United States v. $8,221,877.16 in United States Currency
Case Information
*1 Opinions of the United 2003 Decisions States Court of Appeals
for the Third Circuit 5-28-2003
USA v. 221,877.16
Precedential or Non-Precedential: Precedential
Docket 02-1264
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PRECEDENTIAL
Filed May 28, 2003 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT No. 02-1264 UNITED STATES OF AMERICA v.
$8,221,877.16 IN UNITED STATES CURRENCY REPRESENTING; $6,871,042.36 CONTAINED IN ACCOUNT NUMBER 030101107 KNOWN AS THE VENUS ACCOUNT, HELD IN THE NAME OF OR FOR THE BENEFIT OF KESTEN DEVELOPMENT CORP. AT MTB BANK; $1,345,771.64 CONTAINED IN ACCOUNT NUMBER 12108 KNOWN AS THE TADELAND ACCOUNT HELD AT FOREX ASSOCIATES WHICH MAINTAINS AN ACCOUNT AT EAB BANK; $5,063.16 CONTAINED IN ACCOUNT NUMBER 08-1641-3 IN THE NAME OF OR FOR THE BENEFIT OF RAMAL VENTURES AT ISRAELI DISCOUNT BANK (Newark New Jersey Civil No. 00-cv-02667) KESTEN DEVELOPMENT CORP.
v. MTB BANKING CORPORATION (Newark New Jersey Civil No. 00-cv-04982) Kesten Development Corp., and Turist-Cambio Viagens e Turismo Ltda., Appellants Appeal from the United States District Court for the District of New Jersey (D.C. Civil Nos. 00-cv-02667 and 00-cv-04982) District Court Judge: Honorable Nicholas H. Politan Argued March 13, 2003 Before: BECKER, Chief Judge ,* RENDELL and AMBRO, Circuit Judges .
(Filed: May 28, 2003) Paul J. Fishman, Esq. [ARGUED] Friedman, Kaplan, Seiler & Adelman One Gateway Center, 25th Floor Newark, NJ 07102 Mishell B. Kneeland, Esq. Fleckman & McGlynn 515 Congress Avenue 1800 Bank of America Tower Austin, TX 78701 Counsel for Appellants Peter W. Gaeta, Esq. [ARGUED] Office of the U.S. Attorney 970 Broad Street, Room 700 Newark, NJ 07102 Stefan D. Cassella, Esq. [ARGUED] U.S. Department of Justice Asset Forfeiture Section 10th & Constitution Avenue, N.W. Bond Building, 10th Floor Washington, DC 20530 Counsel for Appellee * Judge Becker completed his term as Chief Judge on May 4, 2003.
OPINION OF THE COURT
RENDELL, Circuit Judge .
The controversy before us focuses on over eight million dollars in forfeited funds. Fighting over these funds are, on the one hand, the corporations that claim them, Kesten Development Corporation and its Brazilian parent company, Turist-Cambio Viagens e Turismo Ltda. (collectively, “Kesten”), and on the other, the United States government, to whom they have been forfeited. Somewhere in between lies Kesten’s bank, which, Kesten claims, improperly turned over the funds to the government. We address two issues: first, whether we should exercise our appellate jurisdiction when the appeal is from an order terminating one of two consolidated cases, and second, whether the District Court erred in refusing to entertain Kesten’s dismissal motion and granting judgment of forfeiture to the government early in the government- initiated proceedings. We conclude that we should exercise our jurisdiction and we will reverse the District Court’s award of judgment of forfeiture and remand for further proceedings.
I. Background Our story begins with the seizure of Kesten’s funds. In January 1999, the DEA obtained warrants to seize the contents of bank accounts Kesten maintained at MTB and European American Bank. The warrants directed the agents to seize the funds within ten days. Within that time frame, the DEA seized all the existing funds in both accounts, totaling approximately $7.3 million. [1] The DEA then orally directed MTB to send it any funds subsequently deposited or wired into the MTB account. From January through December 1999, MTB did so, forwarding to the DEA over $800,000 in additional funds (the “after-deposited funds”).
1. The DEA also seized approximately five thousand dollars from an Israeli bank. Kesten does not claim those funds.
Kesten attacked the seizures on two fronts. First, Kesten brought a four-count suit against MTB in the United States District Court for the Southern District of New York claiming that MTB had breached its contractual, statutory, and common law obligations by turning over the after- deposited funds without any legal process authorizing that action (the “MTB action”). Next, Kesten filed a motion under Federal Rule of Procedure 41(e) in the United States District Court for the District of New Jersey seeking the return of all the funds seized by the DEA. In June 2000, after negotiations with Kesten broke down, the government instituted the forfeiture action by filing a civil complaint for forfeiture in the same court. [2]
The forfeiture complaint alleged that the seized funds
were involved in a drug money laundering conspiracy
headed by a South American money exchanger, Markos
Glikas. Glikas was arrested in April 1998 and convicted of
conspiracy to commit money laundering in March 1999. As
part of the conspiracy, Glikas allegedly delivered drug
proceeds to Antonio Pires de Almeida (“Pires”), the former
owner of Turist-Cambio, who would then launder the
money through various intermediate accounts, ultimately
depositing it in Kesten’s account at MTB (the “Venus”
account). The government claimed that the seized funds
were subject to forfeiture under
In July 2000, pursuant to a stipulation extending the deadline for filing a claim, Kesten filed a verified claim to the funds, over Pires’s signature as its legal representative.
