both premises, claiming that jurisdiction over the res was not acquired by the State court nor was the forfeiture statute complied with.
Admittedly, there was no seizure or physical custody of the monies by Federal officers which could derogate from the County's attempt to assert control. Cf. Farley v. $2,438,110.00, supra. Rather, Turbett relies on the statutory effect of his levy, which he claims gave him constructive possession or legal custody of the fund. Hence he contends that, their denials notwithstanding, the petitioners can only gain their purpose by way of affirmative relief against him, either through a court order directing relinquishment of the fund or through the substitute of personal judgment. This theory runs as follows.
The Director's power to collect delinquent taxes presents a sweeping, summary process of self help to protect the tax lien and to place the burden of resistance on those opposing his claim. United States v. Sullivan, 333 F.2d 100, (3rd Cir., 1964). The mainsprings of this procedure, Sections 6321, 6331 and 6332, provide for the lien, the levy and a duty to surrender property levied upon, respectively.
His theory is based on these sections plus an additional provision, Section 2463, which deems property "detained" under revenue law to be in the District Director's custody and subject to the exclusive jurisdiction of the Federal courts.
Several cases hold that simply by serving notice of levy upon a bankrupt's debtor, the Director acquires something tantamount to constructive possession of the bankrupt's claims and rights to property, at least for purposes of Section 67(c) of the Bankruptcy Act, under which the Director must have "possession" to defeat other priority claims.
Freeman v. Mayer, 253 F.2d 295 (3rd Cir., 1958) (accounts receivable); In re Cherry Valley Homes, 255 F.2d 706, (3rd Cir., 1957) (liquidated debt) cert. denied sub nom Dubois v. United States, 358 U.S. 864, 79 S. Ct. 96, 3 L. Ed. 2d 97 (1958); Rosenblum v. United States, 300 F.2d 843 (1st Cir., 1962) (liquidated debt).
Moreover, this notion of "constructive seizure", in some sense analogous to physical distraint of tangible property, has been applied beyond the field of bankruptcy to the separate question of whether property has been "taken or detained" within the meaning of Section 2463 of 28 U.S.C., supra. New Hampshire Fire Insurance Co. v. Scanlon, 362 U.S. 404, 80 S. Ct. 843, 4 L. Ed. 2d 826 (1959); United States v. Cameron Construction Co., 246 F. Supp. 869 (1965, S.D.N.Y.)
Director Turbett's use of this doctrine is twofold. First, he argues directly that since he acquired constructive possession of the fund by virtue of his levy, and since he resists the petitioner's claim, they must controvert his action and oust his custody of the fund. The effect of his levy can be undone only by a court order directing him to relinquish control of the monies and transfer custody in accordance with the mandate of the forfeiture decree. But such relief would be, to that extent, in personam. Atlantic Seaboard Natural Gas Co. v. Whitten, 315 Pa. 529, 173 A. 305, 93 A.L.R. 615 (1934).
The alternative relief of a personal liability judgment against Turbett equal to the value of the fund, (for which he would presumably seek reimbursement from the Government, see note 13 supra) would be even more clearly in personam.
Second, he argues indirectly that this proceeding must be in personam because it cannot be in rem. That is to say, if the Director's levy brought Section 2463 into play, then exclusive jurisdiction over the detained fund vested in this Court, and, as a corollary, the State court lacks the in rem jurisdiction necessary to hear the forfeiture suit. See note 17, supra. Turbett also denies the applicability of the New Jersey forfeiture statute on the grounds that certain conditions precedent, detailed below, were not met.
For all these reasons, the Director construes the instant matter as an action against him on account of his official acts and removable under the cited statute. The question thereby presented is this: Can a District Director remove a State penal forfeiture action under Section 1442(a)(1), merely because he is a levying creditor of the criminal against whom forfeiture is sought?
The fundamental confrontation underlying this question reflects the delicate balance of our federal system.
On the one hand, the Director's contentions are based on the panoply of powers with which he is clothed to ensure collection of the national revenue. On the other hand, Hudson County advances under the imposing aegis of New Jersey's sovereign power to seize and forfeit contraband in the pursuit of its criminal law and penal policies.
