Sheila Lester appeals the district court's order forfeiting her interest in certain real property located at 100 Indianola Road in Eureka, California (the "Indianola property"). Mrs. Lester's interest in the Indianola property was forfeited, pursuant to 21 U.S.C. § 853(p), in connection with the conviction of her husband, Richard Lester. We have jurisdiction under 28 U.S.C. § 1291, and we reverse and remand.
In September 1992, the Government filed an indictment charging Mr. Lester and others with conspiracy to possess with intent to distribute marijuana. Mrs. Lester was not indicted, and there is no allegation that she was involved in any wrongdoing. On December 2, 1993, the Government filed a superseding indictment which added a criminal forfeiture count under 21 U.S.C. § 853. The count alleged that $2.5 million was forfeitable by Mr. Lester as proceeds of the conspiracy. On March 30, 1994, the jury found Mr. Lester guilty and returned a special verdict in favor of the Government on the forfeiture count.
At the sentencing hearing, the Government chose not to seek forfeiture of Mr. Lester's property, pursuant to 21 U.S.C. § 853(a), as property linked to his criminal activities. Instead, the Government elected to proceed under the "substitute property" provisions contained in 21 U.S.C. § 853(p), whereby, if any of a defendant's forfeitable assets are unavailable due to an enumerated act or omission of the defendant, the court can "order the forfeiture of any other property of the defendant." Pursuant to this section, the district court entered a preliminary order of forfeiture of various properties which Mr. Lester owned or had an interest in, including the Indianola property.
The Lesters' interest in the Indianola property can be summarized as follows. Mr. and Mrs. Lester were sole owners of a California corporation, Active Investments, Inc. Active Investments owned 3/8 of the limited partnership known as "Indianola Road Properties" or "Indianola Properties," and this partnership in turn owned the Indianola property. Thus, Mr. and Mrs. Lester, through Active Investments' interest in the limited partnership, owned 3/8 of the Indianola property.
On June 23, 1994, Mrs. Lester filed a petition alleging an interest in the Indianola property and seeking a hearing on the matter pursuant to 21 U.S.C. § 853(n).
The Government acknowledged that Mrs. Lester had a community property interest in Active Investments, but argued that, under California law, both spouses' interests in the community property could be forfeited to satisfy Mr. Lester's $2.5 million "debt" to the United States. The district court agreed and denied Mrs. Lester's petition and upheld the forfeiture of the Lesters' entire 3/8 interest in the Indianola property. Mrs. Lester timely appeals.
Standard of Review
We review the district court's findings of fact for clear error, and its legal
In this appeal, we are required to determine whether the Government can use the "substitute property" provision in the criminal forfeiture statute, 21 U.S.C. § 853(p), to seize an innocent spouse's interest in community property to satisfy the forfeiture obligations of the guilty spouse.
The criminal forfeiture statute, 21 U.S.C. § 853, provides:
21 U.S.C. §§ 853(a) and (p) (emphasis added).
When an order of forfeiture has been entered under section 853, a third party claiming an interest in the property may petition the court for a hearing to adjudicate his or her legal interest in the property pursuant to 21 U.S.C. § 853(n). Section 853(n) provides, in relevant part,
(6) If, after the hearing, the court determines that the petitioner has established by a preponderance of the evidence that-
21 U.S.C. § 853(n).
"In drug forfeiture actions, ownership of property is determined by state law." See United States v. Ranch Located in Young, Arizona, 50 F.3d 630, 632 (9th Cir.1995); see also United States v. Yazell, 382 U.S. 341, 352-53, 86 S.Ct. 500, 506-07, 15 L.Ed.2d 404 (1965); United States v. Smith, 966 F.2d 1045, 1054 n. 10 (6th Cir.1992) ("because forfeiture proceedings implicate property rights which have traditionally been measured in terms of state law, and because section 853 contains no rule ..., it is appropriate to refer to state law"); United States v. Certain Real Property at 2525 Leroy Lane, 910 F.2d 343, 348 (6th Cir.1990) (observing that "[p]roperty interests have long been acquired and defined by state law"), cert denied, 499 U.S. 947, 111 S.Ct. 1414, 113 L.Ed.2d 467 (1991). Once the ownership interests are defined under state law, however, the federal forfeiture statutes determine whether those property interests must be forfeited to the Government.
Here, the parties agree that the law of California, where the Indianola property is located and where the Lesters resided during the relevant time period, applies. Under California law, "[e]xcept as otherwise provided by statute, all property, real or personal ... acquired by a married person during the marriage while domiciled in [California] is community property." Cal. Fam.Code § 760 (West 1994). Thus, "[p]roperty acquired by purchase during a marriage is presumed to be community property." In re Marriage of Marsden, 130 Cal.App.3d 426, 181 Cal.Rptr. 910, 918 (1982). Accordingly, the Lesters' 3/8 interest in the Indianola property, acquired during the marriage while the Lesters were domiciled in California, is presumed to be community property.
Under California law, "each spouse has a vested undivided one-half interest in the community property." See Estate of Wilson, 183 Cal.App.3d 67, 227 Cal.Rptr. 794, 798 (1986); Cal. Fam.Code § 751 (West 1994) ("[t]he respective interests of the husband and wife in community property during continuance of the marriage relation are present, existing, and equal interests"). Thus, under California law, both Mr. Lester and Mrs. Lester have an undivided one-half ownership interest in their 3/8 interest in the Indianola property.