Kesten was thus prosecuting a civil action in New York and defending a civil forfeiture action in New Jersey, both of which revolved around the funds seized from the Venus account.
After the government filed the forfeiture action, MTB filed a motion to have the MTB action stayed, to have the 2. Kesten’s 41(e) motion was thereafter denied without prejudice.
government joined as an indispensable party, or to have the action transferred to the District of New Jersey. Finding that the MTB action could have been brought in New Jersey and that transfer would serve the interests of justice because the two actions involved common questions about the propriety of the seizure, the New York District Court granted the motion for transfer. Kesten Dev. Corp. v. MTB Banking Corp. , 00 Civ. 2730 (S.D.N.Y. filed Sept. 22, 2000).
At a status conference after the transfer, the Magistrate Judge overseeing discovery in the forfeiture action entered an order sua sponte consolidating the forfeiture and MTB actions “for all purposes.” The Judge then ordered the MTB action “stayed for all purposes pending a decision on the motions” then before the Court in the forfeiture action.
The motions then before the Court in the forfeiture action
arose out of Kesten’s motion to dismiss. The government
had granted Kesten additional time to “answer or otherwise
respond to” the forfeiture complaint. Within the stipulated
time period, Kesten filed a motion to dismiss pursuant to
Faced with the prospect of responding to enormously detailed interrogatories, Kesten petitioned the Court for relief. After a hearing, the Magistrate Judge limited the scope of the interrogatories and ordered Pires to submit to a deposition in the United States. (Mag. Order of July 13, 2001) Unfortunately for Kesten, Pires declined to do so, as
6 he was apparently in ill health and also feared that he would be arrested upon entry into the U.S. He did, however, indicate his willingness to be deposed in Brazil.
Kesten responded to the remaining interrogatories but never produced Pires for the deposition.
The government then moved for discovery sanctions under Rule 37(b), asking the District Court to strike Kesten’s claim. The District Court granted the government’s motion, dismissed Kesten’s claim to the funds, and, twelve days later, entered a final judgment of forfeiture. Kesten thus lost the funds without ever having a chance to attack the complaint.
MTB then filed a motion to dismiss the MTB action, arguing that Kesten should be barred by principles of res judicata and collateral estoppel from asserting any further interest in the funds in the MTB action, or alternatively that Kesten’s civil suit should be dismissed for the same discovery violation that resulted in the dismissal of Kesten’s claim to the funds because MTB was also purportedly harmed by Kesten’s failure to produce Pires. A1494. That motion is still pending.
II. Jurisdiction
We exercise jurisdiction pursuant to
7
action that Kesten initiated against MTB Bank, which is
still pending. Normally, under Rule 54(b), any order that
disposes of “fewer than all of the claims or the rights and
liability of fewer than all the parties” is not a final,
appealable order unless certified as such by the district
court.
Kesten argues that we may exercise jurisdiction because the orders appealed from should be considered final notwithstanding the pendency of the bank action. Interestingly, MTB has notified the Court that it is not a party to the case on appeal and is not directly impacted by the question of our jurisdiction over the issues presented in the forfeiture case. The government, although it recognizes that there is an issue as to our jurisdiction, also urges the Court to address the forfeiture issues before the MTB action proceeds.
The consolidation of two cases does not automatically preclude the appealability of an order in one. We have consistently rejected a bright-line rule, preferring a case-by- case approach that examines the overlap among the claims, the relationship of the various parties, and the likelihood of the claims’ being tried together. See Hall v. Wilkerson , 926 F.2d 311, 314 (3d Cir. 1991); Bergman v. Atlantic City , 860 F.2d 560, 567 (3d Cir. 1988). Applying this fact-specific approach to the case at hand, we conclude that the orders in the forfeiture case are final for purposes of appeal.
A close examination of our previous precedents in which we have spoken on this issue guides our reasoning and supports this result. In Bergman , our first case to address this issue, we held that an order disposing of one suit that had been consolidated for all purposes of discovery and trial with a second suit was not a final, appealable order where the second suit was still pending. Id. at 567. There, a homeowner, suing in his individual capacity and seeking to represent a class of homeowners, sued various municipal and housing authorities for amending a development plan without the consent of the homeowners. The Homeowners Association that represented the relevant homeowners filed 4. Kesten has moved the District Court for an order severing the two actions. As of this appeal, that motion is still pending.
a second suit with the same central claims. The two suits were then consolidated “for all purposes of discovery and trial.” Id. at 562-63. Following consolidation, the district court granted summary judgment for the defendants against the individual homeowner. The individual homeowner appealed. Id. at 563.
We dismissed the appeal for lack of appellate jurisdiction.
In coming to our conclusion that the summary judgment
order in the individual homeowner’s case was not a final
order, we discussed our reasoning in
Bogosian v. Gulf Oil
Corp.
,
Bogosian , 561 F.2d at 441. We looked behind the consolidation label and examined the actual relationship of one case to the other. First, we noted factors mitigating against the cases’ separateness: “That both plaintiffs are represented by the same attorney, the suits are filed in the same forum, are before the same judge, and the complaints and the defendants are identical.” Id. However, we then noted that “the cases have not been consolidated for trial,” and that it was “possible that the cases could be scheduled for trial at different times and be tried before different juries.” Id. We then held that “at least absent consolidation for all purposes of cases separately filed, each civil action is to be viewed as a separate unit.” Id.
