whether the
government would be prejudiced, whether the government
encouraged the delay or misguided the plaintiff,
whether the claimant informed the government and the
court of his interest before the deadline, whether the
claimant had expended resources preparing for trial,
17
the claimant’s good faith, the claimant’s health
problems, whether the government complied with
procedural rules, and whether the claimant was acting
pro se.
Id. (citations omitted). While certain of these factors arguably
weigh in favor of allowing James to file an out-of-time claim,
the district court did not abuse its discretion in denying
James’s motion for reconsideration where it correctly concluded
that James could not prevail on the merits. See, e.g., United
States v. Indoor Cultivation Equip.,
55 F.3d 1311, 1313 (7th
Cir. 1995) (finding that to prevail upon a motion to set aside a
default judgment in a civil forfeiture case, a party must show
“the existence of a meritorious defense to the original action”)
(citations omitted). James first acquired an ownership interest
in the Property in 1999, after he had himself used it to
facilitate drug trafficking and money laundering. Thus, he does
not have a colorable innocent owner defense to forfeiture under
either 18 U.S.C. § 983(d)(2) or (d)(3). Accordingly, we affirm
the district court’s denial of James’s motion for
reconsideration in No. 08-4326.
Given that James failed to timely file a verified claim to
the Property and is not entitled to file an out-of-time claim,
he lacks statutory standing to challenge the district court’s
Order granting summary judgment to the Government. See Fed. R.
Civ. P., Supp. Rule C(6); United States v. United States
18
Currency in the Amount of $2,857.00, 754 F.2d 208, 213 (7th Cir.
1985) (“Once the procedural requirements of Rule C(6) are met, a
claimant has standing to defend the forfeiture.”). Accordingly,
in considering whether the district court erred in granting
summary judgment to the Government, we need only address whether
the undisputed facts establish that Ann’s property interest is
subject to forfeiture as a matter of law.
B.
Ann contends that she is entitled as a matter of law to the
“innocent owner” defense to forfeiture in 18 U.S.C. § 983(d)(2)
on the basis that she was the sole owner of the Property for the
duration of the illegal drug activity giving rise to forfeiture
and was unaware of this conduct, and that the district court
accordingly erred in granting summary judgment to the
Government. Ann argues in the alternative that even if she may
rely only upon her current (joint) ownership interest arising
from the 2002 grant deed, she is nonetheless an innocent owner
as a matter of law under § 983(d)(3) because she took as a bona
fide purchaser for value without knowledge or reason to know of
the illegal activity giving rise to forfeiture. The Government
contends that the district court correctly applied § 983(d)(3),
rather than § 983(d)(2), to determine on the basis of the
undisputed facts that Ann is not innocent owner as a matter of
law.
19
We review the district court’s grant of summary judgment in
a civil forfeiture action de novo. See United States v. Kanasco,
Ltd., 123 F.3d 209, 210 (4th Cir. 1997). Summary judgment is
appropriate if the “pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(c).
CAFRA governs civil forfeitures to the United States. See
18 U.S.C. § 981. Section 983 of Title 18 sets forth rules
governing civil forfeiture proceedings and delineates the
circumstances in which property described in § 981 cannot be
forfeited. See 18 U.S.C. § 983. The initial burden of proof in a
civil forfeiture action “is on the Government to establish, by a
preponderance of the evidence, that the property is subject to
forfeiture.” Id. § 983(c)(1). If the government’s theory is that
the property was used in or facilitated the commission of a
criminal offense, as in this case, the government must also
prove that there was a substantial connection between the
property and the offense.
Id. § 983(c)(3). Section 983(d)(1)
sets forth the basic principle that “[a]n innocent owner’s
interest in property shall not be forfeited under any civil
forfeiture statute,” and further provides that the claimant
shall have the burden of proving innocent ownership by a
20
preponderance of the evidence. Id. § 983(d)(1). Thus, the
Government has the initial burden of proving that the property
is subject to forfeiture and the claimant bears the burden on
the affirmative defense of innocent ownership.
