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United States v. Catala

United States Court of Appeals, First Circuit

August 30, 2017

JUAN G. CATALA, Defendant, DAVID VOGEL, Claimant, Appellant.

         APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND [Hon. John J. McConnell, Jr., U.S. District Judge] [Hon. Lincoln D. Almond, U.S. Magistrate Judge]

          Barbara A. Barrow, Moore, Virgadamo & Lynch Ltd., David Vogel, and Vogel Law PLLC on brief for appellant.

          Stephen G. Dambruch, Acting United States Attorney, and Donald C. Lockhart, Assistant United States Attorney, on brief for appellee.

          Before Lynch, Selya and Thompson, Circuit Judges.


         This case requires us to answer a question of first impression in this circuit - a question involving the relative priority, as between the government and a general creditor, with respect to claims relating to assets forfeited as the proceeds of criminal activity. The district court resolved this question in the government's favor and denied the general creditor's claim. After careful consideration, we affirm.

         The facts are straightforward. In April of 2007, claimant-appellant David Vogel loaned an acquaintance, defendant Juan G. Catala, $8, 500 during a trip to Las Vegas. When Catala did not repay the loan, the appellant sued him in a Rhode Island state court. In April of 2012, a state judge entered a judgment in the amount of $8, 500, plus statutory interest and costs, in favor of the appellant. The Rhode Island Supreme Court subsequently affirmed that judgment. See Vogel v. Catala, 63 A.3d 519, 522-23 (R.I. 2013).

         For several years, the appellant's efforts to collect the judgment proved fruitless. A ray of hope appeared when, in mid-2016, federal authorities charged the defendant with distributing oxycodone and marijuana in violation of federal law. See 21 U.S.C. § 841(a). As part of the investigation leading to those charges, federal agents had searched the defendant's home and seized $14, 792 in cash.

         The case was docketed in the United States District Court for the District of Rhode Island, and the defendant pleaded guilty to the charges. The court determined that the $14, 792 in cash represented the proceeds of the defendant's illegal drug dealings and was, therefore, subject to forfeiture. See 21 U.S.C. § 853(a). Based on this determination, the court entered a preliminary order of forfeiture.

         Within a matter of days, the appellant filed a third-party petition, in which he asserted a claim to the seized cash under 21 U.S.C. § 853(n) and Federal Rule of Criminal Procedure 32.2(c). The government moved to dismiss his claim under Rule 32.2(c)(1)(A), which authorizes dismissal of a third-party petition for, among other things, lack of standing or failure to state a claim. The district court granted the government's motion, ruling that the appellant had no legal right to the forfeited proceeds.[1] This timely appeal followed.

         A motion to dismiss a third-party petition in a criminal forfeiture proceeding is analyzed in the same way as a motion to dismiss a complaint under Rule 12(b) of the Federal Rules of Civil Procedure. See Willis Mgmt. (Vt.), Ltd. v. United States, 652 F.3d 236, 241 (2d Cir. 2011). Consequently, a third-party petitioner under section 853(n) must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Where, as here, the district court finds that the petition does not satisfy this standard, its order of dismissal is reviewed de novo. See Nisselson v. Lernout, 469 F.3d 143, 150 (1st Cir. 2006).

         Under section 853, individuals convicted of drug-trafficking crimes must forfeit "any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation." 21 U.S.C. § 853(a)(1). They also must forfeit any instrumentalities used to commit the crime. See id. § 853(a)(2).

         In this appeal, the appellant takes issue with the district court's application of section 853(n). Pertinently, the statute sets forth the procedures through which a third party can challenge a preliminary order of forfeiture. To initiate the process, the third party must petition the court for a hearing to evaluate his interest in the property that the government says is subject to forfeiture. See 21 U.S.C. § 853(n)(2); United States v. Zorrilla-Echevarría, 671 F.3d 1, 6 (1st Cir. 2011). At the hearing, the third party must establish that he has standing within the meaning of section 853 by "asserting a legal interest" in the property. 21 U.S.C. § 853(n)(2); see United States v. Watts, 786 F.3d 152, 160 (2d Cir. 2015). He must then show his entitlement to relief on the merits by establishing (as relevant here) that the order of forfeiture is invalid because any right to the property "was vested in [him] rather than the defendant or [that his right to the property] was superior to any right . . . of the defendant at the time of the commission of the acts which gave rise to the forfeiture." 21 U.S.C. § 853(n)(6)(A).[2]

         If the court determines that the third party has standing and that his interest is valid and superior to that of the defendant's interest within the meaning of section 853(n), it may amend the preliminary order of forfeiture accordingly. See Fed. R. Crim. P. 32.2(c)(2). If, however, the court concludes that the third party ...

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