United States v. Marsh , 105 F.3d 927 ( 1997 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
LEOLA M. MARSH,
Claimant-Appellant,
and
No. 94-2232
REAL PROPERTY IN MECKLENBURG
COUNTY, NORTH CAROLINA, KNOWN
AS LEOLA'S PLAZA, LOCATED AT 1501
WEST BOULEVARD,AND SAFETY
DEPOSIT BOX 148, WILKINSON
BOULEVARD, OFFICE OF FIRST CITIZENS
BANK,
Defendant.
Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, District Judge.
(CA-89-344-3-MU)
Argued: July 10, 1996
Decided: January 31, 1997
Before RUSSELL, WIDENER, and HALL, Circuit Judges.
_________________________________________________________________
Affirmed in part, vacated in part, and remanded by published opinion.
Judge Widener wrote the opinion, in which Judge Russell joined.
Judge Hall wrote a separate opinion concurring in part and dissenting
in part.
COUNSEL
ARGUED: C. Murphy Archibald, Charlotte, North Carolina, for
Appellant. B. Frederic Williams, Jr., Assistant United States Attorney,
Charlotte, North Carolina, for Appellee. ON BRIEF: Mark T. Cal-
loway, United States Attorney, Charlotte, North Carolina, for Appel-
lee.
_________________________________________________________________
OPINION
WIDENER, Circuit Judge:
Leola Marsh appeals from a final order of the United States District
Court for the Western District of North Carolina entering judgment
of civil forfeiture of real property in favor of the United States and
denying her motion for reconsideration. She argues that the govern-
ment's failure to provide her with notice and a hearing before it seized
the property violated her due process rights. Additionally, Mrs. Marsh
argues that there was not probable cause for the initial seizure, and
she raises other objections. For the reasons below we affirm in large
part, but vacate in part, and remand for further proceedings consistent
with this opinion.
I.
The procedural history of this case is long and involved. The his-
tory and voluminous evidence is well summarized in the magistrate
judge's memorandum and recommendation as adopted and published
by the district court in United States v. Leola's Plaza, 814 F. Supp.
468, 470-484 (W.D.N.C. 1993). Accordingly, we relate only the
essential chronology of this litigation.
On August 31, 1989 the United States Attorney for the Western
District of North Carolina filed for and obtained a warrant of arrest
in rem for Leola's Plaza. Pursuant to 21 U.S.C. § 881(a)(6) and (a)(7)
the warrant was based on probable cause stated in the complaint that
the property was acquired with the proceeds of drug trafficking by
one Leroy Ragin, Mrs. Marsh's nephew.
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The warrant of arrest in rem was based on the sworn statements of
IRS and FBI agents. The government seized the property on Septem-
ber 1, 1989. The government gave notice to potential claimants, both
personally and through newspaper publication, and recorded a lis
pendens as required by 21 U.S.C. § 881(d), 18 U.S.C. § 981 (d), the
relevant procedural laws at 19 U.S.C. §§ 1602 et seq., and the Supple-
mental Rules for Certain Admiralty and Maritime claims.
Leola's Plaza is a strip mall in Charlotte, worth about $300,000,
titled to the appellant Leola Marsh, and was built in 1986. At the time
the government initiated the forfeiture proceedings, Mrs. Marsh oper-
ated her own business as a beautician in one of the seven units of the
mall. Mrs. Marsh's tax returns show that her adjusted gross income
in 1986 and for the preceding five years was a total of $16,215, for
an average of $2,703. Interrogatories, however, revealed that from
1977 to 1991 she spent $1,500 per month on "basic living expenses,"
with no indication of any supplementary nontaxable income. Ragin is
currently serving a twenty-eight year prison term for money launder-
ing and operating a continuing criminal enterprise in Charlotte, North
Carolina.
On August 26, 1991 the United States filed a motion for summary
judgment supported by a 97-page memorandum and two volumes of
affidavits, documents, and exhibits. In particular, the evidence
included: documents bearing Ragin's signature for construction con-
tracts for Leola's Plaza and invoices showing $99,000 in payments
for the construction; an appraisal for the U. S. Marshal showing nor-
mal cost of construction would be $268,569; IRS affidavits and bank
records showing a source of funds for the plaza's construction was a
corporation owned by Ragin; affidavits by a contractor that the con-
struction site for Leola's Plaza at times looked like an armed camp.
Many of these documents resulted from the extensive discovery
engaged in by both parties. From September of 1989 until the sum-
mary judgment hearing the magistrate judge heard several motions by
both sides regarding the extent and pace of discovery. Both sides took
depositions and posed interrogatories, and at least six hearings were
held on such issues between October 18, 1989 and November 1991.
