Seized During Arrest
United States of America
, Plaintiff-Appellee v. Lloyd Ferrell Wingfield, Defendant-Appellee,
County of Boulder
U.S. Court of Appeals, 10th Circuit, 84-2197, 6/15/87, 822 F2d 1466,
Affirming an unreported District Court decision
6321 , 6323
unchanged by the Tax Reform Act of 1986 ]
Lien for taxes: Property subject to lien: Property seized during
arrest: Priority: Jurisdiction: Conflict of law: Suit by nontaxpayer.--A
District Court properly exercised its ancillary jurisdiction in
adjudicating the conflicting claims of the IRS and a county government
to a large sum of money seized during a taxpayer's arrest on narcotics
charges, and it did not err in finding that the IRS's federal tax lien
attached prior to a State forfeiture provision. The funds, which were
confiscated by the local law enforcement officials, were in the custody
and control of the local federal District Court in the aftermath of the
taxpayer's trial on federal criminal charges. The taxpayer who, under
State law, could recover any of the money lawfully acquired possessed a
sufficient, if limited, property interest in the seized funds for the
federal tax lien to attach. Since the tax lien attached prior to a State
court's determination that the money was forfeited to the State under
its public nuisance laws, the IRS claim to the funds was entitled to
priority. The subsequent State forfeiture decree could not supplant the
previously filed federal tax lien.
. Francis M. Allegra, Michael L. Paup, Carleton D. Powell, Glenn L.
Archer, Jr., Department of Justice, Washington, D.C. 20530, for
plaintiff-appellee. William D. Meyer, Hutchinson, Black, Hill, Buchanan
& Cook, 1215 Spruce St., Boulder, Colo. 80306, for appellant.
HOLLOWAY, Chief Judge, and BARRETT and MCKAY, Circuit Judges.
case presents a series of tangled jurisdictional questions involving the
district court's subject matter jurisdiction of this case and its
jurisdiction as to the Government. The underlying merits involve the
status of a federal tax lien on contents of property seized and
forfeited pursuant to a
statute as a public nuisance because of use for unlawful activities
involving controlled substances. The Government says the contents passed
after the tax lien attached. The
disagrees and claims the property for itself, clear of the tax lien. The
district court agreed with the Government. We affirm.
November 5, 1982, Lloyd Ferrell Wingfield was arrested at his home by
FBI agents pursuant to a federal arrest warrant charging him with
unlawful flight to avoid prosecution. The arresting FBI agents were
accompanied by an officer of the Boulder Police Department. At the time
of the arrest, the Boulder Police Officer observed marijuana in
Wingfield's residence. The officer obtained a state warrant authorizing
a search of the premises. Execution of the search warrant by federal and
county agents and officers resulted in the seizure of the following
items, inter alia: (1) eighteen grams of cocaine; (2)
approximately $89,676.00 in United States currency; (3) a personal check
in the amount of $688.00; and (4) various foreign currency, mint proof
sets, and bars of Englehart silver, collectively valued at approximately
November 8, 1982, the Government filed a complaint charging Wingfield
with possession of a controlled substance with the intent to distribute.
On the same date, the District Attorney for Boulder County filed a civil
action against Wingfield in the District Court for Boulder County
pursuant to the Colorado Abatement of Public Nuisance Statute, Colo.
Rev. Stat. §16 -13-307.
The following day local authorities released the seized items for use as
evidence in the federal criminal case. It is that case against Wingfield
which produces the appeal now before us.
November 16, 1982, the State court granted
's temporary restraining order against the seized items, finding that
the seized items had been used in conducting, maintaining, aiding and
abetting a public nuisance. The State court further ordered pursuant to §16
-13-308 that no person take any action to encumber, transfer, or
assert a right of immediate possession to the seized items.
January 13, 1983, the Internal Revenue Service (IRS) assessed income tax
deficiencies against Wingfield for federal income taxes and on January
19 filed notices of federal tax liens with the Clerk and Recorder of
Boulder County. After a trial to the court on written stipulation
Wingfield was convicted on February 11, 1983, on the federal criminal
May 17, 1983, the State court issued an order effective nunc pro tunc
to the date of seizure of the property (November 5, 1982), finding that
the items seized by federal and state agents in Wingfield's home on
November 5, 1982, were seized from premises which constituted a class I
public nuisance and thus were forfeited to the county. Furthermore, the
court held that there was no evidence which would entitle Wingfield to
redelivery of the seized items. Wingfield appealed the State court's
September 1, 1983, after various conflicting claims to the seized items
had been asserted, the federal district court ordered that the funds be
deposited with the Clerk of that court. The court further ordered that
notice be sent to the IRS, the United States Attorney's Office, and the
County of Boulder "so that claims can be presented and disposition
effectuated." I R. 32.
Wingfield, the IRS, and the
filed claims to the seized items. After a hearing the district court
held that the State forfeiture decree could not supplant a previously
filed federal tax lien, finding that a "State statute cannot
subvert the primary authority of the federal government to collect its
taxes under these circumstances." III R. 14. The court ordered the
clerk of the court to satisfy the claim of the IRS and, if any proceeds
remained, to satisfy the claim of
. The claimant Wingfield was held not entitled to any of the funds.
February 28, 1985, the Colorado Court of Appeals affirmed in part and
reversed in part the forfeiture judgment of the Boulder County District
23, 707 P.2d 1001 (Colo. Ct. App. 1985). The court affirmed the
State district court's judgment of forfeiture except as to the Englehart
silver bars found in buckets, the Canadian mint sets found in buckets,
and the Canadian currency found in a glass pitcher.
at 1004-05. As to these items Wingfield's rights to ownership were
May 8, 1987, the Supreme Court of Colorado affirmed in part and reversed
in part the Colorado Court of Appeals decision ordering the
reinstatement of the district court's forfeiture order.
v. Lot 23, 735 P.2d 184 (
1987). The Colorado Supreme Court held that the Colorado Court of
Appeals had misconstrued the proper burden of proof that the State must
necessarily carry in abatement of public nuisance cases. The proper
standard was whether the State has proved by a preponderance of the
evidence that the items seized were used in the criminal activity.
at 12. The court answered in the affirmative, stating that all of the
seized property was properly forfeited to the State. 1
we must confront the jurisdictional questions generated by the complex
procedural posture of the case. The case began as a federal criminal
prosecution for possession with intent to distribute a controlled
substance. The defendant in the criminal case was Wingfield. In the
instant appeal, the controversy centers on a dispute between the IRS and
concerning rights to items seized at Wingfield's residence. These items
were held by the district court as possible evidence in the criminal
trial. The court concluded that it had the authority to resolve
conflicting claims to the seized items as a matter of ancillary
contends that the district court could not properly exercise ancillary
jurisdiction in the circumstances.
jurisdiction rests on the premise that a federal court acquires
jurisdiction of a case or controversy in its entirety. Jenkins v.
Weinshienk, 670 F.2d 915, 918 (10th Cir. 1982). The district courts
have jurisdiction to enter orders ancillary to a criminal proceeding
concerning disposition of materials legally seized in connection with
the criminal investigation of a case. See, e.g.,
v. Rangel, 608 F.2d 120, 121 (5th Cir. 1979) (and cases cited
therein). The interests of judicial efficiency dictate that the
conflicting claims to property seized as evidence should be resolved by
the criminal court. United States v. LaFatch, 565 F.2d 81, 83
(6th Cir. 1977), cert. denied, 435 U.S. 971 (1978).
Herzfeld v. United States District Court for the District of
Colorado, 699 F.2d 503 (10th Cir.), cert. denied, 464 U.S.
815 (1983), we held proper the district court's exercise of ancillary
jurisdiction to appoint a receiver in a criminal case to effectuate a
disposition of property to accomplish restitution by the defendant.
There the court observed:
criminal proceeding in a
district court is not in a separate compartment with the court
exercising only a limited portion of its authority as the appellants
argue. The federal courts obviously are of limited jurisdiction but the
extent of the authority of the district courts in these circumstances is
not limited or governed by whether the proceeding is criminal or civil.
the seized property was to be used as evidence in a federal criminal
case. The property was in the custody and control of the federal
district court. It is this court which must determine the proper
distribution of funds currently in its possession. We conclude that the
district court does have the jurisdiction to enter an order concerning
disposition of seized property in its control. Although the defendant
was convicted on his plea of guilty, the district court had before it
the facts and circumstances of the case. Cf.
v. Ortega, 450 F.Supp. 211, 212 (S.D.N.Y. 1978). It would result in
a needless waste of judicial resources not to exercise ancillary
jurisdiction here. Moreover, the existence of adequate civil remedies
neither discharges the court's duties nor disturbs its jurisdiction. See
, 540 F.2d 1100, 1104 (D.C. Cir. 1976).
the court's ancillary jurisdiction was properly exercised to dispose of
the claims to the property in the custody of the court.
