Court Opinion

ID: 9001397
Source: CourtListenerOpinion
Date Created: 2022-11-27 13:04:12.862771+00
Date Added: 2024-06-11T17:11:10.062967
License: Public Domain

POSNER, Circuit Judge,
dissenting.
Harry R. Seymer, III dealt drugs on a resort property owned by Modernaire *321Three, Inc., a corporation of which he is a one-third owner and the manager. The other two owners are his parents. They play no active role in the management of the corporation. It’s Harry Ill’s baby. The property was forfeit, unless the drug dealings were committed “without the knowledge or consent of [the property’s] owner.” 21 U.S.C. § 881(a)(7). The owner of course was Modernaire. My brethren are correct that a corporation is not to be charged with knowledge of every furtive misdeed of employees who misuse corporate property for ends not only private but contrary to the corporation’s interest. Ash v. Georgia-Pacific Corp., 957 F.2d 432, 436 (7th Cir.1992); United States v. Smith, 810 F.2d 996, 998 (10th Cir.1987); Bates v. United States, 701 F.2d 737, 741-42 (8th Cir.1983); United States v. Cincotta, 689 F.2d 238, 242 (1st Cir.1982). But Harry III was not only a corporate officer and major shareholder; he was the manager of the corporation — the only manager. He controlled the use of its property. If he decided to turn the corporation into a criminal enterprise — as he did, using the stream of legitimate visitors to the tavern on the property to mask his drug business — there was, as a practical matter, no one to say him nay.
What the court has done is to pierce the corporate veil and deem the parents the owners of the property that Harry III used for drug trafficking. But they are not the owners; the corporation is. And if the veil is to be pierced, the spear should touch Harry, for he is one of the owners: one might have supposed that, at the least, Harry III would be required to forfeit his one-third interest. Cf. Cenco Inc. v. Seidman & Seidman, 686 F.2d 449, 454-56 (7th Cir.1982). But no; he forfeits nothing. At argument Modemaire’s lawyer said that the case should be decided the same way even if Harry had had a two-thirds rather than a one-third share. Why stop there? On the logic of the court’s opinion Moder-naire would win this case even if Harry owned all the corporation’s stock.
Yet at the end of its opinion the court flinches, and tries to reassure us that “nothing in this opinion should vitiate the intended use of forfeiture statutes” because Congress could rewrite the statute and anyway “the result in this case turns closely on the facts.” What facts? That Harry Ill’s parents, people of modest means, mortgaged their property so that they could “provide their son with a start in life” that he did not deserve? That Harry Ill’s father had a physical disability and his mother an aneurysm? That there were only three drug buyers? (I don’t believe it and neither should the court, which, while emphasizing that Harry Ill’s “clandestine methods frustrated the extended investigation efforts of federal and state agencies,” credulously accepts his deposition evidence concerning the limited scope of his operations.) That the other stockholders didn’t know? That the government neglected to prove what is obvious without proof, that the tavern was a convenient cover for Harry Ill’s drug business?
The court is critical of fictions but says without blushing that “Modernaire has no actual knowledge of proscribed activities taking place on its land.” We must ask what it means to speak of a corporation’s “knowledge.” A corporation is not a living being. It has no mind. When we say a corporation “knows” something, for example that it has a claim against someone (and hence that the statute of limitations is running), we mean that a responsible agent of the corporation knows the thing. Peterson v. Sealed Air Corp., 902 F.2d 1232, 1236 (7th Cir.1990). There is no more responsible agent of Modernaire than Harry, its manager. If he knew that Modernaire had a claim against someone, the corporation could not defeat a defense of statute of limitations on the ground that Harry’s knowledge could not be imputed to the corporation. Likewise the drug dealing of Harry the employee was, of course, known to Harry the manager, the responsible agent, and this knowledge the law treats as the knowledge of the corporation. The court says that “where a corporate agent obtains knowledge while acting in the scope of his agency, he presumably reports that knowledge to his corporate principal *322so the court imputes such knowledge to a corporation.” We must be alert to the fallacy of personifying the corporation and ask what concretely it means to report to one's "corporate principal.” Necessarily the agent reports not to “the corporation” but to a human being — in fact to another corporate agent, but one at the management level. Harry the drug dealer “reported” his drug dealings to Harry the corporate manager. No more was necessary to “impute such knowledge to [the] corporation” under the formula that my brethren quote.
