United States v. Moffitt Zwerling , 83 F.3d 660 ( 1996 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
v.
MOFFITT, ZWERLING & KEMLER, P.C.,
No. 95-1884
Defendant-Appellee.
AMERICAN CIVIL LIBERTIES UNION OF
VIRGINIA; NATIONAL ASSOCIATION OF
CRIMINAL DEFENSE LAWYERS,
Amici Curiae.
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
MOFFITT, ZWERLING & KEMLER, P.C.,
No. 95-1916
Defendant-Appellant.
AMERICAN CIVIL LIBERTIES UNION OF
VIRGINIA; NATIONAL ASSOCIATION OF
CRIMINAL DEFENSE LAWYERS,
Amici Curiae.
Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
T. S. Ellis III, District Judge.
(CA-94-1384-A, MISC-93-6-A)
Argued: March 5, 1996
Decided: May 9, 1996
Before WILKINSON, Chief Judge, and LUTTIG and MICHAEL,
Circuit Judges.
_________________________________________________________________
Affirmed in part, reversed in part, and remanded with instructions by
published opinion. Chief Judge Wilkinson wrote the opinion, in
which Judge Luttig and Judge Michael joined.
_________________________________________________________________
COUNSEL
ARGUED: Gordon Dean Kromberg, Assistant United States Attor-
ney, Bernard James Apperson, III, Assistant United States Attorney,
Alexandria, Virginia, for Appellant. Arthur Francis Mathews, WIL-
MER, CUTLER & PICKERING, Washington, D.C., for Appellee.
ON BRIEF: Helen F. Fahey, United States Attorney, Alexandria,
Virginia, for Appellant. Craig M. Blackwell, Michael B. Bressman,
Craig J. Brown, Steven P. Finizio, WILMER, CUTLER & PICKER-
ING, Washington, D.C., for Appellee. Stephen B. Pershing, ACLU
FOUNDATION OF VIRGINIA, Richmond, Virginia; Peter Goldber-
ger, Ardmore, Pennsylvania, for Amici Curiae.
_________________________________________________________________
OPINION
WILKINSON, Chief Judge:
In this appeal, we are asked to resolve important questions about
the operation and preemptive effect of the Comprehensive Forfeiture
Act of 1984 (CFA). 21 U.S.C. § 853. These questions arise out of the
government's effort to forfeit, as the proceeds of criminal activity, a
$103,800 legal fee paid to the law firm of Moffitt, Zwerling & Kem-
ler. The law firm and the government each allege numerous errors in
the district court's rulings. The firm contests the appropriateness of
forfeiting the fee when it was not specifically identified as subject to
forfeiture in the indictment, and it also appeals the rejection of its
claim that it was an innocent transferee under the CFA. We affirm the
district court with respect to these assignments of error. The govern-
2
ment, in turn, contests the limitations imposed on its efforts to ascer-
tain the disposition of the fee. We affirm in part, and reverse in part
the district court's rulings on this matter.
We reverse, however, with respect to the most significant issue
raised by this appeal: the preemptive effect of the CFA on state claims
of detinue and conversion brought by the government to recover the
fee. The government brought these common law actions, in part
because the law firm had dissipated most of the $103,800 by the time
a restraining order was entered. We hold that these common law
actions are consistent with the purposes of the federal forfeiture stat-
ute and that the CFA does not abrogate the government's authority to
pursue them.
I.
In late August, 1991, William Paul Covington retained the law firm
of Moffitt, Zwerling & Kemler to defend him against charges of drug
trafficking and money laundering. Covington was then the subject of
a grand jury investigation and many of his personal and business
assets had already been seized. To secure the firm's representation,
Covington was required to pay $100,000 up front. On August 23,
1991, Covington partially paid the fee with a wad of bills fished from
his pocket that amounted to $17,000; the next day he delivered
another $86,800 in cash, stored in a cracker box or a shoe box. Much
of the $103,800 payment was in the form of $100 bills.
Neither William Moffitt nor John Zwerling asked Covington the
source of the $103,800, though Moffitt apparently told Covington
that, though they could accept cash, they could not accept "funny
money." Covington refused a receipt for both payments because, he
said, the F.B.I. might find it. The law firm thereafter filed the required
Internal Revenue Service Form 8300 reflecting the cash payments
from Covington, but failed to identify Covington as the source of the
cash transfer.
