Flores v. U.S.

• Decision Date: 11 April 1977
• Docket Number: 75-1698,Nos. 75-1627,s. 75-1627
• Citation: 551 F.2d 1169
• Parties: 77-1 USTC P 9380, 1 Fed. R. Evid. Serv. 1355 Manuel FLORES and Wilshire Insurance Company, Appellants-Cross-Appellees, v. UNITED STATES of America, Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1169

551 F.2d 1169

77-1 USTC P 9380, 1 Fed. R. Evid. Serv. 1355

Manuel FLORES and Wilshire Insurance Company Appellants-Cross-Appellees, v. UNITED STATES of America, Appellee-Cross-Appellant.

Nos. 75-1627, 75-1698.

United States Court of Appeals Ninth Circuit.

April 11, 1977.

Terry Knoepp, U. S. Atty., San Diego, Cal., Myron C. Baum, Gilbert E. Andrews, Chief, Grant W. Wiprud, Atty., argued, Appellate Section, U. S. Dept. of Justice, Washington, D. C., for appellee-cross-appellant.

J. David Hennigan, argued, Riverside, Cal., for appellants-cross-appellees.

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

Before ELY and KENNEDY, Circuit Judges, and FERGUSON, ^* District Judge.

ELY, Circuit Judge:

Under 26 U.S.C. § 7426, Flores instituted a suit to recover $110,000 seized from him by Internal Revenue Service Agents in Calexico, California, on November 6, 1973. The District Court ordered the return of only $10,000 to Flores, and both parties appeal.

FACTS

Flores is a bail bondsman who serves as an independent agent for Wilshire Insurance Co., his surety and underwriter which also joined, pro forma, as a party plaintiff. On November 6, 1973, he was contacted in the federal courthouse in Los Angeles, California, by a person identifying herself as a friend of one Guillermo Beltran. The person requested Flores to post bail on behalf of Beltran, a citizen of Mexico, who had been arrested and charged with possession of marijuana, with bail fixed at $100,000. Flores informed the woman that in the circumstances of the case, the surety would require cash security in the full amount of the bond, plus the standard premium of 10%. Flores was informed that the money for the security and, also the premium, would be delivered to him in Mexicali, Mexico. Flores thereupon chartered an airplane and flew to Calexico, California, directly across the border from Mexicali. He was accompanied by a woman who had contacted him and a friend of his, Elizabeth Gonzales. That afternoon in Mexicali, Flores met Josephina Sanchez and a woman identified as Prieta. These two women told Flores that they were unable to produce the money at that time but would have it available on the following day.

On the following day, at approximately 10:00 a. m., Flores met the two women in a Mexican restaurant approximately one block from the American-Mexican border station. After a short conversation, the women handed Flores a paper bag containing $110,000 in American currency. The currency was contained in bank wrappers from Banco de Commercial. Josephina Sanchez told Flores that the money belonged to her, and Flores gave her a receipt. After making arrangements to fly to Los Angeles to post the bail, Flores and Mrs. Gonzales then proceeded to the border station in a pickup truck loaned to them by Mrs. Sanchez. The evidence is conflicting as to whether Flores voluntarily informed customs officials of the amount of money he was transporting. In any event, the officials discovered the money, and Flores was detained with the money at the border station. After a delay of 51/2 hours, Gloria Nelson, a representative of the Internal Revenue Service arrived, asked Flores a few questions, and seized the money. The seizure was made pursuant to notice of levy served upon Flores and describing alleged tax liabilities of Guillermo Beltran to the United States in the amount of $157,029.

While Flores was being detained, two attorneys having some connection with Beltran called the border station to inquire as to the whereabouts of Flores and the money. One of the attorneys was from San Diego, California, and the other was one Buenrostro, a Mexican attorney. On November 12, 1973, Buenrostro delivered to an official at the United States Border Station at Calexico two letters on the stationery of Banco Mexicano de Occidente. One of the letters identified Buenrostro as an attorney representing the bank. The second letter stated that the sum of $110,000 which had been seized by the Internal Revenue Service from Flores represented an agricultural loan from the bank to Guillermo Beltran, and that the bank was cancelling that extended credit.

Flores instituted his suit immediately after the seizure of the money. An attempt was made by both parties to include Josephina Sanchez as a party to the suit, or to take her deposition, but she disappeared after forcing Flores, under threat of harm, personally to repay the full amount of the money to her.

I.

