UNITED STATES v. A PARCEL OF LAND, BUILDINGS, APPURTENANCES, AND IMPROVEMENTS, KNOWN AS 92 BUENA VISTA AVENUE, RUMSON, NEW JERSEY
Legal provision: 21 U.S.C. 881
Argument of Amy L. Wax
Chief Justice Rehnquist: We'll hear argument next in No. 91-781, United States v. A Parcel of Land.
Ms. Wax, you may proceed.
Mr. Wax: Thank you, Mr. Chief Justice, and may it please the Court:
This case concerns the scope of the statutory innocent owner defense to a forfeiture of property under 21 U.S.C. 881(a)(6), the statute authorizing civil in rem forfeiture of proceeds of illegal drug transactions.
The Government's position in this case is that someone like Respondent Beth Ann Goodwin who receives a gift of drug profits and uses that money to purchase real property cannot assert a defense to forfeiture that is only available to innocent owners because that person does not own the property.
Under Federal forfeiture statutes, title to property vests irreversibly in the Government when the act giving rise to forfeiture is committed.
The United States owns the property from that point forward, and its interests cuts off all rights, including ownership rights, for anyone who subsequently acquires the property.
Unknown Speaker: Then the innocent owner defense is available only to someone in the chain of title before the forfeiture occurs?
Mr. Wax: Precisely, Your Honor.
Someone has to have a preexisting, valid ownership interest before the acts giving rise to forfeiture occur so that someone like Ms. Goodwin is really in no better position, someone who receives the gift of drug profits, than someone who receives stolen money, a gift of stolen property.
That person has no right to the property as against its true owner however innocently it was acquired.
So, in this case Respondent Beth Ann Goodwin is not the owner of the $200,000 in drug profits that she received from her companion, Mr. Brenna, nor does she own the residence that she purchased with that money.
Unknown Speaker: May I ask there?
What about the person who sold her the residence and has the purchase price?
Who owns the purchase price?
Mr. Wax: Well, Your Honor, our position... that is a... really an entirely different question.
Unknown Speaker: Well, I don't know.
It's the same money.
The money went to buy the house, and that's... used Government money, and then the person who sold the house received that money.
It would seem to me that person is receiving Government property.
Mr. Wax: Your Honor, the answer to that question lies we believe not in construction of the innocent owner defense, but in what the word "proceeds" means.
If there is a bilateral transaction, such as her buying the house from somebody and that person receiving the money, the question is does the word "proceeds" cover both sides of that bilateral, full-value transaction, or does it only cover one side.
We think that a reasonable construction of the word "proceeds" would cover just the house that she received and not necessarily the money that the particular seller received.
Unknown Speaker: Well, what if the drug dealer bought a house--
Mr. Wax: Yes.
Unknown Speaker: --then sold it, and gave the proceeds to his companion who then bought another house?
Mr. Wax: Okay.
Unknown Speaker: Would that be a different case?
Mr. Wax: No.
In that case, when the drug dealer bought the house, he got a house which, in effect, was substituted for his original profits.
Unknown Speaker: Right.
Mr. Wax: That's proceeds as far as we're concerned.
That's derivative assets, and that is proceeds--
Unknown Speaker: So, the house is proceeds, and what about the money that the seller of that house got?
Mr. Wax: --That... we think a fair construction of proceeds is that that's not proceeds.
In light of... in the civil statute, in light of the narrow innocent owner defense, we think that the word "proceeds" arguably does not cover the money that goes to a seller if it's a bona fide transaction, there's no collusion, it's in good faith, and there's full value.
So, Your Honor, what I'm trying to say is that if there's help for bona fide purchasers in this statute, we don't think the help lies in twisting the innocent owner defense to apply to after-acquirers of property or persons who acquire their interest after the offense takes place.
Unknown Speaker: Well, Ms. Wax, would your... how does your theory play out in terms of any mortgage that has been put on the house?
Mr. Wax: Right.
Unknown Speaker: Does the Government take the property subject to the mortgage or not?
Mr. Wax: Well, Your Honor, I think that if the mortgage... the answer would be, under the theory I just stated, probably no in the sense that if the mortgage is a true business-like mortgage by just any old bank or--
Unknown Speaker: Yes.
It's a... it's an ordinary lending institution that had no way of knowing--
Mr. Wax: --Right.
Unknown Speaker: --that the proceeds used to make the down payment were those of a drug transaction.
Mr. Wax: Right.
Well, there are three answers to that mortgagee.
The first answer, as reflected in my answer to Justice Stevens is, it may well be that the lien or the lien interest that mortgagee holds is not really proceeds if he gave cash to the person who owned the house.
I mean, that would seem to follow.
So, what in effect I'm saying, Justice O'Connor, is that to the extent that mortgagees and lienors and other true bona fide purchasers are concerned about what our position is in this case, they may well be fighting the battle on the wrong front.
Unknown Speaker: But do I take it that you submit the case to us on the theory that the Government concedes that a bona fide purchaser exception is read into the statute insofar as the definition of proceeds is concerned?
Mr. Wax: --We certainly think that's possible, Your Honor, that that... the issue of a comprehensive theory of proceeds is not directly presented by this situation because Ms. Goodwin's house is proceeds under a narrow theory, under a broad theory, under any plausible theory.
Unknown Speaker: Ms. Wax, let me understand what the Government's position is now.
If I get money in an illegal transaction and buy a house with that money--
Mr. Wax: Right.
Unknown Speaker: --the house is covered.
Mr. Wax: Definitely.
Unknown Speaker: But if the house is then sold for cash, that cash is not covered.
Mr. Wax: No.
The cash is covered.
Unknown Speaker: The house continues to be covered all the way down the line.
Mr. Wax: Well, I think what we're... the cash is covered because I originally bought the house with my drug profits.
Unknown Speaker: Yes.
Mr. Wax: That house is covered.
Unknown Speaker: Right.
Then the house is--
Mr. Wax: The house is proceeds.
Unknown Speaker: --The house is proceeds.
Mr. Wax: Right.
Unknown Speaker: Then the house is sold and it's converted back into cash.
Mr. Wax: Right.
I sell the house and I receive for that house cash.
Unknown Speaker: Right.
Mr. Wax: Okay?
