Kurth Ranch, In re

Citation986 F.2d 1308
Decision Date26 February 1993
Docket NumberNo. 91-35878,91-35878
PartiesIn re: KURTH RANCH; Kurth Halley Cattle Company; Richard M. Kurth; Judith Kurth, husband and wife; et al., Debtors, Robert G. DRUMMOND, Trustee, Appellee, v. DEPARTMENT OF REVENUE OF THE STATE OF MONTANA, Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Paul Van Tricht, Sp. Asst. Atty. Gen., Helena, MT, for appellant.

Joseph Brian Cox, Sp. Asst. Atty. Gen., Topeka, KS, amicus curiae States of Kan., Fla., and Tex., for appellant.

James H. Goetz and Brian K. Gallik, Goetz, Madden & Dunn, Bozeman, MT, for appellee.

Appeal from the United States District Court for the District of Montana.

Before: WRIGHT, BEEZER, and LEAVY, Circuit Judges.

BEEZER, Circuit Judge:

We consider whether Montana's Dangerous Drug Tax Act violates the Fifth Amendment's proscription against double jeopardy.

The district court for the district of Montana affirmed the bankruptcy court's ruling that a $100-an-ounce marijuana tax levied pursuant to the Act violated the Fifth Amendment. The Montana Department of Revenue ("Revenue") appeals, arguing that the drug tax is not a punishment and that its imposition against the Kurths does not violate double jeopardy. The Kurths maintain that a criminal penalty by any other name is still a criminal penalty, and that the district court properly relied on United States v. Halper, 490 U.S. 435, 109 S.Ct. 1892, 104 L.Ed.2d 487 (1989) in holding the drug tax as applied is unconstitutional. We affirm.

I

The extended Kurth family entered the marijuana-growing business "with but one purpose--that of making large sums of money just as fast as possible in order to pay off a large debt against the family farm." Montana v. Kurth, No. DC-87-018 Judgment and Sentencing Order at 3 (Mont.12th Dist.Ct., July 18, 1988).

The Kurths cultivated marijuana for about a year and a half before discovery by law enforcement officials. On October 18, 1987, officers raided the farm and seized 2155 marijuana plants, 1811 ounces of harvested marijuana and several gallons of marijuana derivatives. They also arrested the Kurths, who were subsequently charged with the criminal possession and sale of dangerous drugs.

Shortly before the Kurths' arrests, Montana's Dangerous Drug Tax Act was enacted. See Mont.Code Ann. §§ 15-25-101 through 123 (1987). 1 The arresting officer's Drug Tax Report describing the substances found at the Kurth farm was the first ever sent to the Montana Department of Revenue. Pursuant to the Act, Revenue assessed a drug tax against the Kurths. The assessment ultimately totaled nearly $865,000 for the marijuana plants, harvested marijuana, hash tar, and hash oil.

The Kurths administratively challenged both the method of computation and the legality of the assessment. This challenge was suspended pending resolution of the Kurths' criminal charges. In July 1988, the Kurths all pleaded guilty and received individual sentences.

The Kurths then filed a voluntary petition in bankruptcy under Chapter 11, again staying the administrative proceeding. In February 1989, Revenue filed an amended proof of claim with the bankruptcy court which was challenged by the Kurths and the trustee in bankruptcy.

In May 1990, following a bench trial, the bankruptcy court denied Revenue's claim. The court determined that the taxes on the plants, hash tar, and hash oil were arbitrary, capricious, and violative of the drug tax statute. The court also concluded that although the remaining $208,105 tax on the harvested marijuana was computed in compliance with the statute, its application here violated the Kurths' constitutional rights; the tax assessment served to punish the Kurths a second time for conduct to which they had pleaded guilty and been punished. Relying particularly on Halper, the court determined that this "second punishment" violated the double jeopardy clause of the Fifth Amendment. In re Kurth Ranch, 145 B.R. 61 (Bankr.D.Mont., 1990).

The district court affirmed the bankruptcy court's order. Drummond v. Dept. of Revenue, No. CV-90-084-PGH, 1991 WL 365065, at * 4 (D.Mont., April 23, 1991). Revenue does not challenge the bankruptcy and district court's holding that the original assessment of $865,000 was arbitrary and capricious; Revenue appeals only the determination that the $208,105 tax on the harvested marijuana is unconstitutional.

