PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

UNITED STATES OF AMERICA, 

Plaintiff-Appellant,

v.

STATE OF OREGON; STATE OF

WISCONSIN,

Petitioners-Appellees,

and

STATE OF SOUTH CAROLINA;

STATE OF ARIZONA; STATE OF

ARKANSAS; STATE OF COLORADO;  No. 10-2154

STATE OF IDAHO; STATE OF MAINE;

STATE OF MARYLAND; STATE OF

MASSACHUSETTS; STATE OF

MISSOURI; STATE OF NEW

HAMPSHIRE; STATE OF OHIO;

STATE OF WASHINGTON; STATE OF

WEST VIRGINIA; STATE OF

TENNESSEE; STATE OF

PENNSYLVANIA; STATE OF

KENTUCKY; STATE OF NORTH

DAKOTA; 
STATE OF ILLINOIS; STATE OF 

GEORGIA; STATE OF NORTH

CAROLINA; COMMONWEALTH OF

PENNSYLVANIA; STATE OF KANSAS;

STATE OF OKLAHOMA; STATE OF

NEW YORK; COMMONWEALTH OF

VIRGINIA; STATE OF MICHIGAN;

STATE OF LOUISIANA; STATE OF

CALIFORNIA, 

Petitioners,

and

TERENCE PATRICK MCLAUGHLIN;

GEORGE CHEMALI; CLP,

INCORPORATED,

Defendants. 

Appeal from the United States District Court

for the Western District of Virginia, at Abingdon.

James P. Jones, District Judge.

(1:09-cr-00004-jpj)

Argued: December 8, 2011

Decided: February 16, 2012

Before DUNCAN, DAVIS, and WYNN, Circuit Judges.

Vacated and remanded by published opinion. Judge Duncan

wrote the opinion, in which Judge Davis and Judge Wynn

joined.

2 UNITED STATES v. STATE OF OREGON
COUNSEL

ARGUED: Sharon Burnham, OFFICE OF THE UNITED

STATES ATTORNEY, Roanoke, Virginia, for Appellant.

Monica Taylor Monday, GENTRY, LOCKE, RAKES &

MOORE, Roanoke, Virginia, for Appellees. ON BRIEF:

Timothy J. Heaphy, United States Attorney, Roanoke, Virginia, for Appellant. James J. O’Keeffe, IV, GENTRY,

LOCKE, RAKES & MOORE, Roanoke, Virginia, for Appellee State of Oregon; Christopher J. Blythe, Lewis W. Beilin,

WISCONSIN DEPARTMENT OF JUSTICE, Madison, Wisconsin, for Appellee State of Wisconsin.

OPINION

DUNCAN, Circuit Judge:

This appeal arises from the United States’ effort to forfeit

the assets of C.L.P., Inc. ("C.L.P.") following its guilty plea

to several tobacco-related charges. As relevant here, the

United States obtained a preliminary order of forfeiture allowing it to seize funds that C.L.P. had deposited into an escrow

account, which held 35 sub-accounts for the benefit of each

state in which C.L.P. sold its products. Two of those states,

Oregon and Wisconsin (the "States"), sought to amend the

forfeiture order to exclude their respective sub-accounts from

the forfeiture, an amendment the district court ultimately

granted. Because we conclude that the States have not proven

by a preponderance of the evidence that they have a legal

interest that entitles them to amendment of the forfeiture

order, we vacate the forfeiture order and remand.

I.

Because the facts of this case are somewhat complex, we

will provide relevant background. First, we discuss how the

UNITED STATES v. STATE OF OREGON 3
concept of the escrow account at issue here evolved. Second,

we describe the creation of C.L.P.’s escrow account and the

Oregon and Wisconsin sub-accounts. Third, we describe the

forfeiture process in criminal prosecutions. Finally, we discuss the forfeiture at issue here.

A.

In November 1998, 46 states, five territories, and the District of Columbia agreed with certain major tobacco product

manufacturers to end years of litigation over tobacco-related

illnesses by signing a Master Settlement Agreement (the

"MSA"). Under the MSA, participating manufacturers agreed

to restrict their advertising and marketing practices and pay

significant sums to participating states each year in perpetuity.

