U.S. v. De Ortiz

Decision Date06 August 1990
Docket NumberNos. 89-3030,89-3182,s. 89-3030
Citation910 F.2d 376
PartiesUNITED STATES of America, Defendant-Appellee, v. Margarita Martinez DE ORTIZ, Linda I. Cabeza, Alberto P. Cabeza, Fausto Zaffino and Ilario Fazzari, Defendants. Appeal of Terry SULLIVAN. LAW OFFICES OF TERRY SULLIVAN, LTD., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Eric J. Klumb, R. Jeffrey Wagner, Asst. U.S. Attys., John E. Fryatt, U.S. Atty., Milwaukee, Wis., Thomas P. Walsh, Asst. U.S. Atty., Chicago, Ill., for U.S.

Terrence M. Keegan, Milwaukee, Wis., for Alberto P. Cabeza.

John J. Morrison, Decker & Associates, Chicago, Ill., for Terry Sullivan and Law Offices of Terry Sullivan.

Before BAUER, Chief Judge, CUDAHY, Circuit Judge, and WILL, Senior District Judge. 1

WILL, Senior District Judge.

A law firm appeals from two court orders: (1) denying the firm's motion for a declaration of its property interest in some money held to pay attorney's fees and (2) requiring the firm to turn the money over to the government. For the reasons set forth herein, we remand for further proceedings consistent with this opinion.


Linda and Alberto Cabeza hired Terry Sullivan, a Rolling Meadows, Illinois attorney, and his firm in April 1986 to represent them in an Illinois state court case on a drug charge (possession with intent to deliver). On April 21, 1986, $25,000 of the Cabezas' money was used to bail Linda Cabeza out of jail, and then on June 4, $100,000 was deposited on a $1,000,000 bail bond to obtain Alberto's release. The Cabezas signed petitions requesting that any bail refund be paid to Terry Sullivan on July 30, 1986. 2 The petitions were kept by the Sullivan firm and filed in the Illinois state court much later, in February 1988.

Between the time the petitions were signed and filed with the court, the Cabezas were arrested in October 1987 and charged on November 3, 1987 in a Milwaukee superseding indictment with federal offenses: (1) participation in a conspiracy to distribute cocaine during the period of November 1984 to October 1987 and (2) drug trafficking offenses committed on March 19, 1987 and October 2, 1987. The superseding indictment included a statement that:

upon conviction ... such convicted defendant shall forfeit to the United States (1) any property constituting or derived from any proceeds the person obtained, directly or indirectly, as the result of such violation, and (2) any of the person's property used or intended to be used, in any manner or part, to commit or facilitate the commission of such violation....

The indictment specifically listed the $125,000 posted as bail in the Illinois circuit court.

On February 5, 1988, Sullivan filed a notice with the Cook County Circuit Court of his interest in the Cabezas' bail money. A few days later, on February 8, the Cabezas signed plea agreements in Milwaukee admitting guilt for the two drug trafficking offenses charged in Counts II and III of the superseding indictment. 3 Linda and Alberto's plea agreements provided that each "forfeits to the United States any interest she [sic] may have in all property named in the forfeiture provisions of the indictment...." The Cabezas entered their guilty pleas in a hearing before Judge Curran on February 9, 1988, and on March 4, Judge Curran entered a preliminary forfeiture order at the request of the government. Sullivan did not represent the Cabezas in the Milwaukee proceedings and was not before the court.

Back in Illinois, on June 14, 1988, a judge of the Circuit Court of Cook County ordered the court clerk to turn over the bail money, which came to $112,400, 4 to Terry Sullivan. In December of the same year, the Sullivan firm filed a declaratory judgment action in the Northern District of Illinois to establish its right to the money. At the request of the government, the action was transferred to the Eastern District of Wisconsin. Although Judge Curran had entered a final forfeiture order in September 1988 granting the government title to the bond funds now in the hands of Sullivan, the government neither received them nor took any action until June 5, 1989 when it filed a petition to show cause why Sullivan should not deliver the money to the United States Marshal.

On June 9, Judge Curran entered an order to show cause. Sullivan appeared and contested jurisdiction. Judge Curran ordered Sullivan to decide whether he would move to reopen the forfeiture judgment. Sullivan did not move to reopen, but stood on his jurisdictional arguments, which the district court declined to accept. Sullivan's declaratory judgment action also came out against him, since Judge Warren dismissed the suit, finding that any separate action to determine the rights over "property subject to forfeiture" was barred under the forfeiture statute. 21 U.S.C. Sec. 853(k) (1988).