Once retained, the firm notified prosecutors that they represented
Covington. In a series of meetings with law firm members, the prose-
cutors outlined the nature of their case against Covington and pro-
vided a list of assets seized from Covington. These seizures included
3
his home, four cars, a boat, hundreds of thousands of dollars in cash,
a motorcycle, and assets of his auto service and towing businesses,
namely, two tow trucks and two bank accounts. Prosecutors also dis-
closed a 50-page affidavit, prepared by an IRS investigator, that sup-
ported search and seizure warrants executed against Covington.
Among other things, the affidavit reported that Covington had accu-
mulated or spent a vast amount of money in the previous few years,
money which the investigator concluded could only have come from
drug trafficking activity. Moreover, the investigator revealed that
Covington used his businesses to facilitate drug sales and to launder
drug profits.
On October 30, 1991, the grand jury indicted Covington on a vari-
ety of drug trafficking, firearm, and money laundering offenses. A
superseding indictment was returned on January 9, 1992. Both the
original and the superseding indictment contained counts providing
for the forfeiture of "any and all properties constituting, or derived
from, proceeds" obtained as a result of the illegal activity and any
properties used to facilitate that activity. Such assets "include[d], but
[were] not limited to" cash of up to $168,000 that the government had
not yet located.
On May 12, 1992, after obtaining the approval of the Department
of Justice, the government filed a bill of particulars identifying the
$103,800 paid to the law firm as subject to forfeiture. It also sought
and obtained a restraining order to prevent dissipation of the fee. 21
U.S.C. § 853(e)(1)(A).
In August, 1992, the district court disqualified the law firm from
continuing to represent Covington. The judge observed that the most
important reason for the disqualification was Covington's statement
that while he wanted to plead guilty, he could not because one of his
lawyers informed him that such a plea would place the law firm's
acceptance of the fee in an unfavorable light. Another important rea-
son for the disqualification related to the government's intention to
use evidence concerning Covington's legal fee at trial. J.A. 567-68.
New counsel was then appointed.
On September 25, 1992, Covington entered a guilty plea. He was
sentenced in February, 1993 to 262 months in prison. At sentencing,
4
pursuant to 21 U.S.C. § 853, and with Covington's consent, the
$103,800 fee paid to the law firm was ordered forfeited. Subse-
quently, the law firm sought to vacate the forfeiture order. It filed a
petition asserting that it was "reasonably without cause to believe"
that the fee was subject to forfeiture. 21 U.S.C.§ 853(n)(6)(B). The
district court rejected the petition. In re Moffitt, Zwerling & Kemler,
P.C., 846 F. Supp. 463 (E.D.Va. 1994) ("Moffitt I").
Thereafter, the government sought a final decree of forfeiture to
collect the $103,800 from Moffitt, Zwerling. The firm maintained,
however, that recovery was limited to the $3,695 that remained
unspent at the time the district court entered the May, 1992 restraining
order. Nearly all of the $103,800 fee was spent, in fact, as early as
January, 1992. In response, the government pursued a number of rem-
edies to retrieve some or all of the fee. First, it argued that the firm,
under § 853, was liable to the government for the full $103,800; the
district court rejected this claim. In re Moffitt, Zwerling & Kemler,
P.C., 864 F. Supp. 527 (E.D.Va. 1994) ("Moffitt II"). Next, the gov-
ernment sought forfeiture of any property traceable to the fee as prop-
erty "derived from" forfeitable assets. 21 U.S.C. § 853(a). Finally, to
recover the fee, the government brought common law actions of deti-
nue and conversion under Virginia law. The district court ruled on a
variety of discovery disputes arising from the tracing effort, In re
Moffitt, Zwerling & Kemler, P.C., 875 F. Supp. 1152 (E.D.Va. 1995)
("Moffitt III"), and it ruled that the state common law actions were
preempted by the CFA. United States v. Moffitt, Zwerling & Kemler,
P.C., 875 F. Supp. 1190 (E.D.Va. 1995) ("Moffitt IV"). Both the gov-
ernment and the law firm now appeal certain aspects of these rulings.
II.
We first address the alleged improprieties in the procedure
employed by the government to subject the fee to forfeiture. Moffitt,
Zwerling contends that the district court lacked jurisdiction to order
forfeiture of the fee because that fee was not specified in the indict-
ment. This claim is meritless. First, the indictment and the supersed-
ing indictment contained forfeiture counts naming"any and all
properties constituting, or derived from" or used to facilitate criminal
activities. The list of assets "include[d], but [was] not limited to . . .
