Court Opinion

ID: 70392
Source: CourtListenerOpinion
Date Created: 2010-04-26 07:01:33+00
Date Added: 2024-06-11T09:03:34.728084
License: Public Domain

United States Court of Appeals,

                        Eleventh Circuit.

                           No. 94-8158.

          UNITED STATES of America, Plaintiff-Appellee,

                                v.

ROUTE 2, BOX 472, 136 ACRES MORE OR LESS, LAND LYING AND BEING IN
LAND LOT 221 OF THE 18TH DISTRICT, 1ST SECTION, TOWNS COUNTY,
GEORGIA with mailing address Route 2, Box 472, HIAWASSEE, GEORGIA,
Defendant,

          Dyer's Trout Farms, Inc., Claimant-Appellant,

 North Georgia Farm Credit, ACA Federal Credit Bank of Columbia,
Claimants.

                          Aug. 11, 1995.

Appeal from the United States District Court for the Northern
District of Georgia. (No. 2:92-cv-199-WCO), William C. O'Kelley,
Judge.

Before BIRCH and DUBINA, Circuit Judges, and CLARK, Senior Circuit
Judge.

     CLARK, Senior Circuit Judge:

                         I. Introduction

      The issue to be decided in this case is whether an officer

and majority shareholder's criminal activity is imputable to a

corporation so as to deny the corporation an "innocent owner"

defense in a forfeiture action.      Today, we hold that where a

corporate employee engages in criminal activity outside the scope

of his employment, with no benefit accruing to the corporation, and

such activity was without the knowledge of the other shareholders,

the criminal activity is not imputable to the corporation.      We

therefore reverse the district court's grant of summary judgment

for the United States, and remand the case for entry of summary

judgment in favor of the claimant corporation, Dyer's Trout Farms,
Inc. Because we find that the innocent owner exception applies, we

do not reach the second issue raised by the corporation—whether the

forfeiture of the property was disproportionally excessive in

violation of the Eighth Amendment.1

                                II. Background

     The    parties    agree    regarding     the     facts    surrounding       this

controversy,    their       dispute     rather      being      focused     on     the

applicability of the innocent owner defense.                  Therefore, only a

brief recitation of the facts regarding ownership and control of

the res in question is necessary.

     On    September   10,     1991,   Agents    of   the     Georgia    Bureau    of

Investigation, the National Forest Service, and the Towns County

Sheriff's    Department      discovered   a     number   of    marijuana     plants

growing on a parcel of land in Towns County, Georgia.                             The

defendant real property is a single tract of approximately 136

acres, owned by Dyer's Trout Farms, Inc. (the "Farm").                   Government

agents discovered approximately 95 marijuana plants growing on a

wooded hillside a quarter of a mile from the residence of William

Dyer—president and majority shareholder of Dyer's Trout Farms, Inc.

An additional five to ten plants were discovered growing adjacent

to Dyer's residence.           In outbuildings near Dyer's house, the

officers    found   three    marijuana    cigarettes,         potting    soil,    and

"starter" cups that appeared to be connected to the marijuana

     1
      The district court determined that forfeiture of the entire
res did not violate the Excessive Fines Clause, noting that
federal courts have consistently upheld the validity of harsh
criminal penalties for drug offenses. Although this holding is
de facto rendered void in light of our decision to reverse, we
cast no opinion on the propriety of this conclusion.
growing on the wooded hillside.

      Dyer admitted that he was aware of the plants growing adjacent

to his residence, but denied knowledge of the 95 plants on the

wooded hillside.       In June 1992, William Dyer was convicted of

possession of one ounce of marijuana in a non-jury stipulated trial

in   Towns   County   Superior   Court.    The   United   States   has   not

indicated any intention to bring federal narcotics charges against

Dyer.   However, on October 20, 1992, the United States filed a

complaint pursuant to 21 U.S.C. § 881(a)(7) for forfeiture in rem

against the property, contending that it was used to facilitate

illegal drug trafficking.

      In 1976, the Farm was incorporated by Paul Dyer, the father of

William, Willard, and Willis Dyer.        The corporation was formed to

engage primarily in the raising and selling of fish and livestock.

