Show Me The Money

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For years, tension has existed between federal and state criminal prosecutors over forfeitures.  Criminal forfeitures result from the seizure (and, if necessary, the sale) of contraband such as cash from illegal activities or illegally obtained merchandise.  When the forfeiture is conducted by a state agency, the school system receives the resulting funds, but when the forfeiture is conducted by a federal agency, funds are returned to the state law enforcement agency that initiated the prosecution.  (I’m simplifying a bit here; bear with me.)

Both outcomes are beneficial.  The state schools rely in part on forfeited funds to meet their budgets, while law enforcement agencies in areas without a robust tax base can use forfeitures to supplement their limited budgets for the purpose of procuring such basic needs as body armor.  Ordinarily, state and federal agencies are well-attuned to possible friction over which is more deserving of particular forfeited funds and are careful not to avoid conflicts.  Yet disputes occasionally arise…

            Such a dispute is addressed in the recent case of State v. Sanders, No. COA21-358, issued 21 June 2022 by the North Carolina Court of Appeals.  The case arose when police in Mooresville spotted a plastic bag containing cash on the center console of a rented vehicle parked at a hotel.  Defendant Sanders, the driver of the vehicle, fled when officers approached.  Police seized the cash, which totaled over $16,000. 

            On 19 November 2020, the defendant filed a motion in Iredell County district court seeking return of the currency.  While that motion was under consideration, an officer of the United States Department of Homeland Security (DHS) advised the Mooresville Police that the defendant was being investigated for the federal offense of money laundering and that DHS was adopting the case.  Accordingly, the Mooresville Police relinquished the funds to DHS on 23 November 2020.

            The next day, an Iredell County district court judge granted the defendant’s motion and ordered the money returned.  However, when the defendant’s attorney sought return of the money from the Mooresville Police, that agency responded that it could not comply because of the adoption of the case by DHS.  The defendant then filed a motion to show cause, alleging that the currency had been seized unconstitutionally.  The district court issued an order dated 26 January 2021, requiring the Mooresville Police Department to show cause why it should not be held in contempt for failing to return the money.

            A hearing was conducted on 9 February 2021, at the conclusion of which the trial court found as fact that the seizure of the cash violated the defendant’s constitutional rights, that the district court acquired in rem jurisdiction over the cash when the defendant filed his November motion seeking return of the money, and that the Mooresville Police had the resources to return to the defendant money in the amount seized from him.  Accordingly, the district court held that the Mooresville Police was in contempt and would purge itself of that contempt by returning to the defendant a sum of money equal to that seized.

            The Town of Mooresville and the Mooresville Police entered notice of appeal but the trial court dismissed the notice as untimely.  The Court of Appeals allowed the Town’s and the Police’s petitions for certiorari.

            The Court of Appeals began its analysis by noting that, under federal law, all funds furnished in exchange for controlled substances are subject to forfeiture to the United States.  21 U.S. Code § 881(a)(6).  In addition, federal courts have original jurisdiction over any action for the enforcement of any forfeiture incurred under federal law.  28 U.S. Code § 1355.  Accordingly, the Court of Appeals turned to the question whether the Iredell County district court possessed the in rem jurisdiction “under which it purported to base its orders” and reviewed de novo the trial court’s finding regarding its jurisdiction.

            The Court of Appeals noted that, unlike the federal government, North Carolina does not have a generally-applicable civil forfeiture statute.  N.C.G.S. § 90-112 allows criminal forfeiture of funds related to the illegal drug trade, but the forfeiture process is tied into the criminal proceedings against a defendant.  In contrast, a federal forfeiture is a civil action against the property itself and is independent of any action against the owner of the property.

            The Court of Appeals cited its earlier opinion in State v. Hill, 153 N.C. App. 716, 570 S.E. 2ed 768 (2002), [LINK].  In that case, the Court of Appeals held that state criminal forfeiture proceedings are based upon in personam jurisdiction, observing that in state court, forfeiture normally follows a criminal conviction.  Under the holding in Hill, once a federal agency has adopted a local seizure, exclusive original jurisdiction is vested in the federal court and no collateral attack via state court is allowed.  Accordingly, because the trial court lacked jurisdiction to enter its orders, the Court of Appeals declared those orders void and remanded the matter to the trial court for further proceedings.    

            This opinion takes me back to my days as a federal prosecutor when I had to referee occasional disputes between state and federal agencies over which could pursue a forfeiture.  While each decision was important, the managerial goal was to avoid damaging a program that assisted both educators and law enforcement.   That state-federal tension persists.

            Tip-o-the-hat to Gil Beck, Assistant United States Attorney in the Western District of North Carolina, for mentioning this opinion to me.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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