[a]ny and all interest of WILLIAM PAUL COVINGTON in $168,000
5
in United States currency." The indictment thus sought forfeiture of
all the proceeds of Covington's criminal activity, explicitly including
up to $168,000 not yet accounted for.
Moreover, the law firm's claim rests on the assumption that forfei-
ture is a substantive element of the offense, and therefore must be
specified in the indictment. Stirone v. United States, 361 U.S. 212,
218-19 (1960). But the Supreme Court and this court have conclu-
sively rejected the argument that forfeiture is a substantive element of
offenses. Libretti v. United States, 116 S.Ct. 356, 363 (1995)
("Forfeiture is an element of the sentence imposed following convic-
tion . . . .") (emphasis in original); United States v. Tanner, 61 F.3d
231, 234 (4th Cir. 1995) ("It is clear that forfeiture under § 853 is in
fact punishment."), cert. denied, 116 S.Ct. 925 (1996); see also
Alexander v. United States, 113 S.Ct. 2766, 2775 (1993) (criminal
forfeiture is "a form of monetary punishment"). The conclusion that
forfeiture is punishment, and not a substantive element of the offense,
follows inexorably from the plain terms of § 853, which allow the for-
feiture of assets of those "convicted," 21 U.S.C. § 853(a), and pro-
vides that forfeiture shall be imposed "in addition to any other
sentence imposed." Id. (emphasis added).
Moffitt, Zwerling is correct that the government first specifically
identified the $103,800 fee as subject to forfeiture in a bill of particu-
lars filed after the superseding indictment. But this hardly dooms the
forfeiture order. A bill of particulars is an appropriate way to pinpoint
certain assets, noted in the indictment, as subject to forfeiture. United
States v. Strissel, 920 F.2d 1162, 1166 (4th Cir. 1990); United States
v. Raimondo, 721 F.2d 476, 477-78 (4th Cir. 1983), cert. denied, 469
U.S. 837 (1984); see also Libretti, 116 S.Ct. at 366. Moreover, the
firm itself was in part responsible for the government's delay because
it failed to identify Covington as the source of the cash payment on
the required IRS forms. Moffitt II, 864 F. Supp. at 543 n.45. It is also
difficult to identify any prejudice to the law firm from the procedure
followed here: the firm does not even contest the district court's find-
ing that the $103,800 fee represented the proceeds of criminal activ-
ity. Moffitt I, 846 F. Supp. at 468.
The law firm maintains, however, that the procedure followed here
unconstitutionally upsets the balance between the state and the
6
accused. This argument is little more than an attempted end-run
around Caplin & Drysdale, Chartered v. United States, 491 U.S. 617(1989), which squarely rejected constitutional claims lodged against
attorney fee forfeiture. There is simply no constitutional right to
"spend another person's money for services rendered by an attorney."
Id. at 626. The potential conflict between attorney and client posed by
the forfeiture of this tainted fee resulted from the law firm's accep-
tance of the fee, not from the government's effort to forfeit it. In fact,
the district court disqualified the law firm here in part because of dis-
turbing testimony from Covington that the law firm's desire to protect
its fee was overriding its obligation to represent its client. And though
Moffitt, Zwerling vigorously asserts the risk of prosecutorial bad faith
where the government follows the procedure it did here, the district
court, "after extensive review of the record, conclud[ed] that there is
no factual predicate for asserting a claim of prosecutorial abuse." J.A.
759.
In sum, we find no impropriety in the procedures employed by the
government in this case to subject the fee to forfeiture.
III.
Moffitt, Zwerling further argues that its fee was not subject to for-
feiture because it qualified as an innocent transferee whose assets
could not be forfeited. See 21 U.S.C. §§ 853(c) & 853(n). It was, it
claims, "reasonably without cause to believe that the property was
subject to forfeiture." 21 U.S.C. § 853(n)(6)(B). After an extensive
evidentiary hearing, however, the district court disagreed, concluding
that: "[T]he record, taken as a whole, compels the conclusion that the
Law Firm's belief that the cash fee came from legitimate sources was
not reasonable in the circumstances." Moffitt I, 846 F. Supp. at 472.
