Opinion ID: 566819
Heading Depth: 1
Heading Rank: 4

Heading: the meaning of the term bona fide purchaser for value

Text: 30 The thrust of WMOT's appeal is that the district court, in holding that a victim of embezzlement lacks standing under section 853(n)(6)(B), adopted an unduly narrow construction of the term bona fide purchaser for value. WMOT urges us instead to construe the term more liberally so as to protect the legitimate interests of all innocent third parties. To bolster its interpretation of section 853(n)(6)(B), WMOT directs us to subsection (o), which states that [t]he provisions of this section shall be liberally construed to effectuate its remedial purposes. Among the remedial purposes of section 853, WMOT contends, is the protection of the property rights of innocent third parties, see S.Rep. No. 225, 98th Cong. 1st Sess. 208, reprinted in 1984 U.S.Code Cong. & Admin.News 3182, 3391 [hereinafter S.Rep. No. 225]. WMOT also relies on the hoary maxim that the law abhors a forfeiture. See United States v. One 1936 Model Ford V-8 De Luxe Coach, 307 U.S. 219, 226, 59 S.Ct. 861, 864-65, 83 L.Ed. 1249 (1939) (Forfeitures are not favored; they should be enforced only when within both letter and spirit of the law.). By foreclosing its sole avenue of judicial relief, WMOT asserts, the district court contravened the salutary purpose of section 853(n). 31 WMOT further maintains that its more expansive reading of the term bona fide purchaser for value has been endorsed by two courts. See United States v. Reckmeyer, 836 F.2d 200 (4th Cir.1987); United States v. Mageean, 649 F.Supp. 820 (D.Nev.1986), aff'd, 822 F.2d 62 (9th Cir.1987); but see United States v. Campos, 859 F.2d 1233 (6th Cir.1988) (holding that general, unsecured creditors are not bona fide purchasers for value). In Reckmeyer, the criminal defendant's father, who had loaned the defendant money to purchase a parcel of real estate, and a gem merchant, who had sold two precious stones to the defendant on credit, petitioned the court under section 853(n) to amend the forfeiture order. 836 F.2d at 202. Both petitioners sought to recover out of the defendant's assets, virtually all of which had been ordered forfeited, the amount of their unsecured claims. The Fourth Circuit, after rejecting the government's claim that unsecured creditors lack a legal interest under the statute, construed the term bona fide purchaser for value liberally to include all persons who give value to the defendant in an arms'-length transaction with the expectation that they would receive equivalent value in return. Id. at 208. The Reckmeyer court then held that both petitioners were bona fide purchasers in that they gave value to the defendant in anticipation of receiving value in return. Id. at 208-09. 32 Likewise, the Mageean court declined to adopt the government's interpretation of section 853(n)(6)(B). The court instead held that unsecured trade creditors, who had provided goods and services to the defendant and who sought to satisfy their claims out of the defendant's forfeited assets, qualified as bona fide purchasers for value under the statute: 33 Although a bona fide purchaser is traditionally thought of as a buyer of tangible property, given the purposes of the statute, there is no reason that a good faith provider of goods and services cannot be a bona fide purchaser under the statute. The trade creditors before the Court are innocent parties and their transactions with [the forfeitor] were made at arm's-length. 34 649 F.Supp. at 829. 35 WMOT argues that its claim against Lavin's forfeited assets falls squarely within the Reckmeyer and Mageean courts' construction of the term bona fide purchaser for value: 36 WMOT is a creditor of Lavin which has a legal interest in the forfeited estate and which gave (albeit unwittingly) value to the forfeited estate. The value given was the approximately $440,000 that Stewart embezzled from WMOT for Lavin's benefit. In other words, due to Lavin's receipt of benefits from the embezzlement from WMOT, a bona fide obligation arose between WMOT and Lavin, and WMOT thereby purchased 'property' i.e., [its] claims against [Lavin's estate]. 37 Appellant's Br. at 12-13 (citation omitted). Indeed, WMOT contends that its petition presents an even more compelling case for relief than that of the third parties in Reckmeyer and Mageean. WMOT points out that, unlike the petitioners in the above two cases, it has obtained a judgment (admittedly, a default judgment) against the forfeitor. WMOT also submits that, because it was an innocent victim of unlawful conduct perpetrated by the forfeitor, its plight is significantly more sympathetic than that of either a maker of an unsecured intrafamily loan or a provider of goods and services. 