In 1978, the land was transferred by Paul Dyer to Dyer's Trout

Farms, Inc.    When Paul Dyer died in 1981, he left his stock in the

corporation to William Dyer.         The present stock ownership is

divided 68 percent to William Dyer, 16 percent to Willard Dyer, and

16 percent to Willis Dyer.       The sole officers of the corporation

are William Dyer, President, and Willard Dyer, Secretary.                All

three brothers work full time on the Farm.

      The district court found:      "For purposes of the government's

motion for summary judgment the court accepts the following facts

as true.     Dyer's Trout Farms, Inc. is engaged exclusively in the

business of raising and selling fish and livestock.            The entire

income of the corporation is derived from the sale of fish and

livestock.    The corporation has received no income or benefit from
the cultivation of marijuana.            Neither Willard or Willis Dyer was

aware of or consented to the cultivation of marijuana on the

corporate property."

      In     rejecting   the    Farm's    innocent   ownership   defense,     the

district court stated: "This court will not establish a particular

number of shares of stock at which knowledge will be imputed from

an individual to a corporation.              Other factors may increase or

decrease the relevance of a percentage of stock shares.                However,

in this case a defendant who has 68% of the corporation's shares

and controlling authority of the daily activities of a family-owned

corporation is found to provide that corporation with knowledge of

his activities."

      We think in this case there are "other factors" to consider

and   that    they   decrease    the     relevance   of   William's   68%   stock

ownership.      Additionally, we do not think the district court gave

sufficient weight to certain language in 21 U.S.C. § 881(a)(7):

      ... except that no property shall be forfeited under this
      paragraph, to the extent of an interest of an owner, by reason
      of any act or omission established by that owner to have been
      committed without the knowledge or consent of that owner.

      How the Farm has been operated and the distribution of the

benefits from the Farm influence our decision in this case.                  The

Board of Directors of the corporation consists of William, the

President, and Willard, the Secretary.               The Board seldom has an

official meeting.        Willard is in charge of the maintenance and

growing of rainbow trout.          William is in charge of sales and the

operation of the processing plant.               Willard is paid an annual

salary of $10,000, William, the President, $7,800, and Willis

$7,800.      No dividends have ever been paid, although one year each
of the brothers received a $2,000 Christmas bonus. The corporation

regularly employs six employees who report to William.             The three

brothers meet about twice a month to discuss matters pertaining to

the Farm.

     There are five houses on the property, one of which is

unoccupied.     Each brother occupies a house and Willard's son,

Jason, occupies a house.          The brothers' mother, Mrs. Paul Dyer,

lives with one of the brothers.              Since the formation of the

corporation, two of the five houses have been built, William's and

Willard's.     The brothers built these new houses using lumber cut

from the land owned by the corporation.          The corporation paid all

expenses of building these houses, including the appliances.               The

corporation    pays   for   the    utilities   for   all   four   houses   and

maintains the houses and their appliances. These facts are related

to demonstrate that although William owns 68% of the stock, the

Farm is operated more like an equal cooperative family venture in

which the brothers may have some minor variation in their receipt

of the benefits of the operation and there is some variance in

their   responsibilities.         We   are   impressed     with   two   rather

significant facts—William's growth of the marijuana was unknown to

his brothers, and did not in any conceivable way benefit the

corporation.

     After the government and the Farm filed cross-motions for

summary judgment, the district court granted the government's

motion and denied the Farm's motion.           The Farm appeals, arguing

that the court improperly rejected its innocent owner defense.

                              III. Analysis
     We review grants of summary judgment under a de novo standard

of review, considering the evidence in the light most favorable to

the non-moving party. 2     Summary judgment is appropriate if the

pleadings, depositions, answers to interrogatories, and admissions

to the file, together with the affidavits, if any, show that there

is no genuine issue as to any material fact and that the moving

party is entitled to judgment as a matter of law.3

     Under 21 U.S.C. § 881(a), the government must establish

probable cause to believe that a substantial connection exists

between the property to be forfeited and an illegal exchange of a

controlled substance.4    In the instant action, the Farm concedes

that the United States can show probable cause that a portion of

the property was used to grow marijuana, and that William Dyer was

at least aware of the marijuana being grown next to his residence.