Government argues that this court lacks appellate jurisdiction over this
matter. It also says that the present action is barred by the doctrine
of sovereign immunity. Moreover, the Government contends that the
district court exercised in rem jurisdiction over the seized
property and that such jurisdiction ceased to be valid on the
distribution of the res to the Government. It further argues that
it was incumbent upon
to obtain a stay of the district court's order if it desired to preserve
jurisdiction for an appeal.
Government's argument that the action is barred by the doctrine of
sovereign immunity is without merit. In considering suits against the
federal government, we must determine whether a valid waiver of soverign
immunity exists. If not, the Government is immune from suit and we lack
subject matter jurisdiction.
v. Mitchell, 455
535, 538 (1980);
v. Sherwood, 312
584, 586-88 (1941).
Revenue Code §7426(a)(1)
Levy.--If a levy has been made on property . . ., any person (other than
the person against whom is assessed the tax out of which such levy
arose) who claims an interest in or lien on such property and that such
property was wrongfully levied upon may bring a civil action against the
United States in a district court of the United States. Such action may
be brought without regard to whether such property has been surrendered
to or sold by the Secretary.
7426 permits a third party to bring an action challenging the
lawfulness of governmental levies made against property in which he
claims an interest. Interfirst Bank Dallas, N.A. v. United States
¶9635 ], 769 F.2d 299, 304 (5th Cir. 1985), cert. denied, --
1458 (1986); see Crow v. Wyoming Timber Products Co. [70-2
USTC ¶9561 ], 424 F.2d 93, 96 (10th Cir. 1970) (dictum). Congress
has specifically waived sovereign immunity for actions under §7426
through the enactment of 28 U.S.C. §1346(e). Thus to the extent
that a party claiming an interest in property is aggrieved by the
pendency of an existing lien, sovereign immunity is waived. See Three
M Investments, Inc. v.
USTC ¶9185 ], 781 F.2d 352, 354 (10th Cir. 1986). This conclusion
does not change merely because the district court exercised ancillary
jurisdiction. Ancillary jurisdiction permits the district court to
exercise the full range of its civil and criminal jurisdiction.
of the essentials of in rem jurisdiction is that the property be
within the court's jurisdiction at the time of suit. 4 C. Wright &
A. Miller, Federal Practice & Procedure §1070, at 270 (1969).
Release or removal of the res from the control of the court ends its
jurisdiction. Generally, the only exceptions to the rule are when the res
is released accidentally, fraudulently, or improperly. See
Currency and Other Coins, 722 F.2d 1457, 1458 (9th Cir. 1984).
Government's analysis fails to consider the fact that in rem and in
personam jurisdiction may co-exist. See Inland Credit Corp. v.
M/T Bow Egret, 552 F.2d 1148, 1152 (5th Cir. 1977). Here both apply.
The district court still has jurisdiction under I.R.C. §7426(b)
to enter a judgment in personam against the Government. Section
7426(b) grants the district court the jurisdiction to order the
Government to return the seized property or its equivalent, i.e.,
a money judgment. Moreover while the Government attorney could not waive
any immunity of the
, we note that our interpretation of §7426(b)
is consistent with representations made to the district judge:
GOOD (Counsel for the County): Judge, I am curious, is there any--if I
can ask for a brief stay of the order until we see if we might be taking
some kind of further action before this Court releases the funds to the
SNOW (Counsel for Wingfield): Judge, excuse me, if I may speak to that.
We're being assessed interest on a daily basis, Mr. Wingfield is, for
that. We would suffer from the stay. We would ask that the order be
GUTHRIE (Counsel for the IRS): Besides that, Your Honor, we have a deep
pocket. We'll have the money. If they bring a successful lawsuit,
we'll have enough money to give it back.
COURT: Well, I'm not going to make any comments about political parties
going into greater debt, but I'll accept that. Okay, the claim is
denied. The assurance of the federal government is that you can
collect from them if you are successful in that.
R. 14-15 (emphasis added). It was upon this assurance by the Government
that the district court denied the motion for a stay.
sum, the case is not moot nor is jurisdiction destroyed because of
distribution of the property to the Government. The power to order
restitution by payment of an equivalent value remains.
County further argues that the district court should have returned the
property to the State district court under the general principles of
comity because the State court was the first court to have possession of
the seized funds and because the Government had actual notice of the
State court proceedings and failed to intervene, citing United States
v. Hunt [75-1
USTC ¶9327 ], 513 F.2d 129 (10th Cir. 1975).
is inapposite. There the IRS intentionally by-passed a State court
proceeding following actual notice by initiating a unilateral action in
federal district court when the funds in question were in the sole
possession of the State district court. Here the State court did not
have control or possession of the seized property, nor did the
Government initiate the suit. Rather, the property was in the custody
and control of the federal district court as possible evidence in a
federal criminal case, and the Government, along with
and Wingfield, asserted claims to the property after Wingfield's
conviction. Although we recognized the importance of "[t]he
promotion of proper Federal-State relations in the interest of sound
judicial administration and in further recognition of the principles of
comity," id. at 138-39, we believe these interests would not
have been promoted by the district court's refusal to adjudicate the
claims to the seized property in its control.
conclude that the district court did not err in exercising ancillary
jurisdiction under Herzfeld and like principles to adjudicate the
conflicting claims to the property in its custody or in deciding not to
transfer the property to the State court.
CLAIMS OF OWNERSHIP
controlling question is whether Wingfield had a property interest in the
seized property sufficient for the federal tax lien to attach at the
time the IRS assessed the tax lien and filed notices thereof. If
Wingfield did have such a property interest in the seized property, then
the federal tax liens attached and the IRS' claim has priority. If, on
the other hand, the taxpayer-defendant had no such property interest in
the seized property, then the federal tax lien could not attach.
federal tax lien may attach only to the property of the person liable to
pay the tax. I.R.C. §6321
; see also 13 Mertens Law of Federal Income Taxation §54.52, at
208. Section 6321 provides
that a federal tax lien shall be applicable to "all property and
rights to the property, whether real or personal, belonging to
such person." (Emphasis added). A federal tax lien is wholly a
creature of federal law. Therefore the consequences of the lien that
attach to property interests are matters of federal law. See United
States v. Rodgers [83-1
USTC ¶9374 ], 461 U.S. 677, 683 (1983) (and cases cited therein);
see also Hunt, 513 F.2d at 133. However the Internal Revenue Code
"creates no property rights but merely attaches consequences,
federally defined, to rights created under state law . . . ." United
States v. Bess [58-2
USTC ¶9595 ], 357 U.S. 51, 55 (1958); see also 13 Mertens, supra
§54.52, at 207. Property and rights to property exist under state law;
priority of federal liens depends on federal law. See Rodgers,
461 U.S. at 683; Aquilino v. United States [60-2
USTC ¶9538 ], 363 U.S. 509, 512-14 (1960); 21 West Lancaster
Corp. v. Main Line Restaurant, Inc. [86-2
USTC ¶9516 ], 790 F.2d 354, 356 (3d Cir. 1986) (under Pennsylvania
law, state liquor license did not constitute property but it had
sufficient indicia of property to be subjected to federal tax lien).
law governs the priority of a tax lien against other claims to property.
United States v. Equitable Life Assurance Society [66-1
USTC ¶9444 ], 384 U.S. 323, 328 (1966). Where Congress has not
prescribed a different priority rule, see I.R.C. §6323
, the basic rule is "first in time is first in right." See
United States v. City of New Britain [54-1
USTC ¶9191 ], 347 U.S. 81, 85-86, (1954). Therefore, a tax lien is
junior to only those liens that not only attached to the asset, but also
became sufficiently choate before the tax lien arose. See id. And
choateness of a competing interest is also a matter of federal law. See United
States v. Pioneer American Insurance Co. [63-2
USTC ¶9532 ], 374 U.S. 84, 88-89 (1963).
respect to the property interest in question here, the Supreme Court of
Colorado has responded to the following question certified to it by the
federal district court:
is the nature and extent of the property interest, if any, retained by a
person subsequent to the seizure of his property pursuant to §16
-13-303, C.R.S. 1973, as effective on June 13, 1980, but prior to
judicial determination pursuant to §16
-13-307 et seq., C.R.S. 1973?
States v. Wilkinson [85-2
USTC ¶9825 ], 628 F.Supp. 29, 30 (D.
