U.S. v. One Parcel of Land Located at 7326 Highway 45 North, Three Lakes, Oneida County, Wis.
| Decision Date | 06 October 1992 |
| Docket Number | No. 91-1617,91-1617 |
| Citation | 965 F.2d 311 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. ONE PARCEL OF LAND LOCATED AT 7326 HIGHWAY 45 NORTH, THREE LAKES, ONEIDA COUNTY, WISCONSIN, Together With All Appurtenances and Improvements Thereon, Defendant, Appeal of Harry R. SEYMER, Dorothy B. Seymer, and Modernaire, Inc., a Wisconsin corporation. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Steven Pray O'Connor, Asst. U.S. Atty. (argued), Madison, Wis., for plaintiff-appellee.
Ralph A. Kalal (argued), Kalal & Habermehl, Madison, Wis., for appellants.
Before POSNER and MANION, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.
Pursuant to 21 U.S.C. § 881(a)(7), the government filed a complaint for forfeiture in rem against a parcel of land located in Oneida County, Wisconsin, alleging that the property had been used to facilitate a violation of Title II of the Controlled Substances Act, 21 U.S.C. §§ 801 et seq., punishable by more than one year's imprisonment. Modernaire Three, Inc. ("Modernaire"), owned the property in fee simple and contested the forfeiture in district court. After Modernaire and the government filed cross-motions for summary judgment, the district court granted the government's motion. Modernaire appeals claiming that the district court improperly rejected its innocent owner defense. We reverse and remand for entry of summary judgment in favor of Modernaire.
The parties agree that this case presents no material issues of fact. Since the legal issue presented focuses on the innocent owner defense, the relevant facts concern the ownership and operation of the res in this forfeiture action.
Incorporated in 1972, Modernaire owned the defendant property in a resort community in northern Wisconsin. The property consists of a parcel of land and five buildings: a tavern, a house, two cabins, and a garage. Only three individuals own stock in Modernaire. Harry R. Seymer, Jr., and his wife, Dorothy B. Seymer, own two-thirds of the shares. Their son, Harry R. Seymer, III ("Harry III"), owns the remaining one-third. Harry and Dorothy Seymer provided the original capital for Modernaire and for the purchase of the real estate by selling a tavern they owned personally, contributing $25,000, mortgaging other property, and mortgaging the property purchased. Harry III made no contribution to capitalize Modernaire or to purchase the property. Harry III's shares were a gift from his parents who wanted to provide their son with a start in life. Harry Seymer serves as president and Dorothy Seymer serves as vice-president of the corporation. Harry III served as corporate secretary-treasurer at all times relevant to this appeal.
From 1972 until the government seized the property in 1990, Harry III directed the day-to-day operations of the property and the tavern business. Between 1972 and 1977, Mr. and Mrs. Seymer lived in Milwaukee and would visit the property on weekends to check on business and help Harry III with maintenance, repairs and improvements. Before Modernaire purchased it, the property had been an auto court. The buildings had fallen into disrepair, so the Seymers would spend from Friday night through Sunday cleaning and repairing the premises. In 1977, Mr. and Mrs. Seymer moved to property next to the defendant property. In spite of a physical disability, Mr. Seymer visited the property daily spending anywhere from a half hour to the whole day doing ministerial and janitorial tasks. After being diagnosed with an aneurysm in 1979 at the age of 62, Mrs. Seymer was unable to participate in the day-to-day operations of the tavern but remained in touch with how it was run.
From the inception of Modernaire, Mr. and Mrs. Seymer attended informal monthly meetings and monitored Harry III's management of the business. They did rely on Harry III, however, to relay relevant financial information to them. Harry III had full authority to handle tax and financial matters and deal with vendors, government agencies, professionals and third parties on behalf of Modernaire. In exchange for managing the property, Harry III and his wife (also an employee of Modernaire) resided rent-free on the property and collected rental proceeds from a cabin on the premises. While the property no doubt appreciated over the years and the business grew (Harry III estimated that the annual gross income between 1980 and 1985 was around $70,000 or $80,000), Mr. and Mrs. Seymer apparently received no profit or dividends from Modernaire. Since the original purchase, however, Mr. Seymer invested approximately $25,000 more into the business. He had planned for Modernaire to sell the business eventually so that he could recover his investment and divide the proceeds with Mrs. Seymer and Harry III.