In
Bergman
we relied on our reasoning in
Bogosian
and
endorsed consideration of the factors we had outlined there
for determining whether an order in a consolidated case
was final for purposes of appeal.
Bergman
,
Rejecting a bright-line rule, we noted the relevant factors as including whether the cases were in the same forum before the same judge, whether the claims and parties were identical, and whether the cases were consolidated for trial or just for pre-trial administration. Id. We then reasoned that, because the two cases were consolidated for all purposes of discovery and trial , and the adjudication of the issues as to the individual plaintiff would necessarily affect the rights of the Homeowners Association, the order disposing of the individual’s claim was not final. Id.
In our next case in which we addressed “finality” concerns in consolidated actions, we applied the Bogosian factors and found that an order disposing of one case was a final order for purposes of appeal. See Hall , 926 F.2d at 314. In Hall , we were faced with three consolidated cases: two were declaratory judgment actions requesting a determination as to whether a driver who had been in an accident was an “insured” under an insurance policy, and the third was a tort action against the driver. Id. at 312-13.
After a hearing, the court entered a judgment that the driver was not an “insured.” The driver appealed, even though the district court refused to certify the judgment as final. The tort action was scheduled for trial several months later. Id. at 313.
We held that the driver could appeal the order in the declaratory actions. Id. at 314. We noted that our rulings in Bergman and Bogosian had turned on whether the cases had been consolidated for trial . Id. We also emphasized that in Bergman the complaints in the two actions were “substantially similar.” Id. We then applied the Bogosian factors and determined that because the claims were not the same, the parties were not identical, and it was unlikely that the actions would be tried together because trial of the insurance coverage issue before the same jury would have impermissibly introduced the issue of insurance into the tort action, the order in the declaratory action was final. Id.
Our case law thus instructs us to apply the Bogosian factors to determine whether the MTB action and the forfeiture action here are truly a single unit. When we do so, we find that, as in Hall , the orders on appeal before us from the forfeiture action are final and appealable.
Although we are faced with two cases that were ordered consolidated “for all purposes,” a label that seems to make this case more akin to Bergman , the consolidation order here was entered by the Magistrate Judge sua sponte , without briefing or argument, causing some uncertainty as to what the Court actually intended to accomplish. When we look beyond the label, we find that the two actions are not consolidated in a way that would preclude our jurisdiction, and that our disposition of Kesten’s appeal in the forfeiture action would probably advance, rather than hinder, the MTB action.
First and foremost, the issues on appeal in the forfeiture action are completely distinct from the underlying issues in the MTB action. The forfeiture action will turn on the government’s right to seizure of the funds under a specific statutory framework. By contrast, the MTB action challenges the propriety of the bank’s conduct vis a vis its depositor and the government. And, although both cases may touch upon the legality of the seizure warrant, the forfeiture action comes to us on procedural points peculiar to forfeiture proceedings that have nothing whatsoever to do with the seizure of the funds or the merits of Kesten’s claim to the funds, let alone the merits of Kesten’s action against MTB Bank. The crucial issue we must consider is whether the rules applicable in forfeiture cases permitted Kesten to move to dismiss the forfeiture complaint. Furthermore, the central issue in the forfeiture action as it moves forward will be whether the funds were the proceeds of illegal activity. In contrast, the central issue in the MTB action is whether MTB should have turned over Kesten’s money at the oral request of the DEA. Though there may later be a slight similarity of subject matter regarding the seizure, this is not enough to preclude our jurisdiction over the present question. In fact, it could be argued that a final order in the forfeiture action before the MTB action proceeds further is advisable, as Kesten might view the MTB action differently if the forfeiture were to be overturned and the funds returned.
Second, the parties in both actions are not identical, nor do they have identical interests. Although the government and MTB argue that the government is a necessary party to the MTB action, the government has never been joined, nor has Kesten shown any inclination to name the government as a defendant. The sole question in the MTB action is whether the Bank properly turned over the money, not whether the money was properly seized by the government.
Finally, the two actions are governed by somewhat different procedural rules and have been treated separately from the start. We find it highly unlikely that they would or could ever be tried together. The two are simply not intertwined. Unlike in Bergman , the resolution of the forfeiture issues will not in any way hamper the rights of MTB in the MTB action. If anything, as we have noted, finality would enhance the situation. And, in fact, when the Magistrate Judge entered the consolidation order, he also stayed the MTB action pending the outcome of motions then before the Court in the forfeiture action. Those motions are the same motions that eventually gave rise to this appeal. As MTB has recognized, it has never had any interest in the issues before us. We therefore see no reason not to address these issues.
In short, we find that this case is more like the distinct
declaratory and tort actions in
Hall
and the separable suits
in
Bogosian
than the nearly indistinguishable homeowners’
suits in
Bergman
. Because an examination of the
Bogosian
factors weighs heavily in favor of finality, we hold that the
orders in the forfeiture case are final orders for the
purposes of
III. Merits Kesten contends that the Supplemental Rules governing admiralty and forfeiture proceedings do not bar it from filing a motion to dismiss before answering interrogatories that the government served with its complaint, and that the District Court erred in holding to the contrary. It urges that it was authorized to file its motion to dismiss before serving an answer, and that its motion should be granted because the government failed to file suit within one year of the date of the offense. [5] The government takes the position that the District Court’s decision refusing to consider Kesten’s motion to dismiss was sound, as was its dismissal of 5. Kesten also contends that the Magistrate Judge exceeded his authority by ordering Pires’ deposition in lieu of requiring a complete answer to the interrogatories. As we are vacating the District Court’s order compelling Kesten to answer the interrogatories, this issue is moot.
