U.S. v. One Single Family Residence Located at 15603 85th Ave. North, Lake Park, Palm Beach County, Fla., 90-5387

• Decision Date: 18 June 1991
• Docket Number: No. 90-5387,90-5387
• Citation: 933 F.2d 976
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. ONE SINGLE FAMILY RESIDENCE LOCATED AT 15603 85TH AVENUE NORTH, LAKE PARK, PALM BEACH COUNTY, FLORIDA, including the real estate at that location, the appurtenances thereunto, and the improvements thereon, Defendant, Gary G. Spears, Claimant-Appellant, George Curtis Spears, Claimant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 976

933 F.2d 976

60 USLW 2018

UNITED STATES of America, Plaintiff-Appellee, v. ONE SINGLE FAMILY RESIDENCE LOCATED AT 15603 85TH AVENUE NORTH, LAKE PARK, PALM BEACH COUNTY, FLORIDA, including the real estate at that location, the appurtenances thereunto and the improvements thereon, Defendant Gary G. Spears, Claimant-Appellant George Curtis Spears, Claimant.

No. 90-5387.

United States Court of Appeals Eleventh Circuit.

June 18, 1991.

Ronald E. Jones, West Palm Beach, Fla., for claimant-appellant.

Alan Dagen, Ft. Lauderdale, Fla., Linda Collins Hertz, Lynne W. Lamprecht, Jeanne M. Mullenhoff, Asst. U.S. Attys., Miami, Fla., for plaintiff-appellee.

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

Before HATCHETT, CLARK and DUBINA, Circuit Judges.

HATCHETT, Circuit Judge:

In this case of first impression, interpreting 21 U.S.C. Sec. 881(a)(6), we hold that one who knowingly commingles legitimate funds with the funds of a co-investor, where the co-investor's funds are subject to forfeiture, is not an "innocent owner," under the statute, and subjects the legitimate funds to forfeiture.

FACTS

In 1985, Curtis Spears approached his brother Gary with the idea of purchasing a vacant lot and building a house for resale. Shortly thereafter, they bought a parcel of unimproved real property in Palm Beach, Florida, for $22,000, and recorded the title in both names. In his 1986 income tax return, Curtis valued the new residence at $99,193.

Gary, who has been employed for many years with an aircraft engine manufacturer, withdrew $6,134.85 from his savings account to contribute to the purchase of the real property. He also allegedly contributed an additional $5,000 towards construction of the house. Curtis, however, has very few reported legitimate sources of income or employment, a bad credit rating, and a reputation as a drug smuggler. Nonetheless, he produced $6,000 in cash to purchase his share of the property and provided funds for the construction of the house.

As early as the summer of 1985, Curtis approached Jay Pinder, a known drug trafficker, to arrange cocaine importations from the Bahamas utilizing Gary's twenty-three foot center console boat. At trial, Pinder testified that Curtis scheduled some drug smuggling activities around the need to pay for the construction of the house. During 1985 and 1986, Curtis bought cocaine from Pinder and smuggled marijuana.

PROCEDURAL HISTORY

On February 22, 1989, the United States filed a complaint for forfeiture in rem against the real property pursuant to 21 U.S.C. Sec. 881(a)(6). ¹ The complaint alleged that Curtis Spears purchased and improved the real property with drug proceeds.

On March 23, 1989, Gary Spears filed a claim to the property alleging that he and his brother, Curtis, were co-owners as tenants in common. Curtis Spears filed a similar claim. After finding that Gary had contributed legitimate funds, the district court ruled that neither Curtis nor Gary were innocent owners. The district court so ruled because Curtis actively participated in the illegal activity, and Gary knew that his brother did not have a legitimate income source. Also, the district court found that Gary knowingly allowed Curtis to use Gary's boat for drug trafficking. On March 8, 1990, the district court entered a judgment forfeiting the real property to the United States.

CONTENTIONS

Gary Spears contends that he is an innocent owner and his legitimate funds provided for the purchase and improvement of the real property should not be forfeited. Thus, he asserts that only that portion of the value of the real property that has been involved with illegal funds should be subject to forfeiture.

The government contends that Gary Spears is not an innocent owner, even though he contributed legitimate funds, because he had knowledge that his brother purchased and improved the real property with drug proceeds. Thus, Gary's non-innocent owner status forfeits his entire interest in the property.

ISSUES

The sole issue is whether a property owner who is aware that a co-owner has purchased and improved the real property with drug proceeds may qualify as an innocent owner whose interest in the property is exempt from forfeiture under 21 U.S.C. Sec. 881(a)(6). This issue has far reaching implications for any person knowingly participating in business deals that incorporate drug proceeds.