Additionally, the attorneys engaged in status conferences with the
3
magistrate judge in order to balance the need for discovery with con-
cerns regarding the then ongoing criminal trial of Ragin.
Mrs. Marsh filed a response to the summary judgment motion,
unaccompanied by evidence, on October 31, 1991. On November 7,
1991 the government filed its reply arguing that Mrs. Marsh's
response was inadequate under the standards for summary judgment.
On the eve of the November 12, 1991 summary judgment hearing, as
the district court related, "Marsh filed a quantity of documents with-
out explaining how they relate[d] to any issue" of the summary judg-
ment motion. The district court and the government became aware of
these documents at the hearing.
The magistrate judge recommended summary judgment for the
government and filed his memorandum and recommendation on Feb-
ruary 14, 1992. Mrs. Marsh filed her objections to the recommen-
dation on February 25, 1992, which she supplemented with documen-
tary exhibits on March 31, 1992. The government replied on April 10,
1992, noting that the documents were not in the summary judgment
record. On January 15, 1993 the district court rejected the objections
and confirmed the memorandum and recommendation of the magis-
trate judge, thereby dismissing both Mrs. Marsh's claim and counter-
claims, and forfeiting the defendant property.
Mrs. Marsh noted her first appeal on February 18, 1993. Acting on
the judgment of the district court, the marshal's service attempted to
collect rent from Mrs. Marsh at the fair market rate of $900 per
month. Mrs. Marsh was only able to pay $200, the government says,
and the marshal refrained from selling the property, but collected rent
from the tenants in the plaza. On March 16, 1993, Mrs. Marsh moved
for a stay of the decision, which the district court denied on March
18, 1993. On March 25, Mrs. Marsh filed a motion to stay the judg-
ment which this court denied on April 16, 1993. On November 23,
1993 this court decided that the district court in affirming the magis-
trate judge's recommendation had failed to state whether it had con-
ducted a de novo review of the report. Accordingly, we remanded the
case requiring either confirmation that the proper review had been
performed, or the performance of such review.
On remand, the court referred the matter to a magistrate judge by
a May 31, 1994 order. That same order found that the property had
4
been seized in 1989 contrary to the December 13, 1993 decision of
United States v. James Daniel Good Real Property , 510 U.S. 43
(1993), which required notice and the opportunity for a pre-seizure
hearing for real estate. On June 1, 1994 the government filed a motion
and proposed order pertaining to the seized property which the gov-
ernment states was standard in the district for seizure cases following
Good. In its motion to conform the warrant of arrest in rem to the
Good decision the government stated that it had not done so earlier,
as it had in other cases involving Good violations, because "a judg-
ment had been entered after Mrs. Marsh had a full opportunity for a
hearing." The magistrate judge signed the order, and it was filed June
2, 1994. One month later on July 1, 1994 Mrs. Marsh requested that
the magistrate judge recuse himself due to his earlier involvement in
the U. S. Attorney's Office in the case against Ragin. On July 12,
1994 the magistrate judge recused himself from the matter.
On August 10, 1994 the original district court judge, in response
to this court's mandate, confirmed that he had done a de novo review
of the magistrate judge's memorandum and recommendation. Accord-
ingly, the district court on August 19, 1994 entered judgment incorpo-
rating by reference the original grant of summary judgment by the
district court. Mrs. Marsh filed Rule 59 and 60 motions for relief of
judgment and reconsideration on August 29, 1994 and the govern-
ment responded September 13. On September 16 Mrs. Marsh replied,
and on February 3 the district court denied the motions for reconsider-
ation. Mrs. Marsh appealed pro se on March 3, 1995, and we ordered
that Mrs. Marsh secure counsel to formally brief and argue her
appeal.
II.
On December 13, 1993 United States v. James Daniel Good Real
Property, 510 U.S. 43, 59 (1993), established that in civil forfeiture
proceedings, unless the Government establishes there were exigent
circumstances, Fifth Amendment Due Process concerns require the
government to provide both pre-seizure notice and a meaningful
opportunity to be heard. The Court noted that:
[f]airness can rarely be obtained by secret one-sided
determination of facts decisive of rights. . . . No better
5
instrument has been devised for arriving at truth than to give
a person in jeopardy of serious loss notice of the case
against him and opportunity to meet it.
Good, 510 U.S. at 55 (quoting Joint Anti-Fascist Refugee Comm. v.