8 38 This latter point, WMOT insists, underscores the tension between the district court's advertent/inadvertent distinction and the putatively broad remedial purpose of section 853(n). According to WMOT, a third party whose interest in the forfeited estate arises from an inadvertent, tort-like obligation suffers the same harm--and thus merits the same relief--as a third party whose interest arises from an advertent, contract-like obligation. Given that the purpose of section 853(n) is, in WMOT's view, to protect the property rights of all innocent third parties while preserving the deterrent and punitive effects of forfeiture, WMOT asserts that contract and tort obligations should be treated alike under subsection (B). 39 WMOT also emphasizes that, due to the nature of embezzlement, we need not hold that all tort-like obligations amount to bona fide purchases under the statute. As WMOT explains, obligations that arise from embezzlement are different from those that arise from the typical tort situation such as an automobile accident, because the embezzler, by injuring his or her victim, is enriched. In other words, WMOT (the tort victim) actually conveyed value to Lavin (the putative tortfeasor) in an amount that is easily quantifiable in dollar terms. By conveying value to Lavin, WMOT contends that it purchased a claim against his forfeited estate that is cognizable under section 853(n)(6)(B), especially in light of our duty to construe that subsection liberally.
40 We recognize that the bona fide purchaser language of section 853(n)(6)(B) is less than pellucid, and that, as such, we must engage in a certain amount of interstitial lawmaking. We also acknowledge that, in light of section 853(o) and the well-settled dictates of forfeiture law, we are obliged to construe the term bona fide purchaser for value liberally. Having examined the statutory language, the legislative history, and the cases on which WMOT relies, however, we nonetheless embrace the district court's advertent/inadvertent distinction as a proper gloss on the statute.
41 As always, the most authoritative indicators of what Congress intended are the words that it chose in drafting the statute. See 2A N. Singer, Sutherland Statutory Construction § 46.03, at 82 (4th ed. 1984) (What a legislature says in the text of a statute is considered the best evidence of the legislative intent or will.). Here, we think that Congress's use of the word purchaser by itself connotes an intent to include only volitional transactions. As the Mageean court observed, it does not seem possible to stretch the definition of bona fide purchaser to include ... tort claimants. 649 F.Supp. at 824. 42 More significantly, we believe that WMOT's claim cannot be squared with the requirement of section 853(n)(6)(B) that the petitioner be reasonably without cause to believe at the time of the purchase that the property was subject to forfeiture. This requirement, we submit, would make little sense if section 853(n)(6)(B) also applied to transactions into which the petitioner entered inadvertently. If the petitioner conveyed value to the criminal defendant involuntarily, it would be foolish, we think, for the courts to inquire whether, at the time of the transfer, the petitioner had any knowledge that the defendant's assets were subject to forfeiture. In this case, even if WMOT knew that Lavin was engaged in drug trafficking, and that his assets thus were subject to forfeiture, that knowledge would be immaterial, because WMOT was unaware that it was transferring any value (through Stewart) to Lavin. 43 WMOT recognizes this tension, but asserts that the petitioner's knowledge need not be a vital component of every petition. We must, however, refrain, if possible, from interpreting Congress's language in a manner that renders a component of the statute superfluous. WMOT also points out that, from the perspective of Lavin (the embezzler/forfeitor), the transaction certainly was advertent. This is true, but irrelevant. As the preceding discussion makes plain, section 853(n)(6)(B) makes sense only if the transaction was advertent from the point of view of the petitioner, WMOT. In sum, we think that Congress's concern with the petitioner's knowledge at the time of the purchase indicates that it intended this section to encompass only advertent business transactions.