1985). The Colorado Court answered the question as follows:
hold that a person is divested of all rights and interests in property
upon its seizure under the Colorado Abatement of Public Nuisance statute
(Public Nuisance statute), sections
16 -13-301 to -316, 8 C.R.S. (1978 & 1983 Supp.). Therefore, our
answer to the certified question is that there is no property interest
retained during the period in question.
v. Wilkinson (In re Interrogatories of the
District Court), 686 P.2d 790, 790-91 (
is thus arguable that Wingfield ceased to have any interest in the
seized property as of November 5, 1982, the date of the seizure, and
well before January 19, 1983, the date the IRS filed notices of the
federal tax liens. The tax lien would thus be unenforceable because it
was a lien against nothing, as was reasoned in the Wilkinson
case. See 628 F.Supp. at 31.
are not convinced that we should apply the reasoning in the Wilkinson
opinion, see [85-2
USTC ¶9825 ] 628 F.Supp 29, which supports the position of the
. We adopt instead the analysis of the district court here and as
explicated in Eggleston v. Colorado [86-2
USTC ¶9552 ], 636 F.Supp. 1312, 1322 (D. Colo. 1986), which upholds
the Government's position.
as the Colorado Supreme Court's decision determines the nature of items
forfeited pursuant to the abatement statute as property interests, it is
binding on this court. However, it remains a question of federal law for
us to decide whether the interest was subjected to a federal tax lien
and the priority of the lien. 21 West
Corp., 790 F.2d at 358. Two cases have addressed situations
analogous to the case before us. In Metropolitan Dade Co. v. United
USTC ¶9173 ], 635 F.2d 512 (5th Cir. 1981), the Fifth Circuit was
called upon to determine whether a delinquent taxpayer had a property
interest in confiscated funds seized by the State of Florida under the
authority of a specific gambling statute. Relying on language of the
statute that "no one has any property rights subject to be
protected by any constitutional provision in such contraband," 2
the court held that it was the "unescapable intent of the Florida
legislature . . . that all contraband, including money, escheats upon
Moreover, in rejecting the Government's argument that the taxpayer
retained a property interest in the seized contraband, the court held
that "[u]nder the statute, the 'owners' of seized contraband are
not 'divested' of any property rights; the legislature expressly stated
that 'no one has any property rights' in seized contraband." 635
F.2d at 515. Although the
law provided a means for a claimant to recover seized property if he
could show that the property was lawfully acquired, the court
nevertheless concluded that the confiscation was not analogous to an
inchoate attachment lien. Id. 4
Rodriguez v. Escambron Development Corp. [84-2 USTC ¶9355], 740
F.2d 92 (1st Cir. 1984), the First Circuit considered whether title to
Puerto Rican land acquired by civil law "acquisitive
prescription" was subject to a federal tax lien against the prior
record owners of the land. The plaintiffs argued that when the
thirty-year period for adverse possession in
ran in 1975, the doctrine of relation back made them owners of the land
from the time when they first took possession in 1945.
at 94-95. Under the civil law concept in
, "[w]hen prescription is completed the possessor is deemed to be
owner, not merely from the last day of the delay, but retroactively from
the moment when the prescription began to run." Id. at 94
(quoting I M. Planiol & G. Ripert, Treatise on the Civil Law
599 n.2708 (La. State Law Inst. trans. 1959)). Thus the plaintiffs
argued that the Government's tax lien which arose in 1963 was
ineffective because through the application of the relation back
doctrine they, not the delinquent taxpayers, were the owners of the land
at the time.
First Circuit rejected this argument concluding "that, under the
federal tax laws, the government's tax lien passed along with ownership
of the attached land."
at 100. Of particular import to the court was the fact that the right to
ownership of the land was never extinguished; rather, the right passed
from the taxpayers to the plaintiffs.
at 99. Thus the court distinguished those cases where the attached
property right ceased to exist, leaving nothing against which the
Government could assert its interests.
case more closely resembles Rodriguez than Metropolitan Dade.
The Supreme Court of Colorado did state that "a person is divested
of all rights and interests in property upon its seizure under the
Colorado Abatement of Public Nuisance statute. . . ." Wilkinson,
686 P.2d at 790. Nevertheless examination of the
procedure shows that mere seizure of property does not result in
retroactive divestment of the owner's rights in that property. Under Wilkinson,
a person is divested of rights in property at the time of seizure, but
this is dependent on a final order being entered. 686 P.2d at 792, 794.
Thus the "owner" of seized property under
law retains some interest in the property, even though he may not have
the right to possession. See Eggleston, 636 F.Supp. at 1322. As
noted below, until entry of the final forfeiture order the owner still
had a right to recover his property if it was not found to be subject to
feel a further comparison to Rodriguez is persuasive. It is true
that in the instant case the seizure of Wingfield's property was an act
on which forfeiture and ultimate title for the County can be
established. However, this is close, we feel, to the facts in Rodriguez.
There the taking of possession at the start of the period by the adverse
possessors also was an act on which their rights could be established on
completion of the required possession. Nevertheless the intervening tax
lien prevailed because the final completion of the prescription period
had to occur before the adverse possessors' rights were established.
at the instant tax lien attached to the seized property here, absent the
use of the doctrine of relation back as it is explained in United
States v. Stowell, 133 U.S. 1, 16-17 (1890), the taxpayer Wingfield
had a cognizable interest in the seized property. This must be so
because if the final judgment of forfeiture by the
court had not been entered, Wingfield would have been entitled to the
return of the seized property. 5
Here we cannot agree that before the final judgment of forfeiture was
entered, the taxpayer had no property interest sufficient for the
federal tax lien to attach. Not until that final judgment was entered
was he divested of that interest in favor of the County. Here Wingfield
had an interest in the seized property sufficient for the tax lien to
attach until the final judgment was entered. 6
through the use of the relation back doctrine can
argue that Wingfield had no property interest as of the date of seizure.
The district court reasoned that the doctrine of relation back under
state law cannot be held to subvert the constitutional power to lay and
collect taxes. Eggleston, 636 F.Supp. at 1323. We agree. Relation
back cannot "operate to destroy the realities of the
situation." United States v. Security Trust & Savings Bank
¶9492 ], 340 U.S. 47, 50 (1950). "The State's characterization
of its liens, while good for all state purposes, does not necessarily
bind this Court." United States v. Acri [55-1
USTC ¶9138 ], 348 U.S. 211, 213 (1955).
after seizure, but while Wingfield retained an interest in the property
until a final forfeiture judgment, the tax lien attached. We therefore
hold that as a matter of federal law governing priorities, the
Government's tax lien had attached to the seized property of Wingfield
before it passed to
and has priority over the County's claim.
ESTOPPEL AND WAIVER
further argues that the Government should be estopped from pressing its
right to the funds because of governmental assurances that it would
waive its claim. We disagree.
is an equitable doctrine invoked to avoid injustice in particular cases.
The Supreme Court has left open the question whether estoppel can never
be applied against the Government. See Heckler v. Community Health
51, 60, 66 (1984). If estoppel were to be applied against the
Government, we have specified these requirements: (1) the party to be
estopped must know the facts; (2) he must intend that his conduct will
be acted upon or must so act that the party asserting the estoppel has
the right to believe that it was so intended; (3) the latter must be
ignorant of the true facts; and (4) he must rely on the former's conduct
to his injury. Lurch v.
, 719 F.2d 333, 341 (10th Cir. 1983). We have also said that there
is an additional consideration of public policy when a party seeks to
estop the Government; if the Government is unable to enforce the law
because of estoppel, the interest of the citizenry as a whole in
obedience to the rule of law is undermined. Che-Li Shen v.
Immigration and Naturalization Service, 749 F.2d 1469, 1473-74 (10th
we are not convinced that
reasonably relied to its detriment on any assurances by the IRS that it
would waive its claims to the seized property. The County has not lost
any rights, or changed its status, because of reliance on claimed
assurances. See Heckler, 467
at 61-62. The conduct of the IRS did not cause
to take or fail to take action that the County could not correct at any
time. See Schweiker v. Hansen, 450
785, 789 (1981) (per curiam).
was able to present its argument forcefully and its counsel has provided
able representation. Because of our conclusion that the County has
failed to show that it reasonably relied to its detriment on assurances
made by the IRS that it would waive its claim, we need not address the
additional public policy considerations when a party seeks to estop the
is not entitled to prevail on the basis of the claimed estoppel. 8
hold that the district court's exercise of ancillary jurisdiction was
proper. Moreover, Wingfield had an interest in the seized property
sufficient for the tax lien to attach before the final order of
forfeiture. Finally, the court's order that the Clerk of the Court
satisfy the claim of the IRS and, if any proceeds remained, to satisfy
the claim of the
was not in error. Accordingly the judgment is
was never made a party to the state forfeiture proceedings. Moreover,
the State forfeiture proceedings did not address the validity and
priority of the federal tax lien, the issue before us; rather, the
precise issue before the State courts was whether Wingfield's residence
constituted a class I public nuisance, and, if so, whether all the
seized property was subject to forfeiture.
635 F.2d at 514.
635 F.2d at 515 (footnote omitted).
We express no opinion as to whether a tax lien could attach to the
taxpayer-claimant's interest (his right to recover the property) under
statutes similar to that of
. As noted, that claimant has a right to recover his property if he
carries the burden of showing the property was lawfully acquired. For
reasons expressed below, we find the instant case is distinguishable
from Metropolitan Dade and the
The Colorado Court of Appeals has recognized this fact in the direct
appeal in Wingfield's state forfeiture proceeding. See Colorado v.