We can find no fault with the district court's conclusion. Covington
approached Moffitt, Zwerling as a known target of a far-reaching
drug trafficking investigation. As the law firm knew, the government
suspected that Covington was the leader of a major cocaine ring, id.
at 473, and the government had seized nearly all of his personal and
business assets. Id. at 470, 473. The extensive seizures were, as the
law firm also knew, based on a judicial officer's determination that
there was probable cause to believe the assets were subject to forfei-
7
ture. Id. at 473. Covington himself told the firm's partners that he
used his businesses to facilitate drug dealing, id. at 469-70, 473, and
the firm was aware of the government's conclusion that the consider-
able amount of money Covington had accumulated and spent could
have only resulted from his drug trafficking activities. Id. at 470-71,
473. Despite this, the firm accepted from Covington two immense
cash payments, totalling $103,800 and largely comprised of $100
bills, over a two-day period. At Covington's request, the firm did not
give him a receipt for the $103,800 because Covington feared the
receipt might fall into the hands of the F.B.I. Id. at 473. Such circum-
stances were, to put it mildly, highly suspicious.
The firm contends that its partners believed, based on their exten-
sive interviews with him, that Covington had "squirreled" away sub-
stantial assets from legitimate business activity. And the firm asserts
that Covington was informed that he could not pay in"funny money."
The district court found, however, that Covington advised the firm's
partners that he was broke, and for that reason continued to engage
in illegal activity. Id. at 470, 473; J.A. 1062. In addition, during the
supposedly extensive interviews with Covington, the firm's partners
tiptoed around the most pertinent questions. They did not even ask
Covington what legitimate sources of income he had. And, conspicu-
ously, they avoided asking Covington exactly where he had obtained
the $103,800 in cash to pay his legal fee. Moffitt I at 470, 474. In their
meetings with Covington the lawyers did not seek to obviate doubts
that any person would have had about the source of Covington's sub-
stantial cash payment. The meetings, in fact, create the impression
that the participants were engaging in some sort of wink and nod rit-
ual whereby they agreed not to ask -- or tell-- too much.
Based on this record, the district court observed, there was nothing
less than a "mass of evidence available to the Law Firm partners in
August 1991 that pointed convincingly to the conclusion that the cash
fee constituted, or was derived from, drug trafficking proceeds." Id.
at 475. We agree. Both what the law firm knew in August, 1991, and
what it declined to inquire about, convinces us that it reasonably had
cause to know that the $103,800 was subject to forfeiture, and thus
its § 853(n)(6) petition was properly rejected.
8
IV.
The government thereafter sought a final decree of forfeiture for
the $103,800. According to the law firm, the government's recovery
was limited to $3,695, the amount of the fee that remained when the
restraining order was entered in May, 1992. Seeking to recover the
full amount of the fee, however, the government argued that under 21
U.S.C. § 853 the law firm was obligated to remit to the government
the entire $103,800. The district court rejected this argument, Moffitt
II, 864 F. Supp. 527, but observed that the government might have
other remedies available to it, such as a state law conversion action,
to recover the fee. Id. at 544 n.49. Consequently, the government
brought common law actions of conversion and detinue under Vir-
ginia law to recover the full $103,800. The district court, however,
ruled that the federal forfeiture law preempted the government's abil-
ity to bring those actions. Moffitt IV, 875 F. Supp. at 1203-07.
We thus turn to the preemptive effect of the Comprehensive Forfei-
ture Act.1 Because the CFA does not contain an express preemption
provision, the question is whether it, by implication, overrides state
law. The law firm argues, and the district court agreed, that under the
principles of implied conflict preemption the government cannot pur-
sue the common law actions of detinue and conversion. Id.2 We
_________________________________________________________________
1 "The CFA added or amended forfeiture provisions for two classes of
violations under federal law, racketeering offenses and CCE offenses,
see 98 Stat. 2040-2053, as amended." United States v. Monsanto, 491
U.S. 600, 603 n.1 (1989). In this opinion, we refer to the portion of the
CFA that authorizes forfeiture for continuing criminal enterprise (CCE)
offenses. See 21 U.S.C. § 853.
2 Federal preemption under the Supremacy Clause is fundamentally a
question of whether a state law "conflicts with Congress' intent (either
express or plainly implied) to exclude state regulation." English v. Gen-
eral Electric Co., 496 U.S. 72, 79-80 n.5 (1990). Such an intent can be
identified in a number of ways, Freightliner Corp. v. Myrick, 115 S.Ct.
1483, 1487 (1995), but, other than implied conflict preemption, none are
relevant here. In particular, there is no "actual conflict" between the CFA
and the state claims brought by the government because it would not be
"impossible for a private party to comply with both state and federal"
law. English, 496 U.S. at 79.
