U.S. v. Corpus, 06-20619.

Citation491 F.3d 205
Decision Date27 June 2007
Docket NumberNo. 06-20619.,06-20619.
PartiesUNITED STATES of America, Plaintiff-Appellee, v. Francisco CORPUS; Maria Castillo, Movants-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Albert Thomas Ratliff (argued), James Lee Turner, Asst. U.S. Atty., Houston, TX, for Plaintiff-Appellee.

J. Chris Juravich (argued), Erdos & Juravich, Sugar Land, TX, for Movants-Appellants.

Appeal from the United States District Court for the Southern District of Texas.

Before KING, DAVIS and BARKSDALE, Circuit Judges.

KING, Circuit Judge:

Movants-appellants Francisco Corpus and Maria Castillo intervened in a criminal forfeiture proceeding pursuant to 21 U.S.C. § 853(n), asserting that they had an interest in real property subject to forfeiture and that their interest was superior to that of the defendant. They now appeal the district court's final judgment of forfeiture, contending that the district court erred in concluding that their alleged interest in the real property was not superior to that of the defendant. For the reasons that follow, we AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

The instant dispute arises in the context of the government's criminal forfeiture action against Leonardo Compean. On April 1, 2004, a federal grand jury indicted Compean on several counts, including conspiracy to possess with intent to distribute marijuana and other drug trafficking crimes. The indictment contained a notice of the government's intent to forfeit real property located at 1413 and 1315 Cottonwood Church Road in Fort Bend County, Texas (the "Cottonwood property") because it was allegedly acquired by Compean with the proceeds of drug trafficking crimes. On April 8, 2004, the government filed a notice of lis pendens in Fort Bend County giving notice of its intent to take the Cottonwood property by forfeiture. On December 20, 2004, Compean pleaded guilty to three drug-related charges and agreed to forfeit the Cottonwood property to the government. The government moved for, and the trial court ordered, forfeiture of the Cottonwood property on August 22, 2005.

This appeal concerns the interests of movants-appellants Francisco Corpus and Maria Castillo (collectively, "the Corpuses"), a husband and wife, in the Cottonwood property. The Corpuses assert that they have an interest in the Cottonwood property superior to that of Compean, and thus superior to that of the government, and they seek to have the forfeiture set aside.

The following time line of events is critical to addressing the Corpuses' asserted interest in the Cottonwood property. The Corpuses entered into a business arrangement in 1996 with Modesto and Felicita Arriaga (collectively, "the Arriagas") to build a dance hall on the Cottonwood property. The Arriagas had purchased the Cottonwood property in 1996 and held a vendor's lien deed. After business dealings between the Corpuses and the Arriagas failed, the Corpuses filed a breach of contract claim in January 1999 against the Arriagas in Texas state court. However, in September 1999 the Arriagas filed for Chapter 13 bankruptcy in the Southern District of Texas and the Corpuses were prohibited from pursuing their state-court suit by the automatic stay that accompanies bankruptcy filings. On April 17, 2003, the Arriagas' Chapter 13 bankruptcy was converted to a Chapter 7 bankruptcy. The bankruptcy court dismissed the Arriagas' bankruptcy case on September 15, 2003, whereupon the automatic stay was lifted.

On March 25, 2003, while the Arriagas' Chapter 13 bankruptcy case was still pending, the Arriagas sold the Cottonwood property in two parts to Compean and Alberto Falcon for approximately $88,000. The money used to purchase the Cottonwood property was proceeds of drug trafficking crimes. The Arriagas deeded both parts of the Cottonwood property to Hugo and Dora Barrera (collectively, "the Barreras"), relatives of Falcon. The bankruptcy court, the trustee, and the Corpuses had no knowledge of the transfer of the Cottonwood property.

