United States v. Babar Butt , 930 F.3d 410 ( 2019 )

Case: 18-20131 Document: 00515033470 Page: 1 Date Filed: 07/15/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 18-20131 FILED
July 15, 2019
Lyle W. Cayce
Clerk
UNITED STATES OF AMERICA,
Plaintiff–Appellee,
versus
BABAR JAVED BUTT,
Defendant,
and
HUMA BUTT; TAJUDDIN SALAHUDDIN,
Appellants.
Appeals from the United States District Court
for the Southern District of Texas
Before HIGGINBOTHAM, SMITH, and SOUTHWICK, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
Huma Butt (“Huma”) and Tajuddin Salahuddin, pro se, asserted inter-
ests in a convicted criminal defendant’s property that was subject to criminal
forfeiture and criminal restitution. The district court denied their motions for
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No. 18-20131
ancillary hearings and return of property. They appeal, challenging the rejec-
tion of their petitions for ancillary hearings and asserting their interests in the
criminal defendant’s property. We affirm in part, vacate in part, and remand.
I.
Babar Javed Butt (“Babar”) was convicted of mail fraud. During the
criminal investigation, the government seized from Babar $91,267 (the “cash”)
and 452 electronic devices (the “devices”) consisting of tablets, phones, and
computers. The cash was transferred to the U.S. Marshals Service. The dis-
trict court sentenced Babar, in part, to $287,679 in restitution and ordered him
to forfeit $287,679. The court also granted the government’s motions to forfeit
360 of the devices to the United States in partial satisfaction of the forfeiture
order and to turn over the cash in partial satisfaction of Babar’s restitution
debt.
Huma and Salahuddin, not parties to the criminal proceeding, asserted
interests in the cash and electronic devices, filing individual pro se motions
seeking ancillary hearings and the return of property. Huma, Babar’s sister,
claimed that she had a “priority ownership” in and was a “bonafide purchaser”
of the cash and devices because she had paid off a debt that Babar owed to a
third party for lending him money to purchase electronic devices. The district
court denied her motion because she was not a party to the criminal
proceeding.
Salahuddin contended that he was a secured creditor of Babar’s and that
he possessed a lien superior to that of the United States on the cash and devices
because he had executed a Collateralized Inventory Loan with Babar that
placed that property “under lien.” The court also denied Salahuddin’s motion
because, taking his allegations as true, he was “at best” “an unsecured creditor”
of the cash and devices, so “the United States ha[d] a superior claim to the
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assets.”
On appeal, Huma and Salahuddin challenge the denial of their motions
asserting their interests in the cash and devices and seeking ancillary hear-
ings. Huma contends that she has a “superior right because she is a bonafide
lien holder” of the cash and devices for having paid Babar’s debt to the third
party. Salahuddin maintains that the Collateralized Inventory Loan estab-
lishes him as Babar’s secured creditor with a lien superior to that of the United
States on the cash and devices.
II.
A third party “asserting a legal interest in property which has been
ordered forfeited” may “petition the court for a hearing to adjudicate the valid-
ity of his alleged interest in the property.” 21 U.S.C. § 853(n)(2)–(3); see also
FED. R. CRIM. P. 32.2(c). When “a third party files a petition asserting an inter-
est” in property that the government seeks to forfeit, the district “court must
conduct an ancillary proceeding.” FED. R. CRIM. P. 32.2(c)(1). A petitioner has
the burden of proving “by a preponderance of the evidence that” (1) “legal right,
title, or interest” in the forfeited property “was vested in the petitioner rather
than the defendant” or that petitioner’s “legal right, title, or interest” was
“superior” to that “of the defendant at the time of the commission of the acts
which gave rise to the forfeiture,” or (2) “the petitioner is a bona fide purchaser
for value of the right, title, or interest in the property and was at the time of
purchase reasonably without cause to believe that the property was subject to
forfeiture.” 21 U.S.C. § 853(n)(6).
“In [an] ancillary proceeding, the court may, on motion, dismiss the peti-
tion for lack of standing, for failure to state a claim, or for any other lawful
reason.” FED. R. CRIM. P. 32.2(c)(1)(A). “For purposes of the motion, the facts
set forth in the petition are assumed to be true.” Id. “Although . . . ancillary
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proceeding[s] arise[] in the context of criminal forfeiture, [they] closely resem-
ble[] . . . civil proceeding[s].” 1 Furthermore, the advisory committee’s notes to
Rule 32.2 state that courts should follow the Federal Rules of Civil Procedure
for “fundamental areas” of ancillary proceedings, such as “motion[s] to dis-
miss.” FED. R. CRIM. P. 32.2 advisory committee’s note to 2000 adoption.
