United States v. $11,071,188.64 in U.S. Currency: civil forfeiture of assets
19 Jul 2016

Stefan Cassella of Asset Forfeiture Law, LLC comments on United States v. $11,071,188.64 in U.S. Currency, a recent appeal which established that the sole shareholder of a corporation has standing to contest the forfeiture of the corporation’s assets. The shareholder, however, is not the “owner” of the corporation’s property, and therefore cannot establish an innocent owner defense. A court may dismiss the claim of a corporation as a sanction for refusing to make its corporate officers available for a deposition.

[United States v. $11,071,188.64 in U.S. Currency, ___ F.3d ___, 2016 WL 3144679 (8th Cir. June 6, 2016)]

The Government filed a civil forfeiture action against $11 million in a Miami brokerage account held by a British Virgin Islands corporation. The corporation was ostensibly engaged in raising ostriches, but the complaint alleged that it used the account to launder drug proceeds for the Mexican organization that provided cocaine to the Sinaloa Drug Cartel.

The corporation and its sole shareholder both filed claims contesting the forfeiture by asserting an innocent owner defense. The district court dismissed the corporation’s claim, however, when it refused to make its corporate officers available for a deposition. It also denied the individual’s claim on the ground that the sole shareholder of a corporation is not the owner of the corporation’s assets, and thus lacks standing to contest the forfeiture, or alternatively, cannot satisfy the “ownership” requirement of the innocent owner defense.[United States v. $11,071,188.64 in U.S. Currency, 2015 WL 630291 (E.D. Mo. Feb. 13, 2015)]. Both claimants appealed.

On appeal, the panel first affirmed the dismissal of the corporation’s claim. Rule 37 of the Federal Rules of Civil Procedure authorizes the dismissal of a claim as a sanction for failing to participate in the discovery process. The testimony of the corporate officers, the court said, was clearly relevant to the Government’s allegation that the brokerage account was used to launder drug proceeds as well as to the corporation’s claim that its owners had no idea that its accounts contained tainted funds. So the district court did not abuse its discretion in dismissing the claim.

The panel also rejected the corporation’s assertion that the dismissal of its claim violated its rights under the Excessive Fines Clause of the Eighth Amendment. The simple striking of a claim on procedural grounds, the court said does not implicate the Eighth Amendment.

With respect to the sole shareholder’s claim, the panel disagreed with the district court on the standing issue. The sole shareholder of a corporation may not be the owner of the corporation’s assets, but a person does not need to be the owner of an asset to have standing to contest its forfeiture. It is enough, the court said, that Claimant, as the sole shareholder, is the person with “the greatest financial stake in putting the Government to its proof.”

Nevertheless, the panel agreed with the district court that only the owner of an asset can assert an innocent owner defense, and that accordingly Claimant could not prevail on that issue.

So the entry of summary judgment for the Government was affirmed.

SDC Comment: Until now, courts have been unanimous in holding that the shareholders of a corporation, including sole shareholders or sole members of an LLC, lack standing to contest the forfeiture of the corporation’s assets. See Section XIII.C.13 of my Civil Forfeiture Case Outline. The panel in this case, however, realized that unless someone has standing, the Government will never be put to its proof as to the forfeitability of the property. To avoid that result, the panel held that a sole shareholder who has a financial stake in the outcome of a civil forfeiture action has standing to contest the forfeiture.

The panel had no problem in holding, however, that once the Government is put to its proof, the claimant must be an “owner” of the property to satisfy the innocent owner defense. Hence, the lesson of the case might be summarized like this: to force the Government to prove its case, standing will be construed broadly; to avoid handing a windfall to dodgy third party claimants who assert an innocent owner claim to tainted assets, ownership will be construed narrowly.

The panel was only forced into this position, of course, because the claim filed by the actual owner of the property – the corporation – was dismissed under Rule 37. Whether the panel would have felt the same compulsion to allow the shareholder to file a claim – and put the Government to its proof – if the corporation’s claim were still pending and available to serve that purpose is uncertain.

In all events, the panel realized that if a claimant does have standing, the court must find that the Government has established the forfeitability of the property before it reaches the innocent owner defense. See United States v. Funds in the Amount of $271,080.00, ___ F.3d ___, 2016 WL 1059522 (7th Cir. Mar. 17, 2016) (district court erred in requiring claimants to establish ownership before the Government established forfeitability; once claimant establishes standing, ownership does not come into play until claimant asserts an innocent owner defense); United States v. $557,933.89, More or Less, in U.S. Funds, 287 F.3d 66, 77 (2d Cir. 2002) (ownership only comes into play if the Government establishes forfeitability and the court reaches the innocent owner defense). That could have been a problem in this case if there were nothing in the record on the forfeitability issue. Fortunately for the Government, however, the claimant conceded that the funds in the bank account were involved in a money laundering offense and relied exclusively on her innocent owner defense in filing her claim and answer.

Stefan Cassella, Asset Forfeiture Law, LLC 


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