That cash is proceeds because it is what I'm receiving, in effect, in exchange for my drug profits down the line.
Unknown Speaker: Sure.
Mr. Wax: I am benefitted--
Unknown Speaker: The same would be true of the person that I sold the house to, though.
Suppose I sell the house, instead of keeping it.
I get... from the transaction I get cash.
Mr. Wax: --Right.
Unknown Speaker: I buy a house with the cash.
Mr. Wax: Right.
Unknown Speaker: I then sell the house to somebody.
You say the cash I get back would be proceeds to me.
Mr. Wax: Yes.
Unknown Speaker: The house is still covered.
Why isn't the sale of that house proceeds to the person who sells the house?
Mr. Wax: Okay.
Unknown Speaker: It isn't as I understand you.
Mr. Wax: Well, Your Honor, I think what's confusing people is that under conventional tenets of forfeiture law, once a thing becomes tainted, a res becomes tainted, it's tainted forever.
And that's one of the predicates of our argument in this case.
What I'm saying is it's possible that through the definition of the word "proceeds", what proceeds means, in effect, Congress sort of negated that to the extent that if there's a full-value exchange... if the Government can go after one-half of that full-value exchange, in effect, the taint is purged from the other half.
I guess that's what I'm saying, but that's a matter of the meaning of the word "proceeds", not a wholesale suspension of the common law conventions of forfeiture.
And the reason why it's important that there not be a wholesale suspension in this case is that that convention is not suspended when assets migrate from the original drug dealer into the hands of a person who receives it as a gift.
Unknown Speaker: Have we ever applied the relation-back doctrine, relation-back forfeiture, to anything except physical property--
Mr. Wax: Well--
Unknown Speaker: --in contradistinction to cash?
Mr. Wax: --Well, Caplin & Drysdale concerns section 853(c), which is the criminal forfeiture provision that deals with proceeds, cash, and in that case, of course, the question was whether money that the drug dealer wanted to pay to his lawyer, whether the relation-back provision applied to that, and the Court said absolutely, positively it applies to that.
The minute the cash is generated through a drug transaction, it belongs to the United States, and you know, to quote the Court, there's no right to give someone else's money to a third party.
The answer is yes in Caplin & Drysdale.
Unknown Speaker: Is... oh, go ahead.
But that... it was still in the hands of the dealer.
I'm talking about have we ever followed the money to a later person and said that the forfeiture of that money subsists?
Mr. Wax: Well, I'm not aware right off the top of my head of a case in which this Court has.
Certainly it has been common practice in the courts of appeals.
Unknown Speaker: I'm not aware that we've done it.
Have we ever followed that money to the purchase of real estate and then followed the real estate the rest of the way down the line when the real estate was not part of the initial proceeds?
Mr. Wax: Not in any case of this Court that I'm aware of.
But, Your Honor, to... you have to go back to the words of the statute to see that there's nothing unusual or disturbing about that.
The whole... the statute was designed... that was the whole purpose of the statute, to enable the Government to take assets that are substituted for the original drug profits.
That's the meaning of the proceeds traceable to an exchange language in 881(a)(6).
And the reason for that is if the Government couldn't do that, then someone, a drug dealer, could take his profits and essentially shelter them by just putting them through one transaction.
He'd just have to buy something with the profits, and then the Government couldn't touch it.
So, it must be the case that the Government can take the thing that the person who holds the profits buys with those profits, the Jaguar, the fur coat, the diamond ring, the house, whatever--
Unknown Speaker: In the hands of the wrongdoer, yes, but it's something else to follow it all the way down the chain from then on.
Mr. Wax: --Well, Your Honor--
Unknown Speaker: As I say, we've never... to my knowledge, we've never done that except in the case where the offending property itself is involved, not cash.
Mr. Wax: --But, Your Honor, we clearly... the statute clearly allows you to do that here because the statute says that all things of value furnished in exchange for drugs are forfeitable.
It doesn't say all things of value that are in the hands of a drug dealer.
It doesn't qualify it based on, you know, who's in possession, and certainly--
Unknown Speaker: Ms.--
Mr. Wax: --black letter forfeiture law is it doesn't matter who holds--
Unknown Speaker: --Ms. Wax, does that mean... I just want to be sure, and I think that it really doesn't matter in this case that the woman is a donee.
It would be the same case if she had been a physician who had performed an operation on this man and got paid in the same sum of money and then used the proceeds.
Mr. Wax: --The answer to that is no.
Unknown Speaker: Well, why not?
Mr. Wax: --are in different positions.
Unknown Speaker: But why isn't that precisely the same proceeds that went to the doctor?
Because if you... is it you have to be a donee and not a purchaser?
Is that the difference?
Mr. Wax: Okay, well, I guess we're saying yes to that, Your Honor.
We're saying that if we construe the word "proceeds" so that it doesn't keep propagating endlessly--
Unknown Speaker: Proceeds are only proceeds that are received by way of gift?
Mr. Wax: --In this case we're dealing with profits--
Unknown Speaker: Well, is that... am I right or not on that?
I don't now why that--
Mr. Wax: --No.
Unknown Speaker: --Well, your lawyer case--
Mr. Wax: The answer is no.
Unknown Speaker: --seemed to be a categorical answer that if it's a third party that is an innocent... has no knowledge of the taint on the money, that you can trace it.
Mr. Wax: Proceeds can be two sorts of things, Your Honor.
They can be something that's tainted and then is given by gift where there's no full-value bilateral exchange.
Unknown Speaker: But I don't understand why the full value matters if the criminal has transferred Government property to the doctor in payment of a debt.
I don't know why that's different than giving the property to his sister or brother or companion.
Mr. Wax: It's different for the following reason.
If you give the profits to someone else or the proceeds to someone else and that means that the Government can no longer... the fact that you're giving it to someone else means the Government can no longer take it, that would undermine the whole purpose of the statute simply by giving--
Unknown Speaker: But why not on the sale too?
I don't understand.
If you give it to the church, you can trace it, but if you... but if it... but if it's a... I don't understand--
Mr. Wax: --Okay.
Unknown Speaker: --in terms of the language of the statute.
I understand the distinction, of course, but--
Mr. Wax: Right.
Unknown Speaker: --May I make a suggestion?
Mr. Wax: Yes, Your Honor.