Lot 23, 707 P.2d 1001 (Colo. Ct. App. 1985), aff'd in part and
rev'd in part, 735 P.2d 184 (
1987). There the court found that of the property seized from Wingfield,
the silver bars, the Canadian mint sets, and the currency found in the
glass pitcher were not sufficiently shown to be "connected in any
way with the drugs [seized] or other criminal activity," id.
at 1004, and were ordered returned to Wingfield.
also argues that under Colo. Rev. Stat. §16
-13-303(3) Wingfield had no property interest in the seized
property. Section 16
-13-303(3) provides that "no property rights shall exist"
in the proceeds from the sale of drugs. Section
16 -13-303(3) is analogous to the
provision confronted by the court in Metropolitan Dade. Both the
provision and the
provision characterize the proceeds from the sale of drugs as something
in which no property rights may be held.
however, the property was seized pursuant to §16
-13-303(1). Thus the funds were seized and forfeited because they
were found to be contents of a building that was adjudged a class I
public nuisance. There has never been a court finding that the property
was proceeds from the sale of drugs. Moreover, this argument was not
presented to the district court.
The opinion of the Supreme Court of Colorado in Wilkinson, 686
P.2d at 792, illustrates the reliance on relation back to establish the
interest acquired by forfeiture "at the time of seizure."
trial court's order concerning the forfeiture of the property at issue
here was entered nunc pro tunc to the date of seizure. This order
reflects its finding that personal property seized pursuant to sections
16 -13-303(2) and -308(1) is forfeit at the time of seizure.
We further note that the district court held that it is "very clear
that where federal taxes are due, particularly where they are due as a
result of obtaining monies or profits from a criminal enterprise, that
government is not free to waive its rights to funds . . . ." III R.
7122(a) provides discretionary authority to the Secretary of the
Treasury to compromise any civil or criminal case arising under the
internal revenue laws before the case is referred to the Department of
Justice for defense or prosecution. After the case has been referred to
the Department of Justice, only the Attorney General or his delegate may
compromise the case. See I.R.C. §7122(a)
; see also 3 Mertens (Code Commentary), supra §7122
:1, at 74-3 to 74-4.
assuming, arguendo, that IRS attorneys represented that the IRS
would waive any claim to the seized property, the IRS attorneys were not
shown to have authority to compromise or waive a claim of the
in these circumstances. See I.R.C. §7122(a)
; 26 C.F.R. §301.7122(a)
. Agents of the Government "who have no authority at all to
dispose of Government property cannot by their conduct cause the
Government to lose its valuable rights by their acquiesence, laches, or
failure to act." United States v. California, 332
19, 40 (1947); see also California ex rel. State Lands Comm'n v.
United States, 457
273, 276 n.4 (1982). Moreover, compromises are required to be in
writing. See 26 C.F.R. §301.7122(d)
; see also 3 Mertens (Code Commentary) supra, §7122
:3, at 74-5 to 74-6. Here no written waiver is said to have been
relies exclusively on alleged oral assurances by IRS attorneys.
III R. 7.
Katsaris, Sheriff of
, Plaintiff v. The
United States of America
, a political subdivision of the State of
, Jose Luis Acosta, and Luis Fulgencio Bosch, Defendants
S. District Court, No. Dist. Fla., Tallahassee Div., TCA 79-0946, 499
FSupp 282, 9/15/80
[Code Sec. 6323]
Lien for taxes: Priority against third parties: Abandoned property:
Money.--A lien for taxes had priority over the claim of a county
government in $4,435 seized by local authorities from a taxpayer during
a drug arrest and held in the custody of the county sheriff. Although
the taxpayer abandoned $220,031.10 also in his possession at the time he
was arrested to avoid strengthening the case against him on drug
charges, he did not abandon the lesser sum and the lien attached to it
because the taxpayer owned the money. The cause was remanded to state
court for a determination of the application of
law to the question of who was entitled to the balance of the money
M. Skelding, Jr.,
P. O. Box 669
, for plaintiff. Clinton Ashmore, Assistant United States Attorney,
Tallahassee, Fla. 32302, Roger M. Moore, Steven Shairo, Department of
Justice, Washington, D. C. 20530, F. E. Steinmeyer, III, 122 South
Calhoun St., Tallahassee, Fla. 32301, for defendants.
Opinion and Final Order
money, who gets the money is the name of the interpleader 1
game. Here it's the locals,
, versus the Feds, the Internal Revenue Service. 2
Both claim a right to $224,609.10 presently in the possession of
County Sheriff Kenneth Katsaris.
claims entitlement to the money under Section 925.06, Florida Statutes
(Supp. 1978), which provides for the sale or destruction of unclaimed
personal property in criminal proceedings. The Service claims the money
by virtue of a tax lien against Acosta entered July 31, 1978. 3
It argues the money was Acosta's and is therefore subject to the lien
claims the money is abandoned property. Katsaris asks for his costs in
this proceeding if
obtained the money July 22, 1978, when Acosta and Bosch were arrested
during an aborted drug deal involving 7,000 pounds of marijuana. They
were arrested in their motel room in the Dutch Kitchen Motel in
. Investigators from the Leon County Sheriff's Office seized two
automatic pistols, aummunition, $100,021.10 in the proverbial brown
paper bag, $4,435.00 from Acosta's wallet, $143.00 from Bosch's wallet,
and $120,010.00 innovatively stashed in a plastic bag. All these items
were in the motel room at the time of arrest but not when Acosta and
Bosch checked in.
they were arrested Acosta and Bosch denied all knowledge and ownership
of everything found in the room except the money in their wallets. In an
affidavit signed on September 29, 1978, Acosta swore the $220,031.10
found in the brown bag and the plastic bag was not his. It was entrusted
to him, he said, by investors who wanted him to purchase land for them
. Acosta's statement acknowledged his ownership of the $4,435.00 found
in his wallet. It also stated Bosch owned the $143.00 found in his
wallet. Since their arrest neither individual has made any effort to
obtain the money.
federal tax lien is almighty and attached on July 31, 1978, to Acosta's
ownership interest in anything in the universe including this money. Phelps
v. United States [75-1 USTC ¶9467], 421
330, 44 L. Ed. 2d 201 (1975). For determining the
' interest in the money the determinative fact is the extent of Acosta's
ownership of the money. See, United States v. Mayor and City Council
of Baltimore [78-1 USTC ¶16,279], 564 F. 2d 1066 (4th Cir. 1977); United
States v. Burgo [49-1 USTC ¶9307], 175 F. 2d 196 (3d Cir. 1949); Central
Surety & Insurance Corp. v. Martin Infante Co. [59-2 USTC ¶9736],
272 F. 2d 231 (3d Cir. 1959).
's law determines Acosta's interest in the money. Aquilino v. United
States [60-2 USTC ¶9538], 363
509, 4 L. Ed. 2d 1365 (1960). The money in Acosta's wallet and the bags
was plainly Acosta's when he was arrested. His story of land investors
is incredible. Circumstances, including several trips to the farm where
the marijuana was found, show Acosta was a drug dealer and the money was
his for use in the ill-fated dope deal.
argues Acosta had abandoned all ownership in the money before the tax
lien attached. Abandonment is a question of ultimate fact.
v. Alden, 576 F. 2d 772 (8th Cir. 1978), cert. den., 439
855, 58 L. Ed. 2d 161 (1978). It "is the relinquishment of a right
or of property with the intention of not reclaiming it or reassuming its
ownership or enjoyment." Ellis v. Brown, 177 F. 2d 677, 679
(6th Cir. 1949). See, also, 1
Jur. 2d, Abandoned Prop., §1 (1977); 1 Am. Jur. 2d, Abandoned, Lost,
Etc., Prop., §§ 1, 5, 12 (1962); Black's Law Dictionary (5th Ed. 1979)
at 2. Cf., The No. 105, 97 F. 2d 425 (5th Cir. 1938), (discussing
the analogous but not identical maritime law concept derelication). Both
intent to abandon and an external act effecting the intent must be
proven. See, Linscomb v. Goodyear Tire and Rubber Co., 199 F. 2d
431 (8th Cir. 1952); 1
Jur. 2d, Abandoned Property, §2 (1977); 1 Am. Jur. 2d, Abandoned, Lost,
Etc., Prop., §§ 15, 16, 17 (1962).
facts here show Acosta abandoned all interest in the $220,031.10 in the
bags immediately after his arrest. He stated his intention. And his
failure to take any step to recover the money demonstrates his
sincerity. Although people do not ordinarily abandon money, Acosta had
good reason. Admitted ownership of the money would have been persuasive
evidence against him in the drug prosecution. Quite understandably he
chose to abandon the money rather than strengthen the case against him.
When he was arrested he abandoned the money preferring to concentrate on
maintaining his freedom.
$4,435.00 in his wallet Acosta did not abandon. He never denied
ownership of it. Thus the evidence of his intent to relinquish all
interest was not as strongly shown as of the date of the tax lien. The
lien attached to the $4,435.00 on July 31, 1978. It did not attach to
the $220,031.10 because on July 31, 1978, the money was not Acosta's; he
had abandoned it.
findings resolve the Service's claim in these proceedings.