Once probable cause is established, the burden shifts to the

claimant to prove by a preponderance of the evidence that the
                                         5
property is not subject to forfeiture.       This burden can be met

either by rebutting the government's evidence, or by showing that

the claimant was an innocent owner.6
     The innocent owner defense is expressly provided for, as

     2
      Jaques v. Kendrick, 43 F.3d 628, 630 (11th Cir.1995).
     3
      Fed.R.Civ.P. 56(c);    Akin v. PAFEC Ltd., 991 F.2d 1550,
1556 (11th Cir.1993).
     4
      United States v. A Single Family Residence, 803 F.2d 625,
628 (11th Cir.1986).
     5
      United States v. $4,255,625.39, 762 F.2d 895, 904 (11th
Cir.1985), cert. denied, 474 U.S. 1056, 106 S.Ct. 795, 88 L.Ed.2d
772 (1986).
     6
      A Single Family Residence, 803 F.2d at 629.
stated above, within the four corners of 21 U.S.C. § 881(a)(7):

"... no property shall be forfeited under this paragraph, to the

extent of an interest of an owner, by reason of any act or omission

established by that owner to have been committed or omitted without

the knowledge or consent of that owner." 7   The claimant bears the

burden of proving by a preponderance of the evidence that it did

not have knowledge of the illicit activity taking place on its

land.8     Here, we are confronted with the question of whether an

individual shareholder's knowledge of illicit activity is imputable

to the corporation.

          Knowledge of an illegal activity may be attributed to a

corporation only when the knowledge was obtained by an agent acting

within the scope of his or her employment and for the benefit of

the corporation.9    "Acting within the scope of employment entails

more than being on the corporate employer's premises[,]" but rather

also involves an intent to benefit the corporation.10

     In One Parcel, the Seventh Circuit was faced with a factual

scenario remarkably similar to the instant case.    The corporation

     7
      The question of consent is not considered here, as the
Farm's argument is premised on its lack of knowledge. It
follows, logically, that if the corporation was unaware of the
illicit activity, it could not have consented to it.
     8
      United States v. One Parcel of Land, 965 F.2d 311, 315 (7th
Cir.1992).
     9
      Grand Union Co. v. United States, 696 F.2d 888, 891 (11th
Cir.1983).
     10
      965 F.2d at 316; also see United States v. Gold, 743 F.2d
800, 823 (11th Cir.1984), cert. denied, 469 U.S. 1217, 105 S.Ct.
1196, 84 L.Ed.2d 341 (1985) (affirming jury instruction stating
that acting within the scope of corporate employment involves an
intention to produce at least in part some benefit to the
corporation).
in One Parcel was owned by three family members, a son and his

parents, in equal one-third shares.               The son, who retained the

greatest authority in the corporation, including direction of the

day-to-day operations of the property, bought and sold cocaine

while on corporate premises.         This drug activity was hidden from

the other members, no corporate money was used to purchase drugs,

nor was the money obtained put into the corporation.                   In short,

except for the fact that the drug transactions took place on

corporate land, the drug activity was wholly separate and apart

from    the     corporation.     Nevertheless,       the      government   sought

forfeiture of the parcel, arguing that the son's knowledge was

imputable due to the nature and extent of his authority and

interest in the corporation.

       The Seventh Circuit rejected the government's contention,

noting that the imputation of knowledge to the corporation turns

not on an individual's stake in a corporation, but rather on

whether the illegal action taken was within the scope of the

individual's       corporate   authority    and    for   the    benefit    of   the

corporation.11        An   individual's    knowledge     of    his   own   illegal

activities, albeit pursued on corporate property, will not be

imputed to the corporation where the individual was acting for his

own benefit, not for the benefit of the corporation, and outside

the scope of his corporate employment.