Having established the ownership interests, under state law, of both relevant parties — Mr. Lester, the defendant, and Mrs. Lester, the third party claiming an interest in the forfeited property — we can now look to federal law to determine whether Mrs. Lester's ownership interest in the Indianola property may be forfeited pursuant to section 853(p).
The plain language of section 853 provides instructive guidance. Section 853(p) states that only the substitute "property of the defendant" may be forfeited to the Government. 21 U.S.C. § 853(p) (emphasis added). Moreover, section 853(n)(6)(A) provides
Our holding not only comports with the plain language of section 853, but it also is consistent with the underlying legal proposition that "[a] criminal forfeiture is an in personam judgment against a person convicted of a crime." United States v. $814,254.76 in United States Currency, 51 F.3d 207, 210-11 (9th Cir.1995) (emphasis added); see also Certain Real Property at 2525 Leroy Lane, 910 F.2d at 346 (section 853 "authorize[s] an in personam action against a defendant in a criminal case, and forfeiture in such a case is imposed as a sanction against the defendant upon his conviction." (emphasis added)); In re Moffitt, Zwerling & Kemler, P.C., 875 F.Supp. 1152, 1162 (E.D.Va.1995) ("criminal forfeiture of substitute assets is available against a defendant, but not against a third party"). Our decision also heeds the Supreme Court's recent admonition that "[i]mproperly used, forfeiture could become more like a roulette wheel employed to raise revenues from innocent but hapless owners ..., or a tool wielded to punish those who associate with criminals, [rather] than a component of a system of justice." Bennis v. Michigan, ___ U.S. ___, ___, 116 S.Ct. 994, 1003, 134 L.Ed.2d 68 (U.S.Mich 1996) (Thomas, J., concurring);
Unfortunately, instead of looking to the statute and federal law to determine whether Mrs. Lester's interest in the Indianola property could be forfeited, both the Government and the district court mistakenly rely on California state law. Having done so, they easily, albeit erroneously, come to the conclusion that (1) under California law, the marital community "is liable for a debt incurred by either spouse ... during marriage;"
Given that the plain language of section 853(p) clearly provides that only the substitute "property of the defendant" may be forfeited to the Government and that section 853(n)(6)(A) provides that a third party claiming an interest in the forfeited property may "render the order of forfeiture invalid in whole or in part [if] the right, title, or interest [in the forfeited property] was vested in the [third party] rather than the defendant," we hold that Mrs. Lester's vested community property interest in the Indianola property is not subject to criminal forfeiture as "substitute property." See 21 U.S.C. §§ 853(n)(6)(A) and (p); Estate of Wilson, 227 Cal.Rptr. at 798.
At the time Active Investments was formed, 50% of the shares of stock in the corporation was issued solely in Mrs. Lester's name and the other 50% in Mr. Lester's name. This demarcation of the shares as the separate property of each spouse may be sufficient to rebut the presumption that the shares in Active Investments are community property. See Cal. Fam.Code § 770(a)(2) ("[s]eparate property of a married person includes ... [a]ll property acquired by the person after marriage by gift ..."); Johnson v. Johnson, 214 Cal.App.2d 29, 29 Cal.Rptr. 179, 182 (1963) ("if a husband transfers his community property to his wife, the mere fact of transfer raises a presumption that he intended the transfer to be a gift"); but cf., Cal. Fam.Code § 852(a) (requiring that transmutations of property from community to separate property be accompanied by an express declaration "made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected").
Nevertheless, because we hold that Mrs. Lester's community property interest is not subject to forfeiture and because this interest is identical to her alleged separate property interest in the shares of Active Investments, we need not resolve the issue of whether the issuance of the shares would suffice to transmute the shares into separate property or whether the provision in the California Family Code requiring an express declaration is even applicable given that neither Mr. nor Mrs. Lester were "adversely affected."
On appeal, the Government argues that these civil forfeiture cases are distinguishable from criminal forfeiture cases because the civil forfeiture statute provides an "innocent owner" exception while the criminal forfeiture statute does not. Compare 21 U.S.C. § 881 with § 853. From this omission, the Government reasons that there is no protection for the community property of an innocent spouse under section 853. This conclusion ignores the fundamental distinction between civil and criminal forfeiture actions.
United States v. $814,254.76 in United States Currency, 51 F.3d 207, 210-11 (9th Cir.1995) (citations omitted). Thus, in context, it is clear that because a criminal forfeiture is an action against the convicted defendant, who by definition is not "innocent," there simply was no need to have an innocent-owner exception.
To the extent that the Government argues that this difference should dictate a different outcome, it reinforces our position that state law should be determinative of only the ownership interest in the property and that once ownership interests are defined under state law, the federal forfeiture statute and case law should determine what property interests are forfeitable.
To adopt the position advanced by the Government below would result in the anomalous situation in which an innocent Californian spouse's one-half interest in the marital property not associated with any criminal activity could be immediately seized and forfeited to the Government to satisfy the criminal forfeiture "debt" of the guilty spouse. While at the same time, the marital property of a guilty spouse actually used in the criminal activity, but held jointly with an innocent spouse as tenants by the entirety could not be seized or forfeited until the dissolution of the marriage, at which point the Government would be entitled to only the guilty spouse's share as a tenant in common, or until the death of one of the spouses in which case the surviving spouse would obtain sole title to the property. Depending on which spouse survived, the property would then either be completely forfeited to the Government (if the surviving spouse is the guilty spouse) or could not be forfeited at all (if the surviving spouse is the innocent spouse). This anomalous result can be avoided by limiting the state law analysis to a determination of the respective property ownership interests of the relevant parties.