's claim to the $220,031.10 and Bosch's $143.00 remain for disposal.
Katsaris has requested award of costs. That too remains for disposition.
But Katsaris has stipulated he cannot recover costs from the money taken
by the IRS. His cost recovery will occur only if
's claim relies upon Section 925.06, Florida Statutes (Supp. 1978). That
statute is ambiguous and has not been definitively interpreted by a
court. Its application to the funds here may be questioned because it
refers to "property in the custody of the court." Katsaris was
ordered by the circuit court to hold the funds. They may or may not
qualify as in the custody of the court. If they are in the custody of
the court, the proper procedure for disposition remains debatable.
Public notice, not given in this case, is required before abandoned
property is sold. Notice is not specifically required if the law
enforcement department involved uses the property. Given the peculiar
nature of this property, which procedure should be followed is unclear.
These are all matters of state law better handled by state courts. See, Aquilino
, supra. Jurisdiction over this case was founded solely upon the
' claim. This order disposes of its claim. There is no reason to
continue exercising jurisdiction. Resolution of the remaining issues is
better left in the able hands of the
judiciary, from whence this case emanated.
it is ordered and adjudged that:
Plaintiff shall pay over to the
$4,435.00 and any interest earned on that money which was taken from
This cause is remanded to the Circuit Court of the Second Judicial
Circuit, in and for
Fed. R. Civ. P. 22; 28 U. S. C. §2361.
There are two other Defendants. One, Jose Luis Acosta, has not
responded. The other, Luis Fulgencio Bosch, was never served; apparently
the parties are willing to risk a judgment subject to collateral attack.
The lien arose after Acosta did not pay a jeopardy assessment made
pursuant to 26, United States Code Section 6861. See, 26 U. S. C. §6321.
On August 1, 1978, the Service levied under 26
C. §6331 on the funds held by Sheriff Katsaris.
City of Chicago, a
municipal corporation, Plaintiff v. The United States of America--United
States Treasury Department, Aultee Warr and Edward V. Hanrahan, State's
Attorney of Cook County, Defendants
S. District Court, No. Dist.
, East. Div., 72-C-2124, 372 FSupp 178, 3/14/74
[Code Sec. 6321]
Lien for taxes: Priority over county: Contraband: Gambling funds
seized.--The United States had prior claim to $6,624.38 seized by
the Sheriff of Cook County, Illinois in a gambling raid, because the
county failed to hold a forfeiture hearing within 30 days after the
funds were seized from a taxpayer who owed the government $7,000 and
also because the county failed to show that the amount seized was
Carey, State's Attorney, Catherine M. Ryan,
, for plaintiff. Robert E. Sevila, Department of Justice, Washington, D.
C. 20530, Jack M. Wesoky, Assistant United States Attorney, Chicago,
Ill., for defendants.
is an interpleader action brought by the City of
to determine whether the
has the superior claim to money which originally belonged to Aultee
Plaintiff has deposited the amount in controversy ($6,624.38) with the
Clerk of the Court, pursuant to F. R. Civ. P. 67. The subject of this
opinion is resolution of the questions raised by the cross motions for
summary judgment by the
. No affidavits were filed with either motion.
The fundamental facts in this case are not in dispute:
Aultee Warr was arrested on May 14, 1970 in
on charges of gambling and failure to register syndicated gambling. At
that time, the arresting officers also seized $6,624.38, which was held
by the Chicago Police Department. Warr subsequently entered a plea of
guilty to the charge of gambling and the trial judge imposed a fine.
However, the Court made no determination as to whether the money seized
at Warr's arrest was contraband (i. e., integrally related to his
gambling activities). Moreover, there is no evidence submitted at this
time that the money is indeed contraband.
1970 and 1972, the Internal Revenue Service took the following action on
behalf of the United States: it assessed Warr $7,000.00 for unpaid
federal income taxes; it filed a notice of a tax lien with the Cook
County Recorder of Deeds; and it served a notice of levy on the Chicago
Police Department for the $6,624.38 it held in order to satisfy part of
Warr's tax liability.
view of the action taken by the Internal Revenue Service, the City of
instituted this action for an adjudication of the respective rights of
and Aultee Warr in the cash it held. Warr, although served with process,
has filed neither an appearance nor a responsive pleading.
the question presented for decision here is whether the
has a superior claim to that of
in the money confiscated from Warr in the gambling raid. For the
following reasons, the question is resolved in the affirmative.
The claim of the
is derived from 26
C. §6321, which provides, in pertinent part:
any person liable to pay any tax neglects or refuses to pay the same
after demand, the amount . . . shall be a lien in favor of the United
States upon all property and rights to property, whether real or
personal, belonging to such person."
the claim of the
rests upon the premise that Warr, the taxpayer, presently has a property
interest in the seized money. Whether he possesses that interest is, of
course, a matter to be determined by state law. Acquilino v.
509, 512-13 (1960).
, on the other hand, contends that under
law it, not Warr, holds title to the money. This claim is founded on the
argument that the money is contraband and that by statute 2
and under common law 3
Warr forfeited to the State all property rights in the money the moment
it became contraband. Accordingly,
contends that Warr has no property interest in the money upon which the
may exercise its claim for unpaid taxes.
there are two fatal flaws to the position of
, either of which leads to the conclusion that Warr still holds title to
the money; and therefore, the
has a prior claim to it.
The Procedural Flaw
the first place,
failed to comply with the forfeiture procedure which is set forth in 38
Rev. Stat. §28-5(c). 4
Basically, section 28-5(c) requires that, in order for title to property
seized in connection with gambling activities to vest in the County, the
Court that entered judgment on the gambling charges against the property
owner must first conduct a forfeiture hearing at which evidence as to
whether the property is actually contraband (i. e., integrally
related to the gambling activities), shall be presented. Not only does
the State's Attorney bear the burden of proof in such a proceeding, but
also, and more important in the present case, he bears the burden of
instituting the proceeding itself by filing a written petition
requesting forfeiture. Moreover, he must file the forfeiture petition in
time for the hearing thereon to be held within 30 days after entry of
judgment on the criminal charges.
of Forfeiture Barred]
is undisputed in this case that the State's Attorney failed to timely
file a forfeiture petition. Indeed, there is no indication that such a
petition was ever filed. Under the statute it is clear that failure to
comply with the 30-day requirement forever bars the contention of
that the money in question here was contraband; and therefore, the claim
that the money was forfeited to the County is likewise barred.
conclusion comports with the obvious and sound policy enunciated by the
state legislature when it enacted section 28-5(c). That policy is to
protect the title to property from stale claims so that the security of
property rights in this State is ensured. It is manifestly clear that
the primary purpose of the 30-day limitation for conducting a forfeiture
hearing is to protect the rights of property owners, whether they be
felons or law-abiding citizens, from three year old claims like the one
involved here. And this Court cannot and will not delve into the
substantive issue of whether the 30-day period is too short or too long.
That is exclusively within the province of the legislative branch of
conclusion that the claim of
is barred by the 30-day requirement is further supported by the decision
in People ex rel. Ward v. 1963 Cadillac Coupe, 38
2d 339 (1967). There, the Court held that the failure of the State's
Attorney to comply with a statutory mandate that he "forthwith
bring an action for forfeiture" of an automobile, after he was
given notice by the sheriff that it had been seized in connection with
gambling activities, acts as a statutory bar to asserting such
forfeiture in the future. The Court specifically held that a delay of
31/2 months before instituting forfeiture proceedings could scarcely be
thought consistent with the statutory command.
a different statute was involved in 1963 Cadillac Coupe, the same
reasoning utilized there applies here: The failure of the State's
Attorney to institute forfeiture proceedings, and the attending failure
of the State Court to conduct a forfeiture hearing within the time
prescribed by the forfeiture statute, acts as a perpetual bar to
asserting the claim of the County to title in the property in question.
38 Ill. Rev. Stat. §28-5(c) requires the State's Attorney to institute
forfeiture proceedings so that the issue of whether the property in
question is contraband will be adjudicated by the Court within 30 days
of entry of its judgment on the gambling charges against the property
owner. This was not done in the instant litigation; and therefore the
County is barred from asserting that the $6,624.38 was contraband at the
time it was seized from Aultee Warr. Under section 28-5(c), the money
cannot be forfeited unless it is first held to be contraband. Since such
a holding is now impossible, the money cannot be forfeited. Accordingly,
has no claim to it. Rather, the
, as holder of a tax lien upon the money, has the superior claim.
The Substantive Flaw
previously noted, money is not contraband per se; rather, it
becomes such when it constitutes a functional integral part of a
gambling operation. 38
Rev. Stat. §28-5(b). See also People v. Moore, 410
241, 250 (1951); Dufauchard v. Ward, 51
App. 2d 42, 46 (1964). Even if the issue of whether the money in the
present case is contraband can still be raised by the County, and
assuming without deciding that this Court has jurisdiction of the
subject matter of that issue, it is crystal clear that
cannot prevail here. For it has not presented the Court with any
affidavits or other evidence of the facts surrounding the seizure of the
money; nor has it presented any evidence as to the connection that the
money had with Warr's gambling operations. 5
In the absence of such evidence, it must be presumed that title to the
property remained in Warr.
it must be concluded that the money has not been shown to be contraband,
and that therefore it cannot be deemed forfeited to the County.
