UNITED STATES оf America, Plaintiff-Appellee, v. $22,050.00 UNITED STATES CURRENCY, Defendant, James Christopher Rowland, Claimant-Appellant.
No. 08-6335.
United States Court of Appeals, Sixth Circuit.
Decided and Filed: Feb. 16, 2010.
Submitted: Nov. 19, 2009.
595 F.3d 318
Before: MARTIN, BOGGS, and COLE, Circuit Judges.
OPINION
BOYCE F. MARTIN, JR., Circuit Judge.
In connection with a drug distribution and money laundering investigation, the United States Drug Enforcement Administration seized, among other things, $22,050 in United States Currency from the office of Rowland Development FLP in Murfreesboro, Tennessee. Claimant James Rowland ran this company. Rowland filed with the DEA an administrative claim to the seized objects, and the DEA eventually returned all of the items except the $22,050. Instead of returning the money, the DEA referred the matter to the United States Attorney for the Middle District of Tennessee, who filed an in rem forfeiture action against the money.
Because Rowland was a known potential claimant to the money, the government properly provided him notice of the action via certified mail. However, Rowland swears that he never received the notice because his secretary did not give it to him. Rowland did not timely file a verified claim to the funds and did nоt otherwise timely appear or respond in the civil action. Five months after filing the action, and four months after the deadline to respond, the government sought default against the money, which the Clerk entered.
Apparently Rowland did receive a copy of the government‘s motion for default.
Rowland now appeals both decisions. Because we believe that the district cоurt incorrectly focused on case law discussing compliance with the Supplemental Rules instead of the Rule 55(c) test for setting aside default in general, we REVERSE and REMAND to the district court.
I.
On September 20, 2007, the DEA executed a search warrant at the office of Rowland Development FLP in connection with a money laundering and controlled substance investigation. The agents seized a Porsche, a Ford sports utility vehicle, $3,482 in cash from one location in the office and another $22,050 in cash from a different location in the office. Jamеs Rowland, represented by counsel, timely filed a claim with the DEA asserting an ownership interest in the seized money and cars. As required by the applicable statutes, upon receipt of Rowland‘s administrative claim, the DEA forwarded the seized money and cars to the United States Attorney‘s office to decide whether to pursue civil forfeiture. On May 29, 2008, the DEA returned the two cars and the $3,482 to Rowland because the government had declined to seek forfeiture of those items.
However, the DEA did not return the $22,050 because, unbeknownst to Rowland, the governmеnt had initiated an in rem forfeiture action approximately three months earlier, on February 21, 2008. The government sent notice of the forfeiture action to Rowland via certified mail to his business, i.e. the place from which the money was seized, on March 10, 2008.1 The certified mail return receipt indicates that the notice was received and signed for by a Ms. Landry, who is Rowland‘s secretary. Rowland claims, via sworn affidavit, that he never actually received the notice. Ms. Landry further claims via affidavit that she apparently never openеd the envelope from the United States Attorney‘s office and therefore never gave it to Rowland.
In addition to providing notice directly to Rowland, the government also sent notice of the forfeiture action to Rowland‘s attorney by regular mail. Rowland‘s attorney, again via sworn affidavit, claims never to have received the notice.2 Al
Pursuant to
As stated above, the DEA returned the сars and the $3,482 to Rowland on May 28th, but did not return the $22,050. Several more months passed with, apparently, no action. Then, on August 7th, the government moved under
Rowland received a copy of the motion for default on August 12th and immediately called his attorney. That same day, Rowland moved to set aside the default and also filed a verified claim and answer to the underlying forfeiture action. The motion to set aside default is relatively paltry. It describes the chronology of events leading up to the default and obliquely argues that service of the original notice was inadequate. The motion does not assert that Rowland has meritorious defenses to the forfeiture claim and does not discuss whether the government would be prejudiced by setting aside the default.
However, along with the motion to set aside default, Rowland filed a verified claim to the money in which he swore undеr penalty of perjury that he had an ownership interest in the money. Rowland also filed an answer to the forfeiture complaint that generally denies the allegations and asserts that Rowland had not violated any drug or money laundering laws. The answer further asserts three affirmative defenses—that the complaint fails to state a claim, that the complaint violates the Eighth Amendment‘s excessive fines clause, and that the money was the fruit of an illegal search and seizure and thus subject to suppression by
The government responded to the motion to set aside default and also moved to strike Rowland‘s verified claim for failure to comply with the timing requirements of
II.
