United States v. Erpenbeck

• Citation: 56 Bankr.Ct.Dec. 177,682 F.3d 472
• Decision Date: 21 June 2012
• Docket Number: No. 11–3530.,11–3530.
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. A. William ERPENBECK, Jr., Defendant, and Michael L. Baker, Trustee in Bankruptcy for A. William Erpenbeck, Jr., Movant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

682 F.3d 472

56 Bankr.Ct.Dec. 177

UNITED STATES of America, Plaintiff–Appellee,

v. A. William ERPENBECK, Jr., Defendant,andMichael L. Baker, Trustee in Bankruptcy for A. William Erpenbeck, Jr., Movant–Appellant.

No. 11–3530.

United States Court of Appeals, Sixth Circuit.

Argued: June 7, 2012.

Decided and Filed: June 21, 2012.

ARGUED:Debra S. Pleatman, Ziegler & Schneider, P.S.C., Covington, Kentucky, for Appellant. Deborah D. Grimes, Assistant United States Attorney, Cincinnati, Ohio, for Appellee. ON BRIEF:Debra S. Pleatman, Ziegler & Schneider, P.S.C., Covington, Kentucky, for Appellant. Deborah D. Grimes, Assistant United States Attorney, Cincinnati, Ohio, for Appellee.

Before: SUTTON, McKEAGUE and RIPPLE ^*, Circuit Judges.

OPINION

SUTTON, Circuit Judge.

In a fact pattern befitting a John Grisham novel, FBI agents found a cooler filled with more than $250,000 in cash buried at a private golf course outside Cincinnati. The money belonged to A. William Erpenbeck, Jr., a convicted fraudster then serving a 300–month sentence in federal prison. What came next is a tug-of-war over who gets the money: the government, which wants a criminal forfeiture of the cash, or the trustee of Erpenbeck's bankruptcy estate, who wants to distribute the cash to Erpenbeck's creditors. The district court sided with the government, but because the government did not provide the trustee with sufficient notice of the forfeiture proceeding, depriving him of the chance to assert his claim, we vacate the final order of forfeiture and remand.

I.

As president of the Erpenbeck Development Company, once one of the largest residential developers in the Cincinnati area, Erpenbeck orchestrated a fraud that bilked nearly $34 million from home buyers and banks between 1999 and 2002. United States v. Erpenbeck, 532 F.3d 423, 426–30 (6th Cir.2008). Erpenbeck pled guilty to federal bank-fraud charges in April 2003 and received a 300–month prison sentence. Id. at 428–30. The district court also ordered him to forfeit the proceeds of the fraud: $33,935,878.02. See18 U.S.C. § 982(a).

Six years later, the FBI learned that, before he went to prison, Erpenbeck gave a friend more than $250,000 in cash and asked him to hold the money until his release. The friend put the cash in a cooler and buried it near the green of the third hole (a 366–yard par four) at Summit Hills Country Club in Crestview Hills, Kentucky. FBI agents unearthed the cooler on October 1, 2009, and the government sought forfeiture of the cash.

The government posted notice of the forfeiture online (at www. forfeiture. gov) in November and December 2009. Three months later, the trustee of Erpenbeck's bankruptcy estate—Erpenbeck's creditors filed an involuntary bankruptcy petition in July 2002, see11 U.S.C. § 303—contacted an Assistant United States Attorney, told her the estate had an interest in the cash and asked about the government's plans. The government's attorney did not tell the trustee about the ongoing forfeiture proceedings. Because no one filed a petition asserting an interest in the cash, the district court entered a final order of forfeiture vesting “all right, title, and interest” to the cash in the United States. R. 150; see21 U.S.C. § 853(n)(7).

The trustee filed a motion to stay the final order of forfeiture in November 2010, contending that the cash belonged to the bankruptcy estate. The district court denied the motion, holding that the trustee waived his claim because he did not file a timely petition asserting his interest.

II.

A.

To obtain title to property through criminal forfeiture, the government must give third parties a chance to assert competing interests in the property. See United States v. Huntington Nat'l Bank, 574 F.3d 329, 330 (6th Cir.2009). After a district court enters a preliminary order of forfeiture, federal law requires the government to provide notice of the proceedings, giving interested parties thirty days to file a petition asserting their claims. 21 U.S.C. § 853(n)(1)-(2). If anyone files a petition, the court must hold an ancillary hearing to determine the bona fides of his alleged interest. Id. § 853(n)(2). If no one files a petition within the statutory time frame, “clear title” vests in the United States, extinguishing all other parties' interests in the property. 21 U.S.C. § 853(n)(7); see United States v. O'Brien, Nos. 98–3114, 98–3206, 1999 WL 282687, at *2 (6th Cir. Apr. 28, 1999); United States v. Marion, 562 F.3d 1330, 1339 (11th Cir.2009).

