Court Opinion

ID: 4200284
Source: CourtListenerOpinion
Date Created: 2017-08-30 21:00:33.966106+00
Date Added: 2024-06-11T07:46:55.412874
License: Public Domain

United States Court of Appeals
                      For the First Circuit

No. 17-1096

                    UNITED STATES OF AMERICA,

                            Appellee,

                                v.

                         JUAN G. CATALA,

                            Defendant,

                           DAVID VOGEL,

                       Claimant, Appellant.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF RHODE ISLAND

       [Hon. John J. McConnell, Jr., U.S. District Judge]
         [Hon. Lincoln D. Almond, U.S. Magistrate Judge]

                               Before
                    Lynch, Selya and Thompson,
                          Circuit Judges.

     Barbara A. Barrow, Moore, Virgadamo & Lynch Ltd., David Vogel,
and Vogel Law PLLC on brief for appellant.
     Stephen G. Dambruch, Acting United States Attorney, and
Donald C. Lockhart, Assistant United States Attorney, on brief for
appellee.

                         August 30, 2017
               SELYA, Circuit Judge.          This case requires us to answer

a question of first impression in this circuit — a question

involving the relative priority, as between the government and a

general    creditor,       with     respect    to   claims    relating     to    assets

forfeited as the proceeds of criminal activity. The district court

resolved this question in the government's favor and denied the

general creditor's claim.            After careful consideration, we affirm.

               The    facts   are    straightforward.         In   April    of    2007,

claimant-appellant David Vogel loaned an acquaintance, defendant

Juan G. Catala, $8,500 during a trip to Las Vegas.                       When Catala

did not repay the loan, the appellant sued him in a Rhode Island

state court.          In April of 2012, a state judge entered a judgment

in the amount of $8,500, plus statutory interest and costs, in

favor     of    the     appellant.       The    Rhode    Island     Supreme      Court

subsequently affirmed that judgment.                See Vogel v. Catala, 63 A.3d

519, 522-23 (R.I. 2013).

               For several years, the appellant's efforts to collect

the judgment proved fruitless.                A ray of hope appeared when, in

mid-2016,       federal       authorities      charged       the   defendant       with

distributing oxycodone and marijuana in violation of federal law.

See 21 U.S.C. § 841(a).             As part of the investigation leading to

those charges, federal agents had searched the defendant's home

and seized $14,792 in cash.

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                  The case was docketed in the United States District Court

for the District of Rhode Island, and the defendant pleaded guilty

to the charges.           The court determined that the $14,792 in cash

represented the proceeds of the defendant's illegal drug dealings

and was, therefore, subject to forfeiture. See 21 U.S.C. § 853(a).

Based on this determination, the court entered a preliminary order

of forfeiture.

                  Within a matter of days, the appellant filed a third-

party petition, in which he asserted a claim to the seized cash

under 21 U.S.C. § 853(n) and Federal Rule of Criminal Procedure

32.2(c).          The government moved to dismiss his claim under Rule

32.2(c)(1)(A),           which   authorizes      dismissal   of   a   third-party

petition for, among other things, lack of standing or failure to

state a claim. The district court granted the government's motion,

ruling that the appellant had no legal right to the forfeited

proceeds.1         This timely appeal followed.

                  A motion to dismiss a third-party petition in a criminal

forfeiture proceeding is analyzed in the same way as a motion to

dismiss a complaint under Rule 12(b) of the Federal Rules of Civil

Procedure.          See Willis Mgmt. (Vt.), Ltd. v. United States, 652

F.3d       236,    241   (2d   Cir.   2011).     Consequently,    a   third-party

       1
       The initial ruling was made by a magistrate judge and later
confirmed by a district judge. We do not distinguish between these
two judicial officers but, rather, take an institutional view and
refer throughout to the district court.

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petitioner under section 853(n) must plead "enough facts to state

a claim to relief that is plausible on its face."             Bell Atl. Corp.

v. Twombly, 550 U.S. 544, 570 (2007). Where, as here, the district

court finds that the petition does not satisfy this standard, its

order of dismissal is reviewed de novo.            See Nisselson v. Lernout,

469 F.3d 143, 150 (1st Cir. 2006).

            Under    section     853,      individuals   convicted    of    drug-

trafficking crimes must forfeit "any property constituting, or

derived   from,     any    proceeds   the    person   obtained,   directly     or

indirectly,    as    the     result   of    such   violation."       21    U.S.C.