Not all tobacco product manufacturers are parties to the

MSA. Therefore, the MSA provided incentives for participating states to pass statutes (the "escrow statutes") applicable to

non-participating manufacturers ("NPMs"). Most

states—including Oregon and Wisconsin—passed a model

escrow statute. These statutes, inter alia, require NPMs to

deposit into an escrow account a specified sum per tobacco

unit sold in a state on an annual basis. The deposits approximate what the NPMs would pay had they participated in the

MSA.

The purpose of the escrow statutes is twofold. First, they

aim to level the economic playing field between the participating manufacturers and NPMs. The requirement that NPMs

pay amounts similar to those paid by participating manufacturers eliminates any competitive advantage the NPMs might

otherwise have. Second, they ensure that there is a source of

funds against which participating states can collect any future

judgments or settlements arising from tobacco-related liability

against the NPM.

To comply with the escrow statutes, NPMs typically create

a master account with a sub-account for each participating

4 UNITED STATES v. STATE OF OREGON
state. The escrow statutes require escrow agreements that

limit the NPMs’ ability to access those funds. An NPM is

generally only allowed to withdraw funds to pay a judgment

or settlement or to obtain a refund of any payment in excess

of what the NPM would have paid under the MSA. The funds

deposited roll out of the account and flow back to the NPM

if there are no claims made against the account within a certain period of time after each deposit.

Beyond their distinctive origins, the escrow accounts are

unremarkable. The NPM selects a bank to hold the funds as

the escrow agent. The NPM and the escrow agent sign an

escrow agreement, which mirrors the statute in defining the

terms of the account. This agreement specifies the conditions

upon which the escrow agent is to pay the funds to the beneficiary of the account.

States participating in the MSA are obligees of these

accounts. As such, they have a right to funds from the

accounts, but only if they satisfy the escrow conditions. Specifically, they must either win a judgment or settle a case

against the NPM and the NPM must elect not to pay the judgment or settlement out of other funds. The states have no right

to access the escrow funds before they satisfy the escrow conditions and no say in the quotidian administration of the

accounts.

B.

C.L.P. was the manufacturer of Bridgeton cigarettes until it

ceased operations sometime before 2010. Like other smaller

tobacco companies, it had declined to participate in the MSA

and was therefore subject to the escrow statute in each state

in which it sold tobacco products. It established its escrow

account, with sub-accounts for each participating state, at

First Citizens Bank & Trust Company ("First Citizens") in

North Carolina. The escrow account contained a sub-account

UNITED STATES v. STATE OF OREGON 5
for each state in which C.L.P. sold tobacco products, including Oregon and Wisconsin.

C.L.P. entered into an escrow agreement with First Citizens

as the escrow agent. The terms of the escrow agreement are

those required by escrow statutes generally. For example,

§ 3(d) of the agreement specifies that all deposits "shall be

held, invested and disbursed in accordance with the terms and

conditions of [the escrow agreement] and the [escrow statutes]." J.A. 51. Similarly, the escrow agreement, like the

escrow statutes, carefully circumscribes payments from the

escrow account. Section 3(f)(i) permits the release of funds to

pay a judgment or settlement brought by a participating state.

If the escrow agent receives no objections to a proposed

release of funds, it is to pay out the funds in the order in

which they were deposited and only to the extent needed to

satisfy the judgment or settlement. Section 3(f)(ii) directs the

escrow agent to return funds to C.L.P. if the company establishes that it paid more than it would have had it participated

in the MSA. Finally, § 3(f)(iii) states that "[t]o the extent not

released from escrow under subsections (i), or (ii), funds shall

be released from escrow and revert back to [C.L.P.] twentyfive (25) years after the date on which the applicable annual

installments thereof were placed into escrow." J.A. 54. The

escrow agreement specifies that "it shall be construed in

accordance with and governed by the laws of the State of

North Carolina." J.A. 59.

Although C.L.P. cannot access the funds before they roll

out of the account, § 3(e) of the agreement entitles it to "receive the interest of other appreciation on the funds . . . as

earned," but "such payment shall be subject to the payment of

the Escrow Agent’s fees, costs, and expense." J.A. 53. This

provision places the cost of maintaining the account on C.L.P.

