U.S. v. McHan

• Decision Date: 29 September 2003
• Docket Number: No. 02-2067.,No. 02-2090.,No. 01-2060.,01-2060.,02-2067.,02-2090.
• Citation: 345 F.3d 262
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Charles William McHAN; Martha Beavers McHan; Samuel Ray McHan, personal representative of John Davis McHan, Defendants-Appellants. United States of America, Plaintiff-Appellee, v. Charles William McHan; Martha Beavers McHan; Samuel Ray McHan, personal representative of John Davis McHan, Defendants-Appellants. United States of America, Plaintiff-Appellant, v. Charles William McHan; Martha Beavers McHan; Samuel Ray McHan, personal representative of John Davis McHan, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

345 F.3d 262

UNITED STATES of America, Plaintiff-Appellee, v. Charles William McHAN; Martha Beavers McHan; Samuel Ray McHan, personal representative of John Davis McHan, Defendants-Appellants.

United States of America, Plaintiff-Appellee, v. Charles William McHan; Martha Beavers McHan; Samuel Ray McHan, personal representative of John Davis McHan, Defendants-Appellants.

United States of America, Plaintiff-Appellant, v. Charles William McHan; Martha Beavers McHan; Samuel Ray McHan, personal representative of John Davis McHan, Defendants-Appellees.

No. 01-2060.

No. 02-2067.

No. 02-2090.

United States Court of Appeals, Fourth Circuit.

Argued: June 3, 2003.

Decided: September 29, 2003.

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ARGUED: David Benjamin Smith, English & Smith, Alexandria, Virginia, for Appellants. Thomas Richard Ascik, Assistant United States Attorney, Asheville, North Carolina, for Appellee. ON BRIEF: Robert J. Conrad, Jr., United States Attorney, Asheville, North Carolina, for Appellee.

Before WIDENER, NIEMEYER, and LUTTIG, Circuit Judges.

Affirmed in part, reversed in part and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge WIDENER joined. Judge LUTTIG wrote an opinion concurring in part and concurring in the judgment in part.

OPINION

NIEMEYER, Circuit Judge.

Following the conviction of Charles McHan, Sr. for drug-trafficking and related offenses, the district court determined, pursuant to 21 U.S.C. § 853(a), that McHan was required to forfeit to the United States approximately $1.5 million in proceeds obtained as a result of his criminal conduct. When McHan could not account for the whereabouts of these proceeds, the court entered, as part of McHan's sentence, a preliminary order forfeiting "substitute property" of McHan in the form of real estate and other assets, pursuant to 21 U.S.C. § 853(p).

McHan's wife, Martha, and his two sons, John and Charles Jr., (the petitioners herein) filed a petition in Charles McHan, Sr.'s sentencing proceedings pursuant to 21 U.S.C. § 853(n), asserting an interest in much of the property listed in the preliminary order of forfeiture. After a hearing on their petition, the district court amended the preliminary order of forfeiture to release some of the substitute property and issued a final order of forfeiture with respect to the remainder.

On their appeal, Martha, John, and Charles Jr. contend (1) that under the Due Process Clause they were entitled to be heard before the district court issued the preliminary order of forfeiture; (2) that the relation-back principle of § 853(c), which provides that a criminal forfeiture relates back to include property owned by the defendant at the time of the commission of the act giving rise to forfeiture, does not apply to the forfeiture of substitute property; and (3) that the district court violated the Seventh Amendment by denying their request to have the hearing of their petition conducted before a jury. They also make several challenges to determinations specific to assets that were not released from the forfeiture order. On cross-appeal, the United States contends that the district court erred in releasing certain assets from the forfeiture order.

For the reasons that follow, we affirm in part, reverse in part, and remand.

I

Charles McHan, Sr. ("Charles Sr.") was charged in a seventeen-count indictment with drug trafficking in western North Carolina between November 1984 and November 1986. Specifically, the indictment charged Charles Sr. with, among other things, a conspiracy to distribute and to possess with intent to distribute over 50 kilograms of marijuana, in violation of 21 U.S.C. §§ 841 and 846; tax evasion; and engaging in a continuing criminal enterprise with regard to marijuana distribution. Count Seventeen alleged that Charles Sr.'s interest in property enumerated both in the indictment and in several appendices incorporated therein by reference was subject to forfeiture under 21 U.S.C. § 853, a statute authorizing the in personam criminal forfeiture of property used in connection with illegal drug activities.

