U.S. v. Kingsley, 87-1996

Decision Date05 May 1988
Docket NumberNo. 87-1996,87-1996
Citation851 F.2d 16
PartiesUNITED STATES of America, Appellee, v. Michael J. KINGSLEY, Defendant, Appellant. . Heard
CourtU.S. Court of Appeals — First Circuit

Owen S. Walker, Federal Defender Office, for defendant, appellant.

C. Brian McDonald, Asst. U.S. Atty., with whom Frank L. McNamara, Jr., U.S. Atty., was on brief for appellee.

Before BREYER and TORRUELLA, Circuit Judges, and FUSTE, * District Judge.

FUSTE, District Judge.

We determine in this case whether several liquidated assets of the appellant, Michael J. Kingsley ("Kingsley"), seized pursuant to a civil forfeiture claim, 21 U.S.C. sec. 881, and eventually turned over to the government under the criminal forfeiture provisions, 21 U.S.C. sec. 853, should have at any time been placed in an interest-bearing account, and if so, whether Kingsley is entitled to any interest that may have accrued.

Forfeiture proceedings, part of the modern congressional response to growing problems in the administration of criminal justice, must nonetheless be in harmony with the fifth amendment. The final result in this instance is based on a logical exposition of alternatives discussed by the court during oral argument. Inasmuch as this case is one of first impression, this decision will be an aid to the district courts and future litigants who must sail through these newly-discovered waters.

FACTUAL BACKGROUND

In May 1985, before any criminal indictment was returned, the Drug Enforcement Administration ("DEA") began the process of seizing the home and other possessions and assets of the appellant. We concern ourselves at this time only with the seizure A second, superseding, indictment was returned by a grand jury on July 28, 1986. Count 16, like Count 15 of the original indictment, charged Kingsley with engaging in a continuing criminal enterprise ("CCE") under 21 U.S.C. sec. 848. This subjected the assets already seized and held in the civil matter to criminal forfeiture under the CCE provisions. 21 U.S.C. sec. 853. 2

of and subsequent proceedings regarding approximately $53,000 in cash in various bank accounts and approximately $70,000 worth of instruments including miscellaneous stocks, bonds, and certificates. On June 20, 1985, the government instituted a formal civil forfeiture action against the seized bank accounts, and on September 5 filed a similar claim against the instruments. Kingsley was later indicted for tax and drug offenses on November 26, 1985. 1

The property remained seized under the civil provisions until December 18, 1986 when, pursuant to a motion for injunctive relief by the government, the district court ordered the assets placed in the custody of the U.S. Marshal under the criminal forfeiture provisions. Evidently, the government was considering dismissing the civil claim and wanted to ensure the assets remained under official protection pending resolution of the criminal action. The district court granted the government's motion and ordered the seized cash and any instruments converted to liquid form transferred to the custody of the U.S. Marshal. The Marshal would then "deposit said monies into an interest-bearing bank account at the highest yield"--the arrangement the government itself requested. This aspect of the December 18, 1986 written order confirmed what the district judge had verbally ordered on November 25, 1986.

Kingsley pled guilty to all counts, including the CCE charge, on January 9, 1987. As part of his plea agreement, he agreed to forfeit most of the assets seized by the government, including those that were liquidated. In a separate agreement, Kingsley and the government agreed that the liquid assets seized and listed in an attachment to the plea agreement (and later as an attachment to the district court's judgment) would be applied toward a federal tax assessment against him of more than $300,000. 3

Kingsley then learned that the liquid assets had never been placed in an interest-bearing account and that only the principal amount seized would be applied to his substantial tax debt. In April 1987, Kingsley moved for an accounting and for the application of an acceptable interest rate to those assets, claiming that the government both failed to discharge its duty as trustee for the seized assets and additionally violated an express court order mandating that the funds earn interest. The government responded with two accounts of the assets of Kingsley, one filed in June and the other in July, 1987. On October 27, 1987, the district court entered an order, from which Kingsley now appeals, accepting the

government's explanations and refusing to award Kingsley interest.

