UNITED STATES of America, Plaintiff-Appellee, v. FUNDS IN THE AMOUNT OF $574,840, et al., Defendants. Stephen Unsworth and Rachel Pillsbury, Claimants-Appellants.
No. 12-3568.
United States Court of Appeals, Seventh Circuit.
Argued April 10, 2013. Decided June 11, 2013.
719 F.3d 648
David M. Michael (argued), Attorney, Law Offices of David M. Michael, San Francisco, CA, for Claimants-Appellants.
Before POSNER, WOOD, and WILLIAMS, Circuit Judges.
POSNER, Circuit Judge.
This is a companion case to United States v. $196,969, 719 F.3d 644 (7th Cir. 2013), which like the present one concerns procedures in federal suits governed by
The federal government filed the suit against five stashes of cash seized in searches of properties, including an apartment, vehicles, and storage units, possessed or occupied by Stephen Unsworth and his girlfriend Rachel Pillsbury. The government suspected that the two had been engaged in drug trafficking and that the cash was the proceeds of that activity. They were prosecuted not in a federal court, but in an Illinois state court, for the alleged trafficking. The prosecution col-
The federal forfeiture proceeding was filed after the state prosecution had begun. The government notified Unsworth and Pillsbury of the proceeding, as Rule G requires. They submitted, as they were permitted to do by Rule G(5)(a)(i), claims, signed under рenalty of perjury, “identify[ing] the specific property claimed” and “the claimant and stat[ing] the claimant‘s interest in the property.” Cf. United States v. $487,825.000 in U.S. Currency, 484 F.3d 662, 664-66 (3d Cir.2007). Each claim identified the claimant and the property and stated that the claimant had “an ownership and possessory interest” in all the property specified in the claim. Accompanying each claim was a motion to stay the forfeiture proceeding on the ground that allowing it to proceed would undermine the claimant‘s right not to incriminate himself or herself in the pending state criminal proceeding. The statute provides that such a stay “shall” be granted “if the court determines that (A) the claimant is the subject of a related criminal investigation or case; (B) the claimant has standing to assert a claim in the civil forfeiture proceeding; and (C) continuation of the forfeiture proceeding will burden the right of the claimant against self-incrimination in the related investigation or case.”
Without explanation the district court denied the motion for a stay and instead gave the claimants two weeks in which to respond to nine special interrogatories that the government had propounded to them. Rule G(6)(a) authorizes the government to issue “special interrogatories limited to the claimant‘s identity and relationship to the defendant property.” The purpose of such interrogatories is to smoke out fraudulent claims-claims by persons who have no colorable claims. (That is another point to which we return later in this opinion.) The claimants objected to the interrogatories and flatly refused to answer several, including one that asked them to state the sources of the cash they claimed to own; if the cash was proceeds of sales of illegal drugs, the claimants had no rights in it.
The district judge, who early in the forfeiture proceeding had expressed concern over whether the claims were within the jurisdiction that Article III of the Constitution confers on federal courts, granted the government‘s motion to strike the claims on the ground that by failing to answer all the interrogatories the claimants had failed to “establish” Article III jurisdiction. 889 F.Supp.2d 1098 (N.D.Ill. 2012). With no claims remaining after his order to strike, the judge entered judgment for the government, ordering forfeiture of all the property in question and precipitating this appeal.
The judge should have issued the stay pending the outcome of the state criminal proceeding (and maybe beyond, if the federal government is also contemplating prosecuting the claimants). The statute directed him to grant a stay if all three conditions were satisfied. And they were-he was mistaken, as we‘ll see, in believing that condition (B), relating to standing, had not been satisfied. Had he granted the stay, no special interrogatories would have been issued until it expired and
Instead of issuing the stay the judge issued a protective order forbidding the government without the judge‘s permission to disclose the answers to the interrogatories to persons other than federal government lawyers assigned to the forfeiture case. “[T]he court may determine that a stay is unnecessary if a prоtective order limiting discovery would protect the interest of one party without unfairly limiting the ability of the opposing party to pursue the civil case.”
The government had given no reason for wanting to pursue forfeiture before the state criminal case against the claimants was resolved, even though that resolution was likely to cast light on who had rights to the cash. The effect of the protective order was to allow the government to pursue discovery (via the interrogatories), but not the claimants to do so, because apart from the interrogatories discovery in the forfeiture case had not begun. Discovery ordinarily does not begin until a discovery conference is held. See
The judge‘s ground for striking the claims and having done so for ordering forfeiture was in any event not that the claimants wouldn‘t be prejudiced; it was that without answers to all the interrogatories he could not allay his concern that the claims might not satisfy the jurisdictional requirements imposed by Article III. That concern was misplaced, or at least premature, even if a claimant in a forfeiture proceeding is required to allege (and if the allegation is contested prove) that he has Article III standing, which we assume in this case though question (without attempting to resolve) in the companion case.
At the pleading stage Article III standing is something to be alleged, not proved. All that must be alleged is an injury, personal to the person seeking judicial relief, that the сourt can redress, an injury such as the injury inflicted by the government when it has got hold of money that belongs to the person and refuses to return it. This is constitutional law 101. Rule G(5) requires more, but the more is an addition to what is required to plead Article III standing.