McGrath, 341 U.S. 123, 170-172 (1951) (Frankfurter, J., concurring)
(footnotes in original omitted)). Good underscored that not only is
seizure unnecessary to obtain jurisdiction in rem over a res (Good,
510 U.S. at 57-58 (citing Rule E(4)(b), Supplemental Rules for Cer-
tain Admiralty and Maritime Claims)), but that seizure is not required
to achieve the goals of § 881(a)(7) of preventing sale, destruction, or
further use of the property for illegal purposes prior to the actual for-
feiture. Good, 510 U.S. at 58. Absent exigent circumstances, the filing
of a lis pendens (see 28 U.S.C. § 1964) or the use of a restraining
order will normally suffice to protect these legitimate interests of the
Government. Good, 510 U.S. at 58.
Here the September 1, 1989 seizure of Leola's Plaza predated the
Good decision. Hence, the government acted in compliance with the
then existing law by seizing the rents and property only after obtain-
ing a warrant of arrest in rem based on an ex parte showing of proba-
ble cause before a neutral magistrate judge. See Calero-Toledo v.
Pearson Yacht Leasing Co., 416 U.S. 663 (1994).
There can be no doubt that the change in the law brought about by
Good applies here, given that this civil matter was winding its way
through direct appeal at the time of the Good decision. See Harper
v. Virginia Dep't of Taxation, 509 U.S. 86, 96-97 (1993) (new rule
of law applies to pending civil cases on direct appeal). Other circuits
have given effect to Good under almost identical circumstances. See,
e.g., United States v. All Assets and Equipment of West Side Building
Corp., 58 F.3d 1181, 1191 (7th Cir. 1995); United States v. Real
Property Located at 20832 Big Rock Drive, 51 F.3d 1402, 1405-6
(9th Cir. 1995); United States v. Certain Real Property Located at
16510 Ashton, 47 F.3d 1465, 1470 (6th Cir. 1995).
III.
The circuits are not in agreement as to the appropriate remedy
where an individual did not receive both notice and a hearing before
6
the seizure as required by Good. See United States v. All Assets and
Equipment of West Side Building Corp., 58 F.3d 1181, 1193 (7th Cir.
1995). Mrs. Marsh urges that we follow the Eighth and Eleventh Cir-
cuits' rule that a Good violation requires the dismissal of the forfei-
ture action. United States v. 2751 Peyton Woods Trail, 66 F.3d 1164
(11th Cir. 1995); United States v. One Parcel of Real Property,
Located at 9638 Chicago Heights, 27 F.3d 327, 330 (8th Cir. 1994).
We note, however, that both of these courts permit a new action if
timely.
We find the view of the Seventh, Ninth, and Tenth Circuits more
persuasive. Under their approach, a Good-violative seizure does not
immunize the property from forfeiture. See United States v. All Assets
and Equipment of West Side Building Corp., 58 F.3d 1181, 1193 (7th
Cir. 1995); Real Property Located at 20832 Big Rock Dr., 51 F.3d at
1402, 1405 (9th Cir. 1995); United States v. 51 Pieces of Real Prop-
erty Roswell N.M., 17 F.3d 1306 (10th Cir. 1994).
But the due process violation is not without remedy. The circuits
not dismissing the action have tailored the remedy in a fashion com-
mensurate with the violation of the rights of the claimant: the govern-
ment must account for the profits or rent which it denied the claimant
during the period of illegal seizure. We adopt this remedy. See, e.g.,
United States v. 51 Pieces of Real Property Roswell N.M., 17 F.3d
1306 (10th Cir. 1994).
In such an instance, as here, at the time Mrs. Marsh received an
adversarial hearing on the forfeiture, she had received all the process
she was due. Cf. Parratt v. Taylor, 451 U.S. 527, 543-44 (1981) (a
claimant raising a federal due process claim who could have received
redress through state remedies had received all process he was due).
Here, the initial seizure in violation of Good occurred on Septem-
ber 1, 1989 when the government obtained both the warrant for arrest
in rem of the real property, and an order requiring the tenants at the
plaza to pay their rents to the marshal. On November 12, 1991, after
extensive discovery and litigation in which Mrs. Marsh was repre-
sented by counsel, the magistrate judge held a hearing on the sum-
mary judgment motion. Even if the litigation up to that date may, at
some point, have met the due process requirement of Good, there can
7
be no doubt that the November 12, 1991 summary judgment hearing
before the magistrate judge met Good's adversarial hearing require-
ment.
In seeking to limit the period in which the government illegally
collected the rent, the government refers to an October 1989 hearing
before the magistrate judge at which "[Mrs.] Marsh declined an
opportunity for a hearing on probable cause."
A review of the record, however, does not support the statement
that Mrs. Marsh declined an opportunity for a hearing on probable
cause. A motion filed by the government on November 21, 1989 indi-
cates that the United States did not request prompt action on a motion
it had filed to dismiss the counterclaims of Mrs. Marsh, and the fact
that the United States did not request prompt action on the motion
was there indicated by the government to be "pursuant to an under-
standing between the United States and claimant Leola Marsh." A let-
ter dated November 21, 1989 from Mrs. Marsh's attorney to the
magistrate judge similarly indicated that it was his understanding that
all motions filed would be held in abeyance pending efforts to resolve
the matter informally. This is hardly a denial by Mrs. Marsh of an
offered opportunity for a due process hearing.