Unknown Speaker: Aren't you implicitly saying that at least... excuse me... at least one set of identifiable proceeds has got to survive?
Mr. Wax: Precisely.
Unknown Speaker: You said in the case of the BFP example of the sale of the house that you recognize the transaction as, in effect, converting the house back into money.
The proceeds become the money again in the hands of the drug dealer who sells it because you've got one set of proceeds there.
But when you get into a bona fide purveyor of services, you can't take the services.
And you, in effect, are saying there's got to be something that we can get our hands on, and therefore, when the doctor performs the surgery, you can't take the surgery and sell it on the market.
So, therefore, you still go after the money.
But if the doctor, in fact, had been the purchaser of the house, you would say, okay, the doctor gets the house free and clear and the proceeds become the money that he paid for the house again in the hands of the drug dealer.
But your overriding interpretive criterion seems to be there's got to be something left that we can get our hands on.
If there is, we will not claim multiple... a multiplicity of proceeds.
If there isn't, we'll claim a physical proceeds no matter what the bona fides of the transaction is.
Mr. Wax: Your Honor, I couldn't have said it better myself.
The point is there has got to--
Unknown Speaker: Well, do you really want to say that, though?
Mr. Wax: --We think that that is a fair reading of the word... we're not talking about the innocent owner defense here, which is the subject of this case.
I'm interpreting the word "proceeds", and I'm giving what I think might be a reasonable construction of the word "proceeds" in light of an innocent owner defense that cuts off the rights of after-acquirers of property.
And we... the Government is not standing here claiming both sides of every transaction that involves proceeds, so that proceeds propagates endlessly throughout the whole economy.
We think that what Congress probably meant by proceeds was that body of assets that's the surrogate for the original profits no matter how many exchanges it goes through.
Unknown Speaker: Well, suppose a legitimate businessman goes in debt to a bank, and he has never been in the drug business before, but he's really squeezed.
And so, he... he's going to get into an illegal enterprise and pay off his debts, and he gets in the drug business.
And he makes a lot of money, and he takes that money, which I take it belongs to the Government, and pays off the bank.
Can the... is it the Government's position that the... you can get the money back from the bank?
Completely legitimate debt at the outset.
He... they weren't financing his drug business.
Mr. Wax: That's a hard one.
Unknown Speaker: They were financing his manufacturing concern.
Mr. Wax: That's a really difficult case there.
It's sort of like I think the case--
Unknown Speaker: It's... if... the money is surely the proceeds of the drug business, and they... and it's traceable right to the bank.
Mr. Wax: --Right, right.
Well, in that case, there isn't a body of assets that the Government can go after.
Unknown Speaker: Well, what about with the doctor?
Mr. Wax: --I mean, in the hands of the person who originally--
Unknown Speaker: Well, what about the doctor?
The money is in the hands of the doctor, just like the money is in the hands of the bank.
Mr. Wax: --Right.
That's the hard case, Your Honor, and I think we might have to answer it by saying it's a little bit like when the drug dealer smokes his marijuana.
I mean, it has gone up in smoke and--
Unknown Speaker: So, what's your answer to the hard case, the bank?
Mr. Wax: --Well, I think on the... I think to be consistent, we might have to say that since the bank... I mean, it gave value in the sense that it gave him a discharge of his debts, maybe not in the form that we could take, but it did give the full value if it was a bona fide... you know, course of business exchange--
Unknown Speaker: Well, certainly--
Mr. Wax: --that the bank would have a good argument that we couldn't take the money from them.
Unknown Speaker: --It... certainly it had an interest.
It certainly acquired the debt long before the fellow ever got in the drug business, but they didn't acquire any lien on the money.
Mr. Wax: I think, Your Honor, that we would try and get the money.
The drug dealer got benefit when he paid off his debts, and we would try and get the money from him if we could because he received value.
That would be our policy not just as a matter of statutory construction--
Unknown Speaker: Well, but the money was paid to the bank.
And would you go back again to the bank that puts a mortgage on a house that somehow was acquired with some drug proceeds?
Mr. Wax: --Okay.
Let's take a case where a... cash was paid for a house.
The cash was drug profits, in fact, as in this case.
And then the person who owns the house takes out a mortgage as a home equity loan on the house.
Actually that did happen in this case.
The bank gives her cash and it takes back a security interest.
I think that on our theory, the proceeds would attach to one-half of the transaction.
We could go after the cash or, you know, the value of the house that represents it if she put it into the house, and then the bank wouldn't be holding an interest that's proceeds.
So, once again, I'm saying that--
Unknown Speaker: Well, you would take the position that the house belongs to the Government.
Mr. Wax: --Yes.
Unknown Speaker: But does it take just the equity, and is it free and clear of the mortgage, or is it not?
Mr. Wax: It would take that part of the equity--
Unknown Speaker: What happens to the mortgage?
Mr. Wax: --that was not represented by the mortgage.
Unknown Speaker: You do not take the position that it takes it free and clear of the mortgage.
Mr. Wax: In that case, if we were to apply proceeds... well, let me back up.
The mortgagee would have to establish a few things in order to get out from under the word "proceeds".
I think they'd have to establish that they gave, you know, full value, that the loan was legitimate, that kind of thing.
And then they'd have a good argument that their interest wasn't proceeds, or in any event, they would get remission under the remission and mitigation regulations.
Unknown Speaker: You're assuming--
--If it did that, then the Government would get only the drug dealer's down payment out of the house, so to speak, and the purchase money mortgage would not go to the Government.
Mr. Wax: Well, no.
The money that the person who took the mortgage, the mortgagor, the money that they received in cash in exchange for the security interest, the Government would go after that.
Unknown Speaker: Some of these examples have been perhaps repetitive, but they do have little factual variations.
Suppose that a drug dealer puts a $10,000 down payment on a house--
Mr. Wax: Right.
Unknown Speaker: --with money that is the proceeds of drug operations.
Mr. Wax: Right.
Unknown Speaker: But in order to finance the full purchase of the house, he gets a purchase money mortgage from an innocent bank, say, in the amount of $250,000.
Mr. Wax: Right.
Unknown Speaker: Now, in a forfeiture proceeding, what's the outcome there?
Mr. Wax: Okay, that's a different case from the one Justice O'Connor presented.