After pleading guilty to Counts 2-7 of the indictment, Charles Sr. was tried by a jury and convicted on Counts 1 and 8-16. Thereafter, he waived a jury trial on Count 17, the forfeiture count. Following a bench trial, the district court found that Charles Sr. received proceeds in the amount of $1,489,350 as a result of illegal marijuana sales, and, after deducting Charles Sr.'s expenses incurred to obtain those proceeds and a co-conspirator's share of the proceeds, the court ordered forfeiture to the United States of $395,670. On appeal, we affirmed Charles Sr.'s convictions but ruled, with respect to the forfeiture, that the district court should have forfeited the gross proceeds, not the net profits, from the illegal activities. United States v. McHan, 101 F.3d 1027 (4th Cir. 1996).

On remand, the government moved for a preliminary order of forfeiture of substitute property because Charles Sr. had "refused to give credible information concerning the disposition" of the $1,489,350. The district court granted the government's motion, "subject to any third-party interests therein." Charles Sr. and the three petitioners then objected to the preliminary order of forfeiture, arguing that most of the substitute property in fact belonged to Martha, Charles Jr., and John because Charles Sr. had conveyed the property to them. The district court ruled that this objection was out of order because the petitioners' interests were adequately protected by 21 U.S.C. § 853(n). Martha, Charles Jr., and John then filed a petition under § 853(n) for a "Hearing to Adjudicate the Validity of [Their] Interest in Property Preliminarily Ordered Forfeited." In their petition, the petitioners argued (1) that a forfeiture of substitute property does not "relate back" to include property owned by the defendant at the time of the commission of the offense giving rise to forfeiture; (2) that much of the property was actually vested in Martha at the time of Charles Sr.'s criminal conduct pursuant to a 1981 written agreement between Martha and Charles Sr. ("the 1981 Agreement"); and (3) that, in any event, the petitioners obtained title to the property as bona fide purchasers for value by virtue of a series of three agreements entered into between Charles Sr. and Martha, dated July 1, 1988. The petitioners also requested that a jury find the facts on their petition.

The district court denied the petitioners' request for a jury and conducted a hearing, taking testimony from several witnesses. Following the hearing, the court concluded (1) that the substitute property eligible for forfeiture related back to include property owned by Charles Sr. at the time of the criminal acts giving rise to the forfeiture; (2) that Martha failed to prove by a preponderance of the evidence that the 1981 Agreement "provided her with a vested property interest that was superior to [Charles Sr.'s] at the time of the acts which gave rise to the forfeiture of [Charles Sr.'s] property" under § 853(n)(6)(A); and (3) that the transfers of property to the petitioners pursuant to the agreements dated July 1, 1988 were not arm's-length transactions and thus petitioners were not bona fide purchasers for value entitled to the property under § 853(n)(6)(B). The district court also made several specific rulings as to particular property sought to be forfeited. Following modifications to its decision made in response to the parties' motions for reconsideration, the court entered a final order of forfeiture on September 10, 2002.

The petitioners appeal from the final order of forfeiture, contending (1) that the district court erred in denying them an opportunity to be heard prior to the issuance of the preliminary order of forfeiture; (2) that forfeiture of substitute property does not relate back to the time of the commission of the acts that gave rise to forfeiture; and (3) that they were entitled to have a jury find the facts at the hearing on their petition to determine the validity of their interests in the property. In addition, the petitioners make several challenges to determinations made with respect to the forfeitability of specific assets. On cross-appeal, the government likewise challenges rulings on the forfeitability of several specific assets.

II

The criminal forfeiture statute at issue in this case, 21 U.S.C. § 853, was enacted by Congress as part of the Criminal Forfeiture Act of 1984, an amendment to the Comprehensive Drug Abuse Prevention and Control Act of 1970. See Pub.L. 98-473, § 303, 98 Stat.2044. Prior to the enactment of § 853, criminal forfeiture had to be obtained under either the Racketeer Influenced and Corrupt Organizations (RICO) statute, 18 U.S.C. § 1961 et seq., or the Continuing Criminal Enterprise (CCE) statute, 21 U.S.C. § 848. S.Rep. No. 98-225, at 193 (1984), reprinted in 1984 U.S.C.C.A.N. 3182, 3376. There was no specific criminal forfeiture statute for drug trafficking. In practice, prosecutors seeking forfeiture of drug-trafficking assets relied primarily on an in rem civil forfeiture procedure, which Congress found particularly inefficient because the civil forfeiture procedure required the government to file separate suits in every judicial district in which the criminal defendant's property was located. Id. at 196-97, reprinted in 1984 U.S.C.C.A.N. at 3379-80. Moreover, even when the criminal forfeiture provisions of the RICO and CCE statutes were applicable, they did not provide means by which the government could forfeit property that a criminal defendant disposed of in anticipation of the criminal proceedings. Id. at 195, reprinted in 1984 U.S.C.C.A.N. at 3378. Thus, when Congress enacted the Criminal Forfeiture Act of 1984, it both amended RICO's criminal forfeiture procedure to address its deficiencies and created 21 U.S.C. § 853, which "is, in nearly all...