DISCUSSION

In addressing this issue of first impression, we apply a clearly erroneous standard to the district court's factual findings and subject the legal decisions to plenary review. United States v. Real Property and Residence at 3097 S.W. 111th Avenue, Miami, Florida, 921 F.2d 1551, 1555 (11th Cir.1991).

When seeking forfeiture under 21 U.S.C. Sec. 881(a)(6), the United States must establish probable cause to believe that a substantial connection exists between the property to be forfeited and an illegal exchange of a controlled substance. United States v. A Single Family Residence and Real Property Located at 900 Rio Vista Blvd., Ft. Lauderdale, 803 F.2d 625, 628 (11th Cir.1986). " 'Probable cause' " is defined as " 'reasonable ground for belief of guilt supported by less than prima facie proof but more than mere suspicion.' " A Single Family Residence, Ft. Lauderdale, 803 F.2d at 628 (quoting United States v. One 1978 Chevrolet Impala, 614 F.2d 983, 984 (5th Cir.1980)).

In meeting its burden in this case, the government presented substantial evidence of Curtis's drug transactions in 1985-1986 and Pinder's testimony of Curtis's efforts to arrange drug transactions around his need to construct the house. From the evidence, it is uncontested that a substantial connection existed between the property and Curtis's illegal activities.

Once probable cause is established, the burden shifts to the claimant to establish by a preponderance of the evidence a defense to the forfeiture. See United States v. One 1944 Steel Hull Freighter, 697 F.2d 1030 (11th Cir.1983); United States v. $4,255,000, 762 F.2d 895, 905 (11th Cir.1985). This burden is met either by rebutting the government's evidence that the property was purchased with proceeds of illegal drug activities or a showing that the claimant is an "innocent owner" who did not know of the property's connection with drug sales. A Single Family Residence, Ft. Lauderdale, 803 F.2d at 629. Claimant must demonstrate a lack of actual knowledge. $4,255,000, 762 F.2d at 906.

Gary Spears suggests that he is an innocent owner because he contributed legitimate funds towards the purchase and improvement of the real property. In Gary's view, once the district court made a factual finding that his contribution was from untainted funds, his knowledge of the source of his brother's contribution became immaterial. Thus, he argues, since his funds cannot be traced to drug activities, he is entitled to receive the value of his interest in the real property. He argues that the interest of an innocent co-owner of property should not be subject to forfeiture merely because the innocent owner is aware that his co-owner has purchased or improved the real property with funds derived from an illegal source.

Gary relies heavily upon United States v. Premises Known as 2639 Meeting House Road, Jamison, Pennsylvania, 633 F.Supp. 979 (E.D.Pa.1986). In 2639 Meeting House Road, the government sought the forfeiture of two liquor licenses and two parcels of real property owned by Robert Sebzda, Glenn Leiby, and George Leiby. After a grand jury indictment, Robert Sebzda and Glenn Leiby pleaded guilty to the manufacture and sale of illegal drugs. The court found that Sebzda and Glenn Leiby's investment in the subject properties came from the proceeds of drug transactions, while George Leiby invested legitimate funds. It also found that George knew that Sebzda and Glenn Leiby's interests were derived from drug proceeds. Relying on the legislative history of 21 U.S.C. Sec. 881(a)(6), the court found that George was entitled to his interest in the properties to the extent that he could prove they were not purchased with drug proceeds. ²

Our district courts have addressed similar issues relating to banks. In United States v. One Single Family Residence Located at 6960 Miraflores Avenue, Coral Gables, Florida, 731 F.Supp. 1563 (S.D.Fla.1990), the government had probable cause to believe that Indalecio Iglesias bought real property and constructed a residence worth $1.2 million with drug profits. ³ Upon learning of an Internal Revenue Service investigation, Iglesias obtained a mortgage from Republic National Bank of Miami (Republic) for $800,000. After approving the loan, Republic transferred the loan proceeds to a Swiss bank account through two cashier's checks. At the time of the loan, Iglesias had listed the house for sale.

The court took these and other facts into consideration and concluded

Republic has failed to meet its burden of showing lack of actual knowledge. On the contrary, every fact in the record points irrefutably to Republic's knowing involvement. These facts when considered in their totality suggest actual knowledge if not complicity on the part of the lender. Congress has sent a clear message in the recent legislation enacted that it will not permit the financial community to knowingly do business with drug dealers. This opinion merely follows that clear message.

One Single Family Residence, 731 F.Supp. at 1573 (footnotes omitted). Even though Republic's contribution consisted of legitimate funds, the court denied Republic's innocent owner claim because it knew of Iglesias's illegal activities.

Additionally, in United States v. One Single Family Residence Located at 2901 S.W. 118th Court, Miami, Florida, 683 F.Supp. 783 (S.D.Fla.1988), the American Bankers Insurance Company (American Bankers) issued a $50,000 bail bond posted for a criminal defendant, secured by a promissory note and a mortgage on his house. The defendant...