That's a case where we have clean money and dirty money mixed together--
Unknown Speaker: Okay.
Mr. Wax: --to purchase an asset.
Unknown Speaker: What's the outcome?
Mr. Wax: And the Government's position is that we get the value of the house to the extent of the dirty money and not of the clean money, and the mortgagee gets... you know, when we sell the house, they get back their clean money as long as the drug dealer didn't make his mortgage payments with dirty money.
Unknown Speaker: Supposing the house doesn't sell for the full amount of the down payment plus the purchase money mortgage.
Who gets priority?
Mr. Wax: I believe that the answer is that each entity, the Government to the extent they have an interest, the mortgage... the mortgagee to the extent they do, take the loss proportionately on that decline in the equity of the house.
Unknown Speaker: Ms. Wax, could I come back to Justice O'Connor's hypothetical?
It seems to me you made the answer easy by assuming that the woman, when she sold the... when she mortgaged the house, put the money into the house or put the money in the bank.
And, therefore, you say, we'd go after the money, and the bank would still have its mortgage in the real estate.
But that isn't really what happens normally, of course.
She didn't put the money in the house or in the bank.
She spent it on men, women, and song... or men... wine, men, and song.
And it's all gone.
Then what does the Government do?
Mr. Wax: Well--
Unknown Speaker: Then the Government goes after the bank's interest in the house, doesn't it?
Mr. Wax: --The Government... what we're essentially saying here is that as a matter of... first of all, when a bona fide mortgagee comes in and claims their interest in a house, as a routine matter, as a matter of policy, we pay them off.
Unknown Speaker: I'm talking law, not policy.
I know you're very generous and you wouldn't do it.
But your contention is, is it not, that you would have the power to do it under your reading of this statute?
Mr. Wax: Well, I think that the reading... the construction we've given you of the word "proceeds"... under that construction, I think that the bank could well claim that we don't have the power because they've given full value for their interest back to the original owner of the profits.
Unknown Speaker: Well, that--
Mr. Wax: And we have to go after that.
Unknown Speaker: --That's a new position then.
It doesn't matter whether there are any proceeds that can be substituted for the real estate at all.
You're saying a BFP always prevails.
Mr. Wax: No.
Unknown Speaker: And the BFP doesn't prevail when the BFP is a doctor.
Mr. Wax: No, we're not saying that.
Let me give you an example why we're not saying that.
Unknown Speaker: Well, I don't understand what you are saying then.
Mr. Wax: We retain the right to trace proceeds into third party hands sometimes when there has been an exchange.
For example, suppose Mr. Brenna in this case took his $200,000 and gave it to his brother-in-law for a Jaguar that was only worth $30,000.
We would reserve the right to trace the $170,000 that represents the difference, the difference between that amount and the value of the Jaguar, into his brother-in-law's hands because essentially it's a gift just like here it's a gift to Ms. Brenna.
The drug profits were a gift to her.
We can follow them into her hands.
There's nothing in the statute that prevents us from doing that, Your Honor.
Unknown Speaker: Isn't it a lot easier simply to read the word "owner" to mean the person who would be the owner but for this provision?
Mr. Wax: Your Honor, we can't read--
Unknown Speaker: All these problems disappear, and I must say I'm... I just don't understand what the Government's position is at this point.
I'm very confused about when you get it, when you follow it, when you don't follow it.
Mr. Wax: --Your Honor, you do not follow assets into the hands of a donee, okay, because it's the same assets.
They haven't changed.
They've just moved.
So, when she received that money, she had profits.
When she bought the house, she had proceeds.
She was not the owner of either one of those because the Government took title to them when the forfeitable acts were committed, and that is our position.
So, she is cut off.
Unknown Speaker: xxx applies even if she was the doctor who performed the services xxx.
The language of the statute doesn't draw this distinction.
Mr. Wax: Well, not in the innocent owner defense, Your Honor.
We agree with that.
The innocent owner defense does not draw--
Unknown Speaker: 0 xxx.
What statutory language do you rely on to differentiate between the doctor who was paid for an operation on the one hand and a donee on the other?
Mr. Wax: --Well, we think that the word... we have to construe the word "proceeds".
What does the word "proceeds" mean?
That's what we--
Unknown Speaker: If the proceeds... if it's without consideration, but it's not if there was consideration?
Mr. Wax: --Well, the point is proceeds is the body of assets equivalent in value to the original profits.
The question is--
Unknown Speaker: They belong to the Government under your... what you say in your brief anyway.
Mr. Wax: --Well, all--
Unknown Speaker: They belong to the Government at the time they pay the doctor's bill or they pay off the preexisting debt.
Mr. Wax: --We're only suggesting, Your Honor, that every transaction doesn't necessarily double, quadruple.
Unknown Speaker: Well, I'm not saying it doubles, but it certainly singles under your... the doctor is paid for an operation he performed 10 years ago with drug proceeds, honest debt.
Are those proceeds or aren't they?
Mr. Wax: Well, he gave good value.
He gave it in services.
Unknown Speaker: I understand, but are they proceeds or aren't they?
Mr. Wax: I think under the theory that we've advanced of the word "proceeds", they may not be.
They probably wouldn't be.
Unknown Speaker: That's certainly not what your brief says.
Mr. Wax: No, Your Honor.
We don't say anything that contradicts this position in our briefs.
Unknown Speaker: You do.
You say that it's the Government's property at the time it came... if they caught them right at the time when they're handing in the check, you'd definitely say that's Government money.
You can't pay that bill.
But if you catch the doctor two days later, after he has deposited it in the bank, it's no longer Government money.
Mr. Wax: We only say that with regard to recipients of gifts, Your Honor, and if you look at our brief, that's what we say.
We don't say anything about bona fide purchasers.
Unknown Speaker: Yes, but your theory fitting into the language of the statute doesn't draw a distinction as I understand it.
Mr. Wax: We're only saying that the word "proceeds" may draw a distinction, but the innocent owner defense doesn't draw a distinction between the two.
That's... we discuss the innocent owner defense.
We say that with respect to recipients of gifts, that it remains proceeds, and we don't say anything about bona fide purchasers except for that in that case--
Unknown Speaker: The reason you say it's proceeds is because you say it became Government property at the time of the drug transaction.