Rowland appeals the district court‘s denial of his
However, our cases discussing the two rules establish materially different standards in determining whether to excuse noncompliance or to adhere strictly to the rules. In general, our cases discussing motions to set aside default under
On the other hand, our cases discussing motions to strike claims under
Neither Rowland nor the government focuses on this question. Instead, Row
We disagree with both the government and Rowland. Instead, we think that, if we rely exclusively on the
There is no firmly established “test” under the
On the other hand,
In sum, our review of the two lines of cases and the policies animating the
III.
Having decided that the district court should have analyzed this case solely under the
[I]t is important to distinguish between an entry of default and a default judgment. That is, a stricter standard of review applies for setting aside a default once it has ripened into a judgment. Specifically, once the court has determined damages and a judgment has been entered, the district court‘s discretion to vacate the judgment is circumscribed by public policy favoring finality of judgments and termination of litigation as reflected in
Rule 60(b) .
Frontier Ins. Co. v. Blaty, 454 F.3d 590, 595 (6th Cir.2006) (quoting O.J. Distrib., 340 F.3d at 353).
In this case, Rowland moved to set aside default and filed a verified claim and answer to the forfeiture complaint within four days of the Clerk‘s entry of default, well before the court had entered judgment. Therefore, the applicable standard of review in this case is
Under
A. Would the Government Have Been Prejudiced by Setting Aside the Default?
In its briefing to the district court, the government never concretely asserted that any prejudice would result from setting aside default. However, in its brief on appeal, the government points to two supposedly prejudicial consequences that would befall it if Rowland‘s claim were allowed to proceed to resolution on the merits: delay resulting in increased litigation cost, and bad precedent. Neither argument persuades us.
The government first argues that delay leads to increased litigation costs. This argument has two pieces: delay and increased cost. As for delay, this argument seems disingenuous. The government filed its complaint on February 21, 2008 and provided Rowland notice of the action in early- to mid-March, although he denies ever actually having received it. Rowland‘s deadline to file a claim was April 15th and the deadline for the general public to make a claim was May 8th. No one filed a claim, so the government could have sought default on May 9th.6 Yet the government apparently did nothing until August 7th when it moved for entry of default, and Rowland filed his claim August 12th. If delay is so problematic in this case, it is unclear why the government waited three months to take the next step of seeking default. But given its decision to wait three months to advance the case, the government may not now complain of a three-month delay.
As for increased litigation costs, the government points to Thirty-Five Firearms to support its argument that increased cost is the kind of prejudice that can support sustaining entry of default. However, Thirty-Five Firearms is not a
The government also argues that setting aside default here would create bad precedent that would “undermine” the entire civil forfeiture system, leading to all potential claimants and their attorneys ignoring properly served forfeiture claims. Chicken Little would be proud of this logic. Our precedent for setting aside default has been around for quite a while, and applying precedent does not somehow create bad precedent. Furthermore, excusing Rowland‘s tardiness in this case will not undermine the efficient operation of civil forfeiture. If this case had more egregious facts—such as the claimant inten
B. Does Rowland Have a Meritorious Defense?
The second important
In this case, Rowland‘s motion to set aside default did not highlight any defenses. Thus, if assessed standing alone, the motion would fail to meet its burden of establishing one of the three
However, our cases discussing meritorious defenses in the context of setting aside default do not require that a defense be supported by detаiled factual allegations to be deemed meritorious. Instead, all that is needed is “‘a hint of a suggestion’ which, proven at trial, would constitute a complete defense.” INVST Fin. Group v. Chem-Nuclear Sys., 815 F.2d 391, 399 (6th Cir.1987) (quoting Keegel v. Key West & Caribbean Trading Co., 627 F.2d 372, 374 (D.C.Cir.1980)). This is because likelihood of success is irrelevant. Id. All that matters is whether a well-stated defense, if sustained, would change the outcome.
Under these facts, the outcome would be different if it were true that neither the controlled substance nor the money laundering laws had been violated. The outcome also would be different if the seized currency were the fruit of an unlawful search and seizure.
C. Did Rowland‘s Culpable Conduct Lead to the Default?
Of the three
Second, the DEA returned everything except the $22,050 to Rowland on May 29, 2008. Yet, over the next two months, apparently neither Rowland nor his attorney inquired as to why the $22,050 had not been returned. The closest Rowland comes tо explaining this failure to make reasonable inquiry is his professed belief that, by filing an administrative claim with the DEA, he had preserved his claim and thus needed to do nothing further. Minds could certainly differ whether this was a reasonable belief.
However, in the context of
IV.
For the reasons set forth above, we REVERSE the judgment of the district court and REMAND with instructions to determine whether Rowland was culpable under