§ 853(a)(1).   They also must forfeit any instrumentalities used to

commit the crime.         See id. § 853(a)(2).

            In this appeal, the appellant takes issue with the

district court's application of section 853(n).             Pertinently, the

statute sets forth the procedures through which a third party can

challenge a preliminary order of forfeiture.                 To initiate the

process, the third party must petition the court for a hearing to

evaluate his interest in the property that the government says is

subject to forfeiture.         See 21 U.S.C. § 853(n)(2); United States

v. Zorrilla-Echevarría, 671 F.3d 1, 6 (1st Cir. 2011).                     At the

hearing, the third party must establish that he has standing within

the meaning of section 853 by "asserting a legal interest" in the

property.   21 U.S.C. § 853(n)(2); see United States v. Watts, 786

F.3d 152, 160 (2d Cir. 2015).            He must then show his entitlement

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to relief on the merits by establishing (as relevant here) that

the order of forfeiture is invalid because any right to the

property "was vested in [him] rather than the defendant or [that

his right to the property] was superior to any right . . . of the

defendant at the time of the commission of the acts which gave

rise to the forfeiture."    21 U.S.C. § 853(n)(6)(A).2

          If the court determines that the third party has standing

and that his interest is valid and superior to that of the

defendant's interest within the meaning of section 853(n), it may

amend the preliminary order of forfeiture accordingly.       See Fed.

R. Crim. P. 32.2(c)(2).    If, however, the court concludes that the

third party lacks a valid and superior interest, the preliminary

order of forfeiture becomes final.      See id.

          Against this backdrop, we turn to the appellant's claim.

Before examining the merits of that claim, we pause to assay his

standing to raise it.

          This case implicates two different types of standing:

Article III standing and statutory standing.      Article III standing

is a critical component of the Constitution's case-or-controversy

     2 Although the statute also affords relief to a third party
who can show that he "is 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," 21 U.S.C. § 853(n)(6)(B), the appellant
does not argue that he is entitled to any relief under this
provision. Consequently, we do not probe this point.

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requirement.   See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560

(1992); see also U.S. Const. art. III, § 2.   Because Article III

standing is a sine qua non to federal judicial involvement, a

federal court must resolve any doubts about such standing before

proceeding to adjudicate the merits of a given case.     See Steel

Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998); cf.

Restoration Pres. Masonry, Inc. v. Grove Eur. Ltd., 325 F.3d 54,

59 (1st Cir. 2003) (noting that rule requiring courts to address

jurisdictional questions at the outset is not "absolute" outside

of Article III context).   This requirement applies both in the

trial court and at all stages of review.       See Arizonans for

Official English v. Arizona, 520 U.S. 43, 67 (1997).   Indeed, the

requirement applies even when neither party has raised the issue.

See McCulloch v. Vélez, 364 F.3d 1, 5 (1st Cir. 2004).

          Article III standing requires a plaintiff to identify an

actual injury, traceable to the adverse party's conduct, that

likely can be redressed by a favorable decision.   See Lujan, 504

U.S. at 560-61; Nisselson, 469 F.3d at 150.    Those requirements

are plainly satisfied in this case.

          Statutory standing is a horse of a different hue.     It

relates to whether the plaintiff has a cause of action under a

particular statute.   See Lexmark Int'l, Inc. v. Static Control

Components, Inc., 134 S. Ct. 1377, 1387-88 n.4 (2014).      Unlike

Article III standing, though, the existence of statutory standing

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is not a prerequisite to a court's power to adjudicate a case.

See id.     Thus, an inquiring court may opt, in the interest of

efficiency, to forgo an inquiry into statutory standing and reject

a claim on the merits.     See First State Ins. Co. v. Nat'l Cas.

Co., 781 F.3d 7, 10 n.2 (1st Cir. 2015).    For simplicity's sake,

we choose to follow that path and bypass this facet of the standing

paradigm.    Accordingly, we assume (without deciding) that the

appellant has met the statutory standing requirement of having a

"legal interest" in the property to be forfeited, 21 U.S.C.

§ 853(n)(2), and proceed to the merits of the appellant's claim.

            To prevail on the merits under section 853(n)(6)(A), a

third party must prove that, at the time the acts giving rise to

the forfeiture were committed, the right to the property to be

forfeited was either vested in him rather than the defendant or

that his interest in it was superior to the defendant's interest.

See 21 U.S.C. § 853(n)(6)(A); see also Watts, 786 F.3d at 166.