Mr. Wax: --Exactly, and that's... but what we're saying is that the word "proceeds"--
Unknown Speaker: You're saying you can use Government property to pay off debts, but you can't give it away.
That's your position.
Mr. Wax: --If what you get back is something that... because what you get back is something that the Government can take.
You can use the--
Unknown Speaker: No, but in the doctor position, you don't get something back.
The Government can't take the appendix scar.
Mr. Wax: --Well, that's true and that's the case that is the hard case.
And we have to reconcile that with the proceeds language.
I admit that's the hard case, but when... but the bona fide purchasers who actually give value back to a drug dealer, there's something that we can take, as you yourself said, Justice Souter.
I'd like to reserve the rest of my time.
Unknown Speaker: Very well, Ms. Wax.
Argument of James A. Plaisted
Mr. Plaisted: Yes, Your Honor.
Mr. Chief Justice, may it please the Court:
My name is Jim Plaisted, and I represent the respondent, Beth Ann Goodwin.
If I may, I don't believe any of the many older cases that this Court has rendered decision in has ever construed an innocent owner provision nor proceeds.
In fact, I mean, it is fascinating, if I may for a moment.
If you go back to Chief Justice Marshall's opinion in Grundy and Thornburgh, you find that in that case, he talks about proceeds.
He talks about many of the things that have come up here.
And what he says in his efforts to protect an innocent owner, a bona fide purchaser, in that case, which he did, which he says, look, this statute which was... it's different because it doesn't say proceeds, but it says the ship, which was falsely registered, is forfeit or its value is forfeit.
And then they sued the purchaser for the proceeds that he had transferred the ship for, and Justice Marshall said the statute doesn't have "proceeds" in it.
And we don't have a statute that has proceeds in it for another 160 years or so, until we start to get these most recent criminal statutes.
He... and civil statutes or quasi-criminal statutes, as this Court often calls them.
What he also says is that in such a statute... and the way he protected the innocent owner there, despite the fact that none of these older statutes ever have innocent owner provisions either... he protected the innocent owner, the bona fide purchaser, by saying, well, the Government had an election in this case.
And that's... I thought I detected a fair shift in the Government's positions from the brief, but at the least they leave themselves with an election.
And they leave themselves with an election to go after proceeds in different people's hands.
That concept threatens house transactions where there is a person who is involved in drugs in the chain of title for later purchasers.
It threatens resales of cars that also are sometimes and often involved in the drug trade and then later are resold.
And so, Congress, when it adopted this provision about traceability in this particular statute... and I presume in the others... it adopted as well a protective device so that we didn't have unfair takings from people who were innocent.
And what they said... and it's a... it's not statement simply from somebody on the floor.
It's not a... just one of the House reports.
In the joint statement... because this was a bill that was passed in the House, and then the Senate's words were put into it in this particular pertinent provisions, that is, with respect to the innocent owner provision and I believe with respect to proceeds as well when it was adopted in 1978.
They said a couple things that reflect what is the intent of Congress.
And if I can read it.
It does appear in the U.S. Code and Congressional Administrative Reports at 9522.
They said due to the penal nature of forfeiture statutes, it's the intent of these provisions that the property will be forfeit only if there's a substantial connection between the property and the criminal activity.
And then they went on and, more pointedly for our purposes here, said finally, it should be pointed out that no property would be forfeited under the Senate amendment to the extent of the interest of any innocent owner of the property.
And then they said the term "owner" should be broadly construed and interpreted to include any person with a cognizable or legal equitable interest in the property, and then, as if to add a final sentence that addresses our issues here, said specifically the property would not be subject to forfeiture unless the owner of such property knew or consented to the fact that... and the second thing is... that the property was proceeds traceable to an illegal exchange, in essence, saying the person has to know.
Unknown Speaker: Well, none of that makes a donee an innocent owner.
Mr. Plaisted: It makes them innocent, Your Honor.
The question is are they covered, isn't it?
Unknown Speaker: You have to do some interpolation.
Mr. Plaisted: Okay.
You have to say are they and should they be covered by that innocent owner provision.
Should a donee be covered?
And if I may, I thought... one example about a donation... and we think that is the basis this case should be decided on, that is, the interpretation of this statute and that phrase.
And we submit donees, mere donees, although I don't agree she is one... but we submit that mere donees do fall within that protection and that Congress intended them to.
Unknown Speaker: If she isn't a donee, what is she?
Mr. Plaisted: --I'm sorry, Your Honor.
Unknown Speaker: If she's not a donee, what--
Mr. Plaisted: Well, Your Honor, I mean, it is a complicated relationship.
She had a long-term relationship with this man.
Unknown Speaker: --Yes, indeed.
Mr. Plaisted: He lived with her.
She cooked for him.
She cleaned for him.
Unknown Speaker: And the determination of innocence is yet to come, isn't it, even if you prevail here?
Mr. Plaisted: That's true.
There... I mean, the remand was a remand back to the district court for further proceedings.
So, yes, we... the statute puts the burden on the innocent owner to demonstrate their innocence, and so that is true.
But in terms of donees, for example, if Brenna had taken the money, the $200,000, that was used to buy the... buy it and given it to the church or a charity, I submit it wouldn't serve the other purpose of this statute which the Government cited in its cert petition and is in a Senate report one iota.
The other purpose of this statute is as... and they quote a Senate report... today few in Congress or the law enforcement community fail to recognize that the traditional criminal sanctions of fine and imprisonment are inadequate to deter and punish the enormously profitable and dangerous trade in drugs.
To forfeit that money from the church or the charity, although they are even more clearly a mere donee, would not further deterrence, would not further... would not punish a drug offender one iota or one whit.
It wouldn't advance the only other real purpose of this statute at all.
If, for example... it becomes even clearer... let's say Brenna had bought--
Unknown Speaker: What if the drug dealer gave the money to his brother?
Now, you can say forfeiting it from his brother isn't going to advance the purpose of the statute, and yet, clearly if this statute means anything, it means that... at least to me, that if he gives it to his brother, it's subject to forfeiture.
Mr. Plaisted: --Your Honor, the test that Congress chose to couple with what was a very broad forfeiture provision, this traceable concept, was to focus on innocence.