After the bankruptcy case was dismissed and the automatic stay was lifted, the Corpuses pursued their state-court breach of contract suit against the Arriagas. On March 2, 2004, the Corpuses were awarded a final judgment in the amount of $66,000, plus fees, interest, and costs. The Corpuses filed an abstract of judgment on March 26, 2004, in the Fort Bend County deed records. Then on April 28, 2004 — twenty days after the government filed its notice of lis pendens — the Corpuses filed suit against the Barreras in Texas state court, alleging that the transfer of the Cottonwood property from the Arriagas violated the Texas Uniform Fraudulent Transfer Act ("TUFTA"). The Texas court entered a default judgment against the Barreras ordering that the transfers of the Cottonwood property from the Arriagas to Compean and then to the Barreras were void under TUFTA. But the Corpuses concede that the default judgment is itself void under 21 U.S.C. § 853(k)(2) because the state court action was commenced after the government filed a lis pendens.1

On January 5, 2006, the Corpuses intervened in the district court's forfeiture proceedings pursuant to 21 U.S.C. § 853(n) and filed a petition to set aside the forfeiture of the Cottonwood property. The Corpuses asserted that they had an interest in the Cottonwood property superior to that of Compean, and thus the government, based on, inter alia, TUFTA and the U.S. Bankruptcy Code. The Corpuses and the government filed cross-motions for summary judgment. The district court rejected the Corpuses' asserted interest in the Cottonwood property, granted summary judgment in favor of the government, and entered a final judgment of forfeiture providing that the Corpuses take nothing and that the government be granted all right, title, and interest in the Cottonwood property.

The Corpuses now appeal, asserting generally the same arguments as they did below.

II. STANDARD OF REVIEW

When a third party files a petition asserting an interest in property that the government seeks to forfeit, the district court is required to conduct an "ancillary proceeding." FED.R.CRIM.P. 32.2. Although this ancillary proceeding arises in the context of criminal forfeiture, it closely resembles a civil proceeding in that the court "may permit the parties to conduct discovery in accordance with the Federal Rules of Civil Procedure," after which "a party may move for summary judgment under Federal Rule of Civil Procedure 56." FED.R.CRIM.P. 32.2(c)(1)(B). Because this case comes to us on the district court's grant of the government's Rule 56 motion for summary judgment (and the denial of the Corpuses' cross-motion), we apply the standard of review for grants or denials of summary judgment under Federal Rule of Civil Procedure 56. See FED.R.CRIM.P. 32.2 advisory committee's note to subdivision (c) (noting that where the Federal Rules of Civil Procedure are applicable, prevailing case law on the issue applies); see also Pacheco v. Serendensky, 393 F.3d 348, 352 (2d Cir.2004) (evaluating motion to dismiss in ancillary proceeding according to the legal standards of the Federal Rules of Civil Procedure).

This court reviews grants and denials of summary judgment de novo, applying the same standards as the district court. Armstrong v. Am. Home Shield Corp., 333 F.3d 566, 568 (5th Cir.2003). Summary judgment is proper when there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c). Facts are material if they might affect the outcome of the lawsuit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). All facts and inferences must be viewed in the light most favorable to the nonmoving party. Armstrong, 333 F.3d at 568.

III. DISCUSSION

The resolution of the Corpuses' claim is governed by 21 U.S.C. § 853(n) (the "forfeiture statute"). Under § 853(n), a third party "asserting a legal interest in property which has been ordered forfeited to the United States" may "petition the court for a hearing to adjudicate the validity of his alleged interest in the property." 21 U.S.C. § 853(n)(2). Section 853(n)(6) further provides the legal framework through which a third party may establish an interest in forfeited property:

If, after the hearing, the court determines that the petitioner has established by a preponderance of the evidence that (A) the petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section . . . the court shall amend the order of forfeiture in accordance with its determination.2

Id. § 853(n)(6). Finally, § 853(c) contains a "relation back" provision under which "[a]ll right, title, and interest in [forfeited] property . . . vests in the United States upon the commission of the act giving rise to forfeiture." Id. § 853(c).

Accordingly, to prevail on appeal, the Corpuses must establish that they have a legal right, title, or interest in the Cottonwood property that was vested or superior to that of Compean when he purchased the Cottonwood property with proceeds of illegal drug activity on March 25, 2003. The Corpuses do not assert a vested interest in the Cottonwood property but instead assert that they have a right or interest superior to Compean, and thus the government, arising from TUFTA and the Bankruptcy Code.

A. Interest Under TUFTA

The Corpuses first argue that they have an interest in the Cottonwood property superior to that of Compean under TUFTA because they were creditors of the Arriagas and the transfer of the property to Compean was fraudulent as a...

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