(1986); United States v. 225 Cartons, 871 F.2d 409, 419 (3d Cir. 1989).
"At the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249, 106 S. Ct. at 2511. Summary judgment must be granted if no reasonable trier of fact could find for the non-moving party. See id.
2. Statutory and Case Law
The United States seized the property in this case pursuant to 18 U.S.C. § 981(a)(1)(A) and 21 U.S.C. § 881(a)(6). The former statute makes property that is purchased with the proceeds of unlawful activity subject to forfeiture to the United States. 18 U.S.C. § 981(a)(2), however, exempts such property when it belongs to an innocent owner: "No property shall be forfeited under this section to the extent of the interest of an owner or lienholder by reason of any act or omission established by that owner or lienholder to have been committed without the knowledge of that owner or lienholder." 21 U.S.C. § 881(a)(6) provides that all proceeds traceable to a drug transaction are subject to forfeiture of the United States. 21 U.S.C. § 881(a)(6) also provides an exception for innocent owners: "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."
A claimant has the burden of proving that she is an innocent owner; i.e., she must show that she is an owner and that she did not know about or consent to the improper use of the property. See United States v. One 1973 Rolls Royce, 43 F.3d 794, 805 (3d Cir. 1994) [hereinafter Rolls Royce ]; United States v. Parcel of Real Property Known as 6109 Grubb Road, 886 F.2d 618, 623 (3d Cir. 1989) [hereinafter 6109 Grubb Road ]. State law generally determines ownership. See Rolls Royce, 43 F.3d 794 at 805 n.8.
The United States and Manchester dispute whether the innocent owner defense applies to situations where the owner is unaware of the illegal activity when it occurs, but becomes aware of it before the property is transferred to him.
In particular, the United States argues that Manchester is not an innocent owner because it knew about the United States' forfeiture action before the state court found in Manchester's favor. Manchester, on the other hand, asserts that such knowledge is irrelevant and that the critical issue is whether it knew about or was involved in the illegal activity when it occurred. The critical question, therefore, is whether a post-illegal-act transferee can be an innocent owner when it had knowledge of a forfeiture action in federal court? The following discussion focuses on 21 U.S.C. § 881 because the Supreme Court and Third Circuit have only discussed and interpreted that statute's innocent owner defense.
In United States v. Parcel of Land, Buildings, Appurtenances and Improvements, Known as 92 Buena Vista Avenue, Rumson, N.J., 507 U.S. 111, 122 L. Ed. 2d 469, 113 S. Ct. 1126 (1993) [hereinafter 92 Buena Vista ], the Supreme Court held, inter alia, that the exception for innocent owners is not limited to bona fide purchasers, id. at 123, and that the relation back provision of the civil forfeiture statute does not apply to a post-illegal-act transferee who proves that she is an innocent owner. Id. at 128. At the end of its opinion, the Court noted that it was not ruling on the issue of whether a transferee could be an innocent owner if he learned about the illegal activity before accepting the forfeitable proceeds. Id. at 129-30.
The Third Circuit has answered the Supreme Court's open question affirmatively. In interpreting the innocent owner exception under 21 U.S.C. § 881(a)(7), which makes real property subject to forfeiture when it is used or intended to be used to facilitate drug transactions, the Third Circuit held that a person who had not consented to her real property being used for drug transactions was an innocent owner even though she had knowledge of the property's illegal use. 6109 Grubb Road, 886 F.2d at 626. In Rolls Royce, supra, the Third Circuit explained its holding in 6109 Grubb Road : "The 6109 Grubb Road approach essentially precludes forfeiture of property that is owned by persons who: 1) obtained an interest in the property after the illegal use; and 2) lacked knowledge about its illegal use at the time the illegal use occurred." 43 F.3d at 801. Thus, "a post-illegal-act transferee who did not know about the act that created the taint at the time it occurred will be an innocent owner even if he or she knew about the taint at the time he or she received the property." Id. The fact that the Third Circuit interpreted the innocent owner defenses under §§ 881(a)(4) and (7) does not alter this Court's analysis of the innocent owner defense under § 881(a)(6) because the defenses are to be construed consistently. See id. at 809.
In Rolls Royce, the criminal defendant paid his attorney with a Rolls Royce that had been purchased with money obtained through drug trafficking. Id. at 799-800. The United States seized the car pursuant to 21 U.S.C. § 881(a)(4), which provides for the forfeiture of "conveyances" used or intended to be used to facilitate transactions involving drugs. Id. at 799. In explaining the exception for innocent owners, the Third Circuit concluded that a person could claim the innocent owner defense under § 881(a)(4) so long as she proved that she lacked knowledge, lacked consent, or lacked willful blindness of the improper use of the property. Id. at 814.
The panel then addressed the fact that its opinions insulated every post-illegal-act transferee from civil forfeiture. Id. at 818. The panel explained that it reached the result it did because it did not want to apply the language of the statute differently to pre- and post-illegal-act transferees. Id. at 818. The panel stated:
The principal goal of §§ 881(a)(4) and (7), which are aimed at forfeitures of property used to facilitate drug trafficking, is to give owners of property an incentive to prevent the use of that property in the drug trade. People who are not owners at the time the act is committed are simply in no position to prevent the improper use. Penalizing such owners would do little to accomplish the ends of those forfeiture statutes.
