Newport Sav. and Loan Ass'n, In re

• Decision Date: 04 December 1990
• Docket Number: No. 90-1793,90-1793
• Citation: 928 F.2d 472
• Parties: In re NEWPORT SAVINGS AND LOAN ASSOCIATION, Claimant, Appellant. UNITED STATES of America, Plaintiff, Appellee, v. REAL PROPERTY LOCATED AT 185 HARGRAVES DRIVE, etc., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 472

928 F.2d 472

59 USLW 2593

In re NEWPORT SAVINGS AND LOAN ASSOCIATION, Claimant, Appellant UNITED STATES of America, Plaintiff, Appellee, v. REAL PROPERTY LOCATED AT 185 HARGRAVES DRIVE, etc., et al Defendants, Appellees.

No. 90-1793.

United States Court of Appeals First Circuit.

Heard Dec. 4, 1990.

Decided March 21, 1991.

Quentin Anthony, with whom Sheffield & Harvey were on brief, for claimant, appellant.

Michael P. Iannotti, Asst. U.S. Atty., with whom Lincoln C. Almond, U.S. Atty., was on brief, for U.S.

Vincent R. Patrone, with whom Winograd, Shine & Zacks was on brief, for Arnold Sundel and Richard W. Zacks.

Before BREYER, Chief Judge, CAMPBELL and CYR, Circuit Judges.

BREYER, Chief Judge.

This appeal, in effect, asks how an "innocent lienholder"--a bank holding a mortgage--can exercise its "ownership" rights, to foreclose upon, and to sell, property that the Government wants forfeited under the drug laws. We conclude that the answer to the question is found in the "customs laws" of the United States. See 21 U.S.C. Sec. 881(d). Since the appellant, an "innocent lienholder" who wants to foreclose, did not follow the relevant customs laws procedures we affirm a district court determination that it may not foreclose at the present time.

I Background

The Government has seized two pieces of real estate, one residential, the other commercial. It says that William Sundel, either directly or indirectly, bought these properties with the profits of drug transactions. It points to relevant drug-forfeiture statutes, which provide that:

1) "[a]ll ... things of value furnished ... by any person in exchange for a controlled substance [and] all proceeds traceable to such an exchange ..." are subject to forfeiture, id. Sec. 881(a)(6);

2) the "Attorney General" may "seize[ ]" such property before forfeiture, id. Sec. 881(b); and,

3) after seizure, the property "shall be deemed to be in the custody of the Attorney General, subject only to the orders and decrees of the court ... having jurisdiction thereof." Id. Sec. 881(c).

The appellant, Newport, is a bank that holds mortgages on the properties. It holds a mortgage on the seized house to secure a debt (to the bank) of about $239,000; it holds a mortgage on a 99-year lease for the seized commercial property to secure a debt (to the bank) of about $734,000. It has received no mortgage payments since the Government seized the property on July 17, 1989. It would like to foreclose upon its mortgages and to sell both properties. It points out that the drug-forfeiture statute says that an owner who did not know of, or agree to, the unlawful use of his property, is an innocent owner, and that

no property shall be forfeited ... to the extent of the interest of [such] an owner....

Id. Sec. 881(a)(6). The Government concedes, and the district court specifically found, that Newport is an innocent owner.

The forfeiture proceeding is currently in progress in the district court. During this proceeding, Newport filed a motion in the district court, asking the court to grant it "leave" to foreclose its mortgages and to sell the properties. Newport pointed out that its mortgages were in default. It said that the mortgage debt exceeds the value of the properties. And, it warned that, with every passing day, a falling real estate market weakens its ability to recover (through sale) the money it has loaned. The district court denied its request for "leave" to foreclose. Newport now appeals that denial.

II Appealability

The Government argues that the district court's denial of Newport's motion for "leave" to foreclose is not an appealable order. We agree that the motion may seem an odd one, for, in the forfeiture context (unlike bankruptcy, see 11 U.S.C. Sec. 362(a)(4) & (d)(2)), no statute seems to say that anyone needs a federal court's approval in order to bring a state-law foreclosure action. Yet, as a practical matter, it may be impossible to find a buyer at a foreclosure sale for property that is "in the custody of the Attorney General," 21 U.S.C. Sec. 881(c), and to which the United States asserts a legal claim. Thus, we look past the motion's title, and we assume that it is a motion asking the district court to order the Government to release the property from its "custody" so that Newport can foreclose upon, and sell, it.