44 Nothing in the legislative history of section 853(n) persuades us to construe the term bona fide purchaser for value any differently. As we read the relevant history, 9 Congress did not intend section 853(n) to serve as a vehicle by which all innocent third parties who are aggrieved by an order of criminal forfeiture can petition for judicial relief. Rather, it seems to us that Congress, in enacting section 853(n)(6)(A) and (B), intended to accord standing to only two narrow classes of third parties, and intended to require all other third parties to petition the Attorney General for relief, see 21 U.S.C. § 853(i). 45 Before passage of the Comprehensive Forfeiture Act of 1984, all third parties, whether asserting a legal or equitable basis for relief from an order of criminal forfeiture, [were required to] pursue the remedy of petitioning the Attorney General for remission or mitigation of forfeiture. S.Rep. No. 225, supra, at 3390 (emphasis added). The resolution of such petitions was left entirely to the discretion of the Attorney General and was not subject to judicial review. Id. Because the Department of Justice and Congress were troubled by this practice, they agreed to carve out a limited exception: 46 [I]f a third party can demonstrate that his interest in the forfeited property is exclusive of or superior to the interest of the defendant, the third party's claim renders that portion of the order of forfeiture reaching his interest invalid. The [Senate Judiciary] Committee strongly agrees with the Department of Justice that such third parties are entitled to judicial resolution of their claims. 47 Id. at 3391. Congress thus afforded two narrow categories of third parties standing to petition the courts to determine the validity of their claims to forfeited assets. Standing to petition exists 48 first, where the petitioner had a legal interest in the property that, at the time of the commission of the acts giving rise to the forfeiture, was vested in him rather than the defendant or was superior to the interest of the defendant; or second, where the petitioner acquired his legal interest after the acts giving rise to the forfeiture but did so in the context of a bona fide purchase for value and had no reason to believe that the property was subject to forfeiture. 49 Id. at 3392 (emphasis in original). For the majority of third parties, however, who assert an equitable, rather than a legal, entitlement to relief, 10 petitioning the Attorney General for remission and mitigation remains the exclusive remedy. Id. at 3391. 50 To understand who Congress intended to protect in fashioning these two narrow exceptions, it is helpful to ascertain the source of Congress's language. As far as we can tell, Congress derived both exceptions essentially from hornbook commercial law. The first exception, codified in section 853(n)(6)(A), reflects the common-law principle, embodied in the venerable maxim nemo dat qui non habet, 11 that a buyer acquires no better title than that of the seller. See UCC § 2-403(1) (A purchaser of goods acquires all title which his transferor had or had power to transfer....). Under the relation-back doctrine, the government acquires its interest in the defendant's forfeited property at the time of the commission of the criminal acts giving rise to the forfeiture. See 21 U.S.C. § 853(c). Thus, if a third party's interest in the forfeited property, at the time of the criminal acts, was superior to the criminal defendant's interest, then the interest that the government acquires when it steps into the defendant's shoes is subordinate to that of the third party. As we explained supra note 1, WMOT concedes that it cannot take advantage of this exception because, at the time of the commission of the criminal acts (beginning in 1978), it had not yet acquired any interest in Lavin's property (Stewart did not embezzle money from WMOT and transfer funds to Lavin until 1981). 51 The second exception, codified in section 853(n)(6)(B), reflects another common-law rule (an exception to the nemo dat qui non habet principle), namely, that an innocent purchaser for valuable consideration must be protected. Mowrey v. Walsh, 8 Cowen 238, ---- (N.Y.1828); see UCC § 2-403(1) (A person with voidable title has power to transfer a good title to a good faith purchaser for value.). The good-faith purchaser exception developed over time in order to promote finality in commercial transactions and thus to encourage purchases and to foster commerce. It does so by protecting the title of a purchaser who acquires property for valuable consideration and who, at the time of the purchase, is without notice that the seller lacks valid and transferable title in the property. In Johnson & Johnson Products, Inc. v. Dal International Trading Co., 798 F.2d 100, 104 (3d Cir.1986), we described the purpose of this exception as follows: 52 The purpose of the good faith purchaser doctrine, codified in Sections 2-403 and 2-102 of the UCC, is to promote commerce by reducing transaction costs; it allows people safely to engage in the purchase and sale of goods without conducting a costly investigation of the conduct and rights of all previous possessors in the chain of distribution. 53 The operation of UCC § 2-403(1) is illustrated by the following hypothetical: X has voidable title in a painting, because he fraudulently acquired it from Y. A third party, W, then purchases the painting from X for value without any notice of Y's competing interest in the painting. Under these circumstances, UCC § 2-403(1) would accord to W, a good-faith purchaser for value, good title in the fraudulently acquired painting. 