Kesten’s claim as a sanction for discovery abuses, and that it timely commenced the forfeiture action.
A. Dismissal of the Motion to Dismiss
Kesten first asks us to reverse the Court’s order refusing to entertain its motion to dismiss the forfeiture complaint.
Following the procedure authorized by
Parties to civil forfeiture proceedings are the servants of
two procedural masters: the Supplemental Rules specially
devised for admiralty and
in rem
proceedings, and the
generally applicable Federal Rules of Civil Procedure (“Civil
Rules”). The balance between the two is struck in favor of
the Supplemental Rules, which always apply to civil
forfeiture proceedings.
See
641, 648 (1960) (construing the former admiralty rules); rather, they are special provisions that overlay the Civil Rules, adding unique requirements necessary only in 6. Our review of the District Court’s interpretation of Rule C(6) is plenary. Tudor Dev. Group, Inc. v. U.S. Fidelity & Guar. Co. , 968 F.2d 357, 359 (3d Cir. 1992).
7.
forfeiture and admiralty proceedings that have no place in general civil litigation. [8] The Civil Rules therefore also apply to in rem proceedings, but only to the extent that they are not “inconsistent with” the Supplemental Rules. Supp. R. A.
This scheme seems simple enough. The difficulty arises in determining when precisely a Civil Rule is “inconsistent with” a Supplemental Rule.
Here, the District Court held that Civil
8. The Rules of Practice in Admiralty and Maritime Cases were rescinded
in 1966, when the rules were merged into the Federal Rules of Civil
Procedure.
U.S. Express Lines Ltd. v. Higgins
,
2002) (holding that the applicability and construction of Supplemental Rule B presents a federal question for purposes of removal).
9. The District Court couched its dismissal of Kesten’s motion in terms of Kesten’s failure to establish “statutory standing” to file a motion to dismiss. However, the Court’s terminology is misleading, as Kesten’s right to appear before the Court to contest the forfeiture action is a separate concept from whether Kesten had to serve an answer before filing its motion to dismiss.
A forfeiture claimant must meet both Article III and statutory standing requirements before it may stand before a court to contest a forfeiture.
In re Friko Corp. , 971 F.2d at 984. “Article III standing requires the claimant to show an interest in the property sufficient to create a ‘case or controversy,’ while statutory standing requires claimants to comply with certain procedures.” Id. The statutory standing procedures with which a forfeiture claimant must comply are set forth in Rule C(6), and involve the timely filing of a verified claim. The purpose of statutory standing is to force claimants “to come forward as quickly as possible after the initiation of forfeiture proceedings, so that the court may hear
Kesten asks us to reverse and reinstate its motion. It argues that Rule C(6) is a truly supplemental rule, one that does nothing more than provide for certain unique aspects all interested parties and resolve the dispute without delay,” and to minimize the danger of false claims by requiring claims to be verified or solemnly affirmed. United States v. Various Computers & Computer Equip. , 82 F.3d 582, 585 (3d Cir. 1996).
The District Court found that Kesten had satisfied both Article III and statutory standing requirements and was properly before the Court. It held that “Pires’ statement under oath, coupled with the government’s allegations that Pires controlled the seized funds,” was enough to show that Kesten had a sufficient possessory interest in the seized funds to establish “statutory standing for purposes of defending this in rem action.”
Confusingly, the Court went on to state that although Kesten had
“statutory standing” to defend the forfeiture, it did not have different
“statutory standing” to file a motion to dismiss. It reasoned even though
Kesten was a proper claimant, Rule C(6) was inconsistent with
However, the Court’s holding regarding the inconsistency between the Civil Rules and the Supplemental Rules had little to do with Kesten’s statutory standing . Statutory standing is a threshold issue that determines whether a party is properly before the court. Had the Court truly held that Kesten lacked statutory standing to proceed, the proper response would have been to strike Kesten’s claim. Cf. 51 Pieces of Real Prop. , 17 F.3d at 1319 (finding no abuse of discretion where district court struck untimely claim); United States v. Ford 250 Pickup 1990 , 980 F.2d 1242, 1245 (8th Cir. 1993) (finding no abuse of discretion where district court struck claim because answer was untimely); United States v. United States Currency in the Amount of $2,857 , 754 F.2d 208, 213 (7th Cir. 1985) (striking claim because it was not “verified on oath”); One Parcel of Real Prop. Located at Route 2 , 46 F. Supp. 2d 572 (S.D. Miss.
1998) (striking claim because answer was untimely); United States v.