With respect to a brother or someone else who perhaps participated with the individual in the bad acts, probably the result would be it would be forfeited.
But that is... would be determined at a trial on the question that is often at a trial.
Is he innocent?
Unknown Speaker: Well, where are you getting this congressional intent that you're talking about?
From the statute?
Mr. Plaisted: From the... what I referenced was, one, the Senate report saying it was deter crime and then, secondly, from the... I'm sorry.
Unknown Speaker: Yes.
Where do you get it out of the statute?
Mr. Plaisted: The statute says... it uses the words that you won't forfeit property from one... from an owner by reason of an act committed... that the owner... established by the owner to have been committed without his knowledge, meaning without his knowledge, and that's why it's called innocent owner.
Unknown Speaker: To have been committed.
So, if I commit the fraudulent act and I take the proceeds and I give it to my brother and I say, brother of mine, I've committed a fraudulent act, these are the proceeds, take them and run, he is an innocent owner under this provision.
Mr. Plaisted: No.
Unknown Speaker: Because my act was committed... he can establish that the act to have been committed without his knowledge or consent.
Mr. Plaisted: No, I don't believe he would be under those circumstances.
Unknown Speaker: Read the language again, would you?
Mr. Plaisted: --Yes, Your Honor.
Unknown Speaker: To the extent of the interest of an owner by reason of any act or omission... that would be the crime--
Mr. Plaisted: Right.
Unknown Speaker: --established by that owner to have been committed or omitted without the knowledge or consent of that owner.
The brother in that case could say this act was committed without my knowledge or consent.
I didn't know anything about it when it was committed.
Mr. Plaisted: When... what I would take issue with is applying the concept of when it was committed as opposed to when he receives the proceeds.
Unknown Speaker: But it says to have been committed without his consent, not that he was not aware of the fact of its commission.
It said it was... he has to establish that it was committed without his knowledge or consent.
That's a very strange innocent owner.
I suppose the question is whether those words modify "establish" or modify "committed".
If they establish that he didn't have the knowledge at the time xxx established it.
Mr. Plaisted: --I--
Unknown Speaker: I think there's an argument as to what you mean as to xxx.
Mr. Plaisted: --I think, Your Honor, the logical test would be, especially when you're dealing with proceeds because proceeds... this house... for example, at the time the illegal act was committed in 1981, this house was a stranger to that transaction.
No one, the people who owned it or the people who are not of record here who sold it to Ms. Goodwin sometime thereafter, the people who... it had nothing to do with it.
Unknown Speaker: Let me just ask you.
What's your position as... on the meaning of the statute?
Do you think in the hypothetical case of an act performed without the knowledge of the ultimate owner, the woman here, but she found out about the act before the time of the gift, would she be able to plead innocent ownership in your view?
Mr. Plaisted: In my view, no, Your Honor.
I mean, I think the logical time to apply it is the time of the gift, the time of the receipt.
Unknown Speaker: Well, that's very logical, but we have... so, you're arguing logic the same way the United States is.
I wish somebody would try to apply the language of the statute.
Mr. Plaisted: But, Your Honor, if I may, in terms of when you're talking about proceeds, proceeds like something like this... it necessarily... I mean, the house didn't have anything to do with the transaction at all at the time the illegal acts were committed.
It wasn't involved.
It later becomes arguably tainted by the purchase with funds.
And so when you are applying that concept, which is the full scope of this particular statute... it's a statute designed to cover items exchanged for drugs and proceeds traceable thereto... the only time that it would seem logical to assess the knowledge test would be at the time of the gift.
Proceeds necessarily, as they transmute, are afterwards.
The knowledge would have to... would seem to be tested and logically tested at that time, not at the earlier time when they have nothing to do with it.
And so, that's where and why I contend that.
Your Honor, with respect to, for example, this particular property, if... let me... the reason I say and submit to this Court that there is no difference between donees and bona fide purchasers... and the United States seems to have conceded that some purchasers qualify as innocent owners under this statute... is there's no distinction in the statute at all between bona fide purchasers and innocent owners.
The test that Congress chose to enunciate was a lack of knowledge test, not a test of bona fide purchase.
I submit they chose that test for a reason.
They were drafting a very broad, very far-reaching forfeiture statute, and to make sure there were not unlawful takings, to make sure there were not unfair takings, they drafted a test that focused on innocence.
And that is what the joint statement seems to indicate.
Unknown Speaker: You can also say that the test they drafted, Mr. Plaisted, tends to be a retrospective one by the use of the language "to have been committed" or "committed".
Mr. Plaisted: Yes, Your Honor, and with respect to proceeds, then that would often make sense.
In terms of... as I had understood the Government's argument previously, I thought they were saying they did have the right to elect to go after even bona fide purchasers in some instance, and even if it is only in limited instances, it creates an anomaly and a problem when you construe the criminal statute which protects bona fide purchasers specifically.
Congress knew how to protect bona fide purchasers alone when they wanted to, and they said so.
And when you put next to it the civil statute... and the reason I say that is because the civil statute is a statute addressed to in rem actions.
It is a statute that if a person who is under indictment and has made a bona fide sale... if the Government can no longer reach that asset under the criminal statute, under the civil statute, if the Government elects to do so, and if their construction of the innocent owner provision stands, and if they do have the right to go after those things, they can impact, detract from, and I had thought completely override the bona fide purchaser provision in the criminal statute.
And so, the only way to make sense of both together is to understand that the civil statute has been drafted to be much more far-reaching and the protection is more far-reaching.
With respect to--
Unknown Speaker: If we interpreted the word "owner" in that last provision, to the extent of the interest of an owner, to mean someone who has somehow cancelled out the United States' claim by having paid money for it so that all... the United States could go and reclaim any gifts at all, you'd have to show that some value was given.
Mr. Plaisted: --You--
Unknown Speaker: I don't see anything terrible about that.
Why should the brother who, even if he didn't know about the illegal transaction... why should he keep the ship that was ill-gotten?
Mr. Plaisted: --There are two parts to that, Judge, and... Justice.
Unknown Speaker: No problem.
Mr. Plaisted: There are two parts to that.
First, the question about the brother.
Normally what is going to happen with the brother is he's going to know, and that's not a real problem.
But with respect to the construction--
Unknown Speaker: Let's assume he doesn't.