Thus the government must account for the seizure of all rents
derived from the shopping mall collected by marshal for the period
beginning with the seizure on September 1, 1989 until the date of the
summary judgment hearing on November 12, 1991 when Mrs. Marsh
received all the process she was due. Cf. Cox v. Northern Virginia
Transp. Comm., 551 F.2d 555, 558-559 (4th Cir. 1976) (period of
accounting for due process violation for wrongful discharge termi-
nated on the date of a district court hearing in which plaintiff had
ample opportunity to obtain the process she was due).
IV.
Mrs. Marsh's remaining arguments may be briefly disposed of.
We affirm the forfeiture of the property for the reasons expressed
by the district court in its adoption of the report and recommendation
8
of the magistrate judge found in United States v. Leola's Plaza, 814
F. Supp. 468 (W.D.N.C. 1993). There was overwhelming evidence
that probable cause existed to seize the property because it was pur-
chased with proceeds of drug dealing and involved in money launder-
ing. The district court was correct in its finding that Mrs. Marsh did
not produce evidence to prove a defense.
Mrs. Marsh did not raise the question of an excessive fine until she
filed a motion for reconsideration after the district court's judgment
was entered. Even if the motion had been timely filed, it was without
merit. As before stated, the proof is overwhelming that the property
was purchased as a laundering device for illegal drug money.
The suggestion of the government in its brief that exigent circum-
stances existed so as to justify the seizure of the property without a
hearing is without merit. The fact that Mrs. Marsh had borrowed
money on the property and that Ragin may have been aware of the
investigation do not suffice.
We express no opinion on Mrs. Marsh's argument in her brief that
a claim of First Citizens Bank is invalid. First Citizens Bank is not
a party to this proceeding, and we decline to answer a question with
respect to its claim in a proceeding to which it is not a party.
Undoubtedly, Mrs. Marsh and the bank will find a way to present
their differences to an appropriate court.
On remand, the district court should take appropriate action which
is not inconsistent with this opinion.
The judgment of the district court is accordingly
AFFIRMED IN PART, VACATED IN PART, AND REMANDED .
HALL, Circuit Judge, concurring in part and dissenting in part:
First of all, if the issue be reached, I agree with the manner in
which the majority has applied James Daniel Good here. An illegal
initial seizure of property no more shields it from subsequent forfei-
ture than an illegal arrest immunizes a person from subsequent indict-
ment or conviction.
9
I disagree, however, that we ought to apply James Daniel Good in
this case at all. Unlike the claimant there, Mrs. Marsh raised no due
process claim or defense in her answer or any prejudgment motion.
On August 29, 1994, five years after the seizure, in a motion to recon-
sider the second entry of final judgment, Marsh first challenged the
seizure's legality. I believe that this inordinate postdeprivation delay
constituted a waiver of Marsh's predeprivation due process rights.
It is no answer to assert that James Daniel Good engendered the
due process issue, thus possibly excusing the delay. The Supreme
Court resolves the great legal issues of our day; it does not create
them. The claimant in James Daniel Good had no trouble articulating
the winning due process argument. Indeed, notwithstanding whether
a given court would have agreed with that argument then, its simple
premise -- a man ought to be able to defend his home before losing
it -- struck such basic due process themes as to be almost self-
evident. Just weeks after the seizure of Leola's Plaza, the Second Cir-
cuit adopted a predeprivation process rule very much like that later
fashioned by James Daniel Good, United States v. 4492 Livonia
Road, 889 F.2d 1258, 1264 (2nd Cir. 1989), and one of our First Cir-
cuit colleagues had previously argued, albeit unsuccessfully, for a
similar result. Application of Kingsley, 802 F.2d 571, 582-583 (1st
Cir. 1986) (Torruella, J., dissenting).
I am all for the majority's return-of-rents remedy where a citizen
has stood on his rights and seen them trampled. I fear, though, that
extending such relief to one who did not timely seek it is neither fair
to the public nor feasible in practice. Citizens waive clearly estab-
lished rights every day. How do we distinguish the long-ago forfeiture
defendant who would have appeared and contested the seizure at a
predeprivation hearing from the one who, knowing it futile, would
have waived it? My guess is that we cannot.
The errors of the past, however regrettable, cannot always, and
should not sometimes, be repaired. This is one of those times. I would
affirm the judgment of the district court, and I respectfully dissent to
the extent the majority has vacated it.
10