$288,914 , 722 F. Supp. 267 (E.D. La. 1989) (same). Because the Court chose instead to continue the litigation and preserve Kesten’s right to file a motion at a later time, we view its reference to a “different” standing issue regarding the filing of a motion to have been merely a misleading labeling of the issue and conclude that it did not actually find that Kesten lacked any aspect of standing.
of forfeiture proceedings, namely, the filing of a claim and
the timing for filing responsive pleadings in light of the
claims process, but does not displace the motions scheme
set forth in
We have found no reported decision that analyzes the
issue as to whether
$38,870.00
, No. 7:99-47 (M.D. Ga. filed Sept. 24, 1999)
(dismissing motion to dismiss because claimant had not yet
served an answer). Other federal courts have entertained
motions to dismiss prior to the claimant’s serving an
answer, but they have done so without specifically
addressing whether
See
,
e.g.
,
United States v. 2751 Peyton Woods Trail
, 66 F.3d
1164 (11th Cir. 1995) (remanding for consideration of
claimant’s motion to dismiss);
United States v. Funds in the
Amount of $29,266.00
, 96 F. Supp. 2d 806 (N.D. Ill. 2000)
(denying motion to dismiss);
United States v. 657 Acres of
Land
, 978 F. Supp. 999 (D. Wyo. 1997) (same);
United
States v. Funds in the Amount of $9,800
,
Kesten cites to the Supreme Court’s decision in
Degen v.
United States
,
There, the Court held that a district court may not strike a
claimant’s filing and enter summary judgment against him
in a civil forfeiture suit merely because he failed to appear
in a related criminal prosecution.
Id.
at 826. While the
Court did comment that consideration of the claimant’s
motion to dismiss would impose no great burden on the
government, because it was based on a failure to file within
the statute of limitations, defense of which does not require
a great deal of discovery,
id.
at 827-28, the issue of motion
practice in forfeiture cases as presented to us was not
before it. We do not agree with Kesten that the one
sentence in
Degen
regarding motions to dismiss controls
the analysis here. Although we take some policy guidance
from the Supreme Court’s discussion regarding the
importance of such motions and the ease with which the
government may defend against them, as we discuss
infra
,
we do not read anything further into the Court’s dicta and
certainly do not find within it any ruling on the issue of
As there is no binding precedent to guide us, we must draw upon principles of statutory construction, look to the overall scheme imposed by the Supplemental Rules, and consider the policy behind pre-answer motions.
We will first examine the language of the two rules at
issue.
(a) When Presented.
(1) Unless a different time is prescribed in a statute of the United States, a defendant shall serve an answer (A) within 20 days after being served with the summons and complaint . . . . (4) Unless a different time is fixed by court order, the service of a motion permitted under this rule alters these periods of time as follows: (A) if the court denies the motion or postpones its disposition until the trial on the merits, the responsive pleading shall be served within 10 days after notice of the court’s action . . . .
Every defense, in law or fact, to a claim for relief in any pleading, . . . shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may at the option of the pleader be made by motion: . . . (6) failure to state a claim upon which relief can be granted.
Rule C(6) provides the Supplemental Rule for claims and answers. It states in its entirety:
Claim and Answer; Interrogatories. The claimant of property that is the subject of an action in rem shall file a claim within 10 days after process has been executed , or within such additional time as may be allowed by the court, and shall serve an answer within 20 days after the filing of the claim . The claim shall be verified on oath or solemn affirmation, and shall state the interest in the property by virtue of which the claimant demands its restitution and the right to defend the action. If the claim is made on behalf of the person entitled to possession by an agent, bailee, or attorney, it shall state that the agent, bailee, or attorney is duly authorized to make the claim. At the time of answering the claimant shall also serve answers to any interrogatories served with the complaint. In actions in rem interrogatories may be so served without leave of court. [10]
Supp. R. C(6) (emphasis added).
Thus, standard civil proceedings contemplate a complaint followed by an answer or a motion. The Supplemental Rule provides for initial “process” — by complaint — then the filing of a claim, then an answer to the complaint. No mention is made of motion practice. The question we must answer is whether the pleadings scheme laid out in the Civil Rules is “inconsistent with” the pleadings scheme in Supplemental Rule C(6).
According to Webster’s Dictionary, “inconsistent” means
“lacking in correct logical relation, contradictory,” or “not in
agreement or harmony, incompatible.”
Webster’s II New
Riverside University Dictionary
620 (1988). Applying this
definition, we can see that several of the Supplemental
Rules and the Civil Rules are clearly incompatible and
disharmonious. For example, Civil
simply cannot be reconciled with a rule allowing an answer to be served within twenty days after filing a claim .
Similarly, Supplemental Rule E(2), which requires a
forfeiture complaint to “state the circumstances from which
the claim arises with such particularity that the defendant
or claimant will be able, without moving for a more definite
statement, to commence an investigation of the facts and to
frame a responsive pleading,” is incompatible with Civil
Rule 8(a), which allows for a “short and plain statement of
the claim.”
United States v. $39,000
, 801 F.2d 1210, 1216
(10th Cir. 1986). The two rules are contradictory: one
requires detail, the other does not. As there is a conflict,
the Supplemental Rule prevails. Rule E(2)
is also
inconsistent with Civil
In contrast to these instances of clear incompatibility, the
civil scheme for motions in
Rule C(6), however, operates in the world of forfeiture, and therefore must include different instructions. Whereas civil complaints are served on a known defendant, forfeiture complaints are served on the res , the property. Before the action can proceed, the party claiming the res must make himself known by filing a claim. The claim adds an extra step not contemplated by the Civil Rules. The Supplemental Rules must therefore instruct parties that before they may file an answer, they must first file a claim. In terms of timing, the claim in a forfeiture proceeding is equivalent to the answer in a general civil proceeding: both begin a responsive pleading process, and both must be filed within twenty days of service of process. Parties to forfeiture proceedings, however, must then also be apprised of when the answer to the complaint is due. Rule C(6) instructs that it must be filed within ten days after the filing of the claim.
