In United States v. Erpenbeck, No. 11-3530 (6th Cir. June 21, 2012), the Sixth Circuit clarified that certain third parties are entitled to direct notice of forfeiture proceedings and the relation-back clause of the criminal forfeiture statute, 21 U.S.C. § 853, does not extend to substitute property.
After Plaintiff, A. William Erpenbeck Jr. absconded with nearly $34 million dollars as president of a residential developer; he was convicted of federal bank-fraud, sentenced to a 300 month prison sentence, and ordered to forfeit the proceeds of the fraud. Six years later, the government learned the Plaintiff had slipped $250,000 in cash to a friend, with instructions to hold the money until his release from prison. When the government unearthed the $250,000, which had been buried on the grounds of a private golf course, they sought forfeiture of the cash under the criminal forfeiture statute.
To obtain title to property through criminal forfeiture, the government must give third parties notice and a chance to assert a competing interest in the property. Federal law requires a thirty day period after a preliminary order of forfeiture has been entered within which third parties may file a petition, asserting an interest or claim. 21 U.S.C. § 853(n)(1)-(2). Once a petition is filed, the court must hold an ancillary hearing to determine the bona fides of the alleged interest; however, if no petition is filed, “clear title” vests in the United States and all other parties’ interest in the property is extinguished.
Part of the case turned on whether the government’s posting of the notice of forfeiture on its website, www.forfeiture.gov, constituted sufficient notice or whether the trustee of the Plaintiff’s bankruptcy estate fell within the class of third parties to whom the government owes direct notice. In an opinion written by Judge Sutton, the Sixth Circuit clarified that when the government does not know whom the forfeiture may affect, constructive notice by publication is sufficient; however, when the government knows or reasonably should know whom to notify, it must attempt to provide direct notice of the proceedings. In Erpenbeck, the Court held that the government should reasonably have known of the trustee’s interest based on prior interactions. Under these facts, the government had an obligation to provide the trustee with direct notice of the forfeiture proceedings and the Court remanded the case to the district court with an order to accept a third party petition from the trustee and to hold an ancillary proceeding to adjudicate the legitimacy of the claim.
Equally of interest is the Court’s analysis of the relation-back clause, a clause in the forfeiture statute which allows the title of property (cash) to retroactively vest in the government, at the time of the Plaintiff’s fraud. 21 U.S.C. § 853(c). The Court held that because the government classified the cash as “substitute property” (untainted property that the government may seize to satisfy a forfeiture judgment if the tainted property is unavailable) instead of “tainted property,” the relation-back clause did not apply. The Court reasoned that the statute contains an explicit reference to “property described in subsection (a) [tainted property],” and dictates that the “relation-back clause limits the applicability of the relation-back principle to tainted property.”