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

Babar Javed Butt was convicted of mail fraud; the government seized $91,267 in cash and 452 electronic devices during the investigation.
The district court ordered $287,679 in forfeiture and restitution, forfeited 360 devices to the United States, and applied the seized cash toward restitution via the U.S. Marshals Service.
Huma Butt (Babar’s sister) filed a pro se petition asserting she paid a third-party loan for Babar’s devices and claimed a lien or bona fide purchaser status in the cash and devices; the district court denied her ancillary hearing request.
Tajuddin Salahuddin filed a pro se petition attaching a Collateralized Inventory Loan purporting to grant him a first-priority security interest in Babar’s inventory (cell phones, iPads, MacBooks, computers); the district court denied his petition as well.
The Fifth Circuit reviewed whether each third party adequately pleaded a § 853(n) interest to survive dismissal and whether ancillary proceedings were required; the court applied Rule 12(b)(6) standards.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Huma alleged a legal interest in the specific seized property under 21 U.S.C. § 853(n)	Huma: She paid off Babar’s debt and thus holds a lien or is a bona fide purchaser of the cash and devices	Government/District Ct: Huma is not a party and alleges only an unsecured claim; no written security agreement was shown	Denied — Huma’s petition fails: no signed written security agreement under Texas law and unsecured creditors lack § 853(n) standing
Whether Salahuddin alleged a superior security interest in the seized cash	Salahuddin: His loan gives him a prior lien; “first in time”	Government/District Ct: Cash was not forfeited but applied to restitution; U.S. restitution lien arose on judgment and is superior	Denied as to cash — Salahuddin’s assertion does not overcome the U.S. restitution lien
Whether Salahuddin alleged a legal interest in the seized devices sufficient to require an ancillary proceeding	Salahuddin: Collateralized Inventory Loan grants first-priority lien on inventory (devices) and is a written agreement signed by Babar	Government/District Ct: At most an unsecured claim or insufficiently pleaded interest	Vacated as to devices — petition facially pleads a plausible § 853(n) security interest; remanded for ancillary proceedings

United States v. Corpus, 491 F.3d 205 (5th Cir. 2007) (treating ancillary forfeiture proceedings as civil and applying civil-procedure standards)
United States v. Reckmeyer, 836 F.2d 200 (4th Cir. 1987) (unsecured creditors lack standing to assert interest in particular forfeited property)
Groden v. City of Dallas, 826 F.3d 280 (5th Cir. 2016) (standard of review for Rule 12(b)(6) motions; accept well-pleaded facts)
Pacheco v. Serendensky, 393 F.3d 348 (2d Cir. 2004) (ancillary petition dismissal reviewed under Federal Rules of Civil Procedure standards)
United States v. Stone, [citation="304 F. App'x 334"] (5th Cir. 2008) (motions to dismiss ancillary petitions reviewed under Rule 12 standards)