Without the knowledge or consent of Mr. or Mrs. Seymer, however, Harry III began engaging in drug transactions, some of which occurred on the defendant property. Federal and state agencies were suspicious of Harry III and began investigating him for drug-related activities in the early 1980s. A series of investigations by the Internal Revenue Service, the Oneida County Sheriff's Department, the Wisconsin Division of Criminal Investigations and the Federal Bureau of Investigation, however, failed to catch Harry III. The record indicates that Harry III conducted all of his drug transactions surreptitiously, particularly since he feared the wrath of his father, an ex-Marine. Concealing the drugs was not difficult since Harry III never possessed more than an ounce of cocaine at a time, and he would keep the drugs in his bedroom in a locking bank bag or in a safe. The record shows at the most three people who came to the defendant property to engage in drug transactions with Harry III. 1 Those transactions never took place in the bar but rather in Harry III's residence on the defendant property. Harry III even placed all phone calls related to his drug transactions from the phone in his residence. Harry III never used corporate funds to purchase drugs and never put any money obtained from drug sales into the corporation. His clandestine methods gave his parents no reason for suspicion and frustrated the extended investigation efforts of federal and state agencies.
Finally, in November 1989, the FBI interviewed Charles Richardson. Richardson stated that between the late 1970s and the mid-1980s Harry III bought large quantities of cocaine in Milwaukee for distribution, that Richardson had purchased cocaine from Harry III on several occasions, and that Richardson had sold cocaine for Harry III at locations other than the defendant property.
On April 5, 1990, the government filed its Complaint in this case alleging that Harry III had used the defendant property to facilitate a conspiracy to distribute controlled substances. In the Complaint, the government relied on the information that Richardson had supplied. On June 14, 1990, the court ordered the Clerk to issue a warrant for the seizure and arrest of the defendant property, and on July 19, Modernaire filed its Notice of Claim to the property. On December 6, 1990, in a separate criminal action, Harry III pleaded guilty to violations of 21 U.S.C. § 846 () between the late 1970s and the mid-1980s. On December 14, 1990, both the government and Modernaire filed motions for summary judgment in this forfeiture action.
Both parties agreed that there were no material issues of fact, but Modernaire raised the innocent owner defense provided in 21 U.S.C. § 881(a)(7). Section 881(a)(7) provides for forfeiture to the United States of the following:
All real property, including any right, title, and interest (including any leasehold interest) in the whole of any lot or tract of land and any appurtenances or improvements, which is used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, a violation of this title punishable by more than one year's imprisonment, except that no property shall be forfeited under this paragraph, to the extent of an interest of an owner, by reason of any act or omission established by that owner to have been committed or omitted without the knowledge or consent of that owner.
21 U.S.C. § 881(a)(7) (emphasis added). Modernaire argued that it qualified for the innocent owner exception of 21 U.S.C. § 881(a)(7) because Harry III's knowledge of his own activities could not be imputed to Modernaire.
The district court disagreed and granted summary judgment to the government for two reasons. First, because Modernaire had abdicated general corporate authority to Harry III, there was no limit on the extent to which Harry III's knowledge could be imputed to the corporation. Second, overseeing the premises was within the scope of Harry III's duties, and the knowledge he gained while carrying out his duties could be imputed to Modernaire.
On appeal, Modernaire asks us to resolve one question: Under 21 U.S.C. § 881(a)(7), can Harry III's knowledge of his own unauthorized criminal conduct be imputed to Modernaire to defeat the corporation's innocent owner defense?
We review a district court's entry of summary judgment de novo. Where the parties agree as to the material facts as they do in this case, we must determine if the moving party is entitled to judgment as a matter of law. E.g., First Wisconsin Trust Co. v. Schroud, 916 F.2d 394, 398 (7th Cir.1990); Fed.R.Civ.P. 56(c). Therefore, we will first examine the mechanics of the innocent owner defense and then apply those principles to the facts in this case.
Under section 881(a)(7), once the government establishes probable cause to believe that property was used to facilitate the distribution of controlled substances in violation of Title II of the Controlled...
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