Let's assume he doesn't know.
Why shouldn't the United States still be able to take the house back?
Mr. Plaisted: --Because we're construing--
Unknown Speaker: Easy come, easy go.
He didn't pay anything for it.
What's the harm?
Mr. Plaisted: --I would submit, Your Honor, that the legislature when they drafted it, said the term "owner"... and in the joint statement... what I would point to is the joint statement of Congress where they said construe "owner" broadly, give it meaning to include any person with any cognizable, legal, or equitable interest in the property seized.
Unknown Speaker: Well, I say he has no cognizable, legal, or equitable interest if he takes something that would otherwise belong to the United States without him paying any value for it.
A bank who mortgaged it could recover or somebody who bought it could recover, but he's not an owner if he got as a gift.
Mr. Plaisted: Your Honor, can... you can take that position.
I don't think that's what Congress intended.
Unknown Speaker: xxx.
Suppose the defendant has set up an irrevocable trust for his minor children, age 2 and 3, and it's irrevocable and it's a gift to the children, but it just happens to be in trust.
And you say that that is protected by the innocent owner.
Mr. Plaisted: It may be.
I'm confident the Government would attack it on a number of grounds and would have a trial on the issues.
Is it a sham?
Did he retain any control?
Is there any way he gets any benefit from it?
Unknown Speaker: No.
Any lawyer would say that he has no control over that trust.
Mr. Plaisted: Your Honor, I--
Unknown Speaker: Let's just assume that.
Mr. Plaisted: --If you assume that it was found as a matter of fact that he did, indeed, have no control over it, it was totally irrevocable--
Unknown Speaker: As a matter of law.
Mr. Plaisted: --and there was no way he could reach it or--
Unknown Speaker: That's right.
Mr. Plaisted: --influence the trustees or any of those other factual questions, then I would have to concede that he could probably do that under this statute.
Unknown Speaker: He could do it.
Mr. Plaisted: He could do it.
Unknown Speaker: And the Government could not recover the funds that are in trust.
Mr. Plaisted: See, where I take issue with--
Unknown Speaker: Is that right?
Mr. Plaisted: --I agree that if all those things are conceded, that would have to be the answer.
But what would happen practically is the Government would not agree with that, and they probably would have a great plethora of facts to show he had some control.
He was getting some benefit.
It was something that--
Unknown Speaker: Well, if the guy has enough money to set up this trust, he's got enough money to buy a... hire a good lawyer and take very substantial advantage or make sure that he has no control over it, and thereby he supports his little children with the proceeds from drug money.
Mr. Plaisted: --That may be the very answer there, Your Honor, in that if he is escaping another obligation, the Government would attempt to seize the value that he was... of the obligation he was escaping, as I think we heard from the Government.
They would say he has an obligation to support his children.
He no longer has to do that.
Unknown Speaker: Well, he gave this house away to avoid a palimony suit.
Mr. Plaisted: That may be an obligation too, and again, it is something that... that's what trials are about, and that is what one would decide at a hearing--
Unknown Speaker: But he has got no obligation--
Mr. Plaisted: --as to whether or not he had gotten the benefit.
Unknown Speaker: --He has got no obligation to make either his pal or his children millionaires, and that's still the consequence of the Chief's example, isn't it?
Mr. Plaisted: Yes.
And to the extent that the example asks you to assume that it is absolute, it's irrevocable, there's no benefits to him as to the excess over and above things, I concede that that under this statute, the way Congress drafted it, would be something that could happen.
Unknown Speaker: Safely.
Could happen... he could safely set it up.
Mr. Plaisted: I... Your Honor, I have grave doubts that the Government would accept it or that it would be safe, but it could happen.
But I don't... I think what happened when Congress adopted the test they adopted was they opted for a very far-reaching test, one that gives them the right to attack all such transactions as traceable and then enunciated a test which was innocence of knowledge as to those facts that one would have a trial over on those very issues.
And so, to the extent Congress chose the test and chose the parameters, I think you... yes, it could happen, but by the same token, I think the Government would contest it, and if they had any facts that suggested it was anything otherwise, they would prevail.
And so, while it is a possibility, I don't think it is of such consequence that it warrants overriding what does appear in the joint statement a fairly clear expression of intent to protect innocent recipients which can include very, very admirable recipients.
You could have an example where if Brenna had, for example, purchased this house and had given it to the United Way and they used it to help rehabilitate drug addicts, the forfeiture of that property would do... would undercut the other purpose of this program.
They are certainly innocent, and if you read the statute--
Unknown Speaker: Well, I--
Mr. Plaisted: --I'm sorry, Your Honor.
Unknown Speaker: --I suppose that if... even if you took the bona fide purchaser for value approach in defining an owner, I suppose that you could make an argument that this... the lady involved in this case gave some value.
Mr. Plaisted: You could.
Unknown Speaker: And in most States, you would say... or in a lot of States, it would be jointly held property.
Mr. Plaisted: That's true.
It would... in normal... if she was married in New Jersey, it would have been jointly held if it had been held in both their names, for example.
Unknown Speaker: May I ask one question here?
This section 6 of 881 does include in part instrumentalities, as well as proceeds, as I understand it.
Securities used are intended to be to facilitate any violation of the chapter.
Does that... is there another section also dealing with instrumentalities?
Mr. Plaisted: I believe 7 does, Your Honor.
I don't have the statute--
Unknown Speaker: Part of 6 seems to deal with... securities used as instrumentalities.
Mr. Plaisted: --Yes, and 4... section... and 4... there's another section as well that deals with conveyances, for example, specifically, and they too have separate protections for innocent owners.
But to the extent this statute is and does create the proceeds concept, which is where the majority of the cases under this section are litigated, the conveyances and the other sections cover other aspects of it.
Unknown Speaker: 7 deals I guess generally with the problem of property owned by someone other than the criminal enterprise before the transactions that gave rise to the justification for forfeiture.
In other words, if you own a boat and you lend it to somebody and they engage in a drug transaction, the boat would be forfeitable, but not if the owner of the boat had no idea what was being done with it.
That's what that--
Mr. Plaisted: That's one of the other sections, yes.
Unknown Speaker: --But the proceeds has a whole different problem.