Generally when a pleading alleges facts that if true confer Article III standing, the court‘s focus should move immediately to the merits. For if the court merely determines, on the basis of an evidentiary hearing concerning standing, that there is no standing, it cannot make a merits determination and so its dismissal of the claim will have no res judicata effect. In re African-American Slave Descendants Litigation, 471 F.3d 754, 758 (7th Cir.2006); Frederiksen v. City of Lockport, 384 F.3d 437, 438-39 (7th Cir.2004); Southern Walk at Broadlands Homeowner‘s Ass‘n, Inc. v. OpenBand at Broadlands, LLC, 713 F.3d 175, 185 (4th Cir.2013). Granted, this is in general, not in every case. Sometimes a factual dispute over an Article III requirement has nothing to do with the merits-for example a dispute over whether the parties are of diverse citizenship in a case in which diversity is the asserted basis for federal jurisdiction. A сlaim may be valid, but if it is brought in the wrong court that court has no authority to determine its validity; the case is therefore dismissed without prejudice and so can be refiled in a different court. Okoro v. Bohman, 164 F.3d 1059, 1062-63 (7th Cir.1999).
And there are at least two situations in which even though the standing issue merges with the merits, a ruling rejecting standing has res judicata effect. One, discussed most recently in El v. AmeriCredit Financial Services, Inc., 710 F.3d 748, 751, 754 (7th Cir.2013), is where the suit either is frivolous (and so does not engage the jurisdiction of the court) or is intended to harass, and in either case the court by dismissing with prejudice can preclude burdening itself or another court with a future suit that simply should not be brought.
The second situation, germane to the present сase, is where the ruling on standing (or on some other jurisdictional prerequisite), because it has a preclusive effect with respect to the facts determined by that ruling, Hill v. Potter, 352 F.3d 1142, 1146-47 (7th Cir.2003), prevents a further attempt by the plaintiff to obtain relief. A determination after an evidentiary hearing that the plaintiff in a conversion suit (the claims in this case are essentially conversion claims) has no interest in the property that he alleges was converted will bar his filing his claim in some other form or forum. But if for example the only factual determination is that the plaintiff lacked a fee simple interest in the property that he wants returned to him, he may be able to refile the claim, alleging a possessory interest. For “a judgment on the merits precludes relitigation of any ground within the compass of the suit, while a jurisdictional dismissal precludes only the relitigation of the ground of that dismissal.” Okoro v. Bohman, supra, 164 F.3d at 1063. So even in a case such as the present one, oncе facts bearing on the claim are presented the prudent course for the district court is to proceed to the claim‘s merits.
But there is an exception. Supplemental Rule G(8)(c)(ii)(B) authorizes the government to move to strike a claim on the ground that the claimant “can[not] carry the burden of establishing standing by a preponderance of the evidence.” It is always open to a party to contest standing by proving facts that contradict his opponent‘s allegations of standing. Suppose the government wanted to show that although the money it‘s holding may belong to the claimants, they don‘t want it back because they don‘t consider fiat money to be legal tender; they want the money burned. Then they wouldn‘t have standing, because a judgment in their favor would not provide them with any lawful redress. (It is unlawful to burn U.S. currency.
But there is more to Rule G(8)(c) than this. A forfeiture suit is in rem. The defendant is not a person, or a firm or a government аgency or some other type of organization, but a thing, in this case a pile of cash. It‘s all too easy for someone who has no colorable claim to property in government hands to file a claim in the forfei-
The rule‘s use of the term “standing” is unfortunate because striking a claim is a deсision on the merits. It is not a determination that the claimant has failed to show that the court has jurisdiction and so he should seek relief by an alternative path; it is a determination that he has no interest in the property. That determination was not made in this case. It‘s not as if the claimants were claiming proрerty obviously not theirs-claiming for example ownership of a painting that had been stolen from the National Gallery in Washington (and thus was owned by the federal government) and had been recovered from the thief and the government was seeking forfeiture of it.
“[T]he burden of proof is on the Government to estаblish, by a preponderance of the evidence, that the property is subject to forfeiture.”
Some cases have required the claimant to provide more evidence than Rule G(5)(a)(i) requires. See Cassella, supra, § 9.3, pp. 381-86; but see United States v. $148,840.00 in U.S. Currency, supra, 521 F.3d at 1276. The cases don‘t explain where such a requirement comes from, and we‘ve expressed skepticism in the companion case that the requirement is proper. We needn‘t try to wrestle the issue to the ground. The government jumped the gun. It gave no reason for opposing a stay that would defer the litigation of its forfeiture case until the criminal prosecution of the
The judgment of forfeiture must be reversed and the case remanded for further proceedings concerning the claimants’ interest and, possibly depending on the resolution of that issue, the ultimate issue of forfeiture. Circuit Rule 36 shall apply on remand.
REVERSED AND REMANDED.
RICHARD A. POSNER
UNITED STATES CIRCUIT JUDGE