Neither Civil
Just as a civil defendant may respond to a complaint with a motion to dismiss, and must then file an answer within ten days after the court disposes of that motion, a forfeiture claimant may, after being served with a complaint and filing a verified claim, respond to a forfeiture complaint by filing a motion to dismiss; the claimant must then serve an answer within ten days after the court disposes of that motion. There is no “either/or” choice to be made. Asking whether C(6) or 12(a)(4) applies is like asking whether 12(a)(1) or 12(a)(4) applies. The simple answer is: both do.
The compatibility of Supplemental Rule C(6) and
First, only by reading Supplemental Rule C(6) to permit pre-answer motions in forfeiture can we reconcile that rule with Supplemental Rule E(2), the enforcement of which appears to require such motions. As stated above, Rule E(2) imposes a particularity requirement on forfeiture pleadings.
It requires the government to draft its complaint with precision so that a claimant need not move for a more definite statement before framing responsive pleadings.
Supp. R. E(2). This particularity requirement arises out of the drastic nature of forfeiture actions, which allow for the seizure of property while the claim on the merits is litigated.
Rule E(2) is thus an important safeguard against the government’s seizing and holding property on the basis of mere conclusory allegations that the property is forfeitable.
United States v. One Partially Assembled Drag Racer , 899 F.
Supp. 1334, 1340 (D.N.J. 1995). Claimants can enforce Rule E(2) by filing motions to dismiss for lack of particularity prior to forming their responsive pleadings.
See , e.g. , United States v. Premises & Real Prop. at 4492 S.
Livonia Rd. , 889 F.2d 1258, 1266 (2d Cir. 1989) (affirming denial of motion); United States v. Funds in the Amount of $29,266.00 , 96 F. Supp. 2d 806, 811 (N.D. Ill. 2000) (denying motion); One Partially Assembled Drag Racer , 899 F. Supp. at 1341 (same).
Kesten persuasively argues that if Rule C(6) were to bar the filing of motions prior to answers, as the government suggests, claimants would have no mechanism for holding forfeiture complaints to the particularity required in Rule E(2). If a complaint were vague, claimants would nonetheless be obliged to first file a general answer and respond to what may be very extensive interrogatories before moving for relief from the insufficient complaint. This cannot be. The government’s response, that claimants could wait until they file an answer and respond to the interrogatories before attacking the validity of the complaint, see United States v. Currency $267,961.07 , 916 F.2d 1104, 1106 (6th Cir. 1990) (stating that claimant first filed a claim and answer and then filed a motion to dismiss the complaint for lack of particularity), is not responsive.
The very purpose of Rule E(2) is to protect claimants from having their property held and from being exposed to invasive discovery on the basis of vague, conclusory complaints. Under the government’s reading, this goal would be undermined by Rule C(6). That claimants can wait to file a motion to dismiss, and in the meantime suffer the seizure of their property on the basis of what may be an insufficient complaint, does not mean that they must . We will not read Rule C(6) to frustrate so directly a claimant’s ability to enforce the particularity requirement in Rule E(2).
Next, the Court of Appeals for the First Circuit’s analysis *22 21
in United States v. One 1987 BMW 325 , 985 F.2d 655 (1st Cir. 1993), supports our view that when a Supplemental Rule is silent on a particular procedure, we should not take that silence as an indication that the procedure has no place in forfeiture, but rather should fill the gap with the relevant Civil Rule. There, the court reversed the district court’s order striking a claim as a sanction for the claimant’s failure to answer the interrogatories served with the complaint. Id. at 656. In determining what procedure applied to remedy a forfeiture claimant’s failure to respond to the interrogatories, the court first examined the Supplemental Rules. When it did, it found those rules “completely bereft of guidance concerning what measures may be appropriate when parties fail to serve answers to interrogatories in a full and timely fashion.” Id. at 659. The court then looked to Rule 37 to fill the gap. Id. In so doing, the court rejected the government’s “curious interpretation” of Supplemental Rule C(6) as “allowing dismissal in the first instance if interrogatories are served thereunder and then ignored.” Id. at 659-60. Because Rule C(6) was silent on the topic of discovery sanctions, the BMW court “[d]iscern[ed] no hint of inconsistency” between Rule C(6) and Rule 37, and held that the use of discovery sanctions in forfeiture actions was properly governed by its Rule 37 jurisprudence.
Id. at 660. Thus, silence in the Supplemental Rules was taken not as an indication that discovery sanctions had no place in forfeiture, but rather as a sign that the Civil Rules were meant to step in and provide the proper procedure.
11. The leading treatise on forfeiture also agrees with our interpretation of Rule C(6), and has in fact opined that the District Court’s ruling in this case was incorrect. See David B. Smith, Prosecution and Defense of Forfeiture Cases , ¶ 9.04[1] n.2 (Dec. 2002). Smith explains:
To make matters worse, one court has incorrectly held that a claimant cannot file aRule 12(b) motion before it has filed an answer under Rule C(6) and answered any interrogatories served with the Complaint. Contrary to that opinion, there is no inconsistency betweenRule 12(b) and Rule C(6). Rule C(6) has no language suggesting that aRule 12(b) motion cannot be filed in lieu of an answer.
