Daily Development for Tuesday, May 2, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

[There follows a "guest DD" from Jack Murray concerning the newly enacted Federal Civil Asset Forfeiture Act, together with a number of comments about the Act gleaned from a criminal law professors' internet list.]

The Act provides that, in all suits or actions brought for the civil forfeiture of any property, the burden of proof is on the United States to establish, by a preponderance of the evidence, that the property is subject to forfeiture.

The Act provides an "innocent owner" defense, i.e., an innocent owner's interest in property may not be forfeited under any civil foreclosure statute. This is important for legal certainty in real estate transactions, because there are still a few federal civil forfeiture statutes that do not enable a party to raise this defense. A claimant must prove that it is an innocent owner by a preponderance of the evidence. With respect to a property interest in existence at the time of the alleged conduct giving rise to the forfeiture, the Act defines an "innocent owner" as one who did not know of the conduct giving rise to forfeiture, or, upon learning of the conduct giving rise to forfeiture, "did all that reasonably could be expected under the circumstances to terminate such use of the property." The term "innocent owner" also includes a bona fide purchaser for value who acquired a property interest after the conduct giving rise to the forfeiture, who "did not know and was reasonably without cause to believe that the property was subject to forfeiture." (There is a limited exception to the "purchaser for value" requirement if the property is the primary residence of the claimant). The lending community is optimistic that the duediligence standard required by this language would be met by compliance with the current investigative requirements of the federal moneylaundering statute. The term "owner," as defined in the Act, includes the holder of a property interest in the form of "a leasehold, lien, mortgage, recorded security interest, or valid assignment of an ownership interest."

Section 7 of the Act deals specifically with civil forfeiture of real property. It provides that all civil forfeitures of real property and interests in real property shall proceed as judicial forfeitures, and that "real property that is the subject of a civil forfeiture action shall not be seized before entry of an order for forfeiture." The owners and occupants of the real property may not be evicted during the pendency of the forfeiture proceeding; however, the filing of a lis pendens is not considered a seizure under the Act. The Government must initiate a civil forfeiture action against real property by filing a complaint for forfeiture, posting a notice of the complaint on the property, and serving notice on the property owner, along with a copy of the complaint. If real property has been posted in this manner, the Act provides that "it shall not be necessary for the court to issue an arrest warrant in rem, or to take any other action to establish in rem jurisdiction over the property." Real property may be seized prior to the entry of an order of forfeiture if the Government (1) notifies the court that it intends to seize the property, and the court issues a notice of application for warrant (which notice must be served on the property owner and posted on the property) and conducts a hearing at which the property owner may be heard, or (2) makes an ex parte determination that there is probable cause for forfeiture and "exigent circumstances" exist. If the court authorizes such an ex parte seizure, it must conduct a prompt postseizure hearing during which the property owner may contest the basis for the seizure.

The Act further provides that in any case where the property is seized by a governmental agency in connection with any nonjudicial civil forfeiture proceeding, notice must be sent to all "interested parties" not more than 60 days after the date of seizure. Any person asserting an interest in the property may file a claim, and if the Government does not file a complaint for forfeiture or return the property within 90 days after the claim has been filed, it must promptly release the property.

The Act applies to any forfeiture proceeding commenced on or after the date that is 120 days after its enactment.

According to the American Land Title Association, "Title Insurers will benefit in three ways. First, the [Act] limits the Federal government's ability to seize real property which has been involved in the commission of a crime. Second, it establishes new procedural requirements for real property forfeitures. Third, it fosters legal certainty in real estate transactions by clarifying protections for persons owning real property through the 'innocent owner' defense."

[That ends Jack Murray's report In lieu of editor's comments, I have appended comments from a Criminal Law Professor's list that may have some value to us.] Comment 1: (Sandra Guerra) This new forfeiture reform is so farreaching that it will have a major impact on the federal government's civil forfeiture machinery. It gives innocent owners a fighting chance to save their property, something that has never existed in this country (and civil forfeiture has been around since the founding of our country).