9
believe, however, that common law actions are available to the gov-
ernment in its effort to forfeit the fee.
A.
We start from the premise that federal statutes do not, by implica-
tion, abrogate the government's right to bring common law suits. This
controlling principle is derived directly from United States v. Texas,
507 U.S. 529 (1993). As in this case, Texas involved a claim that a
federal statute extinguished the right of the United States to pursue
collection efforts under common law. In Texas , the Supreme Court
held that the Debt Collection Act of 1982 did not abrogate the federal
government's common law right to recover prejudgment interest
against states, even though the Act did not explicitly make such inter-
est recoverable from the states. Id.The right exercised by the federal government in Texas to bring
suit at common law was a long-standing one. The roots of this author-
ity can be traced to the First Judiciary Act of 1789. Act of Sept. 24,
1789, § 9, 1 Stat. 73, 77 (granting federal district court jurisdiction
over "all suits at common law where the United States shall sue.").
Federal courts currently exercise original jurisdiction over "civil
actions, suits, or proceedings" brought by the United States. 28 U.S.C.
§ 1345. Under this authority, the United States can bring common law
actions "claiming in its contractual and proprietary relations the same
protection of the general law, at least, that belong[s] to any other legal
person." Paul Bator et al., Hart and Wechsler's Federal Courts and
the Federal System 911 (3d ed. 1988); see also United States v. San
Jacinto Tin Co., 125 U.S. 273, 278-86 (1888); Jessup v. United
States, 106 U.S. 147, 152 (1882). As in Texas, the federal government
has done nothing more here than exercise an established right to bring
common law actions, in this case ones of conversion and detinue. See
United States v. Union Livestock Sales Co., 298 F.2d 755 (4th Cir.
1962) (conversion action); United States v. Butt , 203 F.2d 643 (10th
Cir. 1953) (same).
The question, then, is whether the CFA somehow abrogated this
recognized right on the part of the United States. The CFA, like the
Debt Collection Act in Texas, "does not speak directly to the Federal
Government's right to" pursue state common law claims against par-
10
ties like Moffitt, Zwerling. Texas, 507 U.S. at 534. Notwithstanding
the statutory silence, the Texas Court held the government's common
law rights remained intact. The Supreme Court noted that: "`Con-
gress's mere refusal to legislate with respect to the prejudgment-
interest obligations of state and local governments falls far short of an
expression of legislative intent to supplant the existing common law
in that area.'" Id. at 535 (citation omitted). The unmistakable import
of Texas, then, is that common law remedies possessed by the United
States will not be extinguished by congressional failure to re-affirm
their validity.
Texas is not alone in holding that common law actions are avail-
able to the government to supplement those remedies found in federal
statutes, as long as the statute does not expressly abrogate those
rights. This principle has been affirmed and re-affirmed many times.
See Wisconsin Central Railroad Co. v. United States , 164 U.S. 190,
210-11 (1896) (common law remedy of offset to recoup monies
already paid not abrogated by statutory authorization of fraudulent
payment remedy); Cecile Indus., Inc. v. Cheney , 995 F.2d 1052,
1054-56 (Fed. Cir. 1993) (common law remedy of offsetting contract
debts against contract payments not abrogated by Debt Collection
Act's statutory remedies); United States v. Kearns, 595 F.2d 729,
732-33 (D.C. Cir. 1978) (common law remedy of breach of fiduciary
duty not abrogated by bribery and fraud statutes); Continental Man-
agement, Inc. v. United States, 527 F.2d 613, 620 (Cl.Ct. 1975)
(same); United States v. Mead, 426 F.2d 118, 124-25 (9th Cir. 1970)
(common law remedy of payment by mistake not abrogated by False
Claims Act's statutory remedies); United States v. Borin, 209 F.2d
145, 148 (5th Cir.) (common law remedy of fraud not abrogated by
False Claims Act's statutory remedies), cert. denied, 348 U.S. 821(1954); United States v. Silliman, 167 F.2d 607, 610-11 (3d Cir.)
(common law remedies not abrogated by False Claims Act), cert.
denied, 335 U.S. 825 (1948).
Moffitt, Zwerling responds, however, that this case is distinguish-
able from Texas because the government relies on the federal forfei-
ture statute to establish certain elements of the common law actions.