This provision cannot be read in a vacuum but, rather, must be

read in tandem with section 853(c).    See United States v. Timley,

507 F.3d 1125, 1130 (8th Cir. 2007).   The latter provision, which

embodies the relation-back doctrine, specifies that the right to

all property used in committing, and any proceeds derived from, a

criminal offense "vests in the United States upon the commission

of the act giving rise to [the] forfeiture."   21 U.S.C. § 853(c);

see Watts, 786 F.3d at 166; United States v. Hooper, 229 F.3d 818,

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822 (9th Cir. 2000).            It follows inexorably that a third party

asserting an interest in forfeited property must establish that

his   interest    in     that    specific   property     existed   before   the

commission of the crime that led to the forfeiture.                See Hooper,

229 F.3d at 821-22.

             Here, then, the appellant must show that his interest in

the forfeited cash existed before the defendant engaged in the

drug distribution that sparked his arrest.                 The relation-back

doctrine stands in his way.         A third party cannot have an interest

in proceeds that do not yet exist.            See Timley, 507 F.3d at 1130.

Since proceeds from a crime "do not precede [the commission of]

the   crime,"    the   government's     interest    in    proceeds    forfeited

pursuant to section 853(a)(1) will almost always pre-date that of

a third party who is a general creditor.           Hooper, 229 F.3d at 822;

see Watts, 786 F.3d at 166 (explaining that "a petitioner is

unlikely ever to prevail . . . where the forfeited property

consists of 'proceeds' derived from or traceable to a criminal

offense").       Thus,    section    853(n)(6)(A)      claims   are   generally

successful only when the third party can claim an interest in the

instrumentalities of a crime pursuant to section 853(a)(2), which

sometimes can preexist the crime itself.            See Watts, 786 F.3d at

167; see also Hooper, 229 F.3d at 822 (explaining that a claimant

may prevail under section 853(n)(6)(A) even though her spouse used

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the family car for drug trafficking by showing that her interest

in the vehicle predated the criminal activity).

              These principles are dispositive here.                 There is no

suggestion that the forfeited cash came from any source other than

the   defendant's      drug-trafficking       activities.      So    viewed,   the

government's interest in the forfeited cash vested as soon as the

defendant began selling drugs and before any proceeds started to

reach him.          See 21 U.S.C. § 853(c).          To the extent that the

appellant had any interest in the defendant's ill-gotten gains,

that interest could not possibly have predated the defendant's

acquisition of the funds and, thus, could not have predated the

government's interest.          See Watts, 786 F.3d at 166-67.          Moreover,

since   the    appellant's      $8,500   loan   to   the    defendant    did   not

constitute      a    discrete    "instrumentality"      used    in    his   drug-

trafficking activities, the appellant cannot claim that he had a

prior, superior interest under section 853(n)(6)(A) and section

853(a)(2).

              In an effort to blunt the force of this reasoning, the

appellant contends that because he had a valid, preexisting legal

interest in the defendant's finances — an interest resulting from

the state court judgment — he is entitled to repayment from the

cash that the government proposes to forfeit.                  This contention

lacks force.         While the appellant has an obvious interest in

obtaining satisfaction of the outstanding judgment, his interest

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is, at most, that of a general creditor.                See United States v.

Reckmeyer, 836 F.2d 200, 206 & n.3 (4th Cir. 1987).                      Such an

interest is not sufficient to accord priority to the appellant's

claim    to    a   specific    chunk    of   cash    (the    $14,792   that   was

attributable to the defendant's drug-trafficking activities and

seized when he was arrested). See United States v. One-Sixth Share

of James J. Bulger in All Present & Future Proceeds of Mass

Millions Lottery Ticket No. M246233, 326 F.3d 36, 44 (1st Cir.
2003).

              This result conforms not only to the letter of the

forfeiture statute but also to the policies behind it.                 After all,

if a criminal defendant's forfeited cash could be used to defray

his debts to general creditors, the defendant would continue to

benefit from his illicit activities.                Such a result would be at

cross-purposes with the goals of criminal forfeiture, such as

"separating a criminal from his ill-gotten gains" and "lessen[ing]

the economic power" of unlawful activities.                 Honeycutt v. United

States, 137 S. Ct. 1626, 1631 (2017) (alteration in original)

(quoting Caplin & Drysdale, Chartered v. United States, 491 U.S.

617, 629-30 (1989)).          We refuse to carve such a gaping hole into

the forfeiture framework.

              We need go no further. For the reasons elucidated above,

the judgment of the district court is

Affirmed.

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