U.S. v. Campos

• Decision Date: 02 December 1988
• Docket Number: Nos. 86-1798,86-2011,O-M,s. 86-1798
• Citation: 859 F.2d 1233
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Antonia CAMPOS, Jose Campos, Milk-at, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1233

859 F.2d 1233

UNITED STATES of America, Plaintiff-Appellee, v. Antonia CAMPOS, Jose Campos, Milk-O-Mat, Inc., Defendants-Appellants.

Nos. 86-1798, 86-2011.

United States Court of Appeals Sixth Circuit.

Argued Aug. 28, 1987.

Decided Oct. 5, 1988.

As Amended Nov. 7, 1988.

Rehearing and Rehearing En Banc Denied Dec. 2, 1988.

Michael J. Rex argued, Birmingham, Mich., for defendants-appellants in No. 86-1798.

Mark L. Teicher (argued), Southfield, Mich., for defendants-appellants in No. 86-2011.

Gary M. Maveal, Asst. U.S. Atty. (argued), Detroit, Mich., for plaintiff-appellee in Nos. 86-1798, 86-2011.

Before JONES, WELLFORD and GUY, Circuit Judges.

WELLFORD, Circuit Judge.

These cases, consolidated for appeal, present the sole issue of whether unsecured creditors, under the circumstances of this case, may assert claims for reimbursement in property forfeited to the government pursuant to 21 U.S.C. Sec. 853. In reviewing the district court's decision that Jose and Antonia Campos have not stated a recognizable claim under 21 U.S.C. Sec. 853(n)(6), we recognize that few cases have addressed this issue. We affirm.

I.

Pablo and Jose Campos were indicted by a federal grand jury on May 10, 1985 for conspiring to distribute narcotics and for engaging in a continuing criminal enterprise. 21 U.S.C. Secs. 841, 846, and 848. The government's case showed that Pablo Campos, through his ownership of three drug stores, used the drug stores to distribute narcotics for purposes other than medical uses. Jose Campos, Pablo's father, was charged with illegal conduct for helping set up corporations for these corrupt purposes.

Defendant Pablo Campos pled guilty and as part of his plea agreement agreed to forfeit his interest in the corporations. The criminal case against Jose Campos was dismissed pursuant to a settlement agreement. Pablo Campos' agreement provided that he would relinquish all common stock and other interests he held in seventeen corporations, which included the three drug stores. In addition, he would give up various commercial and residential properties, notes receivable, motor vehicles, and a boat. Jose Campos and his wife Antonia agreed to forfeit several of their assets, including a house and interests in the corporations. In their written assignments of interest to the government, however, Jose and Antonia reserved the right to seek compensation for services rendered to the corporations as employees ¹ pursuant to 21 U.S.C. Sec. 853(n)(1).

Following the plea agreements the district court entered a judgment and order of forfeiture. The government, in accordance with 21 U.S.C. Sec. 853(n)(1), published notice of the forfeiture and directed all creditors with claims against the property to file petitions asserting the claims with the district court. Jose and Antonia Campos filed claims alleging unpaid wages of $180,726.18 for bookkeeping services rendered to the corporations. Another claimant was petitioner Milk-O-Mat, which filed a claim totalling $138,254.30. This amount, Milk-O-Mat asserted, represented a debt of $108,154.30 on open account with three of the forfeited drug stores and $30,100.00 for the value of milk coolers the drug stores were allowed to use as long as they did business with Milk-O-Mat. ² All petitions sought to set aside the forfeiture pursuant to 21 U.S.C. Sec. 853(n)(6). ³

Following a hearing, the district court granted the government's motion to dismiss all appellants' claims for failure to state a claim upon which relief could be granted, and confirmed the government's title to the drug store corporations. The court determined that the claims for wages and the debts owed Milk-O-Mat failed to allege "any legal interest in or bona fide purchase of the forfeited assets" within the meaning of Sec. 853(n)(6). This appeal followed. ⁴

Following notice of an order of forfeiture under the Comprehensive Crime Control Act of 1984, any person who asserts a sufficient interest in the forfeited property, other than the defendant, may petition the district court to adjudicate the validity of his alleged interest. Appellants in this case filed petitions under this provision and obtained a hearing. The issue is whether Jose Campos and/or Milk-O-Mat as unsecured creditors have a "legal right, title, or interest in the property" within the meaning of Sec. 853(n)(6)(A) or may be "bona fide purchasers" within the meaning of Sec. 853(n)(6)(B).