        The district court distinguished One Parcel from the instant

case on the basis that the defendant there owned one third of the

property, while William Dyer owned 68%.                  Corporate knowledge,

       11
            965 F.2d at 317.
however, should not, and indeed does not, turn on percentage

ownership      of   the       stockholder   with    knowledge       of   the    illegal

activity.      Before such an individual's knowledge can be imputed to

the   corporation,        a    showing    would    need   to   be    made      that   the

corporation was merely a "sham" corporation, designed solely to

protect an individual's illicit activities.12                   We do not believe

this places too great a burden on the government seeking to divest

a business of its assets through forfeiture.

       In the present case, no evidence was offered to suggest that

the corporation was something other than an entirely legitimate

company, operating since its inception for the sole purpose of

raising fish and livestock.              William Dyer's marijuana cultivation

took place separate and apart from the corporation, and there was

no evidence that other members of the corporation were aware of it,

that the corporation reaped any benefit from his actions, or that

there was an intent to benefit the corporation. The plain language

of § 881(a)(7) appears to contemplate precisely this type of

situation where the innocent owner defense ought to apply.

      In Grand Union Co. v. United States,13 we said:                    "We have held

in cases brought under the False Claims Act that the knowledge of

an employee is imputed to the corporation when the employee acts

for the benefit of the corporation and within the scope of his

      12
      The Seventh Circuit succinctly outlined the scenarios
under which the innocent owner defense would not apply: (1) if
the corporation was merely the son's alter ego; (2) if the
corporation had been established to serve the son's drug
business; or (3) if title had been given to the corporation in
order to protect the son's assets. 965 F.2d at 320.
      13
           696 F.2d 888 (11th Cir.1983)
employment."      We see no reason to depart from the well established

principles      of    corporate    law    that   to   impute   knowledge    to   a

corporation an agent must be acting within the scope of his

employment      and   benefiting    the    corporation    rather   than    acting

against its benefit.

     The government argues, and the court below agreed, that the

instant case is more analogous to United States v. 141st Street

Corp.14 than to One Parcel.         In that case, the defendant property

was an apartment complex in which there had been rampant and

obvious drug trafficking.          The corporate claimant that owned the

building raised the innocent owner defense.                The district court

rejected the defense as a matter of law, and the Second Circuit

affirmed, noting that the property was "a veritable anthill of drug

activity" and that the building superintendent accepted bribes from

the drug dealers and charged these dealers exorbitant rents.15               The

Court also noted that the corporation's president and principle

stockholder was aware that the drug activity was occurring in the

building.       It was also apparent that the corporation benefitted

from the illegal activity.          The Second Circuit concluded that the

president's knowledge could be imputed to the corporation.16
     In One Parcel, the Seventh Circuit distinguished the case

before it from 141st Street in two ways, both of which are

applicable to the case before us as well.              First, the Court noted

     14
      911 F.2d 870 (2d Cir.1990), cert. denied, 498 U.S. 1109,
111 S.Ct. 1017, 112 L.Ed.2d 1099 (1991).
     15
          911 F.2d at 877.
     16
          Id.
that the corporation in 141st Street benefitted from the drug

activity, in that it was able to charge exorbitant rents.17                         In One

Parcel, no benefit to the corporation accrued from the son's drug

activity.        Likewise, Dyer's Trout Farm, Inc. received no benefit

whatsoever       from     William    Dyer's      drug    activity.       Indeed,      the

government never attempts to prove otherwise.                      Second, in       141st

Street,       corporate       officers   who    were     independent     of   the    drug

activity were aware of the activity.                   Contrarily, in One Parcel,

the other members of the corporation were entirely unaware of the

illicit activity being carried on by the son.                     Again the situation

is the same in the case at bar:                no evidence has ever been offered

that the other members of the Farm were aware of William Dyer's

drug cultivation.

       In sum, the case law suggests that the applicability of the

innocent owner defense will often turn on the particular facts

surrounding not the individual's ownership and authority over the

corporate parcel, but rather whether the individual vested with

such    authority       was    acting    within    the    scope    of   his   corporate

employment.

                                    IV. Conclusion

       For the foregoing reasons, the district court's grant of

summary judgment is REVERSED and the case is REMANDED for entry of

summary judgment in favor of Dyer's Trout Farms, Inc.

       17
            965 F.2d at 318.