Mr. Plaisted: Your Honor, I would... as I had understood the Government's brief, they were taking the position... if you look at footnote 8, they had suggested in footnote 8 that the innocent owner provision had meaning only for people who took before the illegal transaction not for anybody after.
And so, if one reads 8, the Government's brief suggested that they were, in fact, reserving the right to attack bona fide purchasers for value.
If that was or if they are even reserving the right to opt for that, then there is no meaning to the innocent owner clause.
I mean, it becomes meaningless.
The example in 8 where they posit, well, it's... and it starts midway down through footnote 8 where they posit it is possible for funds to be entrusted to a person and that person subsequently uses them to engage in a drug transaction without the owner's knowledge.
The sum of money might be turned over to a friend for investment.
So, A turns it over to B, a banker or a broker.
The banker or the broker uses it instead for drugs, and then the Government later seizes proceeds.
The Government posited in that case that that gave meaning to innocent owner because the ownership was before the illegal acts, and from that at least we drew that they were attacking all bona fide purchasers or at least reserving the right to.
If they are doing that, that particular section provides... when you read it, you never find an example like that in any case cited to this Court.
And we suggested that in our brief and challenged the Government to provide one, and they did not.
But if you think about that, the example they proffer, it has no meaning either.
If A gives the money to B, B uses it, and the Government seizes it, A going to the Government and saying, well, B owes me money that I entrusted him to and you happened to have seized proceeds from this fellow, turn them over to me, a private citizen has no right of tracing.
He has a debt owed from B, but he can't go claim that against the Government, and I would submit that's why there are no cases.
It is... if not meaningless, it's virtually meaningless.
And I would ask this Court not to give that construction to this clause.
Congress chose the words when they know... when they wanted to express bona fide purchaser, they said so, and they said it in the criminal statute.
In this particular statute, they made a very broad statute, a statute that is far broader than the criminal statute.
And they said innocent owners are protected.
Unknown Speaker: I don't know how that problem of an individual having no right to trace funds just exists with respect to the Government... Government's example and doesn't exist later down the line where you would apply the same clause to funds that have been taken by the Government.
Why doesn't the same problem exist for you?
I don't see why that's the Government's problem.
Mr. Plaisted: I'm not sure I understand, Your Honor.
Unknown Speaker: Well, you say that the private owner of funds cannot trace funds.
Only the Government can trace funds for some reason.
That's how you shoot down the Government's argument, assuming this only applies to funds.
Of course, it applies to other things of value as well, ships and so forth.
But just speaking of funds, why doesn't the same problem exist under your theory later on?
Mr. Plaisted: What they were saying was that later on innocent owners could not take because if they're taking after the date of the criminal act, they take nothing.
And so, if this example doesn't have meaning, innocent owner has no meaning.
Unknown Speaker: --Your client takes the funds, puts them... takes them over to the bank, gives them to the bank.
Mr. Plaisted: Right.
Unknown Speaker: The Government seizes them from the bank.
Mr. Plaisted: Right.
Unknown Speaker: How can she get them back?
She can't because you say private individuals can't trace funds.
Only the Government can trace funds.
Mr. Plaisted: What I'm saying is she can't enforce against the Government--
Unknown Speaker: Right.
Mr. Plaisted: --a third party, her debt from B, and I agree.
And so all I was saying was that this example breathes no meaning into innocent owner at all because it is meaningless.
Thank you very much.
Unknown Speaker: Thank you, Mr. Plaisted.
Ms. Wax, you have a minute remaining.
Rebuttal of Amy L. Wax
Mr. Wax: Your Honor, Justice Scalia was right, that we haven't focused very much on the language of the statute.
So, it's that to which I'd like to turn right now.
The term Ms. Ann... Ms. Goodwin's house in this case.
There can be no question about that.
Now, since it applies, this house and the money used to buy that house, I should say, belonged to the United States at the time that it was generated through an illegal transaction, and that follows from section 881(h) of the statute vesting title in the United States in all assets described in Subsection (a)(6), all things of value, all proceeds traceable to such an exchange, including the subcategory of assets that is ultimately exempted from forfeiture because it belongs to an innocent owner.
Now, since the United States gets title to that property upon commission of illegal acts, she cannot be owner.
Chief Justice Rehnquist: Thank you, Ms. Wax.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 91-781, United States versus A Parcel of Land will be announced by Justice Stevens.
Argument of Justice Stevens
Mr. Stevens: In 1978, the Congress amended the Comprehensive Drug Abuse Prevention and Control Act to provide for the forfeiture of proceeds, traceable to money or other things of value earned from drug trafficking.
This case raises questions concerning the innocent owner in defense that is included in that amendment.
One of the defense is available through donee as well as a bona fide purchaser.
And whether, as the government contends, it may only be asserted by a person who own the property before the conduct justifying the forfeiture occurred.
In 1982, the respondent received a gift of approximately $240,000 dollars that she used to purchase the home that she and her three children have occupied ever since.
In 1989, based on probable cause to believe that the funds used to buy the house were proceeds of illegal drug transactions.
The government instituted this forfeiture proceeding.
In defense respondents claimed to be an innocent owner, because she had no knowledge of the origin of the money.
Without passing on the credibility of her claim, the District Court held that her defense was insufficient as a matter of law, because she had received the purchase price as a gift, and because she had not acquired the property until after the alleged drug transactions occurred.
The Court of Appeals reversed and remanded for an evidentiary hearing, and we granted the government's petition for certiorary.
The government does not press the argument that the defense is only available to bona fide purchasers.
Persumably, because the plain language of the statute contains no such limitation.
The government does however argued that it becomes the owner of drug proceeds as soon as an illegal transaction takes place, and that respondent's home was therefore purchased with the government property.
We reject that argument because both the common law and the statutory relation back doctrine, on which the government relies, only provide for a retroactive vesting of title after the government has obtained the forfeiture judgment.
Until that time, the government is not the owner of the property, and the person such as respondent, who does own the property until then, may involve to any defense otherwise available to her.
My opinion announcing the judgment of Court is joined by Justice Blackmun, Justice O'Connor and Justice Souter.
Justice Scalia has filed an opinion concurring in the judgment that is joined by Justice Thomasa and Justice Kennedy has filed a dissenting opinion that is joined by the Chief Justice and Justice White.