At the juncture of these two sources of power sits the $168,400.97. In the final analysis the disposition of the fund, as well as the propriety of removal, turns on this relationship between State and Federal power. Both the Director's claim to the fund and his attempted removal assume that the levy validly attached to Moriarity's property. It is the petitioners' contention that by virtue of its being contraband, the subject currency no longer belonged to Moriarity at the time of the levy; and, therefore, that as against New Jersey's sovereign power to confiscate the money, Turbett's levy was null and void.
This position is obviously critical not only to the immediate issue of removal but also the parties' ultimate rights in the currency. In short, this motion to remand presents the unusual, but occasionally encountered, situation where this Court must preview the substantive issues on the merits in order to determine the threshold question of its jurisdiction. Cf. Bell v. Hood, 327 U.S. 678, 66 S. Ct. 773, 90 L. Ed. 939 (1945); American Hawaiian Ventures, Inc. v. Latuharhary, 257 F. Supp. 622 (D.N.J., 1966).
The status of seized gambling monies which are claimed both by a county under N.J.S.A. 2A:152-7 and by the Director under a tax levy has been considered in two prior decisions - with opposite results. Spagnuolo v. Bonnet, 16 N.J. 546, 109 A.2d 623 (1954); United States v. Bleasby, supra.
In Spagnuolo, a final decree of forfeiture which had been obtained by the County was upheld on appeal as superior to the United States' claim under a tax levy filed after the seizure of the currency, but prior to the condemnation proceeding and decree. In accordance with accepted theories of forfeiture, the Court ruled that under N.J.S.A. 2A:152-7 et seq., the currency was confiscated by the State and ceased being the gambler's property from the very moment of seizure. 16 N.J. at 559, 560, 109 A.2d at 631. The Court concluded that at the time of levy, title to the seized currency was in the County of Essex. "At most the federal lien could only attach to Edward Spagnuolo's inchoate right to sue for the return of the funds in the event of his acquittal and not to the confiscated funds themselves." Ibid. Compare Farley v. Manning, 4 N.J. 571, 73 A.2d 551 (1950).
United States v. Bleasby was the suit started by the Government in the District Court for seized monies, after they had been decreed contraband and forfeited to Bergen County in an earlier State action, State v. Link. See note 14, supra. The Court viewed the controversy as essentially a problem of priority between competing lien creditors and applied the "inchoate lien" doctrine that Federal tax liens defeat liens arising under State law which are in any way unperfected or inchoate. Under this doctrine, which is merely a variant of the old common law lien rule "first in time, first in right", Federal courts closely scrutinize State-created claims to find any possible imperfection which would permit seniority of the Federal lien.
In Bleasby it was Bergen County's right to the monies which was found inchoate, not the Federal levy. Since proceedings for a formal decree of forfeiture can only be instituted six months after the gambler is found guilty by plea or trial, and since others can challenge forfeiture until the decree issues, the Court reasoned that the notice of levy was served prior to the "perfection" of the County's claim by the judgment of forfeiture. Hence, the Federal lien, perfected under the intervening levy, was held prior and senior to the County's interest in the fund. 153 F. Supp. at 727.
Moreover, the statutory construction in Spagnuolo, that the perfection of forfeiture "related back" to the time of seizure and defeated intervening claims, was rejected as not binding a Federal court on questions of Federal lien priority. Ibid. The priority of Federal liens, insofar as it turns on whether a competing State lien is adequately perfected, is an independent question of Federal law. United States v. Security Trust and Savings Bank, 340 U.S. 47, 71 S. Ct. 111, 95 L. Ed. 53 (1950).
Nor was the fact that forfeiture involved the State's governmental powers, rather than a private individual's claim, deemed sufficient to displace the inchoate lien rule; the United States Supreme Court had already applied the inchoate lien rule to find Federal tax liens prior to claims for State and municipal taxes. Commonwealth of Massachusetts v. United States, 333 U.S. 611, 68 S. Ct. 747, 92 L. Ed. 968 (1948); United States v. City of New Britain, supra.
On review, the Court of Appeals expressed serious doubt about applying lien priority analysis to the exceptional situation of New Jersey's exercise of its sovereign power to confiscate contraband:
"True, after seizure, it still remained for the state to pursue the prescribed procedure for obtaining a formal decree of forfeiture. But this does not alter the fact that the United States has tried to impose a lien on property after it has passed into the actual possession of another government under sovereign claim of right to keep it in furtherance of the policy of its criminal laws. Thus, the United States is asserting an extraordinary power greater than and different from that involved in the cases above cited or any others upon which the United States relies." 257 F.2d at 279-280.