US v. Moffitt, Zwerling & Kemler, PC

• Decision Date: 10 February 1995
• Docket Number: Civ. A. No. 94CV1384.
• Court: U.S. District Court — Eastern District of Virginia
• Parties: UNITED STATES of America, Plaintiff, v. MOFFITT, ZWERLING & KEMLER, P.C., Defendant.

875 F. Supp. 1190

UNITED STATES of America, Plaintiff, v. MOFFITT, ZWERLING & KEMLER, P.C., Defendant.

Civ. A. No. 94CV1384.

United States District Court, E.D. Virginia, Alexandria Division.

February 10, 1995.

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Helen F. Fahey, U.S. Atty., Jay Apperson, and Gordon D. Kromberg, Asst. U.S. Attys., Alexandria, VA, for the U.S.

William B. Moffitt, John K. Zwerling, Lisa B. Kemler, Moffitt, Zwerling & Kemler, P.C., Alexandria, VA, and Arthur F. Mathews, and Craig M. Blackwell, Wilmer, Cutler & Pickering, Washington, DC, for law firm.

MEMORANDUM OPINION

ELLIS, District Judge.

This detinue and conversion action is in reality yet another chapter in a lengthy criminal forfeiture saga. The saga grows out of the payment of $103,800 of attorneys' fees to Moffitt, Zwerling & Kemler, P.C. (the "Law Firm") by a client who obtained the money through drug trafficking.¹ Until now, the government's forfeiture efforts have relied solely on the federal scheme for criminal forfeiture set forth in 21 U.S.C. § 853. Previous chapters in the saga chronicle these efforts, which have not been entirely successful. Because the Law Firm spent almost all of the $103,800 before the government obtained a restraining or forfeiture order, the government, in seeking forfeiture under § 853, is now limited to recovering property traceable to, or derived from, the $103,800.² At present, the government is engaged in what is proving to be a difficult and complex effort to identify traceable property held by the Law Firm and its partners.³ Seeking to avoid the complexities and difficulties of tracing, the government has filed the instant action in detinue and conversion under Virginia's common law. In this action, the government alleges that the Law Firm wrongfully converted or detained $103,800 that belonged to the government by virtue of federal forfeiture law, and is therefore liable for that amount plus interest, regardless of how or when the Law Firm spent the $103,800.

The matter is now before the Court on cross motions, the government's motion for summary judgment and the Law Firm's dismissal motions. For the reasons stated, the Law Firm's motion to dismiss must be granted, thereby rendering moot the government's motion for summary judgment.

I.⁴

In August 1991, William P. Covington was under investigation for distribution of cocaine, and sought to retain the Law Firm to defend him. On August 23 and 24, Covington paid $103,800 cash to the Law Firm, money which the Law Firm promptly deposited in several bank accounts. The government's investigation of Covington soon bore fruit. On October 30, he was indicted on drug trafficking, firearms, and money laundering charges. A superseding indictment followed on January 9, 1992. The indictments included broad forfeiture counts covering all of Covington's property derived from criminal activity.

The government eventually became aware of the $103,800 fee payments made by Covington. On May 11, 1992, the government filed a bill of particulars identifying the fees as property subject to forfeiture. The following day, the Court, on the government's motion, entered a restraining order with respect to the $103,800 and property traceable to it. By this time, however, over eight months had passed and the Law Firm no longer had most of the $103,800. With the exception of $3,695 held in an escrow account on Covington's behalf, the Law Firm had disbursed the remainder of the money in the ordinary course of its business.

Covington eventually pled guilty to several charges. At his sentencing on February 25, 1993, the Court ordered the forfeiture under 21 U.S.C. § 853(a) of all property constituting the proceeds of Covington's drug trafficking. The next day, pursuant to § 853(c), the Court ordered the forfeiture of the $103,800 that Covington transferred to the Law Firm, subject to the rights of third parties to be asserted under § 853(n). Thereafter, the Law Firm filed a § 853(n) petition, contending that it was a bona fide purchaser "reasonably without cause to believe that the property was subject to forfeiture." 21 U.S.C. § 853(n)(6)(B). After a full evidentiary hearing, the Court denied the petition, finding that the Law Firm had not met its burden of proving that it was reasonably without cause to know of the prospect of forfeiture. See Moffitt I, 846 F.Supp. at 472-76.