Characterized in this way, the determination of the district court, while not appealable as a "final decision," 28 U.S.C. Sec. 1291 (for it does not finally determine the claims asserted in the forfeiture proceeding), is nonetheless appealable as a "collateral order." See Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 545-47, 69 S.Ct. 1221, 1225-26, 93 L.Ed. 1528 (1949). Such an order must "(1) 'conclusively determine the disputed question,' (2) 'resolve an important issue completely separate from the merits of the action,' and (3) 'be effectively unreviewable on appeal from a final judgment.' " Van Cauwenberghe v. Biard, 486 U.S. 517, 522, 108 S.Ct. 1945, 1949, 100 L.Ed.2d 517 (1988) (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 2457, 57 L.Ed.2d 351 (1978)). These same features characterize the order before us.

The order conclusively determines a matter fully resolved below, namely whether an innocent lienholder can foreclose on seized property in the Government's custody. And, this right is unrelated to the issue of whether or not "drug money" was used to pay for the property. See Van Cauwenberghe, 486 U.S. at 529, 108 S.Ct. at 1953; Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 277, 108 S.Ct. 1133, 1137, 99 L.Ed.2d 296 (1988). The order determines an asserted right that Newport cannot vindicate on a later appeal, namely the right to exercise now, before a final forfeiture determination, the same state-law foreclosure remedies that it could exercise if the Government had not seized the property. That right may be important in this case (where the debt allegedly exceeds the value of one of the properties), for a significant postponement of its exercise could mean added loss for Newport if the real estate market falls further. And, even if market values stay constant, Newport may be harmed. The consent decree says that Newport "is entitled to ... interest from the date of seizure to the date of sale or disposition of the property," but that clause does not say that the Government must pay Newport interest. It may simply give Newport permission to collect interest from foreclosure sale proceeds, in which case Newport might find it impossible to collect the interest owed.

Moreover, the legal question itself is an important one. See In re Recticel Foam Corp., 859 F.2d 1000, 1003-04 (1st Cir.1988). Drug-related forfeiture proceedings have become common. They may frequently implicate the property rights of innocent persons. Yet, the parties have not pointed to any well-settled law defining those rights while the property is in the Attorney General's custody, pending a forfeiture proceeding's outcome.

Consequently, we proceed to the merits of the appeal.

III The Merits

The legal question before us is whether the district court lawfully could refuse to permit an innocent lienholder, such as Newport, to foreclose upon, and to sell, mortgaged property that the Government wants forfeited, before forfeiture proceedings have concluded. Newport, pointing to a statutory provision in Title 28 of the U.S.Code, 28 U.S.C. Sec. 2465, argues that the court must issue an order releasing such property from the Government's "custody" so that an innocent lienholder can exercise its right to foreclose. The Government, pointing to the Quiet Title Act of 1972, 28 U.S.C. Sec. 2409a, argues that federal courts have no power to order the Government to release seized real property before the related forfeiture proceeding has concluded. In our view, neither of these statutory provisions directly controls the court's power to impose appropriate protective orders during forfeiture proceedings--orders that seek to permit private parties to preserve the value of their property interests while also adequately safeguarding the Government's interest in eventual forfeiture. Rather, Congress has provided that courts are to determine disputes about such orders (disputes such as the present one) in accordance with the "customs laws" of the United States, see 21 U.S.C. Sec. 881(d), which set forth procedures for releasing such property upon the posting of a proper bond. See 19 U.S.C. Sec. 1614.

a. Newport's argument. Newport argues that it has an absolute legal right to foreclose upon real property in the Government's "custody," just as if the property were in the hands of a private person. It finds that right in a procedural provision of Title 28 of the U.S.Code, which says:

Upon the entry of judgment for the claimant in any proceeding to condemn or forfeit property seized under any Act of Congress, such property shall be returned forthwith to the claimant....

28 U.S.C. Sec. 2465. Newport says that the district court's finding that it is an innocent lienholder amounts to a "judgment for the claimant;" hence, the court must order the Government to "return" its "property ... forthwith."

We do not accept Newport's reading of the statute for several reasons. First, the statute's language does not apply directly to the present case. Strictly speaking, the Attorney General has not "seized" Newport's property (which is a lien) nor is he attempting to do so. Thus, in a sense, there is nothing for the Attorney General to "return."

Second, and more important, the statutory provision is not directed at the problem that underlies the present case. Its language suggests application where the Government and a private party disagree about who owns a piece of property and a court then decides in favor of the private party. The conflict here, however, is not one of conflicting claims to Newport's property interest. Rather, the...