II. BONA FIDE PURCHASER UNDER (B)

We are aware of only two courts which have previously addressed the question of whether a general creditor may qualify as a bona fide purchaser for purposes of Sec. 853(n)(6)(B). See United States v. Reckmeyer, 836 F.2d200 (4th Cir.1987) (petition for cert. filed April 11, 1988 (Nos. 86-5037/5070/5089)), and United States v. Mageean, 649 F.Supp. 820 (D.Nev.1986), aff'd without opinion, 822 F.2d 62 (9th Cir.1987). Both of these courts found that general, unsecured creditors may have cognizable claims under that subsection. In Reckmeyer, the third party petitioner was the criminal defendant's father, as is Jose Campos. He had loaned his son money, which was evidenced by an unsecured promissory note, not knowing that his son was involved in illegal drug trafficking. The father had also purchased some real estate from his son, executing a promissory note payable to the son and the son's wife and paying cash directly to the owner of the property to satisfy the son's original promissory note. After the son was convicted, certain of his property was forfeited under the forfeiture statute, including the real estate his father had purchased and the accompanying promissory note. The father petitioned the district court to recover the principal due on the unsecured promissory note and an interest, to the extent that he paid cash, in the forfeited real estate.

The government argued in Reckmeyer that only persons with security interests in specific forfeited assets have standing to challenge a forfeiture under subsection (n)(6). The court rejected that contention, noting that a liberal construction of the statute required a finding that Congress intended unsecured creditors to recover, as long as they dealt at arms' length and without notice of criminal activity. 836 F.2d at 207, 208.

The Reckmeyer court also found that a strict construction precluding any recognition of unsecured creditors' claims would frequently lead to erroneous results and could result in unconstitutional deprivations of property. Under Sec. 853(d) of the forfeiture statute, certain property is presumed forfeitable. The criminal defendant may present evidence to rebut that presumption, but third party claimants may not present any evidence under this section. If unsecured creditors are also precluded from challenging forfeitures under the third party petition provision, the court felt that the statute could operate to deprive these creditors of their property, thus raising "[s]erious due process questions." 836 F.2d at 206. Reckmeyer concluded that Sec. 853(n)(6) must be construed to give standing for all general creditors to assert claims to rebut the presumption of forfeitability, holding that this interpretation would serve the salutary purpose of punishing the defendant without unfairly punishing innocent third parties. 836 F.2d at 208. The court of appeals in Reckmeyer therefore construed "bona fide purchaser for value" in 21 U.S.C. Sec. 853(n)(6)(B) to include persons giving "value to the defendant in an arms' length transaction." Id.

In United States v. Mageean, 649 F.Supp. 820 (D.Nev.1986), aff'd without opinion, 822 F.2d 62 (9th Cir.1987), the petitioners were unsecured trade creditors who had provided goods and services to the business that was forfeited pursuant to 18 U.S.C. Sec. 1963. 649 F.Supp. at 827. ⁵ The government argued that petitioners, as general unsecured creditors, had no cognizable claim under Sec. 1963(m)(6). The question before the Mageean court was whether the trade creditors could assert claims as "bona fide purchasers for value" under subsection (6)(B). 649 F.Supp. at 828.

While Mageean agreed with the government that unsecured trade creditors "do not, in a technical sense, have legal interests in the forfeited property," the court found, nevertheless, that Congress intended to protect innocent, "bona fide purchasers," and that the trade creditors were innocent parties who had entered bona fide, arms' length transactions with the business conducted by the criminal defendant whose property was forfeited. Id. The court asserted that as a result of the obligations arising from these bona fide transactions, the trade creditors should be considered as having "purchased 'property' i.e., their claims against [the business]." Id. at 829. The court then determined that "there is no reason that a good faith provider of goods and services cannot be a bona fide purchaser under the statute." Id.

Mageean found support for this conclusion from cases allowing attorneys who had provided legal services to defendants who forfeited assets to present claims against the forfeiture. See, e.g., United States v. Reckmeyer, 631 F.Supp. 1191, 1194, 1194 n.1 (E.D.Va.1986) (Reckmeyer II ) (allowing attorneys to assert claims for fees under Sec. 853(n)(6) as a logical extension of the ruling in Reckmeyer I allowing general unsecured creditors to assert claims), aff'd sub nom. United States v. Harvey, 814 F.2d 905 (4th Cir.1987); United States v. Bassett, 632 F.Supp. 1308, 1315-18 (D.Md.1986) (finding attorneys' fees exempt from the forfeiture provisions of Sec. 853), aff'd sub nom. United States v. Harvey, 814 F.2d 905 (4th Cir.1987); United States v. Badalamenti, 614 F.Supp. 194, 197-98 (S.D.N.Y.1985) (attorneys' fees exempt from forfeiture under Secs. 1963 and 853); United States v. Rogers, 602 F.Supp. 1332, 1346-48 (D.Colo.1985) (attorneys' fees excluded from forfeiture under Sec. 1963). But see In re Grand Jury Subpoena Duces Tecum Dated ...