U.S. v. Lester

• Decision Date: 06 June 1996
• Docket Number: 95-10288,Nos. 94-10583,s. 94-10583
• Citation: 85 F.3d 1409
• Parties: , 96 Cal. Daily Op. Serv. 4044, 96 Daily Journal D.A.R. 6565 UNITED STATES of America, Plaintiff-Appellee, v. Richard J. LESTER, Defendant, and Sheila Lester, Petitioner-Claimant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1409

85 F.3d 1409

65 USLW 2027, 96 Cal. Daily Op. Serv. 4044,

96 Daily Journal D.A.R. 6565

UNITED STATES of America, Plaintiff-Appellee, v. Richard J. LESTER, Defendant, and Sheila Lester, Petitioner-Claimant-Appellant.

Nos. 94-10583, 95-10288.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Feb. 15, 1996.

Decided June 6, 1996.

Reid Charles Pixler, Assistant United States Attorney, Phoenix, Arizona, for plaintiff-appellee.

Edward M. Mansfield, Lewis and Roca, Phoenix, Arizona, for petitioner-appellant.

Appeals from the United States District Court for the District of Arizona, Stephen M. McNamee, District Judge, Presiding. D.C. No. CR-92-00371.

Before HUG, Chief Judge, and SNEED and KLEINFELD, Circuit Judges.

HUG, Chief Judge:

Sheila Lester appeals the district court's order forfeiting her interest in certain real property located at 100 Indianola Road in Eureka, California (the "Indianola property"). Mrs. Lester's interest in the Indianola property was forfeited, pursuant to 21 U.S.C. § 853(p), in connection with the conviction of her husband, Richard Lester. We have jurisdiction under 28 U.S.C. § 1291, and we reverse and remand.

I Background

In September 1992, the Government filed an indictment charging Mr. Lester and others with conspiracy to possess with intent to distribute marijuana. Mrs. Lester was not indicted, and there is no allegation that she was involved in any wrongdoing. On December 2, 1993, the Government filed a superseding indictment which added a criminal forfeiture count under 21 U.S.C. § 853. The count alleged that $2.5 million was forfeitable by Mr. Lester as proceeds of the conspiracy. On March 30, 1994, the jury found Mr. Lester guilty and returned a special verdict in favor of the Government on the forfeiture count.

At the sentencing hearing, the Government chose not to seek forfeiture of Mr. Lester's property, pursuant to 21 U.S.C. § 853(a), as property linked to his criminal activities. Instead, the Government elected to proceed under the "substitute property" provisions contained in 21 U.S.C. § 853(p), whereby, if any of a defendant's forfeitable assets are unavailable due to an enumerated act or omission of the defendant, the court can "order the forfeiture of any other property of the defendant." Pursuant to this section, the district court entered a preliminary order of forfeiture of various properties which Mr. Lester owned or had an interest in, including the Indianola property.

The Lesters' interest in the Indianola property can be summarized as follows. Mr. and Mrs. Lester were sole owners of a California corporation, Active Investments, Inc. Active Investments owned 3/8 of the limited partnership known as "Indianola Road Properties" or "Indianola Properties," and this partnership in turn owned the Indianola property. Thus, Mr. and Mrs. Lester, through Active Investments' interest in the limited partnership, owned 3/8 of the Indianola property. ¹

On June 23, 1994, Mrs. Lester filed a petition alleging an interest in the Indianola property and seeking a hearing on the matter pursuant to 21 U.S.C. § 853(n). ² At the hearing, Mrs. Lester argued that, through her 50% ownership interest in Active Investments, she was entitled to a 3/16 interest in the Indianola property and that her interest was not subject to forfeiture under section 853(p).

The Government acknowledged that Mrs. Lester had a community property interest in Active Investments, but argued that, under California law, both spouses' interests in the community property could be forfeited to satisfy Mr. Lester's $2.5 million "debt" to the United States. The district court agreed and denied Mrs. Lester's petition and upheld the forfeiture of the Lesters' entire 3/8 interest in the Indianola property. Mrs. Lester timely appeals.

II Standard of Review

We review the district court's findings of fact for clear error, and its legal conclusions de novo. Brooker v. Desert Hosp. Corp., 947 F.2d 412, 415 (9th Cir.1991); see also United States v. Ripinsky, 20 F.3d 359, 361 (9th Cir.1994) ("[t]he interpretation of a statute is a question of law reviewed de novo").