Id. at 819. The panel noted that its argument was suspect with regards to § 881(a)(6) because that provision "appears to include" property in the possession of post-illegal-act transferees. Id. at 819 n.28.
According to the state court, Manchester is now the owner of the property. In addition, Manchester had no knowledge that the property was purchased with the proceeds of drug trafficking until after the illegal activity had occurred. Thus, Manchester satisfies the requisite elements of the innocent owner defense. The United States' focus on Manchester's knowledge of the United States' forfeiture proceeding misses the mark because the Third Circuit clearly stated that lack of knowledge of the criminal act enables one to claim the innocent owner defense.
The United States also argues that publishing its forfeiture action in the newspapers in 1993 and the decals on the property placed Manchester on notice that it could not obtain rights superior to that of the United States. The Court finds that argument to be unpersuasive for three reasons First, the proper method of giving notice to potential buyers is to file a lis pendens with the appropriate state or county agency. The United States made the first of several tactical and procedural errors when it misindexed its lis pendens. Manchester, on the other hand, performed properly when it hired a title company to determine whether any liens or interests were attached to 78 Fox Hedge Road.
Second, the publication in the newspapers in 1993 serves to give notice to parties that have an interest or claim to the property at the time of the notice. Not only did Manchester not exist in 1993, it also had no interest or claim to the property. Third, the United States should have intervened or sought this Court's powers as soon as it had notice of the state court proceedings. On the contrary, the United States waited nearly three months before it asked Manchester for an adjournment and requested this Court to grant it a temporary restraining order. With the aid of hindsight, this Court now realizes that its order enjoining the state court proceedings was superfluous and out of time. In sum, if the United States was so concerned about the property, it would have acted sooner rather than later.
The Court notes that its reasoning and decision apply to the innocent owner defense under 18 U.S.C. § 981(a)(2). Although the Third Circuit has not interpreted that provision, this Court finds that the Third Circuit would not have a different interpretation for "knowledge" under 18 U.S.C. § 981(a)(2) than it does for 21 U.S.C. § 881(a)(6). Such a result would be anomalous and would lead to confusion in the district courts of the Third Circuit. One other district court has reached the same conclusion. See United States v. Eleven Vehicles, 836 F. Supp. 1147, 1160 (E.D. Pa. 1993).
3. The United States' Other Arguments
The United States asserts that the "first in time rule" mandates that where two courts seek to assert in rem jurisdiction over a piece of property, the first court to assert jurisdiction has the exclusive power to decide the case without interference from other courts. See Princess Lida v. Thompson, 305 U.S. 456, 458-60, 83 L. Ed. 285, 59 S. Ct. 275 (1938). Although this Court follows the first in time rule, it finds that it does not apply to this case for three reasons. First, this Court had administratively terminated the United States' action in 1995 and did not reopen it until after the state court proceedings had already begun. Second, the United States should have been more diligent in pursuing its interests; i.e., should have sought an injunction or intervened earlier than it did. Third, the first in time rule only prohibits other courts from making decisions that will conflict with the first court's jurisdiction. As the Supreme Court stated in United States v. Klein, 303 U.S. 276, 82 L. Ed. 840, 58 S. Ct. 536 (1938): "Other courts having jurisdiction to adjudicate rights in the property do not, because the property is possessed by a federal court, lose power to render any judgment not in conflict with that court's authority to decide questions within its jurisdiction and to make effective such decisions by its control of the property." Id. at 281. In this case, the state court did not invade this Court's jurisdiction to decide whether the United States could forfeit on 78 Fox Hedge Road when it decided that Manchester had complied with New Jersey's tax foreclosure statute. In fact, in the end of its opinion, the state court stated that the United States could still seek relief in this Court.
The United States also argues that Manchester filed its claim out of time because it did not file a claim within ten days of its purchase of the tax lien. Supplemental Rule C(6) of the Federal Rules of Civil Procedure requires a claimant with an interest in property that is subject to forfeiture to file a claim within ten days after process has been executed. The United States contends that Manchester acquired its interest in the property on October 1994, the date it purchased the tax lien. Purchasing a tax lien, however, does not constitute an interest in property because that act is only the first step in obtaining an interest in property. The Court concludes that Manchester obtained its interest in the property on April 15, 1997, the date that the state redemption and foreclosure proceedings were completed. Thus, Manchester's filing on April 24, 1997, satisfied the requirement that it file its claim within ten days.
The Court will not address the United States' remaining arguments because they lack merit and do not warrant a discussion.
The Court has disentangled the web and determined that Manchester has a clear path to the center. Thus, the prize at the center of the web belongs to Manchester, not the United States. The United States, on the other hand, is trapped in the web because of its mistakes and failure to act quickly. For the reasons stated supra, the Court will grant Manchester's motion for summary judgment and will deny the United States' motion for a final order of forfeiture.
An appropriate Order is attached.
Dated: November 26, 1997
ALFRED M. WOLIN, U.S.D.J.
In accordance with the Court's Opinion filed herewith,
It is on this 26th day of November, 1997
ORDERED that claimant Manchester Fund, Ltd.'s motion for summary judgment is granted; and it is further
ORDERED that plaintiff's motion for a final order of forfeiture is denied; and it is further
ORDERED that plaintiff's complaint for forfeiture is dismissed with prejudice.
ALFRED M. WOLIN, U.S.D.J.