The government then proposed a final decree of forfeiture of the $103,800, which the Law Firm opposed on the ground that, with the exception of $3,695, it had spent the money received from Covington long before the entry of the May 1992 restraining order or the February 1993 forfeiture order. In response, the government advanced several theories to support the Law Firm's obligation to pay $103,800 to the government, notwithstanding that the bulk of the money had already been spent. First, the government argued that money is fungible and interchangeable under § 853, and therefore any money held by the Law Firm was subject to forfeiture. Second, the government argued that because it gained title to the $103,800 under the February 1993 forfeiture order, it could recover that amount from the Law Firm in a civil action for conversion under Virginia's common law. Further, the government contended that it could raise such a conversion claim in the context of the forfeiture proceeding, because § 853(g) authorizes courts to take actions to "protect the interest of the United States in the property ordered forfeited." The Court rejected each of the government's arguments.⁵

Although the government failed on these theories, it succeeded in establishing that § 853 provides for forfeiture of property "derived from" criminal proceeds, and therefore requires forfeiture of property traceable to the $103,800. 21 U.S.C. § 853(a); Moffitt II, 864 F.Supp. at 541-52. Thus, the government next turned its attention to determining what happened to the $103,800 and whether the Law Firm or its partners obtained property traceable to it. That effort, including the related discovery, is currently ongoing. See Moffitt III.

The government commenced the instant action on October 21, 1994.⁶ It is a civil action that seeks return of the $103,800 on two alternative theories, conversion and detinue.⁷ The complaint alleges that title to the $103,800 vested in the United States at the time of Covington's criminal activities by virtue of § 853. As a result, the government contends that the Law Firm, whether or not it has spent the money, is now liable in detinue or conversion under Virginia's common law for its wrongful possession or conversion of the money.

The government seeks summary judgment on the ground that the undisputed facts establish the elements of conversion and detinue. The Law Firm counters with four grounds for dismissal, namely that (i) the government's action is barred by claim preclusion, (ii) the government, bound by having pursued federal criminal forfeiture, cannot now sue in detinue or conversion, (iii) the government has not established the requisite elements of a detinue or conversion claim, and (iv) the action is preempted by federal forfeiture statutes. If none of these grounds for dismissal succeed, the Law Firm contends that summary judgment for the government is still improper because there are disputed factual issues to be developed.⁸ The parties having fully briefed and argued the issues raised, this matter is now ripe for disposition.

II.

Claim preclusion, or res judicata, generally applies where (i) the prior action results in a judgment on the merits, (ii) the prior and subsequent action involve claims by the same parties or their privies, and (iii) the prior and subsequent action arise out of the same transaction or series of connected transactions. Aliff v. Joy Manufacturing Co., 914 F.2d 39, 42-43 (4th Cir.1990); Harnett v. Billman, 800 F.2d 1308, 1313-14 (4th Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1571, 94 L.Ed.2d 763 (1987). As long as the two actions arise from the same transaction, claim preclusion applies even if the actions raise different legal theories. Aliff, 914 F.2d at 43. Yet, claim preclusion does not apply where a plaintiff could not pursue certain theories or claims in the first action because of limitations on the court's authority or jurisdiction to entertain them. Davenport v. North Carolina Dept. of Transportation, 3 F.3d 89, 97 n. 8 (4th Cir.1993) (plaintiff risks claim preclusion by not joining all theories in first action only if forum exists that can handle all claims); Restatement 2d (Judgments) § 26 (1988).

Applied here, these principles compel the conclusion that claim preclusion does not bar the government's conversion and detinue claims. To be sure, the Law Firm is correct that the government's detinue and conversion claims arise from the same transaction as the forfeiture action. Yet, as the government notes, it had no opportunity to present the conversion and detinue claims in the federal criminal forfeiture case. Indeed, the government made precisely such an attempt when it sought unsuccessfully to assert a conversion claim in the forfeiture proceeding on the basis of § 853(g). Moffitt II, 864 F.Supp. at 539-40. For the same reasons, the government also could not have pursued a detinue claim in the forfeiture proceeding. Claim preclusion therefore does not bar the present action.⁹

III.

The doctrine of election of remedies also does not bar the government's detinue and conversion action. The Law Firm argues that the government cannot pursue a detinue or conversion action after having sought criminal forfeiture of the $103,800. It relies, by analogy, on recent cases finding that the Double Jeopardy Clause prevents the government from pursuing separate criminal and civil forfeiture proceedings against a criminal defendant.¹⁰ These cases stem from recent Supreme Court opinions indicating that civil forfeiture...