Ann does not dispute that the Property is subject to
forfeiture on the basis that James and others used the house to
package marijuana in connection with the drug trafficking
conspiracy. 9 See United States v. Herder, 594 F.3d 352, 364 (4th
Cir. 2010) (stating that substantial connection may be
established “by showing that use of the property made the
prohibited conduct less difficult or more or less free from
obstruction or hindrance”) (citation and internal quotation
marks omitted). Thus, the district court did not err in
concluding that the Property was subject to forfeiture (i.e.,
that the Government established its prima facie case), and the
burden of proof shifted to Ann to establish the affirmative
defense of innocent ownership.
The statutory innocent owner defense in CAFRA is divided
into two parts, so that property interests in existence at the
9
Although the district court did not expressly find that
there was a “substantial connection” between the Property and
the criminal activity giving rise to forfeiture, James admitted
at sentencing that he and others packaged marijuana at the house
and Ann has also conceded that the Property was used in drug
trafficking.
21
time the illegal conduct giving rise to forfeiture took place
(“pre-existing interests”) are treated differently from property
interests acquired after the illegal conduct giving rise to the
forfeiture took place (“after-acquired interests”). With respect
to pre-existing interests, CAFRA provides that the term
“innocent owner,” means an owner who
(i) did not know of the conduct giving rise to
forfeiture; or
(ii) upon learning of the conduct giving rise to the
forfeiture, did all that could reasonably be expected
under the circumstances to terminate such use of the
property.
18 U.S.C. § 983(d)(2)(A). Regarding after-acquired interests,
CAFRA provides that the term “innocent owner” means a person
who, at the time that person acquired the interest in the
property
(i) was a bona fide purchaser or seller for value
(including a purchaser or seller of goods or services
for value); and
(ii) did not know and was reasonably without cause to
believe that the property was subject to forfeiture.
18 U.S.C. § 983(d)(3)(A).
Ann asserts that she is an innocent owner under §
983(d)(2)(A)(i)-(ii) because she has a pre-existing interest
arising from her sole ownership of the Property from July 1997
until October 1999, the undisputed period of James’s illegal
drug trafficking and money laundering activity, and because it
is undisputed that she had no knowledge of the conspiracy during
22
that time. The district court recognized that “[t]he conditions
one must meet to be an innocent owner depend on whether the
claimant’s property interest was acquired before or after the
illegal conduct giving rise to the forfeiture took place,” but
reasoned that Ann “clearly gave up her legal interest in
existence at the time of the initial criminal activity at the
property because she quitclaimed the deed to [James] in 1999.”
United States v. Real Prop. Located at 6124 Mary Lane Dr., San
Diego, Cal., No. 3:03-cv-580, 2008 WL 3925074, at * 2 (W.D.N.C.
Aug. 20, 2008). Accordingly, the court determined that, in order
to establish innocent ownership, Ann must satisfy the conditions
set forth in § 983(d)(3). We agree.
As a threshold requirement under § 983(d), Ann must
establish that she is an “owner” of the defendant property. 10
Indeed, “[i]f the claimant cannot establish that she has the
required ownership interest, then her innocence is irrelevant.”
Stefan D. Cassella, The Uniform Innocent Owner Defense to Civil
10
The requirement that a claimant establish an ownership
interest in the defendant property as part of her affirmative
defense to forfeiture is distinct from her duty to establish
that she has standing to contest the forfeiture. As set forth
above, to establish standing, a claimant need only show that she
has a facially colorable interest in the proceedings sufficient
to satisfy the case-or-controversy requirement under Article III
of the United States Constitution. See $515,060.42 in United
States Currency, 189 F.3d at 35. Thus, a claimant may have
standing without being an owner of the property.
23
Asset Forfeiture, 89 K.Y. L. J. 653, 672 (2001) (internal
citations omitted). Section 983(d)(6)(A) provides that an
“owner” is “a person with an ownership interest in the specific
property [under state law] sought to be forfeited, including a
leasehold, lien, mortgage, recorded security interest, or valid
assignment of an ownership interest.” 18 U.S.C. § 983(d)(6)(A)
(emphasis added). 11 It is unsurprising, then, that in her
verified claim filed on September 22, 2005, Ann identified the
deed of January 16, 2002 as the legal basis for her asserted co-
ownership of the Property. As the Government points out, “even
at the foundational level of state property law, neither James
nor Ann has showed a colorable existing ownership interest in
the defendant property based on the 1997 grant deed.” Govt’s Br.