THE GOVERNMENT'S THEORY

The government's attempt to comply with the court order granting their own request to place the funds in an interest-bearing account reveals a series of bureaucratic brick walls and less than sensible policymaking. Immediately following the district court's November 26, 1986 oral order requiring the funds to earn interest, Assistant U.S. Attorney Henry Rigali sought compliance from the DEA, the agency he thought controlled the assets, and from the U.S. Marshal. He was then informed that the cash, at that time in the form of manager's checks, had been seized by the Internal Revenue Service in connection with Kingsley's outstanding tax debt. The IRS proved reluctant to relinquish control and in fact, the funds were released only after Rigali informed that agency, on December 22, 1986, that the money was under the court's protection from the time it was seized in connection with the civil forfeiture action. Although the U.S. Attorney's office finally received the funds in January, 1987, those checks were never deposited into the U.S. Marshal's official holding account until May 5, 1987--long after any agreements with Kingsley were concluded.

The government offers no satisfactory explanation for its failure to place the funds in an interest-bearing account, after a court order to that effect. In the first account of Kingsley's assets, the government asserted that Treasury Department policy directed the creation of a non-interest-bearing account for seized monies pending final disposition of a criminal forfeiture proceeding. That same policy authorized the Marshal to maintain a separate fund should interest later be due, for example, to a criminal defendant who obtained an acquittal. 4

Because we ultimately decide this matter under our own theory of contract, we do not reach the issue of which department regulations were applicable and whether they should be upheld. However, we do note the irrationality of a policy either to store the bank manager's checks in some safety deposit box, as was done with Kingsley's money, or to establish a non-interest-bearing account. In the first instance, the various banks that issued the checks receive something akin to a windfall for no apparent reason, and in either instance the burden of any interest due at the conclusion of the proceedings must fall on the government, and by extension, the taxpayer. 5 This is patently uneconomical and, in fixing the markers that will guide others in the future, we hold that the government does not possess unbridled discretion to pursue so pointless a policy.

The evocation of the "relation back" doctrine as a bar to Kingsley's claim is not an acceptable defense. In its appellate brief, the government contends that because "[a]ll right, title and interest in [forfeited] property vests in the United States upon the commission of the act giving rise to the forfeiture ...", 21 U.S.C. sec. 853(c), Kingsley cannot now claim any right to interest that may have accrued during that period after the assets were seized. Since the title relates back to the United States from before seizure, it is claimed, the government has no responsibility toward the owner afterward.

We do not agree. Title to forfeited property does relate back to the United Furthermore, the policy behind the relation-back doctrine fails to support the government's contention. Part of the civil as well as the criminal statutes, the doctrine ensures that a defendant cannot sell his property prior to conviction and thereby shield it from eventual forfeiture. Specifically, the framers of the statute at issue here wanted to prevent sham or fraudulent transactions to third parties before conviction. See e.g., U.S. v. Harvey, 814 F.2d 905, 915 (4th Cir.1987), citing S.Rep. No. 98-225, 98th Cong., 1st Sess. 200-01, reprinted in 1984 U.S.Code Cong. & Admin.News 3182, 3383-4; see also U.S. v. Rogers, 602 F.Supp. 1332, 1347 (D.Colo.1985). Consequently the statute allows sales only to bona fide purchasers with no knowledge that the property was subject to forfeiture. Thus, in addition to the specific language of the statutes, there is no indication that the framers of the forfeiture provisions intended the United States to assume full control over seized property before actual forfeiture is consummated.

                States from the time of the commission of the crime, but this case concerns the status of property seized but not yet forfeited.  Title revertsonly after forfeiture is effected, and in the criminal context that is only after a conviction and determination that the assets were the product of illicit activities. 6   This is apparent from the very first line of the criminal forfeiture provision at issue here, which reads in pertinent part:  "Any person convicted of a violation of this subchapter ... shall forfeit to the United States ..." 21 U.S.C. sec. 853(a) (emphasis added). 7
                

Similarly, the provisions for pre-conviction seizure were enacted to keep defendants from transferring their assets before conviction, thus preventing the government from locating the property later. 1984 U.S.Code Cong. & Admin.News at 3378-79, 3385-88. The seizure provisions are much less stringent than those for actual forfeiture and do not enable...

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