II

We review de novo a challenge to the constitutionality of a state statute. Jackson Water Works, Inc. v. Public Util. Comm'n, 793 F.2d 1090, 1092 (9th Cir.1986), cert. denied, 479 U.S. 1102, 107 S.Ct. 1334, 94 L.Ed.2d 184 (1987).

The Double Jeopardy Clause of the Constitution protects against three distinct abuses: a second prosecution for the same offense after acquittal; a second prosecution for the same offense after conviction; and multiple punishments for the same offense. United States v. Halper, 490 U.S. at 440, 109 S.Ct. at 1897. The third of these protections is at issue in this case.

The multiple-punishment prohibition applies only when the State attempts to criminally punish a defendant twice for the same offense. United States v. One Assortment of 89 Firearms, 465 U.S. 354, 104 S.Ct. 1099, 79 L.Ed.2d 361 (1984). The clause does not bar the State from imposing both a civil and a criminal penalty upon a defendant for the same offense, Helvering v. Mitchell, 303 U.S. 391, 58 S.Ct. 630, 82 L.Ed. 917 (1938), nor is the State barred from imposing a criminal and civil sanction in a single proceeding, as long as the court determines that "the total punishment [does] not exceed that authorized by the legislature." Halper, 490 U.S. at 450, 109 S.Ct. at 1903 (citing Missouri v. Hunter, 459 U.S. 359, 368-69, 103 S.Ct. 673, 679-80, 74 L.Ed.2d 535 (1983)). A disproportionately large civil sanction imposed in a subsequent civil proceeding, however, may constitute "punishment" within double jeopardy's multiple-punishment prohibition. Id.

Although the Montana statute labels the assessment as a "tax," this in itself is not dispositive as to whether this imposition constitutes an impermissible second punishment. A state cannot evade the prohibitions of the federal constitution merely by changing the label of the punishment. Indeed, " 'labels affixed either to the proceeding or to the relief imposed ... are not controlling and will not be allowed to defeat the applicable protections of federal constitutional law.' " Id. 490 U.S. at 448, 109 S.Ct. at 1901 (quoting Hicks v. Feiock, 485 U.S. 624, 631, 108 S.Ct. 1423, 1429, 99 L.Ed.2d 721 (1988)). The determination whether a civil sanction constitutes punishment "requires a particularized assessment of the penalty imposed and the purposes that the penalty may fairly be said to serve.... [A] civil as well as a criminal sanction constitutes punishment when the sanction as applied in the individual case serves the goals of punishment." Id.

Punishment serves the twin aims of retribution and deterrence. Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168, 83 S.Ct. 554, 567, 9 L.Ed.2d 644 (1963). The Supreme Court teaches us that "a civil sanction that cannot fairly be said solely to serve a remedial purpose, but rather can only be explained as also serving either retributive or deterrent purposes, is punishment, as we have come to understand the term." Halper, 490 U.S. at 448, 109 S.Ct. at 1902.

The Court has succinctly described the reason for the rule:

Where a defendant previously has sustained a criminal penalty and a civil penalty sought in the subsequent proceeding bears no rational relation to the goal of compensating the Government for its loss, but rather appears to qualify as "punishment" in the plain meaning of the word, then the defendant is entitled to an accounting of the Government's damages and costs to determine if the penalty sought in fact constitutes a second punishment.

Id. at 449-50, 109 S.Ct. at 1902.

Under Halper, the double jeopardy analysis requires the trial court to determine whether there is a rational relationship between the sanction imposed and the damages suffered by the government. Although the trial court's determination may often be no more than an approximation, "even an approximation will go far towards ensuring both that the Government is fully compensated for the costs of corruption and that, as required by the Double Jeopardy Clause, the defendant is protected from a sanction so disproportionate to the damages caused that it constitutes a second punishment." Id. at 450, 109 S.Ct. at 1903.

Finally, the rule in Halper is limited to "the rare case ... where a fixed-penalty provision subjects a prolific but small-gauge offender to a sanction overwhelmingly disproportionate to the damages he has caused." Id. at 449, 109 S.Ct. at 1902.

It should be noted that Halper 's disproportionality analysis is required only in those cases where there has been a separate criminal conviction. A state may legitimately tax criminal activities. See Marchetti v. United States, 390 U.S. 39, 44, 88 S.Ct. 697, 700, 19 L.Ed.2d 889 (1968). Moreover, there is no need for the civil sanction to be tied to any remedial analysis when it is...

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