The change in the burden of proof is highly significant. Not only must the government prove its case by a preponderance of the evidence, but if property is alleged to have "facilitated" a drug deal, the government can no longer win simply by proving mere facilitation. Rather, the government must now show that there was a "substantial connection" between the property and the crime. It eliminates the requirement that property owners post a bond of $5,000 or 10% of the value of the property in order to challenge a forfeiture action. It also makes it easier for people to maintain possession of their real property or businesses during the civil forfeiture proceedings, so that people are not mistakenly left homeless or businesses mistakenly ruined during the course of the proceedings. It also provides for attorney's fees if the owner prevails. For indigent persons, it provides a right to counsel which had not existed. It also provides for a change in the definition of "innocent owner," making it easier for a person to prove innocence. Finally, it provides that owners who prevail may sue the government for damage to their property caused while in the government's possession.

It explicitly encourages the government to seize assets through the criminal process as part of the sentencing after conviction (a change that I called for in 1992) by increasing the number of criminal offenses that can result in criminal forfeiture.

These changes will also have an impact internationally. Currently, we place pressure on foreign countries to adopt forfeiture laws comparable to ours (among other things) or face the prospect of being denied "certification" in our drug certification process. These changes will bring our law more in line with the forfeiture laws of most every other country in the world and remove the pressure on Latin American and Asian countries to "liberalize" their laws to conform to our old laws.

Comment 2: (Jeffrey Finer) Actually, I think we may see a change due to the hearsay issue. Hearsay is admissible for the probable cause determination; most the hearings I've done for claimants were lost over hearsay. Perhaps the seizing agency will be successful in bringing in its witnesses, but the leveling of this one advantage would have altered many of my own cases.

Should be interesting. On another take: wont this drive forfeitures to the states (at least in those locale where the state's rule permits a hearsay probable cause burden)?

Comment 3 (David Rossman):

"It'll be very interesting to see how often the government prevails in civil forfeitures now that the burden of proof is a preponderance, rather than the ridiculous probable cause standard that governed up to now."

Comment 4: (Frank Bowman) (responding to Rossman) The answer, I strongly suspect, is that the change in burden of proof will have little or no effect on outcomes. What, after all, is the difference between "preponderance of evidence" and that protean term "probable cause"? I know, I know, academics and judges can spend hours imbuing the phraseological difference with practical significance, but in the real world of trials both phrases mean roughly "Did the plaintiff show that its interpretation of the facts is more likely than that of the defendant?"

In some small fraction of cases at the margin, the new standard will produce verdicts for the claimant, but with these few marginal exceptions the government will still prevail in all the cases it would have won with a probable cause standard. The change in standards makes the system feel fairer because it now tracks the procedural pattern of other civil litigation, and that perception of fairness is nothing to sneeze at. But changing these particular words is of little more than symbolic importance.

Other provisions of the bill have far more practical importance.

Comment 4: (Also Frank Bowman) The important distinction is between the burden of proof and the substance of what must be proven. To the extent that the reform bill changes and stiffens the nexus requirement for proving facilitation, THAT matters a great deal, and would matter almost as much if the burden of proof were not changed at all. It should be observed, however, that the adoption of a "substantial connection" test for facilitation is not a complete innovation. Rather, it is a statutory resolution of a circuit split between circuits such as the 4th, 8th, and 11th (see, e.g.. US v. Two Tracts, 998 F.2d 204 (4th Cir. 1993), US v. Twenty Cashier's Checks, 897 Ff.2d 1567 (11th Cir. 1990)), which already required proof of a substantial connection, and the 2nd and 7th, which rejected that test (see US v. Certain Property, 954 F.2d 29 (2d Cir. 1992), and US v. One Parcel of Real Estate, 906 F.2d 490 (7th Cir. 1990)).

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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