Accordingly, the claim of the
, as holder of the tax lien on the money, is superior to that of the
The Court holds today that the claim of the United States to the
$6,624.38 in question is superior to that of Cook County for two
independent reasons: (1) the County failed to fulfill the procedural
requirements for acquiring title to the money; and (2) even if it were
not necessary to comply with those requirements, the County failed to
present sufficient evidence that the money is contraband. Accordingly,
the motion of the
for entry of summary judgment in its favor is granted; and the
corresponding motion of
is denied. Judgment by default is entered against the defendant Aultee
Originally brought in the Circuit of Cook County, the action was removed
here by the United States pursuant to 28 U. S. C. §1444.
The statute relied upon here is 38
Rev. Stat. §28-5(b), which provides in pertinent part:
money or other thing of value integrally related to acts of gambling
shall be seized and forfeited as contraband to the county wherein such
points in particular to the language in Glennon v. Britton, 155
Ill. 232 (1895):
theory is, in respect of such property, [contraband] that no one is
longer the owner of it. The moment it is used and applied in the
unlawful business it becomes liable to forfeiture and though the
claimant may appear and claim it, he has no greater rights in property
so used than has any other person." 155
also People v. Moore, 410 Ill. 241, 247-50 (1951) (although money
is not contraband per se, it becomes such when it constitutes a
functional integral part of a gambling operation; and if property is
actually contraband, no one can assert a legal ownership or right to
possession that will be respected by any court); and Dufauchard v.
Ward, 51 Ill. App. 2d 42, 46 (1964).
Rev. Stat. §28-5(c) provides, in pertinent part:
within 60 days after any seizure pursuant to subparagraph (b) of this
Section [see n. 2, supra], a person having any property interest
in the seized property is charged with an offense, the court which
renders judgment upon such charge shall, within 30 days after such
judgment, conduct a forfeiture hearing to determine whether such
property was contraband at the time of seizure. Such hearing shall be
commenced by a written petition by the State, . . . and a request for
forfeiture . . .. If the Court determines that the seized property was
contraband at the time of seizure, an order of forfeiture and
disposition of the seized property shall be entered: . . . money . . .
shall be received by the State's Attorney and . . . shall be deposited
in the general fund of the County wherein such seizure occurred."
The most that
can say on this point is:
the instant case, the $6,624,38 was seized in what Aultee Warr admitted
was a gambling operation on May 14, 1970 and is, as a matter of law,
forfeited as of that date." Memorandum in Support of
Motion at 4.
Coupling the mere fact
that Warr entered a plea of guilty to the gambling charges with the
additional fact that money was seized at the time of his arrest is not
enough to prove by a preponderance of the evidence that that money was
integrally related to Warr's acts of gambling.
United States of America
v. John Clinton; Margaret Clinton; State of
Tax Commission; et al., Defendants
S. District Court, So. Dist. N. Y., Civ. 121-374, 260 FSupp 84, 8/24/66
[1954 Code Sec. 6323]
Liens: Priority: State tax lien: Attorney's inchoate lien.--A
federal income tax lien, having been filed prior to the New York State
Tax Commission's lien for state taxes and also prior to the inchoate
lien of the taxpayer's attorney for services rendered in connection with
a criminal matter, had a superior right to a fund seized by the City of
New York as proceeds allegedly arising from the illegal activities of
the taxpayer. The Court found that the trial evidence established that
the money in the fund was not the proceeds of illegal activities and,
therefore, was not forfeited to the City of
. The fund was held to be the property of the taxpayer and subject to
the federal tax lien.
M. Morganthau, United States Attorney,
, N. Y., for plaintiff. Eugene A. Leiman, 155 Leonard St., New York, N.
Y., John A. McAvinue Jr., 253 Broadway, New York, N. Y., Louis J.
Lefkowitz, Attorney General, Albany, N. Y., Peter Campbell Brown,
Municipal Bldg., New York, N. Y., Matthew H. Brandenburg, 160 Broadway,
New York, N. Y., for defendants.
action was instituted on June 24, 1957 to foreclose a lien for unpaid
taxes, due and owing from John and Margaret Clinton, against a fund in
the amount of $23,545.17 held by the Police Property Clerk of the City
of New York. The plaintiff claims the sum of $11,825.47 plus interest
and penalties out of the fund. Judgment is hereby rendered for the
plaintiff against all the defendants and it is ordered that defendant
Rosetti, the Police Property Clerk, pay over to the United States
Government out of the fund in question, an amount sufficient to pay the
principal, interest and penalties due on account of the plaintiff's
lien. It is further ordered that any sum remaining out of the fund after
satisfaction of the plaintiff's lien is to be paid over to the
defendant, State of New York Tax Commission, which has a claim for
unpaid taxes against defendant John Clinton.
court has jurisdiction in this case by virtue of 26 U. S. C. §7403,
which provides for the bringing of a civil action to enforce a lien or
to subject property to the payment of taxes due.
case was tried non-jury by the court on January 20, 1966.
Seized by Police]
court finds from the evidence adduced and the undisputed facts that on
February 26, 1957, the defendant John Clinton was arrested by the New
York City Police. Pursuant to a search warrant the police recovered
monies, bank books and records leading to safe deposit boxes, whether in
Clinton's name or someone elses, and as a result seized $313.00 from the
person of John Clinton; $950.00 from the home of Rocco Monfredo;
$14,500.00 from a safety box in the Long Island City Savings Bank in the
name of John and Margaret Murray; and $8100.00 from a safety box in the
Chase Manhattan Bank, in the name of Frank Vitarelli. The total fund of
$23,863.00 was deposited with defendant Thomas E. Rosetti, Police
Property Clerk, on March 11, 1957.
March 24, 1957, John Clinton was indicted for violation of Section 580
of the New York Penal Law and Sections 340 and 357 of the Banking Laws
of New York. On April 25, 1957, he pleaded guilty to two counts of the
indictment, both of which were misdemeanors.
March 28, 1957, an assessment for unpaid taxes was made by the District
Director of Internal Revenue against John and Margaret Clinton. Notice
of lien was duly filed with the Registrar of the City of New York, New
York County, on March 29, 1957. A notice of levy was served upon the
Police Property Clerk on March 29, 1957. On May 17, 1965, on the basis
of the above mentioned assessment, a judgment was entered in the amount
of $11,825.47, plus interest and penalties in the Tax Court. 1
The amount represents the taxes owing and due to the plaintiff from
defendants John and Margaret Clinton.
New York State Tax Commission assessed unpaid taxes against defendant
John Clinton in the amount of $55,190.50, plus interest and filed a
warrant for such state taxes with the Clerk of the County of New York on
April 1, 1957. The Commission thus also claims a lien on the fund in the
possession of the Police Property Clerk.
April 8, 1957, Matthew H. Brandenburg, who was retained as counsel by
the Clintons, served notice of attorney's lien on the Police Property
to Seized Fund]
Police Property Clerk refused to honor the levy served on him by the
plaintiff. It was the Property Clerk's position that the money composing
the fund was used in illegal activities and thus defendant John Clinton
has no property in such fund, under New York law. He also claims that
under Section 435-40 of the Administrative Code of the City of New York,
title to the fund properly vests in the Police Property Clerk. It is the
Property Clerk's further contention that the search warrant under which
the fund was seized was validly issued and the seizure was lawful in
plaintiff takes the position that the Property Clerk has no claim to
said funds since his claim must rest on Section 435-40 of the
Administrative Code of the City of New York, which is allegedly
unconstitutional as a deprivation of the right to property without due
process of law under the Fifth and Fourteenth Amendments to the United
States Constitution. The plaintiff further contends that the fund
properly belongs to defendant John Clinton and is not the proceeds of
illegal activity on the part of John Clinton.
position of defendants John and Margaret Clinton is that the search
warrant was improperly issued and executed and the Police Property Clerk
has no claim to the fund in question since it was obtained through
illegal search and seizure in violation of the Fourth and Fourteenth
Amendments to the United States Constitution. They further contend, as
does the plaintiff that the fund is theirs and not the proceeds of
illegal activity, and that Section 435-40 of the Administrative Code of
the City of New York is unconstitutional.
pivotal issue in this case is whether or not the fund held by the Police
Property Clerk belongs to defendant John Clinton. For the plaintiff's
federal tax lien to attach, it is necessary that the funds belong to
defendant John Clinton. 2
26 U. S. C. §6331(a).
to the $313.00 taken from the person of defendant John Clinton, there
arises a presumption that this money belongs to him. The burden is on
the Police Property Clerk to rebut that presumption. United States v.
Leuci [58-1USTC ¶9480], 160 F. Supp. 715 (E. D. N. Y. 1958);Norris
v. Camp, 144 F. 2d 1 (10th Cir. 1944). The Police Property Clerk
introduced no evidence during the trial which rebutted the presumption.