Acknowledging he did not file a petition within thirty days of online publication of the notice, the trustee maintains that the district court could not extinguish his interest in the cash because the government never gave him direct notice of the forfeiture action. The trustee never knew the thirty-day clock was ticking—having apparently not occupied his free time by browsing www. forfeiture. gov—and thus never had a chance to assert his interest in a timely manner. For its part, the government acknowledges it did not provide direct notice of the forfeiture action to the trustee.

Did the government's notice suffice? More to the point, was notice by publication sufficient or was direct notice to the trustee required? That depends—on the interrelation of two subsections of the criminal forfeiture statute: 21 U.S.C. § 853.

The first of these subsections, § 853(j), incorporates the civil forfeiture statute. It says: “Except to the extent that they are inconsistent with the provisions of this section, the provisions of section 881(d) of this title shall apply to a criminal forfeiture under this section.” 21 U.S.C. § 853(j). Section 881(d) in turn incorporates “[t]he provisions of law relating to the ... judicial forfeiture ... of property for violation of the customs laws.” And the statute governing customs-related forfeitures requires the government to publish notice and to send direct “[w]ritten notice ... to each party who appears to have an interest in the seized article.” 19 U.S.C. § 1607(a). So far so good from the trustee's perspective. The direct-notice requirement applicable to civil forfeitures governs criminal forfeitures as long as it is not “inconsistent with” other provisions of the criminal forfeiture statute.

That leads to the other relevant subsection. One potential inconsistency with this direct-notice requirement appears in § 853(n)(1), which says:

Following the entry of an order of forfeiture under this section, the United States shall publish notice of the order and of its intent to dispose of the property in such manner as the Attorney General may direct. The Government may also, to the extent practicable, provide direct written notice to any person known to have alleged an interest in the property that is the subject of the order of forfeiture as a substitute for published notice as to those persons so notified.

21 U.S.C. § 853(n)(1) (emphasis added). A first glance suggests tension between the two provisions, as § 853(n)(1) seems to make direct notice discretionary while § 1607(a) makes it mandatory. But that is not a necessary reading of § 853(n)(1) or even the best reading of it. Section § 853(n)(1) by its terms gives the government discretion to provide direct notice “ as a substitute for published notice as to those persons so notified.” (emphasis added). The provision thus does not give the government a free hand in deciding whether to provide interested third parties with direct notice; it merely gives the government discretion to employ direct notice as a substitute for published notice. Practically speaking, that means parties who receive direct notice may not complain about defects in publication notice because the direct notice operates as a substitute—a safe harbor—for any publication notice otherwise required. See United States v. Puig, 419 F.3d 700, 703–04 (8th Cir.2005) (claimant who received actual notice may not complain about defect in published notice).

Buttressing this conclusion is the constitutional-avoidance canon. If a statute is susceptible of “two plausible ... constructions,” one of which “would raise a multitude of constitutional problems, the other should prevail.” Clark v. Martinez, 543 U.S. 371, 380–81, 125 S.Ct. 716, 160 L.Ed.2d 734 (2005). Imagine if the statute did not require direct notice to parties whom the government knows, or reasonably should know, have an interest in the forfeitable property. That would raise serious, likely devastating, constitutional objections. Due process requires the government to provide “notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of” a legal action that will determine their rights to property, and to “afford them an opportunity to present their objections.” Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950). When the government knows not whom the forfeiture affects, constructive notice by publication suffices. Id. at 317, 70 S.Ct. 652. But that is not true when the government knows or reasonably should know whom to notify. As to them, the government must attempt to provide direct notice of the proceeding. Id. at 318–19, 70 S.Ct. 652;see also Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 797–98, 103 S.Ct. 2706, 77 L.Ed.2d 180 (1983) (requiring government to provide direct notice to mortgage holder who has a publicly recorded interest before selling property to satisfy tax lien).

A recent amendment to Rule 32.2 of the Federal Rules of Criminal Procedure supports this reading. As of December 1, 2009, Rule 32.2, applicable to criminal forfeitures, requires the government to “publish notice of the order [of forfeiture] and send notice to any person who reasonably appears to be a potential claimant with standing to contest the forfeiture.” Fed.R.Crim.P. 32.2(b)(6) (emphasis added). The district court entered the preliminary order of forfeiture in this case on November10, 2009, weeks before ...