It is not surprising that the court wants to shift the plane of analysis from whether Modernaire is to be deemed to have known of Harry’s drug dealings to whether, if prosecuted for a criminal offense, Moder-naire would be guilty in the absence of proof that the crime had been committed for the corporation’s benefit. That is not the issue but let me go along with the court far enough to suppose that Harry Ill’s criminal proclivities ran to monopolizing rather than to drug trafficking and that Modernaire were prosecuted for a criminal violation of the antitrust laws. If the government proved that Harry III had caused Modernaire to engage in a monopolistic practice, Modernaire would be found guilty and forced to pay what might be a ruinous fine, but the black-letter rule of corporate criminality would require the government to prove that Harry III had in some, though perhaps only a very attenuated, sense been acting “for the benefit of the corporation” (even if his action was contrary to corporate directives). United States v. Paccione, 949 F.2d 1183, 1200 (2d Cir.1991); Genty v. Resolution Trust Corp., 937 F.2d 899, 909 (3d Cir.1991); United States v. Basic Construction Co., 711 F.2d 570, 573 (4th Cir.1983) (per curiam); United States v. Cincotta, 689 F.2d 238, 242 (1st Cir.1982); United States v. Koppers Co., 652 F.2d 290, 298 (2d Cir.1981); United States v. Van Riper, 154 F.2d 492 (3d Cir.1946); Developments in the Law, “Corporate Crime: Regulating Corporate Behavior Through Criminal Sanctions,” 92 Harv.L.Rev. 1227, 1247-51 (1979).
The court clings to this principle. But the statute here is different. For one thing it is not a criminal statute, and in a civil antitrust case, or for that matter any other civil case, the plaintiff need not show that the corporation’s agent acted with an intent to benefit the corporation. American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556, 573-74, 102 S.Ct. 1935, 1946, 72 L.Ed.2d 330 (1982); In re American Biomaterials Corp., 954 F.2d 919, 923-24 (3d Cir.1992); United States v. O’Connell, 890 F.2d 563, 568-69 (1st Cir.1989); In re Atlantic Financial Management, Inc., 784 F.2d 29 (1st Cir.1986). These cases emphasize the agent’s “apparent authority”: “the agent’s position facilitates the consummation of the fraud, in that from the point of view of the third person the transaction seems regular on its face and the agent appears to be acting in the ordinary course of the business provided to him.” Restatement (Second) of Agency § 261, comment a, at p. 571 (1958), quoted in American Society of Mechanical Engineers v. Hydrolevel Corp., supra, 456 U.S. at 566, 102 S.Ct. at 1942. This is not a fraud case, but neither was Hydrolevel; it was a boycott case. Apparent authority can facilitate wrongdoing other than just that of the fraudulent variety. No doubt the fact that Harry III appeared to be — in fact, was — in control of the resort property made persons in quest of illegal drugs more willing to buy from him than they would have been had they thought him a mere tenant trying to conceal his illegal drug dealings from his landlord and his landlord’s agents as well as from the police. The majority opinion derides this point as speculative, but judges need not put off their common sense when they put on their robes.
I have strayed from the central point, which is that the property was forfeit regardless of the motives or apparent authority of the person actually responsible for putting it to a criminal use, subject to a defense if the owner did not know of or consent to that use — and Harry on behalf of the corporation of which he was the manager and one-third owner knew and *323consented. The court has confused criminal cases in which a prosecutor must establish the liability of the corporation and to that end prove that the crime was committed on the corporation’s behalf with civil cases under a forfeiture statute under which liability is presumed and the corporation must prove its innocence. All that we must — all that we may — consider is whether Harry’s misconduct fits the defense. It does not, because his misconduct was known to and consented to by the corporation’s responsible agent — Harry himself.
But it is a fair question to ask me what rule I would apply to this case. A simple rule springs to mind: a corporation is not an innocent owner within the meaning of the forfeiture statute if an officer of the corporation causes its property to be used in drug trafficking. It may be too simple. Suppose Harry III were an officer of General Motors and sold cocaine from his office. Would all the assets of General Motors be forfeited to the government? Surely not. The norm of proportionality of sanctions, whether or not it has any constitutional provenance or dignity, would require a limiting interpretation. So would the sheer arbitrariness of corporate organization — the size of the forfeiture in my hypothetical case might depend on whether General Motors was organized in divisions or corporate subsidiaries.
I do not have a clear idea of the form the necessary limiting interpretation would take. But I know this: if the sole manager and one-third owner of a corporation deals drugs from the corporate premises the corporation is not innocent even if the other shareholders have health problems. And I fear that if this decision stands, the cannier drug dealers will rush to incorporate in order to protect their assets. I take it that my brethren would permit that unless the government undertook to prove a specific intent to evade the statute.