Should C.L.P. fail to pay maintenance costs, other provisions

in the escrow agreement restrict the Escrow Agent’s ability to

access the funds, thereby ensuring that they remain available

in full for the States.

6 UNITED STATES v. STATE OF OREGON
C.

We turn now to the process of criminal forfeiture. The

details of the forfeiture scheme, as relevant here, are found

primarily in 21 U.S.C. § 853 and Federal Rule of Criminal

Procedure 32.2. The United States’ power to forfeit property

arises from 21 U.S.C. § 853, which provides that any person

convicted of certain crimes, "shall forfeit to the United States

. . . any property constituting, or derived from, any proceeds

the person obtained, directly or indirectly, as the result of"

those crimes. 21 U.S.C. § 853(a). Importantly for our purposes, when the property representing direct proceeds of illegal activity is unavailable, the United States may instead seek

the forfeiture of "substitute property" of a defendant up to the

value of the property that would otherwise be subject to forfeiture. Id. at § 853(p).

Rule 32.2 sets forth the procedure of forfeiture. First, the

United States must provide notice to a defendant by including

a forfeiture allegation in the indictment or information filed

against the defendant. Fed. R. Crim. P. 32.2(a). Next, "after

a . . . plea of guilty . . . is accepted, . . . the court must determine what property is subject to forfeiture under the applicable statute." Id. at 32.2(b)(1)(A). "If the court finds that

property is subject to forfeiture, it must promptly enter a preliminary order of forfeiture setting forth the amount of any

money judgment, directing the forfeiture of specific property,

and directing the forfeiture of any substitute property if the

government has met the statutory criteria." Id. at 32.2(b)(2).

After the property is seized pursuant to the preliminary forfeiture order, see id. at 32.2(b)(3), any third party who claims

an interest in the property to be forfeited may file a petition

with the district court contesting the forfeiture, id. at

32.2(c)(1). The district court considers this petition in what is

called an "ancillary proceeding." Id. The preliminary order of

forfeiture cannot become final until after the ancillary proceeding concludes. Id. at 32.2(b)(4)(A). As relevant here, the

UNITED STATES v. STATE OF OREGON 7
district court must first consider any motion by the United

States to dismiss the petition for lack of standing before moving to the merits of the petition. Id. at 32.2(c)(1)(A), (B).

"When the ancillary proceeding ends, the court must enter a

final order of forfeiture by amending the preliminary order as

necessary to account for any third-party rights." Id. at

32.2(c)(2).

Returning to 21 U.S.C. § 853, subsection (n) provides the

standard by which the district court is to evaluate a petition

by a third party at an ancillary proceeding. The district court

"shall amend the [preliminary] order of forfeiture" if it "determines that the petitioner has established by a preponderance

of the evidence that . . . the petitioner has a legal right, title,

or interest in the property . . . [that] was vested in the petitioner rather than the defendant or was superior to any right,

title, or interest of the defendant at the time of the commission

of the acts which gave rise to the forfeiture of the property

under this section." 21 U.S.C. § 853(n)(6).1

In essence, then, this type of ancillary proceeding consists

of four steps. First, a petitioner files a petition asking to be

heard. Second, the district court considers any motions to dismiss filed by the United States. Third, if the district court

denies those motions, it holds a hearing and determines

whether the petitioner has proven by a preponderance of the

evidence that its interest was either vested or superior to the

defendant’s interest at the time the acts giving rise to forfeiture occurred. Finally, if the district court concludes that the

petitioner has carried its burden, the district court amends the

forfeiture order as needed to account for that interest.2

1Although not relevant here, a petitioner is also entitled to amendment

if it can prove by a preponderance of the evidence that it "is a bona fide

purchaser for value . . . 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). 

2Amendment may not always be necessary. For example, a district court

could conclude at step four that the petitioner’s interest is already sufficiently accounted for in the forfeiture order and therefore no amendment

is needed. 

8 UNITED STATES v. STATE OF OREGON
D.

We now turn to the forfeiture proceedings in the district

court. On January 15, 2009, C.L.P. was charged with violations of the Contraband Cigarette Trafficking Act, 18 U.S.C.