Consequently, this court applies the standard of review under Federal
Rule of Civil Procedure 12 to the pleading-stage dismissal of a petition for an
ancillary proceeding. 2 That standard of review states that this court “review[s]
de novo a district court’s grant or denial of a Rule 12(b)(6) motion to dismiss”
for failure to state a claim, “accepting all well-pleaded facts as true and viewing
those facts in the light most favorable to the” nonmoving party. Groden v. City
of Dallas, 826 F.3d 280, 283 (5th Cir. 2016) (citation omitted).
III.
As an initial matter, Huma’s and Salahuddin’s appeals are timely be-
cause the deadline for a civil notice of appeal applies. Ancillary proceedings
are civil in nature. See Corpus, 491 F.3d at 208. Where multiple parties file
petitions in the same case asserting property interests, an order dismissing a
petition for an ancillary proceeding is not appealable until the district court
has ruled on all the petitions “unless the court determines that there is no just
reason for delay.” FED. R. CRIM. P. 32.2(c)(3).
The district court denied Huma’s motions to reconsider its denial of her
1 United States v. Corpus, 491 F.3d 205, 208 (5th Cir. 2007); see also id. at 208–09
(evaluating a motion for summary judgment in an ancillary proceeding according to the
standard of review of Federal Rule of Civil Procedure 56).
2 See United States v. Stone, 304 F. App’x 334, 336 (5th Cir. 2008) (per curiam) (ex-
plaining that a motion to dismiss a petition for an ancillary proceeding is reviewed using the
same standard as under Rule 12); Corpus, 491 F.3d at 208–09 (citing favorably Pacheco v.
Serendensky, 393 F.3d 348 (2d Cir. 2004), which reviewed a motion to dismiss a petition for
an ancillary proceeding under the Federal Rules of Civil Procedure).
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petition for an ancillary hearing on February 2, 2018, and denied Salahuddin’s
motion for an ancillary hearing on February 12. Huma and Salahuddin filed
their notices of appeal 11 days (February 23) and 15 days (February 27), re-
spectively, after the denial of Salahuddin’s petition. Thus, both appeals were
timely under the civil deadline. See FED. R. APP. P. 4(a)(1)(A). 3
IV.
A.
Huma challenges the denial of her petition for an ancillary hearing,
asserting that the court erroneously refused to consider her “rights in the
seized cash and electronic devices.” In her petition, Huma alleged that Babar
owed money to a third party who had given Babar money to purchase laptops
and ship them to him. Huma agreed to pay Babar’s debt and did so by bor-
rowing money. Throughout this time, Babar “repeatedly told” Huma “that he
will be able to convince the court that everything was seized illegally and as
soon as he gets all property back he will immediately ‘reimburse [Huma] the
promised amount and the additional interest paid on the loan.’”
Huma maintains that these facts either “establish[ed] a lien” in her favor
on the cash and devices or made her a “bonafide purchaser” of a right to them.
She further asserts that “at no point” did she agree to be an unsecured creditor
of Babar’s. Huma’s claims fail. Her petition for an ancillary hearing does not
state a claim under 21 U.S.C. § 853(n).
3 Moreover, the government invokes the civil notice-of-appeal deadline, thereby for-
feiting the ability to contend that the criminal deadline governs. See United States v. Collins,
712 F. App’x 392, 395 (5th Cir. 2017) (per curiam) (“[T]he Government’s brief expressly stated
that this Court could consider this issue, forfeiting any untimeliness argument with respect
to the motion to reconsider.”); see also United States v. Martinez, 496 F.3d 387, 388–89 (5th
Cir. 2007) (per curiam) (concluding that the criminal notice-of-appeal deadline is not juris-
dictional and may be waived).
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At all relevant times. the cash and devices were located in Texas.
Therefore, whether Huma held a valid security interest in that property is gov-
erned by Texas law. TEX. BUS. & COM. CODE § 9.301(1)–(3). Where collateral
is not in the possession or control of a purported secured party, a security
interest cannot arise unless the parties execute a written security agreement,
signed by the debtor, that contains a description of the collateral. See id.