54 The good-faith purchaser exception translates easily into the forfeiture context. After the commission of the criminal acts, title to the forfeitable property, by operation of the relation-back clause, actually belongs to the government. The property itself, however, generally remains in the criminal defendant's physical possession until the government discovers the criminal acts and takes possession of the forfeitable property. While the forfeitable property is in the defendant's possession, the defendant possesses only voidable title, but ordinarily, a prospective purchaser of the forfeitable property will have no notice that the defendant lacks a valid, transferable interest. Section 853(n)(6)(B) ensures that, if indeed the defendant transfers the forfeitable property for value to a purchaser who, at the time of the purchase, is without knowledge of the government's interest in the property, the government may not later assert title superior to that of the innocent purchaser. Extension of the good-faith purchaser exception to the forfeiture context thus facilitates commerce, as it does in the general commercial law context, by removing an impediment to commercial transactions--to wit, the need for a purchaser to engage in exhaustive research, in order to discover whether there are competing claims to the property, prior to consummating a sale. 55 In arguing that a victim of embezzlement is a bona fide purchaser for value under section 853(n)(6)(B), however, WMOT seeks to extend that exception well beyond its commercial law origins. This point is demonstrated by the following variation on the above hypothetical: Assume that X not only acquired a painting from Y through fraud, but also subsequently embezzled a large sum of money from his employer, Z. Sometime later, both the fraud and the embezzlement are discovered, and Y and Z sue to recover X's only remaining asset, the painting. Section 2-403(1) of the UCC would not allow Z to seize the painting in satisfaction of his embezzlement judgment, even though Z conveyed value (albeit inadvertently) to X. Rather, the painting would be returned to Y, its rightful owner. 56 Returning to the facts and parties at bar, we believe that the government most resembles Y, Lavin X, and WMOT Z. Like Y in our second hypothetical, the government acquired title to all of Lavin's assets before WMOT, or Z, acquired any interest in the forfeited property. Lavin, however, like X, retained voidable title in the forfeitable property, because the government (its true owner) had not yet taken possession of it. Had WMOT, like W in our first hypothetical, purchased some of Lavin's forfeitable property in good faith without knowledge of the government's interest in that property, it would have been entitled to keep it. But that is not what happened here; instead, WMOT, like Z, was a victim of Lavin's embezzlement. Because that transaction (for want of a better word) does not qualify as a good-faith purchase for value under commercial law, WMOT's legal interest in Lavin's forfeited property, like Z's, remains inferior to that of the government, who, like Y, acquired its legal interest in the forfeited property sometime beforehand. 12 57 We are reluctant to expand the reach of section 853(n)(6)(B) beyond that of its commercial-law analog, UCC § 2-403(1). We believe that allowing WMOT to avail itself of section 853(n)(6)(B) would not further in any way the historical purpose underlying the good-faith purchaser exception. Because WMOT acquired its interest in Lavin's property unwittingly, as a victim of embezzlement, its ability to protect its interest in the forfeited property vis a vis the government will have no effect whatsoever on commerce. Simply stated, commerce will not be promoted by facilitating the type of transactions by which WMOT acquired its interest in Lavin's property. Indeed, we can perceive of no economic justification, from the perspective of traditional commercial law, for protecting WMOT's legal interest rather than that of the government--which, as we noted earlier, acquired its legal interest in Lavin's property a full three years before WMOT. Because, under commercial law, WMOT's legal interest in Lavin's property is subordinate to the government's, WMOT must rely on an equitable argument that, in view of its sympathetic status as a victim of embezzlement, it nonetheless should be entitled to recoup some of its losses from Lavin's forfeited property. But that argument must be addressed to the Attorney General, not the courts. 58 In sum, we see no reason to stretch Congress's language so as to fit WMOT into the narrow confines of the bona fide purchaser exception. The legislative history of section 853(n), contrary to WMOT's contentions, does not evince a broad-based intent to protect the interests of all innocent third parties. Congress instead defined two rather limited categories of third parties who are entitled to petition the courts for a hearing to adjudicate the validity of their interests in the forfeited property. Those third parties who fall outside of both exceptions, regardless of how sympathetic they are, must petition the Attorney General for relief. S.Rep. No. 225, supra, at 3392 (A third party who fails to obtain relief under the new ancillary hearing provision ... may seek equitable relief from the Attorney General by filing a petition for remission or mitigation of forfeiture.). WMOT forthrightly concedes that it does not meet the requirements of the first exception, and, having examined the origin and purpose of Congress's second exception, we think that according WMOT bona fide purchaser status would be contrary to commercial law principles as incorporated into the forfeiture regime and would make little practical or economic sense.