We review both the dismissal of Sullivan's declaratory judgment action and the order that Sullivan turn over the bail money to the government.


The government obtained the order of forfeiture of the bond money held by Sullivan pursuant to the following statutory language:

Any person convicted of a violation of this subchapter [relating to continuing criminal enterprises] or subchapter II of this chapter [relating to drug trafficking offenses] punishable by imprisonment of more than one year shall forfeit to the United States, irrespective of any provision of State law--

(1) any property constituting, or derived from any proceeds the person obtained, directly or indirectly, as the result of such violation;

(2) any of the person's property used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, such violation,....

21 U.S.C. Sec. 853(a)(1) & (2) (1988).

Pursuant to the relation back portion of the statute, "[a]ll right, title, and interest in property described in subsection (a) of this section vests in the United States upon the commission of the act giving rise to forfeiture under this section." Id. at Sec. 853(c). The government has a property interest, therefore, in certain assets from the time drug trafficking crimes (among others) have been committed which is not perfected until the property owner is convicted of the crime alleged and the jury returns a special verdict that the property is forfeitable under the terms of the statute, Fed.R.Crim.P. 31(e); United States v. Kingsley, 851 F.2d 16, 19-20 (1st Cir.1988) or, as in the present case, the defendant pleads guilty to the offenses, agrees to the forfeiture and the court finds a factual basis for the defendant's forfeiture plea. See United States v. Roberts, 749 F.2d 404, 409-10 (7th Cir.1984) (affirming a forfeiture pursuant to a plea agreement to a RICO violation), cert. denied, 470 U.S. 1058, 105 S.Ct. 1770, 84 L.Ed.2d 830 (1985). 5

This unperfected property interest extends to assets which have been transferred to third parties, "unless the transferee establishes in a hearing pursuant to subsection (n) of this section that he is a bona fide purchaser for value of such property who at the time of purchase was reasonably without cause to believe that the property was subject to forfeiture under this section." 21 U.S.C. Sec. 853(c). In addition to showing that a transferee is a good faith purchaser for value, a transferee may show that his or her interests were acquired prior to the commission of prohibited acts by the defendant. 21 U.S.C. Sec. 853(n)(6)(A).

The November 1987 superseding indictment, in which the Cabezas were named, alleged prohibited acts beginning in November 1984, so the bail money was accordingly subject to forfeiture during the pendency of the indictment against the Cabezas. However, circumstances changed by the time the government negotiated the Cabezas' plea agreements. The Cabezas pleaded guilty only to drug offenses committed in March and October of 1987. Therefore, once the superseding indictment was dismissed, the bond money lost its character as forfeitable property. And, based on the record before us, it seems that the government's interest in the bail money was never perfected since the Cabezas were never convicted of the conspiracy alleged in the indictment. However, since Sullivan confined the district court's analysis to jurisdictional questions, the substantive question was never determined.

In fact, jurisdictional questions abound in this case, beginning with the issue of our own. The government argued in its jurisdictional statement that we have no jurisdiction over the judgment ordering Sullivan to turn over the bail money, because that judgment is not a final order. It argued that the order only resolved the preliminary questions of the district court's jurisdiction over him and over the question of bail money ownership. The government subsequently changed its position in its answer to Sullivan's brief, arguing that Sullivan had waived his right to litigate the merits of his claim so that the case is now final.

The district court never considered whether Sullivan's argument that the bond money was not forfeitable property had any merit because Sullivan persisted in challenging the court's jurisdiction and refused to make the substantive argument in the context of a hearing under the procedures laid out in 21 U.S.C. Sec. 853(n). The court's order that Sullivan pay over the bond money to the United States Marshall ends the forfeiture case but for execution and is, therefore, final. Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 633-34, 89 L.Ed. 911 (1945). 6

Sullivan contends that the district court did not have jurisdiction over him or the subject matter of this case, because the bond money was not properly forfeitable under Sec. 853(a). The argument appears to be that this property was too far removed from the scope of authority provided by Sec. 853 to be within the court's jurisdiction. The district...

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