Therefore, as to the $313.00, this court finds that it belongs to
defendant John Clinton.
to the money taken from Rocco Monfredo and from the safety deposit boxes
in names other than that of defendant John Clinton, the plaintiff has
the burden of proof by the fair preponderance of the credible evidence
that the money belonged to John Clinton. This court finds that, through
the testimony elicited at the trial from the witnesses and from other
evidence introduced during the trial, the plaintiff has sustained its
burden. For example, the plaintiff established that the bankbooks and
other indicia of ownership were in the possession of John Clinton. The
court also believes that the testimony given by defendants John and
Margaret Clinton as to the ownership of the fund, is true.
it is the finding of this court that the entire fund in the possession
of the Police Property Clerk is owned by John Clinton.
Police Property Clerk argued that even if defendant John Clinton owned
the money at one time, he now has no property right in it.
of title to property and rights to property are governed by state law,
whereas questions as to the creation and enforcement of federal tax
liens are controlled by federal statutes. United States v. Leuci,
supra. See also the opinion of Bryan, J., on the motion for summary
judgment in the instant case (Clinton [64-2 USTC ¶9617]) which
was rendered on October 23, 1963; United States v. Ortiz[56-1
USTC ¶9387], 140 F. Supp. 355 (S. D. N. Y. 1956). It is clearly the law
of New York that a wrongdoer obtains no interest in property illegally
obtained.Hofferman v. Simmons, 290 N. Y. 449, 49 N. E. 2d 523
(1943). See also United States v. Ortiz, supra; United States v.
Pagan [55-2 USTC ¶9600], 140 F. Supp. 711 (S. D. N. Y. 1955).
435-40(b) of the Administrative Code of the City of New York, in
essence, provides that all property or money suspected of having been
unlawfully obtained or of being the proceeds of crime or suspected of
having been used for the commission of a crime or in furtherance of a
crime, shall be given into the custody of and kept by the Police
Property Clerk. Section 435-40(f) provides that a claimant of such fund
in the possession of the Police Property Clerk "shall establish
that he has a lawful title or property right in such property or money
and lawfully obtained possession thereof and that such property or money
was held and used in a lawful manner." This court finds that
although there was some justification underlying the suspicion at the
time the money was seized, that the money was unlawfully obtained, the
evidence adduced during the course of the trial establishes to this
court's satisfaction that defendant John Clinton has a lawful property
right in such fund and that such fund is not the proceeds of illegal
the Police Property Clerk has no right to detain the fund.
determined this, it is now necessary to consider the validity and
priorities of the liens claimed by the plaintiff and defendants
Brandenburg and the State of New York Tax Commission. This court finds
that plaintiff and defendant State of New York Tax Commission have valid
and subsisting liens. 3
It should be noted at this point that the Tax Commission concedes that
the plaintiff's lien is superior to its own.
it is doubtful if defendant Brandenburg has a valid attorney's charging
lien at all under state law, as will be discussed later, this court
assumes it to be valid for the purposes of the following discussion on
the priority of a federal tax lien. "The priority of a federal tax
lien provided by 26 U. S. C. §6321 as against liens created under state
law is governed by the common-law rule--'the first in time is the first
in right.'" United States v. Pioneer American Ins. Co. [63-2
USTC ¶9532], 374 U. S. 84, 87 (1963). See United States v. New
Britain [54-1 USTC ¶9191], 347 U. S. 81 (1954). The
characterization by states of their liens, while good for all state
purposes, does not necessarily bind the federal courts. United States
v. Acri [55-1 USTC ¶9138], 348 U. S. 211 (1955); United States
v. Pay-o-Matic [58-2 USTC 9533], 162 F. Supp. 154 (S. D. N. Y.),
aff'd sub nom. United States v. Goldstein [58-1 USTC ¶9478], 256
F. 2d 581 (2d Cir.), cert. denied, 358 U. S. 830 (1958).
must be kept in mind, however, that a choate state-created lien will
take priority over later federal tax liens. United States v. New
Britain, supra. Inchoate liens, of course, will not. United
States v. Liverpool & London Ins. Co. [55-1 USTC ¶9136], 348 U.
S. 215 (1955). See United States v. Pioneer American Ins. Co., supra.
The federal test is that liens are "perfected in the sense that
there is nothing more to be done to have a choate lien--when the
identity of the lienor, the property subject to the lien, and the amount
of the lien are established." United States v. New Britain,
supra at 84. United States v. Pioneer American Ins. Co., supra
is no doubt that under the idea first in right, first in time, the
plaintiff's lien would be prior to that of defendant Brandenburg, since
plaintiff filed notice of lien on March 29, 1957, while defendant
Brandenburg did not do so until April 8, 1957.
Lien Was Inchoate]
it is also necessary to consider the question of whether the defendant
Brandenburg's charging lien was choate at the time that the plaintiff
filed notice of lien on March 29, 1957. Even assuming that the identity
of the lienholder and the property subject to the lien was definite at
the time the plaintiff filed its notice of lien, this court finds,
(despite the fact defendant Brandenburg mentioned the retainer sum of
$7,500.00 in his answer) that the amount of the lien for attorney's fees
was undetermined and indefinite when notice of the federal tax lien was
filed on March 29, 1957. The charging lien of defendant Brandenburg was
inchoate on March 29, 1957, since the fair value of his services could
not be determined as of that date and therefore the plaintiff's lien has
priority over that of defendant Brandenburg.
last matter for the court to discuss is whether defendant Brandenburg or
defendant State of New York Tax Commission has a superior interest in
the fund remaining after satisfaction of the plaintiff's lien. Defendant
Brandenburg claims that under the New York Judiciary Law §475 a
charging lien in his favor arose as soon as he began to render services
for the defendant John Clinton. Judiciary Law §475 reads in part:
the commencement of an action, special or other proceeding in any court
. . . or the service of an answer containing counterclaim, the attorney
who appears for a party has a lien upon his client's cause of action,
claim or counterclaim, which attaches to a verdict, report,
determination, decision, judgment or final order in his client's favor,
and the proceeds thereof in whatever hands they may come . . ..
the present case defendant Brandenburg's claim arises from services
rendered in relation to a criminal matter in which he represented John
Clinton who eventually pleaded guilty.
is clear to this court that under the facts present, defendant would not
be entitled to any charging lien on the basis of Judiciary Law §475.
There was, of course, no cause of action, claim or counterclaim of his
client to which a lien could attach. Also, the fund in question in this
case was obviously not the result of Brandenburg's efforts in the
criminal matter on behalf of a defendant.
attorney who represents a defendant cannot have a charging lien in the
absence of a counterclaim. National Exhibition Co. v. Crane, 167
N. Y. 505, 60 N. E. 768 (1901); Manusse v. Mattia, 10 N. Y. S. 2d
495 (Sup. Ct. 1939). In the Manusse case, an attorney who
represented a defendant in criminal proceedings moved for a lien
seemingly for his services in the criminal proceeding. The court held
that he could not have a charging lien under the facts present in the
under New York law, defendant Brandenburg is not entitled to a charging
lien at all in the present case. This being so defendant Brandenburg has
no right whatsoever in the fund held by the Police Property Clerk and
therefore the Tax Commission has a right to that portion of the fund
remaining after satisfaction of plaintiff's lien.
assuming that defendant Brandenburg had a right to such a lien, it could
not arise pursuant to Judiciary Law §475 under which the lien would
arise upon commencement of an action or service of an answer containing
a counterclaim. This being true, if Brandenburg did have a lien, it
would not arise until the filing of notice of lien which occurred after
the filing of the State of New York Tax Commission which would therefore
give the Commission priority.
any event, the plaintiff is entitled to $11,825.47 plus interest and
penalties out of the fund held by the Police Property Clerk and
defendant State of New York Tax Commission is entitled to anything
remaining after satisfaction of the plaintiff's lien.
view of the above decision, it is not necessary for this court to
determine whether or not Section 435-40 of the Administrative Code of
the City of New York is constitutional, nor to determine whether or not
the search warrant was properly issued and whether consequent search and
seizure was illegal.
Defendants John and Margaret Clinton consented to the entry of judgment
on account of unpaid taxes for the years 1949 through 1955 inclusive, in
the amount of $11,825.47.
The lien for federal taxes is imposed by 26 U. S. C. §6321.
The lien for state taxes arises under Section 380 of the New York State
United States of
America, Plaintiff v. Frank Leuci, as Property Clerk of the Police
Department of The City of New York, Defendant
S. District Court, East. Dist. N. Y., Civil No. 14118, 160 FSupp 715,
[1954 Code Sec. 6321]
Lien for taxes: Money in possession of Police Property Clerk:
Gambling v. other income.--By virtue of its tax lien, the Federal
Government was entitled to money taken from a delinquent taxpayer's
automobile by police when they discovered gambling apparatus in the
vehicle. Although the taxpayer was later convicted of hiring a room to
be used for gambling, there was no proof that the money held by the
police was illegally acquired gambling money to which the delinquent
taxpayer had no title.