59 We also think that WMOT's reliance on Reckmeyer and Mageean is misplaced. To begin with, the Mageean court expressly held that tort claimants are not bona fide purchasers for value under the statute. The petitioners in Mageean, aside from the unsecured trade creditors discussed supra at 183, were tort claimants who had been injured when an airplane, in which the forfeitor owned an interest, crashed. 649 F.Supp. at 820-21. Because the aircrash occurred after the criminal acts giving rise to the forfeiture, the only category into which the tort claimants possibly could fit was the bona fide purchaser exception. Id. at 823. The court, in holding that these tort claimants were not bona fide purchasers for value, explicitly rejected the claimants' argument, like the one advanced by WMOT here, that no statutory purpose would be served by denying them relief: 60 While it is true that their claims were not created through sham transactions, it does not seem possible to stretch the definition of bona fide purchaser to include the tort claimants. This is especially true since Congress could have easily provided for judicial determination of tort claimants but chose instead to protect only two classes of claimants.... Therefore, their sole remedy is to petition the Attorney General. 61 Id. at 824. 62 WMOT rejoins, however, that its situation differs from that of the Mageean tort claimants because it actually conveyed value to the forfeitor, Lavin. In view of our prior discussion, we think that WMOT identifies a distinction without a difference. To be a bona fide purchaser, the claimant must establish more than a mere conveyance of value; it must show that it intentionally transferred value to the forfeitor with an expectation of receiving value in return. 63 Furthermore, although neither Mageean nor Reckmeyer makes the point in terms, both courts defined the term bona fide purchaser to encompass only advertent transactions. We intimate no view concerning the propriety of these courts' construction of section 853(n)(6)(B), and we observe that both decisions are at odds with the Sixth Circuit's decision in United States v. Campos, 859 F.2d 1233 (6th Cir.1988). 13 We simply point out that neither Reckmeyer nor Mageean bolsters WMOT's proposed construction of section 853(n)(6)(B). The Reckmeyer court concluded that 64 in order to effectuate legislative intent the term bona fide purchaser for value must be construed liberally to include all persons who give value to the defendant in an arms'-length transaction with the expectation that they would receive equivalent value in return. 65 836 F.2d at 208. Similarly, the Mageean court, in distinguishing trade creditors (who it found to be bona fide purchasers) from tort claimants, stated: 66 Although the trade creditor's losses may be insignificant in comparison to the tort claimants' injuries, the tort claimants were not involved in an arms'-length transaction with [the forfeitor] and did not pay value for their claims. 67 649 F.Supp. at 826. Both courts, in roughly defining bona fide purchase as an arm's length transaction, evince an understanding that the term bona fide purchase for value extends only to transactions into which the petitioner entered knowingly. Although the terms arm's length and advertent are, of course, by no means synonymous or interchangeable, 14 arm's length transactions are by definition advertent. 68 From WMOT's perspective, Reckmeyer and Mageean at best stand for the proposition that the term bona fide purchaser for value should be construed liberally. Beyond that, those cases offer little authority for WMOT's contentions. Both courts defined bona fide purchaser in a manner that would exclude transactions into which the petitioner entered unwittingly, and both remarked that even that definition was somewhat inconsistent with the traditional meaning of the term. If we were to endorse WMOT's argument that the bona fide purchaser exception encompasses victims of embezzlement, we would have to strain the language of section 853(n)(6)(B) even further. Given Congress's concern with the petitioner's knowledge at the time of the purchase, and the historic purpose of the good-faith purchaser exception at commercial law, we think that section 853(n)(6)(B) is insufficiently elastic to support WMOT's procrustean interpretation. We therefore reject WMOT's contention that a mere conveyance of value is sufficient to establish a bona fide purchase, and conclude that the district court correctly held that section 853(n)(6)(B) applies only to advertent transactions.