§ 9.203(b)(3).
Huma has not demonstrated the existence of the necessary written
security agreement to establish her as a secured creditor with a lien on the
cash or devices. She did not attach a written, signed agreement to her petition
for an ancillary hearing. Her petition asserted only an unsecured interest in
the cash and devices, so she is merely an unsecured creditor.
Huma’s status as an unsecured creditor determines her claims. Unse-
cured creditors generally lack standing to contest forfeiture of their debtor’s
property. See United States v. Reckmeyer, 836 F.2d 200, 205–06 (4th Cir. 1987).
To prevail in a § 853(n) ancillary proceeding, a third-party petitioner must pos-
sess, or be a bona fide purchaser for value of, “a legal interest in property which
has been ordered forfeited to the United States.” 21 U.S.C. § 853(n)(2). An
unsecured creditor cannot establish a legal right to “any particular piece of
property” in the debtor’s estate, see Corpus, 491 F.3d at 211, and therefore
cannot satisfy § 853(n)’s requirement “that the interest exist in the property
subject to forfeiture,” Reckmeyer, 836 F.2d at 205.
For the same reasons that Huma cannot establish a secured interest in
the specific cash or devices, she also cannot demonstrate that she is a “bona
fide purchaser for value” of that property. She alleges no facts to support that
she was a bona fide purchaser of the specific seized property. Accordingly, the
district court properly rejected Huma’s petition for an ancillary hearing.
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B.
Salahuddin likewise challenges the denial of his petition for an ancillary
hearing, averring that the court “erred in determining that [he] is an unse-
cured creditor.” In his petition, Salahuddin claims that he and Babar executed
a Collateralized Inventory Loan on August 1, 2014, which he attached as
supporting evidence. The loan agreement provides that Salahuddin will lend
Babar up to $400,000 “for the purchase of INVENTORY i.e. (i) Cell phones,
(ii) IPads, (iii) Mac Books (iv) Computers and (v) other electronic devices.” It
also states that Babar “grants a first priority lien on, and security interest in
and to all of” that inventory, “whether now owned or hereafter acquired, now
existing or hereafter created and wherever located” to Salahuddin.
Salahuddin asserts on these facts that “any funds or inventory . . . seized
from . . . Babar . . . [is] under lien,” so he is a secured creditor with a priority
lien on the cash and devices. Though Salahuddin’s claims regarding the cash
do not establish that he has an interest in that property superior to that of the
United States, he has alleged sufficient facts at this stage to establish a facially
valid third-party claim to the devices. He is entitled to an ancillary proceeding
regarding his interest therein.
First, Salahuddin repeatedly invokes forfeiture terms and procedures in
maintaining that he has an interest in the cash. The cash, however, was not
forfeited. After being seized from Babar, it was held in the possession of the
U.S. Marshals Service and then ordered to be turned over and applied to
Babar’s restitution debt under the United States’ restitution lien that arose
under 18 U.S.C. § 3613(c) on the entry of judgment. Salahuddin contends that
he properly alleged a security interest in the district court and asserts that
“first in time is first in right,” implying that his interest in the cash is senior,
but this line of reasoning misses the mark. The cash was not forfeited, and
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thus the procedures in § 853(n) and Rule 32.2(c) are inapplicable. Salahuddin
presents no persuasive allegation that he has a priority claim to the cash senior
to the restitution lien of the United States.
Nevertheless, second, Salahuddin has adequately alleged a secured
interest in the devices. His claims in his petition, as supported by the attached
Collateralized Inventory Loan, support that he has a security interest in those
devices because the loan agreement (1) exchanged value, (2) indicated that
Babar had rights in the electronic devices he was purchasing, and (3) de-
scribed, in a written agreement purporting to bear Babar’s signature, the
property serving as collateral. See TEX. BUS. & COM. CODE § 9.203(b). Thus,
Salahuddin’s petition contained sufficient facts to assert a facially plausible
claim that he had a legal interest in the devices. See 21 U.S.C. § 853(n)(6).
We therefore VACATE the denial of Salahuddin’s petition for an ancil-
lary hearing as to the devices and REMAND for further proceedings as needed.
In all other respects, the judgment is AFFIRMED. We express no limit on
what actions the district court can take on remand or on the ultimate merits
of any issue.
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