It is true that to establish its right to possession of the fee, the govern-
ment relies on the relation back doctrine. That doctrine, codified at 21
U.S.C. § 853(c), retroactively vests title in the United States as of the
11
date of the activity giving rise to the forfeiture. See Caplin &
Drysdale, 491 U.S. at 627. The government's reliance on this doc-
trine, however, to establish one element of a common law cause of
action does not remove this case from the reach of Texas. To prohibit
the government from availing itself of a statutory right that Congress
conferred upon it would arbitrarily restrict the government's ability to
pursue its remedies at common law. Just as any party might rely on
legal or contractual authority to establish a right to possess a piece of
property, the government has the perfect right to point to other provi-
sions of law that confer a right to possession of the fee.
B.
Even accepting the general premise of Texas, however, Moffitt-
Zwerling argues that, under this particular statute, the government's
common law actions are preempted because they conflict with the
objectives of the CFA. For support, the firm points to the "substitute
asset" provision of 21 U.S.C. § 853(p). Under that provision, if for-
feitable assets are unavailable at the time a forfeiture order is entered,
the government has a statutory right to obtain "any other property of
the defendant up to the value" of those assets. Id. Section 853(p),
however, says nothing about the recovery of substitute assets from
third parties (as opposed to defendants) who had reason to know that
the fee was subject to forfeiture. This silence, according to the law
firm, indicates that one purpose of the CFA is to protect third party
transferees who no longer possess property that would otherwise be
forfeited. The law firm argues that permitting actions in conversion
and detinue would "stand[ ] as an obstacle to the accomplishment of
the full purposes and objectives" of the CFA. Silkwood v. Kerr-
McGee Corp., 464 U.S. 238, 248 (1984).
The firm's argument that the CFA preempts state common law
actions by negative implication is faulty on several grounds. To begin
with, a court approaches preemption claims "with the basic assump-
tion that Congress did not intend to displace state law." Maryland v.
Louisiana, 451 U.S. 725, 746 (1981). This assumption has particular
force here because Congress explicitly stated that the federal drug
laws do not generally preempt state law. 21 U.S.C. § 903. In fact, fed-
eral anti-drug laws override state law only if "there is a positive con-
flict between [state law and federal law] so that the two cannot
12
consistently stand together." Id. There cannot be such a "positive"
conflict when Congress has not seen fit to prohibit the conversion or
detinue actions that state common law has permitted.
Far from creating a positive conflict, much less impeding the pur-
poses of the CFA, the state actions pursued by the government
promote the aims of the statute. As a general matter, the CFA broadly
defines property subject to forfeiture and requires that "any" property
derived from or used to facilitate criminal activity"shall" be forfeited
upon conviction. 21 U.S.C. § 853(a). Its provisions were specifically
designed to ease the government's ability to track down the proceeds
of crime. See, e.g., 21 U.S.C. §§ 853(c)-(f), (k). One of the most pow-
erful tools contained in the CFA is the relation back provision, 21
U.S.C. § 853(c), which allows the government to reach forfeitable
assets transferred to third parties. Explicitly intended to effectuate the
extensive forfeiture scheme by closing a loophole in the existing for-
feiture laws, § 853(c) prevents defendants from shielding their assets
from forfeiture "simply by transferring an asset to a third party." S.
Rep. No. 225, 98th Cong., 2d Sess. 196, reprinted in 1984
U.S.C.C.A.N. 3182, 3379
Congress did not, on the one hand, provide the government with
this powerful array of remedies, and then, on the other, deprive it sub
silentio of its common law rights of action. To the contrary, the CFA
is to be "liberally construed to effectuate its remedial purposes." 21
U.S.C. § 853(o). Those purposes, in a nutshell, are to "give force to
the old adage that `crime does not pay.'" Monsanto, 491 U.S. at 614.
It is with that precise objective in mind that the government pursued
common law actions against Moffitt, Zwerling, a third party trans-
feree that dissipated a legal fee it had cause to know came from crimi-
nal activity. The common law claims further, rather than frustrate,
what Congress intended to accomplish when it authorized the forfei-
ture of property derived from drug dealings. Indeed, it would run
counter to the aims of the Act to disapprove of these state law actions.
We find Moffitt, Zwerling's arguments to the contrary unconvinc-
ing. It is true that the CFA recognizes and protects the interests of
third-party transferees. The extent of that protection, however, is
spelled out in § 853(n), which prevents the forfeiture of assets held by
innocent third parties. The law firm was given the full benefit of this
13
provision, but it failed utterly to demonstrate that it was an innocent
transferee. It is also true, as the law firm points out, that only defen-
dants are explicitly named as subject to the substitute assets provision.