at 32. Rather, as the district court found, this ownership
interest was extinguished when Ann quitclaimed the Property to
James on September 21, 1999, well before the Government filed
its forfeiture complaint. Accordingly, in asserting the
affirmative defense of innocent ownership, Ann must rely on the
11
Conversely, an “owner” does not include “(i) a person
with only a general unsecured interest in, or claim against, the
property estate of another; (ii) a bailee unless the bailor is
identified and the bailee shows a colorable legitimate interest
in the property seized; or (iii) a nominee who exercises no
dominion or control over the property.” 18 U.S.C. §
983(d)(6)(B).
24
partial ownership interest James conveyed to her by way of the
2002 grant deed.
Given that the 2002 deed gave rise to “a property interest
acquired after the conduct giving rise to the forfeiture has
taken place,” Ann must establish innocent ownership under 18
U.S.C. § 983(d)(3). As set forth above, § 983(d)(3)(A) requires
that Ann establish (i) she was a bona fide purchaser for value
(“BFP”) and (ii) she did not know and was reasonably without
cause to believe that the property was subject to forfeiture
when she acquired a partial ownership interest in 2002. “Bona
fide purchaser for value” is not defined in CAFRA. Accordingly,
courts often turn to the definition in the criminal forfeiture
statute, which “includes all persons who give value . . . in an
arm’s length transaction with the expectation that they would
receive equivalent value in return.” 18 U.S.C. § 853(n)(6)(b).
Based upon the undisputed facts in the record, Ann cannot
satisfy this standard.
The record indicates that Ann did not give value for her
partial ownership interest in the Property. Tellingly, the 2002
deed of trust states that it was a “GIFT-NO CONSIDERATION.” 12 In
12
The word “GIFT” was handwritten, while “NO CONSIDERATION”
was typed. The deed also contains boilerplate language stating
“FOR A VALUABLE CONSIDERATION,” but the handwritten “GIFT”
notation clearly indicates the true nature of the transaction.
25
addition, Ann testified at her deposition that she did not
remember discussing payment with James at the time of the
transaction. Although she apparently often gave or loaned her
son money, there is no evidence that any of these gifts or loans
were part of a bargained-for exchange related to the conveyance
of an interest in the Property in 2002. Ann concedes that a BFP
must part with something of value in exchange for the property,
but argues that she satisfied this requirement by co-signing as
a borrower on the Deed of Trust for $240,000, and thereby
becoming jointly liable for that amount. The Government argues
that Ann’s undertaking of this legal obligation does nothing to
demonstrate that the conveyance was an arm’s length transaction
and, in fact, supports an opposite conclusion. See Govt’s Br. at
42 (“Ann’s liability on the IndyMac loan confirms that there was
no arm’s length bargain with her son, since she became jointly
liable for a $240,000 debt without receiving any of the
additional funds that were taken out of the equity in the house;
all the money went to him”). We agree with the district court
that Ann’s assumption of joint liability for the outstanding
mortgage debt does not establish that she gave value in an arm’s
length transaction. Rather, the ineluctable inference from the
undisputed facts is that like most any loving parent, she was
doing her level best to help her offspring, who faced felony
prosecution in federal court. Accordingly, Ann is unable to
26
establish that she is a BFP and cannot prevail on the innocent
owner defense as a matter of law.
Having concluded that the district court correctly found
that Ann was not a BFP when she acquired her current ownership
interest in the Property by way of the 2002 grant deed, we need
not decide whether she “did not know and was reasonably without
cause to believe that the property was subject to forfeiture,”
as required under 18 U.S.C. § 983(d)(3)(A)(ii).
III.
For the reasons set forth herein, James’s appeal from the
district court’s grant of summary judgment, docketed as No. 08-
2065, is dismissed. Ann’s appeal from the district court’s grant
of summary judgment, docketed as No. 08-2159, and the district
court’s denial of James’s motion for reconsideration, docketed
as No. 08-4326, are affirmed.
No. 08-2065 DISMISSED
Nos. 08-2159 and 08-4326 AFFIRMED
27