III Discussion

In this appeal, we are required to determine whether the Government can use the "substitute property" provision in the criminal forfeiture statute, 21 U.S.C. § 853(p), to seize an innocent spouse's interest in community property to satisfy the forfeiture obligations of the guilty spouse. ³

The criminal forfeiture statute, 21 U.S.C. § 853, provides:

(a) Property subject to criminal forfeiture

Any person convicted of a violation of this subchapter or subchapter II of this chapter punishable by imprisonment for more than one year shall forfeit to the United States, irrespective of any provision of State law--

(1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation;

(2) any of the person's property used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, such violation....

....

* * *

(p) Forfeiture of substitute property

If any of the property described in subsection (a) of this section, as a result of any act or omission of the defendant--

(1) cannot be located upon the exercise of due diligence;

(2) has been transferred or sold to, or deposited with, a third party;

(3) has been placed beyond the jurisdiction of the court;

(4) has been substantially diminished in value; or

(5) has been commingled with other property which cannot be divided without difficulty;

the court shall order the forfeiture of any other property of the defendant up to the value of any property described in paragraphs (1) through (5).

21 U.S.C. §§ 853(a) and (p) (emphasis added).

When an order of forfeiture has been entered under section 853, a third party claiming an interest in the property may petition the court for a hearing to adjudicate his or her legal interest in the property pursuant to 21 U.S.C. § 853(n). Section 853(n) provides, in relevant part,

(1) Following the entry of an order of forfeiture under this section, ...

(2) Any person, other than the defendant, asserting a legal interest in property which has been ordered forfeited to the United States pursuant to this section may ... petition the court for a hearing to adjudicate the validity of his alleged interest in the property....

....

* * *

(6) 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.

21 U.S.C. § 853(n).

"In drug forfeiture actions, ownership of property is determined by state law." See United States v. Ranch Located in Young, Arizona, 50 F.3d 630, 632 (9th Cir.1995); see also United States v. Yazell, 382 U.S. 341, 352-53, 86 S.Ct. 500, 506-07, 15 L.Ed.2d 404 (1965); United States v. Smith, 966 F.2d 1045, 1054 n. 10 (6th Cir.1992) ("because forfeiture proceedings implicate property rights which have traditionally been measured in terms of state law, and because section 853 contains no rule ..., it is appropriate to refer to state law"); United States v. Certain Real Property at 2525 Leroy Lane, 910 F.2d 343, 348 (6th Cir.1990) (observing that "[p]roperty interests have long been acquired and defined by state law"), cert denied, 499 U.S. 947, 111 S.Ct. 1414, 113 L.Ed.2d 467 (1991). Once the ownership interests are defined under state law, however, the federal forfeiture statutes determine whether those property interests must be forfeited to the Government.

Here, the parties agree that the law of California, where the Indianola property is located and where the Lesters resided during the relevant time period, applies. Under California law, "[e]xcept as otherwise provided by statute, all property, real or personal ... acquired by a married person during the marriage while domiciled in [California] is community property." Cal. Fam.Code § 760 (West 1994). Thus, "[p]roperty acquired by purchase during a marriage is presumed to be community property." In re Marriage of Marsden, 130 Cal.App.3d 426, 181 Cal.Rptr. 910, 918 (1982). Accordingly, the Lesters' 3/8 interest in the Indianola property, acquired during the marriage while the Lesters were domiciled in California, is presumed to be community property. ⁴

Under California law, "each spouse has a vested undivided one-half interest in the community property." See Estate of Wilson, 183 Cal.App.3d 67, 227 Cal.Rptr. 794, 798 (1986); Cal. Fam.Code § 751 (West 1994) ("[t]he respective interests of the husband and wife in community property during continuance of the marriage relation are present, existing, and equal interests"). Thus, under California law, both Mr. Lester and Mrs. Lester have an undivided one-half ownership interest in their 3/8 interest in the Indianola property.

Having established the ownership interests, under state law, of both relevant parties--Mr. Lester, the defendant, and Mrs. Lester, the third party claiming an interest in the forfeited property--we can now look to federal law to determine whether Mrs. Lester's ownership interest in the Indianola property may be forfeited pursuant to section 853(p).

The plain language of section 853 provides instructive guidance. Section 853(p) states that only the substitute "property of the defendant " may be forfeited to the Government. 21 U.S.C. § 853(p) (emphasis added). Moreover, section 853(n)(6)(A) provides that a third party...