21 U.S.C. § 853(p). Naming only defendants, however, was a logical
step. The government's need to recover substitute assets will arise far
more often in the case of defendants than it will with third-party trans-
ferees. No provision of the CFA, however, can be read to provide
insulation from common law actions for transferees who hurriedly
spent assets they had reason to know were the proceeds of crime. In
fact, the substitute assets provision of § 853(p) was enacted to make
the government's forfeiture efforts more effective. It would be aston-
ishing if a provision designed by Congress to augment the govern-
ment's forfeiture remedies were held to abrogate common law actions
and thereby restrict the government's forfeiture efforts. See Texas,
507 U.S. at 536-37.
We also are not persuaded by the district court's view that the deti-
nue and conversion actions might conflict with the CFA and are thus
preempted. The district court observed that a party may be liable in
detinue or conversion even if the transferee had no reason to know
that the property was tainted and that holding such a party liable
would conflict with the innocent-transferee provision of the CFA.
Moffitt IV, 875 F. Supp. at 1205 & n.33. The short answer to this con-
cern is that there is no such conflict in this case because Moffitt,
Zwerling was not an innocent transferee under § 853(n). And "[t]he
existence of a hypothetical or potential conflict is insufficient to war-
rant [ ] pre-emption." Rice v. Norman Williams Co., 458 U.S. 654,
659 (1982).
C.
As a final matter, Moffitt, Zwerling appears to rely generally on the
comprehensiveness of the CFA to buttress its view that there is no
place in forfeiture law for state causes of action. This argument is
nothing more than a backdoor way of claiming that Congress intended
to occupy the field to the exclusion of state law. English, 496 U.S. at
79. The anti-drug laws, however, explicitly disavow"an intent on the
part of the Congress to occupy the field." 21 U.S.C. § 903. Moreover,
state law has traditionally been relied upon to resolve questions of
property rights and interests arising under the CFA. See United States
14
v. Certain Real Property at 2525 Leroy Lane, 910 F.2d 343, 347-49
(6th Cir. 1990), cert. denied, 499 U.S. 947 (1991). And, of course, the
anti-drug laws authorize the federal government to cooperate with
state and local governments in efforts aimed at drug trafficking. See
21 U.S.C. § 873. The Attorney General is authorized to assist states
in "the institution and prosecution of cases in the courts of the United
States and . . . courts of the several States," 21 U.S.C. § 873(a)(2), and
in "conducting investigations and prosecutions" of the diversion of
legitimate drugs to illegitimate uses, § 873(d)(1)(B). In short, the
claim that Congress regulated so pervasively in the field of forfeiture
as to make "no room" for state law is groundless. English, 496 U.S.
at 79 (citation omitted).
V.
The government's common law actions of detinue and conversion
are thus not preempted by the CFA. We next address whether the
government has stated the required elements of a conversion claim.
We affirm the district court's judgment that the government has
stated the elements of a conversion action. Conversion is the "wrong-
ful exercise or assumption of authority . . . over another's goods . . ."
United Leasing Corp. v. Thrift Ins. Corp., 440 S.E.2d 902, 905 (Va.
1994) (quoting Universal C.I.T. Credit Corp. v. Kaplan, 92 S.E.2d
359, 365 (Va. 1956)); see also McCormick v. AT & T Technologies,
Inc., 934 F.2d 531, 535 (4th Cir. 1991), cert. denied, 502 U.S. 1048(1992). To make out a conversion action in Virginia the government
must have had an immediate right to possess the $103,800 at the time
it was allegedly wrongfully converted by the law firm. United
Leasing, 440 S.E.2d at 906. The key dispute is whether the govern-
ment had such a right to possession.
Under the relation back doctrine codified in § 853(c), the govern-
ment had the right to possess the $103,800 at the time the law firm
received it in August, 1991. 21 U.S.C. § 853(c). No provision of the
CFA suggests that § 853(c) cannot be relied upon to establish one ele-
ment of a conversion action. Moffitt, Zwerling emphasizes, however,
that the government did not actually gain title to the $103,800 until
the entry of the forfeiture order. But once the forfeiture order was
entered, the government's title dated back in time to the criminal
15
activity giving rise to the forfeiture, a date which necessarily was
prior to August, 1991. See United States v. Parcel of Rumson, N.J.