§ 2342(b), evasion of the Federal Cigarette Excise Tax, 26

U.S.C. § 5762(a)(2), and mail fraud, 18 U.S.C. § 1341. The

Information filed against C.L.P. included a forfeiture allegation in the amount of $801,495.00. The illegal acts giving rise

to the forfeiture were alleged to have occurred throughout the

years of 2007 and 2008. The same day the Information was

filed, C.L.P. pleaded guilty to the charges and consented to a

forfeiture money judgment in the amount of the forfeiture

allegation—$801,495.00.

C.L.P. did not possess sufficient funds to cover the money

judgment and, accordingly, the district court, in its preliminary order of forfeiture,3

 ordered forfeiture of substitute assets

pursuant to 21 U.S.C. § 853(p). The largest of these assets

was "[a]ll funds, to include deposits and interest accruals, held

by First Citizens Bank & Trust Company as escrow agent for

C.L.P. Inc. . . . to include all sub-accounts related thereto, in

the approximate balance of not less than $722,135.27." J.A.

30. The United States seized $725,328.70 from the escrow

account shortly thereafter.

Many of the states with sub-accounts took the first step in

the ancillary proceeding by filing petitions with the district

court pursuant to § 853(n). The United States proffered settlements under which each state would immediately receive 80

percent of the funds in its sub-account and the United States

would keep 20 percent. Of the 35 states for which C.L.P. had

placed funds in the escrow account, six defaulted their claims

to the funds, 27 accepted the settlement, and two, Oregon and

Wisconsin, refused it.

3The district court styled its preliminary order of forfeiture a "First

Amended Order of Forfeiture." J.A. 29. 

UNITED STATES v. STATE OF OREGON 9
At step three4—considering the asserted interest—Oregon

and Wisconsin did not argue that the escrow conditions had

been satisfied at the time C.L.P. committed the acts giving

rise to forfeiture—and thus that they had an immediate claim

on the funds. Nor did they argue that at that time they were

pursuing claims that could have satisfied the condition. The

States instead argued that the United States was not entitled

to forfeit the principal in their sub-accounts because it could

only acquire what C.L.P. had, namely a reversionary interest

in the account and any interest generated by the principal. The

district court agreed with the States. It held that because forfeiture only allows the United States to step into C.L.P.’s

shoes, the United States could at most forfeit C.L.P.’s right to

interest from the account and its reversionary interest in the

principal. It explained that Oregon and Wisconsin "have the

right for up to 25 years to make their tobacco-related claims."

J.A. 77. Accordingly, the district court concluded that the

States had carried their burden and that the order of forfeiture

must protect the States’ interest.

At step four, the district court amended the forfeiture to

protect the States’ interest. The final order of forfeiture

describes the States’ interest in the escrow funds as "vested in

the [States] rather than in the defendant C.L.P., Inc. and . . .

superior to any right, title, or interest of C.L.P., Inc." J.A. 80.

The order removes the funds in the States’ sub-accounts from

immediate forfeiture and compels the United States to maintain the sub-accounts in accordance with the escrow agreement.5

4The United States, at step two, filed motions to dismiss for lack of

standing Oregon and Wisconsin’s petitions. The district court appears to

have skipped this step, and moved directly on to step three, determining

whether the States had carried their burden. 

5Under the order, the United States is responsible for maintaining these

sub-accounts until all of the funds roll out over the next 25 years. It need

not make any future contributions to Oregon and Wisconsin’s subaccounts, but is presumably responsible for the costs associated with

maintaining them. As per the order, the United States would gain access

to the forfeited funds only as they roll out of the escrow account. 

10 UNITED STATES v. STATE OF OREGON
II.

The United States now appeals the district court’s final

order excluding funds in the States’ sub-accounts from immediate forfeiture. It first argues that the States did not have an

interest in the funds and therefore lacked standing to file a

petition under § 853(n). In the alternative, it argues that, even

if the States have standing, they failed to carry their burden

at the ancillary proceeding, and that their interest in the funds

is, as a matter of federal law, insufficient to justify the district

court’s amendment of the forfeiture order. We address each

argument in turn.

In an appeal from a criminal forfeiture proceeding, "we

review the district court’s findings of fact for clear error and

the district court’s legal interpretations de novo." United

States v. Martin, 662 F.3d 301, 306 (4th Cir. 2011). Because

the facts in this appeal are uncontested, our review is de novo.

A.

We turn first to standing.6 Subsection (n)(2) of 21 U.S.C.

§ 853 allows any person, other than the defendant, asserting

a "legal interest" in the property to petition the district court

for a hearing to adjudicate its asserted interest. Accordingly,

the touchstone for standing is the possession of a legal interest

in the forfeited property.

Although the forfeiture issue here is a matter of federal law,

we generally refer to state law in determining whether a peti6We note that the "standing" at issue in this case is statutory standing,

which is a separate inquiry from Article III standing. See Thompson v. N.

Am. Stainless, 131 S. Ct. 863, 869-70 (2011). Statutory standing is itself

a merits issue. CGM, LLC v. BellSouth Telecommunications, Inc., 664

F.3d 46, 52 (4th Cir. 2011) (explaining that dismissal for lack of statutory

standing is "effectively the same as a dismissal for failure to state a claim"

(citations and quotation marks omitted)). We analyze standing at the outset pursuant to Fed. R. Crim. P. 32.2(c)(1)(B). 

UNITED STATES v. STATE OF OREGON 11
tioner has a legal interest in forfeited property.7

 Here, the

States’ interest, if any, was created by the escrow agreement,

which, as noted above, is to "be construed in accordance with

and governed by the laws of the State of North Carolina." J.A.

59. Accordingly, we will examine North Carolina law to

determine whether the States have a legal interest in the forfeited funds.8

The general rule under North Carolina law is that the party

who deposited the funds into an escrow account retains title

to those funds until the escrow condition is satisfied. Johnson

v. Schultz, 671 S.E.2d 559, 564 (N.C. Ct. App. 2009).

Because there is no evidence that the condition on the

account—a settlement or judgment against C.L.P.—has been

satisfied, we conclude C.L.P. (or the United States qua

C.L.P.) has title to the funds in the relevant sub-accounts. The

States’ interest, then, is something other than legal title.

7We have occasionally departed from state law in these circumstances

where there is evidence a defendant has manipulated state law property

rights to shield assets from the reach of the forfeiture law. See In re Bryson, 406 F.3d 284, 290-91 (4th Cir. 2005); United States v. Morgan, 224

F.3d 339, 342-43 (4th Cir. 2000). Cf. United States v. Totaro, 345 F.3d

989, 994 (8th Cir. 2003) (holding that federal courts will look to state law

for these purposes only "so long as doing so does not frustrate a federal

interest"). Where, as is the case here, there is no evidence of such manipulation, we revert to the norm of reliance on state law. See United States

v. Schecter, 251 F.3d 490, 494 (4th Cir. 2001); United States v. Buk, 314

F. App’x 565, 568 (4th Cir. 2009) (unpublished). 

8The States appear to argue that their state laws should apply because

their legal interest was created by their respective escrow statutes. We disagree. Although it is true that the escrow statutes mandated the creation

of the escrow account, it is the escrow agreements that actually created the

escrow account and created the States’ property interest. Therefore, it is

the state law selected in the escrow agreement that determines any beneficiary state’s interest in the escrow funds. Cf. Stefan D. Cassella, Asset

Forfeiture Law in the United States § 23-12, at 674 (2007) ("[T]he court

looks to the law of the jurisdiction that created the claimant’s interest to

see what interest the claimant has in the property.") (collecting cases). 

12 UNITED STATES v. STATE OF OREGON
The United States insists that we should stop here, asking

rhetorically, "If CLP remains the full owner of the funds,

what is the ‘legal . . . interest in the property’ held by the

States?" Appellant’s Br. 18. Even assuming that, as depositor,

C.L.P. "remains the full owner of the funds,"9 we do not

believe that ends our inquiry. For example, a defendant may

forfeit to the United States an interest other than legal title in

an asset. See 21 U.S.C. § 853(b) ("Property subject to criminal forfeiture under this section includes . . . tangible and

intangible personal property, including rights, privileges,

interests, [and] claims."). Following the reasoning of the

United States then, a petitioner with less than legal title challenging the forfeiture in such a circumstance could never have

standing, even if its interest is greater than that forfeited by

the defendant to the United States. We decline to adopt such

reasoning.

Turning back to our examination of North Carolina law, we

conclude that an obligee10 of an escrow account does have a

legal interest in the funds contained in that escrow account. In

GE Capital Mortgage Services v. Avent, 442 S.E.2d 98, 100

(N.C. App. Ct. 1994), for example, the North Carolina Court

of Appeals held that when an escrow agent embezzles escrow

funds prior to the satisfaction of the escrow condition, the loss

lies with the depositor and not with the obligee. Applying that

reasoning to this case, had C.L.P.’s escrow agent absconded

with the funds in the escrow accounts, the States could have

sued to force C.L.P. to replenish the funds. If the States had

no interest in the funds, they would have no right to require

C.L.P. to replenish the funds. Accordingly, because the States

did have such a right under North Carolina law, we conclude

that the States, as obligees of an escrow account, must have

9

It is unclear to us what the United States means by the term "full

owner." We assume it uses the term here to mean a holder of legal title.

10Although the escrow agreement refers to the States as "beneficiaries,"

in the terms of escrow law, they are "obligees." See Johnson, 671 S.E.2d

at 565 (quoting 28 Am. Jur. 2d Escrow § 1 (2000)). 

UNITED STATES v. STATE OF OREGON 13
had some legal interest in the escrow funds, even prior to the

occurrence of the escrow condition. With such an interest, the

States have standing to press their claims in an ancillary proceeding under 21 U.S.C. § 853(n).

B.

Having concluded that the States have standing to adjudicate their petitions, we now consider whether the States "established by a preponderance of the evidence that" their legal

interest in the escrow funds was "vested in [them] rather than

in [C.L.P.] or was superior to any right, title, or interest of

[C.L.P.] at the time of the commission of the acts which gave

rise to the forfeiture of the property." 21 U.S.C. § 853(n)(6).11

Although the interests held by the petitioner and the defendant

are generally defined by reference to state law, the question

of whether a petitioner’s interest satisfies the requirements of

21 U.S.C. § 853(n)(6) is a question of federal law. See United

States v. Kennedy, 201 F.3d 1324, 1334 (11th Cir. 2000);

United States v. Lester, 85 F.3d 1409, 1412 (9th Cir. 1996).

It is important at the outset to observe that the issue we are

considering at this point is not whether an error occurred at

some point in the forfeiture process that requires amendment

of the forfeiture order.12 Instead, we are only at step

three—considering whether the States have proven, by a preponderance of the evidence, that they have a legal interest in

the escrow funds that entitles them to amendment of the forfeiture order. Only if we conclude that the States have carried

their burden will we go on to step four and consider appropri11As this requirement is framed in the disjunctive, a petitioner may satisfy it in two ways: proving that the interest was vested, or proving that

the interest was superior. See United States v. Wilson, 659 F.3d 947, 953

(9th Cir. 2011). 

12For example, the issue of whether the United States acquired from the

forfeiture something greater than what C.L.P. had to forfeit is not before

us. The only question is whether the States’ legal interest in the funds as

of January 2007 entitles them to amendment of the forfeiture order. 

14 UNITED STATES v. STATE OF OREGON
ate amendment of the forfeiture order. See United States v.

McHan, 345 F.3d 262, 270 (4th Cir. 2003) ("[I]t was Congress’ clear intention in passing § 853(n) that third parties

have an opportunity to be heard and to be awarded relief if

they were to show a cognizable interest in the property preliminarily ordered forfeited." (emphasis added)); see also

Libretti v. United States, 516 U.S. 29, 44 (1995) (reaffirming

that a § 853(n) proceeding is the "only . . . means" by which

a third party may safeguard his rights in property ordered forfeited under § 853, even where the complaint is that the forfeiture itself was unsupported by factual evidence). We

conclude that the States have not carried their burden, and

therefore our inquiry ends at step three.

We first consider whether the States’ interest in the escrow

funds was vested during 2007 and 2008, when C.L.P.’s acts

giving rise to the forfeiture were occurring. Black’s Law Dictionary defines "vested" as: "Having become a completed,

consummated right for present or future enjoyment; not contingent; unconditional; absolute[;] does not depend on an

uncertain period or event." Black’s Law Dictionary (9th ed.

2009). Thus, for the States’ interest in the escrow funds to

have been vested, the escrow condition must have been satisfied, i.e., the States must have achieved a judgment against or

settlement with C.L.P.; otherwise, their interest, by definition,

remained conditional, and thus unvested. The States make no

claim that the escrow condition was satisfied by the existence

of any such judgment or settlement. Therefore, we must conclude that the States’ interest was not vested during 2007 and

2008.

We now consider whether the States’ legal interest was

superior to C.L.P.’s during 2007 and 2008. As noted above,

superiority is a question of federal law. Although "superior"

is not defined in the statute, a practice has developed in the

courts to treat the inquiry as similar to a quiet title action. See

McHan, 345 F.3d at 275 ("[T]he relief offered to a complainant in a quiet title action is substantially the same relief

UNITED STATES v. STATE OF OREGON 15
offered to a § 853(n) petitioner."); see also United States v.

Cone, 627 F.3d 1356, 1359 (11th Cir. 2010) (describing the

"section 853(n) ancillary forfeiture proceeding" as "designed

to quiet title"). Thus, as in a quiet title action, the inquiry here

is not a precise one, but instead involves equitable considerations and is necessarily fact-bound and value-laden. See

Mchan, 345 F.3d at 275 ("[C]laims for the type of relief

offered by a quiet title suit have always been equitable

actions, brought in the courts of equity rather than courts of

law."); see also id. ("The [§ 853(n)] proceeding at bottom

becomes a competition over ownership priority with the court

determining the superior title."). Cf. Morgan, 224 F.3d at 343

(approving of the district court’s looking behind the labels of

the parties’ interests to determine if a petitioner "had a property interest sufficient to prevent forfeiture" under 21 U.S.C.

§ 853(n)(6)).

We now proceed to resolve the competition over ownership

priority by comparing the respective legal interests. We determine that the States do not have a superior interest to the

escrow funds. As already noted, under North Carolina law,

the United States qua C.L.P., maintained title over those funds

during 2007 and 2008 as depositor. Such title, when compared to the States’ unvested interest in the escrow funds,

places the United States in a strong position.13 We decline to

end our inquiry there, however. We cannot ignore that the

funds were placed in the escrow account for a purpose and

that that purpose was to benefit the States should they obtain

a judgment against, or settle a claim with, C.L.P. Considerations of equity would raise serious concerns were the States

to have demonstrated some likelihood that judgments or settlements were in the pipeline.14 The burden, however, was on

the States to demonstrate such a likelihood, and they failed to

13We also note approvingly that were the status quo of 2007 and 2008

maintained, C.L.P. would ultimately regain possession of the funds, free

and clear of any obligation to the States. 

14In a similar vein, considerations of equity would also give pause, for

example, if a teenage beneficiary were challenging the forfeiture of a trust

set up by a defendant-parent to pay for the beneficiary’s college tuition.

That the defendant-parent maintained title over the trust corpus would be

only one of many factors a court would consider in determining superiority under 21 U.S.C. § 853(n)(6)(A). 

16 UNITED STATES v. STATE OF OREGON
do so. As noted above, the States put forth no evidence that

they, at any time, had—or were even considering—claims

against C.L.P.

In the absence of such evidence, we return to our initial

inclination that the United States is in a stronger position and

therefore have no choice but to conclude that the States failed

to carry their burden to prove, by a preponderance of the evidence, that their legal interest in the escrow funds was superior to C.L.P’s during 2007 and 2008. Accordingly, the States

are not entitled to have the forfeiture order amended to

account for their legal interest.15

III.

For the foregoing reasons, the order of the district court is

vacated, and we remand for entry of a forfeiture order consistent with this opinion.

VACATED AND REMANDED

15Because we hold that the States, as obligees of the escrow accounts,

have not met their burden of proof, we need not decide whether an escrow

obligee who did meet this burden would be entitled to receive the present

value of its interest or to have the United States maintain the escrow

account. 

UNITED STATES v. STATE OF OREGON 17