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One Strike and You’re Out: The Impact of U.S. v. Marion on Third-party Rights in Federal Forfeiture Proceedings

11/5/2009 1:19:10 PM

by Todd Foster, Esq., Cohen, Foster & Romine PA

Just this past spring, the Court of Appeals for the 11th Circuit decided a case that is a “must read” for banks, other lenders, co-owners and third parties holding liens on or otherwise claiming an interest in forfeited property. Like a batter trying to avoid striking out—behind 3-2 in the count—where the umpire is calling a narrow strike zone, such lien- or interest-holders now have one narrow and procedurally challenging chance to preserve their interest or face having it extinguished forever. In United States v. Marion, 562 F. 3d 1330 (11th Cir. 2009), decided in late March, the court interpreted key terms in 21 U.S.C. §853(n) and Rule 32.2 of the Federal Rules of Criminal Procedure. This statute and rule combined outline the procedures employed by the United States to forfeit property of those convicted of federal crimes and to handle the interests of third parties in those forfeited properties.

In Marion, the court was faced with determining whether a late-filed innocent third-party petition for relief from forfeiture could be considered. The district court had allowed a tardy petition claiming an interest in the forfeited property, liberally construing §853(n) and Rule 32.2 in the interest of an equitable and just result. The 11th Circuit reversed in an opinion replete with references to legislative intent and decreeing the limited jurisdiction of federal courts if claimants do not precisely follow the forfeiture statutes and rules.

The 11th Circuit first debunked the general belief that third-party rights in forfeited property cannot be affected until a criminal judgment and sentence are entered against a defendant. In support of this position, the court cited the 2000 changes to Rule 32.2 allowing proceedings to determine the rights of third parties in forfeited property to be commenced “as soon as practicable … after a plea of guilty or nolo contendere.” Lenders and third-party claimants need to be aware of this new timeline and cannot feel safe in doing nothing simply because there has been no sentencing.

Marion also decreed that there is no relief from the bar created by a third-party’s failure to strictly comply with the 30-day time limit and other jurisdictional requirements for filing a petition for relief from a preliminary order of forfeiture entered pursuant to §853(n) and Rule 32.2. The court held that failure to comply deprives the claimant of standing in the district court of jurisdiction. Referring to the Committee Notes on Rule 32.2, the 11th Circuit agreed that if a third party has notice and fails to timely file a claim, his or her interests “are extinguished.” Id. at 1337 (emphasis added). The Federal Rules of Criminal Procedure permit “notice” to be actual or constructive, i.e., by publication, so it will be difficult for a claimant to assert lack of notice as an excuse for failure to comply with the statute.

Finally, to the extent it could be argued that Rule 32.2 conflicts with §853 and thus should yield to the arguably broader construction of the statute, the Marion court defended the strictness and applicability of Rule 32.2 because it was adopted subsequent to the statute’s enactment. Relying on the Federal Rules Enabling Act’s rulemaking statute, 28 U.S.C. §2072(b), the court flatly stated “the rule must trump” the statute. Id. at 1340 n.7. Accordingly, Marion “harmonized” Rule 32.2 and §853(n) so that Rule 32.2’s arguably earlier deadline trigger falls within the ambit of the statute’s language. Id. at 1339.

Commencing an ancillary proceeding for relief from federal forfeiture under §853(n) requires a unique mix of federal criminal practice and state property law skills. Few lawyers are conversant with this system or how it applies federal and state law to arrive at a final order of forfeiture. In counseling clients in this area, Marion and the applicable federal statutes and rules do tell us some basic mistakes to avoid:

• A petition for relief must be filed within 30 days of actual service of the preliminary order of forfeiture on a client (usually done by certified mail, return receipt requested) or 30 days after the conclusion of publication, “whichever is earlier.” 21 U.S.C. §853(n)(2) (emphasis added).
• The petition must be signed by the petitioner. 21 U.S.C. §853(n)(3). The petition must be signed by the actual petitioner or its authorized officer. Courts have interpreted this to mean that the signature of an attorney or other agent (such as a mortgage servicer) is insufficient. Mercado v. U.S. Customs Service, 873 F.2d 641, 645 (2d Cir. 1989); U.S. v. Speed Joyeros, S.A., 2006 WL 197094, *3 (E.D.N.Y. 2006).
• The petition must be sworn. 21 U.S.C. §853(n). This is not a mere technical requirement. United States v. Edwards, 2007 WL 2088608 (W.D. La. 2007); U.S. v. Commodity Account No. 549 54930, 219 F.3d 595, 597 (7th Cir 2000).
• The petition must set forth in reasonable detail, including time and circumstances, facts supporting the petitioner’s claim. §853(n).

Petitioners also need to be certain that the grounds set forth in the ancillary proceeding petition establish a right to a “superior interest” or that they are a “bona fide purchaser for value” under §853(n)(6). In the 11th Circuit alone, there are dozens of cases interpreting the nuances of adjudicating these two limited and exclusive grounds for relief from a federal criminal forfeiture.

Failure to comply with the procedural or substantive requirements for a petition under §853(n) allows the court to dismiss the petition without notice or a hearing under Rule 32.2(c)(1)(A). The result of such dismissal is to extinguish the petitioner’s claims.

Lawyers within and outside of the 11th Circuit need to be particularly diligent, cautious and precise in protecting a client’s rights in federal criminal forfeiture proceedings. Because the upshot of Marion is that a district court has no power to grant any form of equitable relief to a noncompliant claimant in a forfeiture proceeding, the court has thrown a fastball, and if we get caught looking, our client will be “out.”

Postscript: As in baseball, an “appeal” to the ump—the trial judge—might work: A third party finding itself barred may try moving for relief from a preliminary order of forfeiture, if factually able, under Rule 60(b) of the Federal Rules of Civil Procedure. Although the author could find no reported opinion squarely deciding the issue, Rule 60(b) might arguably apply to ancillary forfeiture proceedings because Rule 32.2(c)(1)(B) adopts by reference the discovery rules and the summary judgment rule in the Federal Rules of Civil Procedure. Cf. U.S. v. St. Pierre, 188 F.R.D. 415 (M.D. Fla. 1999). (United States relied on Fed. R. Civ. P. 60(a) in seeking amendment of preliminary order of forfeiture.) As well, in Marion, the government sought and received relief under Rule 60’s close cousin, Rule 59(e), in obtaining an amendment to the forfeiture judgment, a point of the decision not germane to the lesson of this article.

Click this link to download a PDF version of One Strike and You're Out.

Todd Foster

The Florida Bar Out-of-State Division: State-to-State

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