Land, 507 U.S. 111, 125-27 (1993). The government therefore had a
right to possess the $103,800 in August, 1991.3
VI.
We finally address the government's contention that the district
court improperly constrained its efforts to uncover property traceable
to the $103,800. Such property, if not in the hands of an innocent
transferee under § 853(n), is forfeitable under the CFA. See 21 U.S.C.
§ 853(a)(1) (forfeitable assets include any property derived from
criminal proceeds). To "facilitate the identification and location of
property declared forfeited," § 853 authorizes district courts to order
discovery, including depositions and the production of any "book,
paper, document, record, recording, or other material not privileged."
21 U.S.C. § 853(m). The government argues that its effort to conduct
discovery under this provision was inappropriately restricted to docu-
ments and descriptions provided by the law firm itself. It also argues
that the district court erred in not subjecting law firm partner Lisa
Kemler to discovery to determine if she held traceable property.
The district court oversaw an extensive discovery effort in this
case. In the many rulings issued by the district court, some limits were
placed on the government, but the law firm was also required to turn
over considerable documentation regarding the disposition of the
$103,800. A district court enjoys wide discretion in guiding tracing
efforts and entering final forfeiture orders, see 21 U.S.C. §§ 853(g) &
(m), and we do not intend to supervise the details of the complex dis-
covery conducted in this case. Moreover, given that the government
has the conversion remedy available to it, the district court will be
required to weigh in the discovery balance the relative ease of recov-
ery of the forfeitable property under this common law route.
The district court, however, did place two artificial limits on the
government's tracing efforts. First, the court cut off all discovery with
_________________________________________________________________
3 In view of our holding on the question of conversion, we need not
address the district court's ruling that the government failed to state the
elements of its detinue action. See Moffitt IV , 875 F.Supp. at 1198-99.
16
respect to payments by the law firm to corporations owned, in whole
or in part, by law firm partners and their spouses. Moffitt III, 875 F.
Supp. at 1163. Such corporations, however, could be a natural place
for dispersal of the fee and payments to those corporations might
result in traceable property. Particularly because the law firm dissi-
pated so much of the fee before the restraining order was entered, the
government had to be afforded a reasonable opportunity to follow the
trail of the forfeitable property that made its way to corporations and
partnerships closely associated with the law firm.
Second, the district court completely barred discovery regarding
law firm partner Lisa Kemler because, it found, she was likely to
qualify as an innocent transferee under § 853(n). Moffitt III, 875 F.
Supp. at 1162; J.A. 1657-59. However, Kemler never filed any
§ 853(n) petition. It was Kemler's burden to demonstrate that she was
an innocent transferee and the district court had already rejected the
§ 853(n) petition filed on behalf of the law firm as an entity. Kemler
participated in Covington's defense, she helped carry the cash pay-
ment to the bank for deposit, and she participated in at least one of
the initial meetings with prosecutors regarding Covington's case. In
this context, cutting off all discovery with respect to her was in error.
VII.
Moffitt, Zwerling has sought throughout this litigation to focus
attention on the government's conduct. We understand that situations
may arise in which the government abuses the power to seek forfei-
ture, which is undoubtedly a "powerful weapon[ ] in the war on
crime." Caplin & Drysdale, 491 U.S. at 634. We also reiterate that the
right to the assistance of counsel in the presentation of one's own
defense is among the great liberties that a free people enjoys.
Neither prosecutorial misconduct nor an infringement of the consti-
tutional right to counsel, however, is at issue in this litigation. What
this lawsuit has brought to light is troubling conduct of a different
kind. The law firm in this case was dealing with a client who already
had most of his assets seized as the result of a major drug trafficking
investigation. The firm accepted an immense cash payment from the
client composed largely of $100 bills and stuffed into a shoe box or
a Ritz cracker box. And the firm complied with its client's request not
17
to provide a receipt for fear, the client said, it would fall into the
hands of law enforcement authorities. Perhaps most disturbing, the
district court disqualified the firm from this case in part because of
evidence that the firm tried to dissuade its own client from negotiating
with the government because of the unfavorable effect a guilty plea
might have on the law firm's fee. Moffitt I, 846 F. Supp. at 467; J.A.
567-68. This conduct disappoints. It falls far short of what America
expects from the members of one of its most privileged professions.
For the foregoing reasons, the district court's judgment is affirmed
in part, and reversed in part. The case is remanded for further pro-
ceedings consistent with this opinion.
SO ORDERED
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