Id. (citation omitted).
Finally, our interpretation of Supplemental Rule C(6) is
buttressed by policy considerations. Civil
We have been presented with no evidence that
Supplemental Rule C(6) was intended to pull the rug out
from under forfeiture claimants by abolishing the time-
honored protections provided in
In fact, the notes later acknowledge that the needs of
expedition
“do not commonly arise
in
forfeiture
proceedings.”
Id.
The advisory committee made no other
comment regarding the reason for allowing the government
to serve interrogatories with the complaint, nor did it
indicate that the special needs of expedition are so great
that they completely override the procedural safeguards of
The government vigorously argues that our interpretation
of Supplemental Rule C(6)’s interaction with
It urges that we cannot “assume” that the Supplemental
Rules incorporate the motions scheme in
This argument appears to be one of efficiency, that is that by permitting extensive inquiry into the nature of the claimant’s interest in the property, the court will be able to avoid being burdened by proceedings by a claimant who might not have a real interest. But we conclude that any concern as to a waste of judicial resources is laid to rest not only by the requirement that the claimant file a verified claim to the funds, but also by the very tactic the government decries, namely, the early motion to dismiss. If the claimant would have succeeded on the motion to dismiss, it would be a waste of resources to require the claimant to answer extensive interrogatories before making the motion to dismiss. And, in the present case, the government linked Kesten to the seized money in its complaint — having stated “Pires is the principal in Kesten Development Corp. which maintained the Venus account at MTB Bank” — and cannot seriously contend that Kesten is feigning its interest in the seized property. [12]
By resorting to policy arguments regarding the different
motivations behind the Supplemental and Civil Rules,
moreover, the government’s argument misses the mark; it
fails to grasp the way that the Civil Rules apply in
forfeiture. As the Supreme Court explained in
Miner
, the
Supplemental Rules are not comprehensive.
See Miner
, 363
U.S. at 648. The Civil Rules provide the basic procedures
for forfeiture; the Supplemental Rules are simply an overlay
— they are, as their title indicates,
supplemental
. In finding
that
The government is right that it should not be forced to try its case before an answer is filed and it receives meaningful 12. In questioning Kesten’s “bona fides,” the government appears to be attacking, in a roundabout way, that aspect of the District Court’s order holding that Kesten had demonstrated a sufficient possessory interest in the funds to establish statutory standing to contest the forfeiture. See supra n.9. The government’s fears that Kesten is a false claimant were actually addressed by that ruling. The Court examined Kesten’s verified claim, considered the arguments advanced by the government, and held that Kesten was a genuine claimant. The government has not cross- appealed the District Court’s ruling on that point, nor does it assert that the District Court should have stricken Kesten’s claim because it failed to meet the requirements of Rule C(6). Rather, its sole contention on appeal is that the District Court properly held that under Rule C(6), Kesten may not file a motion to dismiss before answering the complaint.
As the issue of Kesten’s statutory standing was decided by the District Court and is not before us, we find unavailing the government’s attempt to argue that Kesten’s failure to file an answer affects its standing.
discovery. But it simply does not follow that Kesten should be required to serve an answer and respond to the interrogatories before it files a motion to dismiss. We are not compelling the government to litigate the ultimate issue of forfeiture any sooner than we normally ask plaintiffs to prove their cases. We are merely requiring it to defend against a motion to dismiss the complaint that raises preliminary issues before it imposes upon Kesten a great deal of burdensome discovery, just as we require plaintiffs in normal civil cases to defend the adequacy of their complaints before the defendant must file an answer.
Because we find no inconsistency between Rule C(6)’s
timing requirements and
B. Statute of Limitations
Kesten urges that instead of remanding for the District Court to consider the motion to dismiss, we should rule that, based on the record before us, the government’s forfeiture complaint was indeed untimely. [13] We would normally decline to address issues not passed upon below, but we will address at least preliminarily certain issues presented by Kesten’s motion to dismiss, as it presents an issue of statutory interpretation that we deem to be a question of some importance, and that was specifically raised and argued by the parties. See Loretangeli v. Critelli , 853 F.2d 186, 189 n.5 (3d Cir. 1988) (“This court may consider a question of pure law even if not raised below where . . . the issue’s resolution is of public importance.”).
Kesten argues that the government failed to file its
complaint within the one year limitation set forth in
must dismiss the complaint on this basis. The government
responds with two arguments: first, although it did not
file
the forfeiture complaint
within a year of the offense, it met
the one year limitation in
A brief detour to examine the interaction between
Civil Forfeiture of Fungible Property (a) This section shall apply to any action for forfeiture brought by the Government in connection with any offense under section 1956, 1957, or 1960 of this title . . . . (b)(1) In any forfeiture action in rem in which the subject property is cash, monetary instruments in bearer form, funds deposited in an account in a financial institution, or other fungible property — (A) it shall not be necessary for the Government to identify the specific property involved in the offense that is the basis for the forfeiture; and (B) it shall not be a defense that the property involved in such an offense has been removed and replaced by identical property. (2) Except as provided in subsection (c), any identical property found in the same place or account as the property involved in the offense that is the basis for the forfeiture shall be subject to forfeiture under this section. (c) No action pursuant to this section to forfeit property not traceable directly to the offense that is the basis for the forfeiture may be commenced more than 1 year from the date of the offense. [14]
burden, providing that any action to forfeit property not directly traceable to the offense “be commenced” within one year.