Section 7426 contains two distinct prerequisites to its application: (1) that the plaintiff have an interest in or lien on the property at issue, and (2) that the levy be wrongful (i. e., that the property not be the taxpayer's). The first of these requirements ensures standing; the second focuses on the condition precedent to government seizure, a nexus between the taxpayer and the property. The trial court rightly found that since Flores was a bailee in possession at the time of the seizure, the first of these requirements was satisfied.

The controversy has centered on the second of these elements: the wrongfulness of the levy. The issue to be determined by the District Court was therefore uncomplicated: did the money belong to Beltran? The evidence, however, was sparse. The only clearly stated claim to ownership was that of Josephina Sanchez, who, according to Flores, said that he should make out a receipt for the cash "to me, of course; it's my money." Her post-seizure demands that Flores return the money to her or face bodily harm may perhaps be regarded as a further assertion of her interest. On the other hand, the Government attempted to present circumstantial evidence suggesting that various agents of Beltran may have been at work to procure money that was inaccessible to him while he was in prison. After a careful review of the record, however, we have concluded that the evidence linking the money to Beltran will not support a finding, and the trial judge's finding in this respect is, therefore, clearly erroneous. ¹ Our reasons are summarized as follows:

(1) The Government emphasizes that the evidence disclosed that Flores had met with Beltran about posting bail prior to his (Flores') meeting with the unidentified woman outside the courthouse. But we are unable to see how evidence of Beltran's desire to be released on bail supports a finding that the bail money was his and his alone. The record nowhere suggests or insinuates any previous connection between Beltran and the woman who initially contacted Flores on November 6th.

(2) The Government relies heavily on the testimony of Internal Revenue agent Nelson, who stated that Flores admitted to her that the money belonged to Beltran. In making its argument, however, the Government completely ignores Flores' statement that he told Nelson only that the money was to be used for Beltran's bail, not that the money belonged to Beltran. The trial judge weighed the credibility of the witnesses, and specifically found that the money was to be used for Beltran's bail, as Flores testified. Since the judge impliedly rejected Nelson's literal version of the alleged statement, Nelson's testimony does not support the court's more general finding as to the ownership of the money.

(3) Finally, the Government asserts that the inquiries made by the Mexican attorney, Buenrostro, also support the critical finding. But in our view, the fact that someone connected to Beltran expressed interest in the whereabouts of Flores and the bail money is not probative on the question of whether Beltran owned the money. Beltran obviously had good reason to be interested in money that was going to be used to post his bail, regardless of whether he owned that money or not. The trial judge found that the letters were employed as a strategem to enable Buenrostro to gain possession of the $110,000, and that this ploy represented a claim of ownership on behalf of Beltran. We are unable to avoid the conclusion that, in the light of the record, this finding was clearly erroneous.

The letters were hearsay and therefore inadmissible as positive evidence. The judge appropriately recognized the hearsay quality of the documents; consequently he could not accept the letters as proof that the bank had loaned the money to Beltran. Disregarding any hearsay implication of ownership contained in the letters, there was nothing in Buenrostro's conduct which connected the money to Beltran in any way whatsoever. Both the District Court and the Government appear to have overlooked the critical fact that Buenrostro purported to act as counsel for the Banco Mexicano de Occidente, not for Beltran. Thus, to prove the tenuous link between Buenrostro, Beltran, and the money, the Government must necessarily have relied on that hearsay statement in the letter which described the money as an agricultural loan to Beltran. This is an impermissible method of proof under Rule 802, Fed.R.Evid., and constitutes no evidence, substantial or insubstantial, to support the finding that Beltran was the owner of the money.

The Government's rather tortuous claim that Buenrostro's assertion of ownership is admissible as circumstantial evidence of Beltran's ownership is without any merit whatsoever. ²

What the Hearsay rule forbids . . . is the use of testimonial evidence i. e., assertion uttered not under cross-examination. If, then, an utterance can be used as circumstantial evidence, i. e., without inferring from it as an assertion to the fact asserted . . . , the Hearsay rule does not oppose any barrier . . . (emphasis added).

6 J. Wigmore, Evidence § 1788 at 234 (3d ed. 1940). As we have already emphasized, the Government sought to rely on the facts asserted in the letters and to use the assertion for testimonial value. Rule 802 bars their admission for this purpose. Cf. Sica v. United States, 325 F.2d 831 (9th Cir. 1963).

II.

Our inability to uphold the factual finding that Beltran was the...