797 F.2d 1154 (2nd Cir. 1986), 948, United States v. Banco Cafetero Panama

Docket Nº:948, Dockets 85-6405, 85-6407.
Citation:797 F.2d 1154
Party Name:UNITED STATES of America, Plaintiff-Appellee, v. BANCO CAFETERO PANAMA, Banco Cafetero Colon, Defendants-in-rem-Appellants.
Case Date:August 04, 1986
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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797 F.2d 1154 (2nd Cir. 1986)

UNITED STATES of America, Plaintiff-Appellee,


BANCO CAFETERO PANAMA, Banco Cafetero Colon,


No. 948, Dockets 85-6405, 85-6407.

United States Court of Appeals, Second Circuit

August 4, 1986

Argued April 4, 1986.

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Scott G. Campbell, New York City (Arnold S. Klein, Kelley Drye & Warren, New York City, on brief), for defendants-in-rem-appellants.

Robert L. Ullmann, Asst. U.S. Atty., New York City (Rudolph W. Giuliani, U.S. Atty., Cynthia L. Keeffe, Jane E. Booth, Asst. U.S. Attys., New York City, on brief), for plaintiff-appellee.

Before LUMBARD, OAKES and NEWMAN, Circuit Judges.

JON O. NEWMAN, Circuit Judge:

This appeal concerns the Government's attempt to forfeit approximately $3 million in five bank accounts as "proceeds traceable" to narcotics transactions. 21 U.S.C. Sec. 881(a)(6) (1982). Pursuant to 28 U.S.C. Sec. 1292(b) (1982), Banco Cafetero Panama ("BC Panama") and it branch office, Banco Cafetero Colon ("BC Colon"), appeal from an interlocutory order of the District Court for the Southern District of New York (Gerard L. Goettel, Judge) denying a motion to vacate in rem warrants lodged against their bank accounts in forfeiture proceedings. The controlling questions of law framed by the District Court in certifying its ruling for appeal ask whether, under the circumstances of this case, a bank's account at a correspondent bank is forfeitable as proceeds of a drug transaction and whether due process of law requires a probable cause hearing immediately after the initiation of forfeiture proceedings. For reasons that follow, we answer the first question in the affirmative and the second in the negative, as did the District Court. We therefore affirm the District Court's order.

Before turning to the facts and legal issues, we need to make a brief clarification concerning the nature of the appeal. Section 1292(b) permits an interlocutory appeal to be taken, with the approval of a court of appeals, from an "order" of a district court when a district court determines that the order "involves a controlling question of law as to which there is substantial ground for difference of opinion"

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and that "an immediate appeal from the order may materially advance the ultimate termination of the litigation." Though it is helpful for a district court to frame the controlling questions of law that the order involves, as Judge Goettel did in this case, the statutory procedure specifies appeal of the order, rather than certification of the questions, 1 as the parties to this appeal appear to believe.

I. Background

The Government alleges that it has probable cause to believe that the funds at issue ultimately derive from the drug dealings of a criminal conspiracy led by Gilberto Rodriguez-Orejuela, President of First Interamericas Bank ("FIB"). 2 The Rodriguez group allegedly operated a massive drug business in the United States and deposited the proceeds of this business in FIB accounts. Between August 1983 and March 1985, when the Panama National Banking Commission closed FIB, some $46 million were transferred by FIB into an account that BC Panama maintained at the Irving Trust Company ("Irving Trust") in New York City. Millions of dollars were subsequently transferred from this BC Panama account into accounts maintained by BC Panama at four other banks and into one account maintained by BC Colon at Irving Trust.

On March 8, 1985, the Government filed five complaints seeking forfeiture of the accounts of BC Panama and BC Colon at Irving Trust and of BC Panama's accounts at the four other banks. 3 Because one of these accounts has a negative balance, the Government's claim against it has become moot. 4 The Government represents that approximately $3 million remain in the other five accounts.

Upon the filing of the complaints, in rem warrants were issued for the arrest of the bank accounts pursuant to 21 U.S.C. Sec. 881(b) and Rule C of the Supplemental Rules for Certain Admiralty and Maritime Claims. The Government executed the warrants, and the banks at which BC Panama and BC Colon had accounts immediately froze them. On March 13, 1985, appellants moved the District Court for an order vacating the in rem warrants. Appellants argued, among other things, that the accounts did not constitute a forfeitable res under 21 U.S.C. Sec. 881(a)(6) and that failure to conduct an immediate probable cause hearing would constitute a denial of due process. The District Court rejected appellants' arguments and declined to vacate the warrants. See United States v. Banco Cafetero International, 608 F.Supp. 1394 (S.D.N.Y.1985). The District Court granted appellants' motion to certify its ruling for interlocutory appeal, see United States v. Banco Cafetero International, 107 F.R.D. 361 (S.D.N.Y.1985), and this Court accepted the appeal.