The threshold issue that we confront here is whether
under
We begin, as we must, with the language of the statute itself. United States v. Ron Pair Enterprises, Inc. , 489 U.S.
235, 241 (1989). Where the statute’s language is plain, “the sole function of the courts is to enforce it according to its terms.” Caminetti v. United States , 242 U.S. 470, 485 (1917).
Thus, we conclude that, when read properly to incorporate
a term embedded with such legal significance,
We note that our reading of the word “commenced” as
used in
2000) (forfeiture action barred by statute of limitations
because complaint was not filed against seized property
within five years);
United States v. $515,060.42
, 152 F.3d
491, 501-03 (6th Cir. 1998) (same). Furthermore, the
Supreme Court has recognized in dictum that a forfeiture
action is “commenced” under
30
The government urges that legislative history contradicts
our plain reading of the statute. It quotes extensively from
a House Committee Report, set forth fully in the margin,
that it contends reflects Congress’s intent to allow the
government to satisfy
The government argues that Congress included the one year time limit in order to ensure that the seized property had a reasonable nexus to the underlying offense. If the time between the offense and the seizure is relatively short, then that nexus will still be satisfied, without regard to when the complaint was actually filed.
While it may be a plausible reason for reading the timing
requirement in this way, we are not persuaded to rethink
our interpretation of the clear language in
2001).
Court opinions that reference the Committee Report in 15. The Report states:
Section 984 provides that in cases involving fungible property, property is subject to forfeiture if it is identical to otherwise forfeitable property, is located or maintained in the same way as the original forfeitable property, and not more than one year has passed between the time the original property subject to forfeiture was so located or maintained and the time the forfeiture action was initiated by seizing the property or filing the complaint, regardless of whether or not the fungible property was continuously present or available between the time it became forfeitable and the time it was seized. (The time limitation is considered necessary to ensure that the property forfeited has a reasonable nexus to the offense giving rise to the original action for forfeiture).
Id.
dicta stand on no greater footing.
See United States v.
Funds Representing Proceeds of Drug Trafficking
, 52 F.
Supp. 2d 1160, 1166 (C.D. Cal. 1999);
United States v. All
Funds Presently on Deposit
, 832 F. Supp. 542, 558-59
(E.D.N.Y. 1993). In
Funds Representing
, the court was
presented with a situation different from that here. There,
the government had filed the complaint within a year but
did not seize the funds within the year. The court, relying
on
We therefore hold that in order to forfeit property that is
not directly traceable to the offense under
But that does not end the inquiry. The complaint invokes
16. At oral argument, Kesten argued that the complaint does not
sufficiently allege a cause of action under
C. Discovery Sanction
Finally, although Kesten’s argument that the District
Court abused its discretion in dismissing Kesten’s claim as
a sanction for Kesten’s failure to produce Pires for a
deposition in the United States might appear moot in light
of our ruling, nonetheless, on remand, should the Court
conclude that the government’s claim was properly filed
under
As we have often noted, the sanction of dismissal is
disfavored absent the most egregious circumstances.
See
Poulis v. State Farm Fire & Cas. Co.
,
1) the extent of the party ’s personal responsibility ; (2) the prejudice to the adversary cause by the failure to meet scheduling orders and respond to discovery; (3) a history of dilatoriness; (4) whether the conduct of the party or the attorney was willful or in bad faith ; (5) the effectiveness of sanctions other than dismissal, which entails an analysis of alternative sanctions ; and (6) the meritoriousness of the claim or defense.
Id. at 868. In reviewing such a sanction, we look to the manner in which the district court balanced these factors.
See , e.g., Curtis T. Bedwell & Sons, Inc. v. Int’l Fidelity Ins.
Co. , 843 F.2d 683, 692 (3d Cir. 1988). Although we have stated that “[n]ot all of these factors need be met for a district court to find dismissal is warranted,” Hicks v.
Feeney , 850 F.2d 152, 156 (3d Cir. 1988), we have always required consideration and balancing of all six of the factors, and have recommended the resolution of any doubts in favor of adjudication on the merits. Scarborough v. Eubanks , 747 F.2d 871, 878 (3d Cir. 1984).
Here, the District Court addressed only four of the six Poulis factors: the extent of Kesten’s responsibility, the prejudice to the government, the willfulness of Kesten’s conduct, and the effectiveness of alternative sanctions, finding that these factors weighed in favor of dismissal. In so doing, the Court ignored both the merits of Kesten’s defenses and a lack of dilatory conduct, factors that strongly caution against dismissal. Should the government again move for dismissal as a discovery sanction, we note that the District Court should balance all six of the relevant factors in considering any such motion.
IV.
Because Kesten’s motion to dismiss was incorrectly
dismissed, we will reverse the District Court’s order, vacate
the discovery and sanction orders and the final judgment of
forfeiture entered thereafter, and reinstate Kesten’s claim
and its motion to dismiss. Although we hold that the
government’s complaint was untimely if it must rely on
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit