Opinion ID: 6498741
Heading Depth: 3
Heading Rank: 2

Heading: Intertwined Standing and Merits Question

Text: Finding no deficiency in appellate jurisdiction, we next examine standing separately for each claim, which—for the § 853(n) petition issue—ends up being intertwined with the merits question. The threshold inquiry for this, and every, federal suit is whether the claimants have Article III standing to bring their claims. “If the plaintiff lacks standing, the federal court lacks subject matter jurisdiction and the suit must be dismissed ….” Int’l Union of Operating Eng’rs, Local 139 v. Daley, 983 F.3d 287, 294 (7th Cir. 2020) (internal quotation marks omitted) (quoting Taylor v. McCament, 875 F.3d 849, 853 (7th Cir. 2017)). Standing must be demonstrated “for each claim [the claimants] seek[] to press and for each form of relief that is sought.” Town of Chester, N.Y. v. Laroe Ests., Inc., 137 S. Ct. 1645, 1647 (2017). Because claimants here are not parties to the underlying criminal case, they do not have standing to address the court absent their § 853(n) petition. Tracing the logic from the beginning, if the petition was deficient, the district court did not err in denying the § 853(n) petition. If the § 853(n) petition was properly dismissed as facially deficient, the claimants have no standing—as § 853(n) provides the exclusive avenue 10 No. 20-1526 for third-party asset recourse. Therefore, if the petition, as filed, was lacking, the case was appropriately dismissed for lack of subject matter jurisdiction. Thus we look to one dispositive question: Did the claimants’ petition conform to all relevant requirements of 21 U.S.C. § 853? If yes, Rule 32.2 of the Rules of Criminal Procedure supports holding that the district court must conduct an ancillary proceeding. If no, the petition is deficient, a jurisdictional deficiency exists, and the district court may dismiss the petition without a hearing. Although the district court may dismiss a deficient petition on jurisdictional grounds, this Circuit’s case law cautions against sua sponte dismissal, unless the jurisdictional deficiency is incurable. Because “[i]t is well established that third parties may not intervene during criminal forfeiture proceedings to assert their interests in the property being forfeited,” § 853(n) provides the exclusive avenue for third-party asset recourse and ultimately the sole grounds for standing. DSI Assocs., LLC v. United States, 496 F.3d 175, 183 (2d. Cir. 2007); see also § 853(k) (barring intervention by any party claiming an interest in property subject to forfeiture except as provided in § 853(n)). Standing determinations regarding ancillary proceedings outlined in § 853(n) involve questions of both state and federal law. “State law—or more accurately, the law of the jurisdiction that created the property interest being asserted—determines what interest the claimant has in the forfeited property; federal law—in particular, 21 U.S.C. § 853(n)(2), determines whether that interest is sufficient to establish standing.” Stephen D. Cassella, Criminal Forfeiture Procedure in 2013: An Annual Survey of Developments in the Case Law, CRIM. L. BULL., Winter 2013. “Legal ownership in the property is No. 20-1526 11 determined by reference to state law, but whether that legal interest qualifies for an exemption is evaluated by the terms of the federal statute.” Dee R. Edgeworth, Asset Forfeiture: Practice & Procedure in State & Federal Courts 216 (3d ed. 2014) (citations omitted); United States v. 5 S 351 Tuthill Rd., Naperville, Ill., 233 F.3d 1017, 1021 (7th Cir. 2000) (“State law defines and classifies property interests for purposes of the forfeiture statutes, while federal law determines the effect of the property interest on the claimant’s standing.”). Beginning with the statutory language, under 21 U.S.C. § 853(n)(1), the government “shall publish notice of the [forfeiture] order and of its intent to dispose of the property” following the entry of a forfeiture order. With respect to third parties, “[a]ny 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 …, petition the court for a hearing to adjudicate the validity of his alleged interest in the property.” Id. at § 853(n)(2). Such a hearing “shall be held before the court alone, without a jury.” Id. at § 853(n)(3). “The hearing on the petition shall, to the extent practicable and consistent with the interests of justice, be held within thirty days of the filing of the petition.” Id. at § 853(n)(4). “The provisions of this section shall be liberally construed to effectuate its remedial purposes.” Id. at § 853(o). Turning to the Rules of Criminal Procedure, Rule 32.2 governs criminal forfeiture and related ancillary proceedings. As a general rule, “[i]f, as prescribed by statute, a third party files a petition asserting an interest in the property to be forfeited, the court must conduct an ancillary proceeding, but no ancillary proceeding is required to the extent that the forfeiture consists of a money judgment.” Fed. R. Crim. Proc. 32.2(c)(1) 12 No. 20-1526 (emphasis added). “No hearing is necessary on the merits of the third party’s claim where the court can dismiss the claim on the pleadings.” Cassella, supra. “If no third party files a timely petition, the preliminary order becomes the final order of forfeiture ….” Fed. R. Crim. Proc. 32.2(c)(2). The third-party petitioner bears the burden of establishing by a preponderance of evidence that (1) they have a legal right, title, or interest in the property, and that such right, title, or interest was superior to that of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property; or (2) they are “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 under this section.” Id. at § 853(n)(6). Whether a petition is “deficient” is outcome-determinative on the standing question. “If a third party fails to allege in its [§ 853(n)] petition all elements necessary for recovery, including those relating to standing, the court may dismiss the petition without providing a hearing.” United States v. BCCI Holdings (Luxembourg), S.A., 919 F. Supp. 31, 36 (D.D.C. 1996); see also United States v. Sigillito, 938 F. Supp. 2d 877, 884 (E.D. Mo. 2013) (“The court need not hold a hearing on a petition if it is clear that the petitioner could not prevail even if [a hearing] were granted.” (alteration in original) (citation and internal quotation marks omitted)). Notably, “[i]n the absence of facts or evidence showing the time and circumstances of [a petitioner’s] acquisition of the right, title, or interest in the [property], the Petition is deficient.” See United States v. Morgan, No. 18-cr-00132, 2022 WL 1443743 at  (W.D. Wash. May 6, 2022) (citing United States v. Fabian, 764 F.3d 636, 638 (6th No. 20-1526 13 Cir. 2014) (holding a “conclusory legal interest” falls short of meeting the requirements of § 853(n)(3)). To review the district court’s sua sponte denial (the functional equivalent of a dismissal under these specific facts) of claimants’ § 853(n) petition, we must look at each claimed property interest. The chart below summarizes claimants’ alleged property interests: Motion Claimant Property Description ¶ 6–9 C. Furando House/ Real property. Deed attached Residence conveying 23 Burning Hollow Road to Joseph and Christine Furando on June 14, 2011. ¶ 11 C. Furando Vehicle 2011 Harley-Davidson. At- tached certificate of title and vehicle registration in C. Fu- rando’s name. ¶ 14 C. Furando Vehicle 2011 Ferrari. Unable to locate titles and unsure whether title is in her name. ¶ 14 C. Furando Vehicle 2011 BMW. Unable to locate titles and unsure whether title is in her name. ¶ 17 C. Furando Cash Up to $10,000 in TD Bank Ac- count #8406. Used to deposit her paychecks. ¶ 19 Green Cash Up to $175,000 in PNC Bank Grease, Account #2184. Claimant re- LLC tained the services of a Certi- fied Public Accountant who ex- amined the books and con- cluded $300,000 to $400,000 or more of the funds seized from Green Grease, LLC were not part of any fraud. 14 No. 20-1526 ¶ 21 Summit Cash Up to $303,490.06 in JP Morgan Perfor- Chase Bank Account #4962. C. mance Furando claims she “is a mem- Solutions, ber of Summit Performance So- LLC lutions, LLC.” ¶ 23 C. Furando Cash $2,300 seized during search of Montvale, New Jersey resi- dence. ¶ 25–26 Jungle Cash $839,340.50 in sale proceeds Habitat from real property located at 37 Properties S. Kinderkamack Rd, LLC Montvale, New Jersey. ¶ 29 C. Furando Jewelry Nineteen pieces of jewelry labeled as “gifts.” ¶ 30 C. Furando Artwork Seventeen pieces of artwork bought by Joseph Furando as “gifts” for C. Furando during 2012. ¶ 31 C. Furando Rugs Two oriental Kashmir rugs purchased by Joseph Furando as “gifts” for C. Furando dur- ing 2012. ¶ 32 C. Furando Piano Black grand piano purchased by Joseph Furando as a “gift” for his son. We agree with the government’s position that this petition is facially deficient. An adverse petition: shall set forth the nature and extent of the peti- tioner’s right, title, or interest in the property, the time and circumstances of the petitioner’s acquisition of the right, title, or interest in the property, any additional facts supporting the petitioner’s claim, and the relief sought. 21 U.S.C. § 853(n)(3). The parameters of these property interests are defined by state law. See 5 S 351 Tuthill Rd., 233 F.3d No. 20-1526 15 at 1021. Conclusory claims of property interests are not sufficient. See Fabian, 764 F.3d at 638. “By its plain terms, … § 853(n) does not permit ‘relitigation’ of the district court’s antecedent determination that an item of property is subject to forfeiture.” Id. (citing Fed R. Crim. Proc. 32.2 advisory committee’s notes). Section 853, however, does allow third parties to claim interest in the identified properties subject to the preliminary order of forfeiture. Borrowing from the reasoning of the Sixth Circuit, if a claimant fails to set forth information to satisfy the statutory requirements outlined in § 853(n)(3), “it asserts only a conclusory legal interest in the property,” and the district court will not have erred in dismissing any such petition. Id. Just as in Fabian, the petition here was conclusory. Repeating claimants have a “valid third party interest” and citing § 853 is not sufficient. For the cash claims, no dates of transfer or account statements are attached. Cf. United States v. Preston, 123 F. Supp. 3d 108, 114 (D.D.C. 2015) (finding a petition’s allegations sufficient to satisfy the requirements of § 853(n)(3) when the petition noted date of transfer and attached an account statement listing the relevant transfers). Furthermore, the house, vehicle, and gift claims fail to adequately explain how state law supports Furando’s legal interest in the property. Although district courts have framed the § 853 pleading requirements as more than “simply technical requirements,” and have stated that they should be “construed strictly to discourage false or frivolous claims,” United States v. Soultanali, No. 14-CR-00229, 2018 WL 4008333, at  (N.D. Ill. Aug. 20, 2018) (quoting Preston, 123 F. Supp. 3d at 112), statutory language casts at least some doubt on this sentiment, see 21 U.S.C. 16 No. 20-1526 § 853(o) (“The provisions of this section shall be liberally construed to effectuate its remedial purposes.”); Rosenbohm, 564 F.3d at 823 (“A cardinal canon of statutory construction is that we must presume that a legislature says in a statute what it means and means in a statute what it says there.” (citation and internal quotation marks omitted)). Acknowledging that this conclusory petition triggers a jurisdictional deficiency—treatment of which is at odds with the express congressional aim of “liberal construction”—our Circuit’s reasoning in other sua sponte dismissal contexts proves informative: A court must address potential jurisdictional problems sua sponte at whatever point they arise in the proceedings. But we generally discourage district courts from sua sponte dismissing a com- plaint for lack of subject matter jurisdiction without first providing the plaintiff notice and a hearing or an opportunity to amend. Such a dis- missal is improper unless the jurisdictional de- fect is incurable. George v. Islamic Rep. of Iran, 63 Fed. App’x 917, 918 (7th Cir. 2003) (citations omitted). With the goal of harmonizing the intended “liberal[]” construction of § 853 with the need for workability at the district court level, we now remand for the district court to provide either a hearing or an opportunity to amend the petition, as this jurisdictional defect is not incurable. The government points to Joseph Furando’s plea agreement as admission that the property in question was acquired with fraudulent proceeds. This may well be what the district court ultimately concludes, but it is sensible to give claimants the opportunity to amend their petition to provide information to satisfy § 853(n)(3) (if they have it) and the No. 20-1526 17 opportunity for a hearing (if it is warranted). The district court is better suited for this task as the trier of fact. As discussed in the next section, § 853(n) is the only appropriate route for relief, and Congress correspondingly signaled its intent for liberal construction to effectuate this lone remedial route. See § 853(o). Before concluding this analysis, we briefly touch on harmless error. Because these ancillary proceedings are closely analogous to civil proceedings, see Grossman, 501 F.3d at 848, “the normal rules of harmless error apply,” Kowalski v. Boliker, 893 F.3d 987, 997 (7th Cir. 2018). We decline to offer a harmless error analysis in this case, because the fact-finding at the district court level was limited—the preliminary order of forfeiture was based on a plea agreement, and there is no trial record for us to rely upon. A conclusion that any error was harmless might be more appropriate if we knew what the claimants’ amended arguments would have been, see, e.g., id. (“Although [plaintiff] did not have another opportunity to present his position to the district court, we do know precisely what [plaintiff] intended to argue because he timely filed his brief after the district court had ruled.”), or if we could point to a jury finding that the property in question was involved in an unlawful transaction, see, e.g., United States v. Lee, 232 F.3d 556, 560 (7th Cir. 2000) (emphasizing the relevance of a jury finding “that the property [in question] was involved in the unlawful transaction or was traceable to property that was so involved”). Neither of these factors are present in this case. Furthermore, the district court did not mitigate the impact of any error by “carefully consider[ing]” the arguments at a different point, such as a prior or subsequent motion or in a decision on a detailed motion seeking leave to amend. See Kowalski, 893 F.3d at 997. 18 No. 20-1526 The government’s arguments that the claimants cannot prevail under § 853(n)(6) and the arguments about prior vested interest are misplaced, because those statutory considerations are only relevant “after the hearing”—which never took place in this case. For these reasons, we vacate the denial of claimants’ § 853(n) petition and remand for further proceedings.