II. Traceable Proceeds

These forfeiture actions were brought pursuant to 21 U.S.C. Sec. 881, which provides in pertinent part:

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(a) The following shall be subject to forfeiture to the United States and no property right shall exist in them:

* * *

(6) All moneys, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance in violation of this subchapter, all proceeds traceable to such an exchange, and all moneys, negotiable instruments, and securities used or intended to be used to facilitate any violation of this subchapter, except that no property shall be forfeited under this paragraph, to the extent of the 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.

Appellants contend that, even if the Government's factual allegations regarding the Rodriguez conspiracy are true, the five seized accounts may not be considered "proceeds traceable" to narcotics exchanges within the meaning of section 881(a)(6).

Appellants rely on the realities of banking practice and the law that has developed as a result. When a customer deposits funds into a bank account, his bank credits the account in an amount equal to the deposit. At any given moment, the credit balance of an account is the cumulative result of all transactions affecting the account. Banks are not bailees of their depositors' money, and a depositor may not replevy his money as a specific res or follow it into the hands of another bank customer, see Holly v. Missionary Society of the Protestant Episcopal Church, 180 U.S. 284, 293-94, 21 S.Ct. 395, 398, 45 L.Ed. 531 (1901); Miller v. Wells Fargo Bank International Corp., 540 F.2d 548, 560 (2d Cir.1976); New York State Association of Life Underwriters v. Superintendent of Insurance, 37 A.D.2d 304, 307, 325 N.Y.S.2d 172, 175-76 (3d Dep't 1971), aff'd, 30 N.Y.2d 746, 284 N.E.2d 157, 333 N.Y.S.2d 173 (1972); In re Rubinstein's Estate, 169 Misc. 273, 275, 7 N.Y.S.2d 311, 314-15 (Sur.Ct.1938).

Appellants argue that these principles govern the instant controversy and that their bank accounts are therefore insulated from forfeiture. Their argument rests primarily on the fungibility of money and on the burdens of investigation that they claim will be imposed upon banks if the Government's forfeiture theory is deemed legally valid. In considering the Government's claim for forfeiture and the appellants' objections to it, it will be helpful to keep in mind three distinct contexts in which there will arise the question whether a credit balance in a bank account is "proceeds traceable to [a narcotics] exchange" within the meaning of section 881(a)(6).

A. Account Used Solely for Drug Proceeds. The first context is the straightforward situation where a seller of narcotics opens a bank account and deposits into the account only money received from drug sales. The deposited money has been exchanged for a credit. This credit is clearly "traceable proceeds" under the forfeiture statute. The statute covers any asset exchanged directly for narcotics, such as a bar of gold or a car. Congress has also made it clear that "traceable proceeds" includes an asset indirectly exchanged for narcotics in one or more "intervening legitimate transactions, or otherwise changed in form...." See Joint Explanatory Statement of Titles II and III, Psychotropic Substances Act of 1978, Pub.L. No. 95-633, reprinted in 1978 U.S.Code Cong. & Ad.News 9518, 9522 ("Explanatory Statement"). If the seller of drugs uses the cash he receives to buy a bar of gold or a car, that asset is "traceable proceeds," and so is a credit at a bank. Though emphasizing the fungibility of money, even the appellants grudgingly acknowledge that the credit resulting from a deposit of drug money "may arguably constitute 'traceable proceeds.' " Brief for Appellants at 20.

B. Account Used for Drug Proceeds and Other Transactions. The second and more problematic context arises where the account of the narcotics seller is

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not devoted solely to deposits from drug sales but is a general purpose account into which funds from legitimate transactions are also deposited and from which money is withdrawn. As to this context, appellants contend that the fungibility of money makes it impossible to consider any portion of the depositor's credit balance to be "traceable proceeds" because the credit balance does not represent just the proceeds of drug sales but is instead the net result of various deposits and withdrawals. Though this context presents some accounting choices, shortly to be considered, we think it clear that Congress intended the forfeiture statute to apply to a credit balance reflecting the cumulative results of deposits...

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