W. Wickersham, Jr., United States Attorney (Lawrence G. Nusbaum, Jr.,
Assistant United States Attorney, of Counsel), for plaintiff. Peter
Campbell Brown, Corporation Counsel for the City of New York, Nathan B.
Silverstein, Assistant Corporation Counsel, for defendant.
plaintiff brings this action against the defendant, as property clerk of
the Police Department, to recover a sum of money, taken by a police
officer from the possession of one, David Leigh. The plaintiff claims
that the money was the property of Leigh and that it is entitled thereto
by virtue of a tax lien against his property.
principal defense is that this fund is gambling money and that gambling
money does not belong to the gambler.
Court makes the following findings of fact:
That David Leigh was the owner of a 1948 Cadillac Sedan, registered in
That on October 10, 1952, police officers, incidental to the lawful
arrest of David Leigh, took possession of the automobile and its
contents and thereafter turned over the same to the defendant and that
he has ever since retained possession thereof.
That on October 21, 1952, the plaintiff duly obtained a tax lien in the
sum of $5,662.01 upon all property belonging to said David Leigh.
That at the time of such seizure the said automobile was unoccupied and
locked and that Leigh was arrested immediately after he parked and left
That the police officers on searching the vehicle found a large white
envelope, above the sun visor, containing three slips of paper, records
of policy collections and the identity of the collectors and a small
notebook, with five written pages of policy collections, due to
That in the locked trunk of the car were found thirty-nine articles of
wearing apparel, tools, household furnishings and toilet articles, none
of which are claimed to be gambling equipment, but that in addition
thereto there were found seventeen articles of gambling equipment
consisting of a cigar box with 318 dice, 33 decks of playing cards, card
tables, card cloths, leather cup for shaking dice, a micrometer for
measuring dice, calipers, magnets, magnifying glass, plastic numbers and
several adding machines.
That in the same trunk was found a canvas bag, containing the sum of
$3,718.46 in cash, which is the subject of this action.
That included in that sum was one hundred forty-one single dollars; four
hundred and twenty-five, 25 cent coins; four hundred fifty-eight, 5 cent
coins and thirty-six, 50 cent coins.
That at the time of his arrest, Leigh was unemployed.
That he was charged and found guilty of possessing policy slips and of
hiring and allowing to be used a certain room, table, establishment and
apparatus for the purpose of gambling.
That he had prior convictions, i.e., in 1937, possessing counterfeit
money and in 1948, 1950 and 1951, policy offenses.
issue is whether the said money belonged to or was the property of David
Leigh. The defendant's contention is that it was gambling money and as
such, under the law, did not belong to him.
is not disputed that the assessment list against Leigh was received by
the Collector and that 26 U. S. C. A. 6322 provides that the lien arises
at the time of such receipt. However, such lien may only attach to
property "belonging to" Leigh, the delinquent taxpayer, 26 U.
S. C. A. 6321.
is clear that the question of title to property is governed by State
law, whereas the questions as to the circumstances under which a Federal
tax lien is created and enforced is controlled by Federal statutes and
sole support for the plaintiff's contention that Leigh was the owner of
the money found in the bag is that he was in possession of it. This
creates a presumption of ownership. In Norris v. Camp, 144 Fed.
(2d) 1, the Court said:
of the possession of personal property is prima facie evidence of title.
It raises a presumption of ownership which may be rebutted or overcome
by evidence of ownership in another."
defendant seeks to rebut such presumption by the claim that the money
was produced by gambling and that a gambler may not acquire title
thereto by committing such crime. Of course, if the defendant had
established that the fund was taken in by Leigh through gambling, the
contention should be sustained. In this connection, in the case of Hofferman
v. Simmons, 290 N. Y. 453, the Court said:
law affords a professional gambler no protection at all as to the monies
he takes in. * * * This court has said that the professional gambler is
an 'outlaw' * * * and that one who wagered with such a gambler 'never
parted with the title to his money.' * * * No one shall be permitted * *
* to acquire property by his own crime. * * * He cannot vest himself
with title by crime."
is no evidence that the subject money was received from bettors. The
mere possession by Leigh of gambling equipment does not warrant such
finding. Leigh was not apprehended while actually engaged in gambling
operations. The gambling conviction of Leigh pertained to the hiring of
a room to be used for gambling.
plaintiff is entitled to judgment in the sum of $3,718.46.
United States of
America, Plaintiff v. John C. Glenn, Public Administrator of Queens
County as Administrator of the Estate of William McFall, Deceased, and
Thomas E. Rosetti, Defendants
S. District Court, So. Dist. N. Y., Civ. 100-159, 5/4/59
[1939 Code Sec. 3670--similar to 1954 Code Sec. 6321]
Lien for taxes: Property subject to lien: Money seized at time of
arrest: Money in custody of police property custodian.--Money seized
on the premises of an individual at the time of his arrest on a charge
of marijuana possession and later turned over to N. Y. police property
clerk was not subject to a lien for unpaid marijuana taxes assessed
against the individual. Since, under New York law, a criminal has no
right to property acquired by his crime, the Government could have no
H. Christy, United States Attorney, United States Court House, Foley
Square, New York, N. Y. (Renee J. Ginsberg, Assistant United States
Attorney, of counsel), for plaintiff. Charles H. Tenney, Corporation
Counsel, Municipal Building, New York, N. Y. (George P. Hennessy, Nathan
B. Silverstein, of counsel), for defendant, Thomas E. Rosetti. George W.
Herz, 90-04 161st Street, Jamaica, N. Y., for Public Administrator.
is an action to foreclose a Federal tax lien on money in the sum of
$1,703.00 held by the defendant, Thomas E. Rosetti, as Property Clerk of
the New York City Police Department. The Government lien is based on
unpaid marijuana taxes assessed against one William McFall of whose
estate the defendant Public Administrator, John C. Glenn, is
On May 4, 1948 William McFall was arrested at his home in the Borough of
Queens by police officers of New York City on a charge of possession of
marijuana. On a table in the room of his apartment in which he was
found, were eleven bags of marijuana and the sum of $450.00, and in
another room of the apartment was a safe which was closed but not
locked, in which the officers found the sum of $1,253.00. All the money
and marijuana and some cocaine were seized and taken by the arresting
officers. McFall afterwards pleaded guilty to the charge of possession
of marijuana with intent to sell. The money eventually was delivered to
the police property clerk, Mr. Rosetti, one of the defendants.
McFall had a history of convictions for violating the Narcotics Laws.
There was no direct evidence submitted by either party that he had or
had not any employment or other source of income though in its entirety
the evidence would indicate that he had none. Earlier on the same night
the police had pursued and arrested three men who had called at McFall's
home and emerged with two paper bags which, at the time of their arrest,
were found in the automobile in which they rode. The bags contained
marijuana. It was on their information that the officers entered
McFall's apartment. Upon arraignment in court these three men pleaded
guilty to the charge of possession.
At the time of McFall's arrest there were, upon the table in addition to
the $450.00, the cocaine and the marijuana, paring knives, cigarette
paper and scales, all paraphernalia employed in the preparation of
marijuana for sale and use. Three men were present in the room who told
the arresting officers the purpose of their presence was the purchase of
marijuana. One was from Harlem and the others were from out of town and
all three were convicted of some charge not clearly stated. The amount
of marijuana seized was apparently large and it is evident that McFall
was conducting a wholesale business. McFall never claimed the money in
the safe or sought its return though he lived four years after its
seizure. Upon all these facts it is further found that the $1,253.00 in
the safe was in McFall's possession and was derived from his illegal
traffic in narcotics.
Right to Property]
But since when McFall was arrested apparently no marijuana was on the
person or within the grasp of a visitor and especially since he was
convicted of possession with intent to sell, it seems to the Court that
the $450.00 cash on the table was, more probably, still the property of
one of the visitors not yet accepted by McFall, then only tendered as
the consideration of the sale he was about to effect by appropriating
some of his stock to the transaction. It is found therefore that that
money was not in McFall's possession. The decision of plaintiff's rights
to the money in the safe which follows would, if we held otherwise,
apply to the $450.00 in any event.
On April 25, 1949 there was assessed against McFall the intestate of the
defendant Public Administrator, taxes in the sum of $54,402.50 plus
penalty and interest as provided by law. The assessment list containing
this assessment, was received by the Collector of Internal Revenue on
May 4, 1949, a full year after the money left McFall's possession, and
notice of this assessment and demand for payment were made upon the
office of the defendant Property Clerk on or about that day.
Upon its seizure McFall had no claim to nor any property right in the
money in the safe.
The complaint is dismissed with costs to the defendant Rosetti.
the latest decision of the New York Courts, on the rights of persons in
the position of McFall, Carr v. Hoy, 2 N. Y. 2d 185, the Court
stated that a criminal has no claim that he may assert in a New York
State Court to any property or right to property derived from his
criminal activities. The Courts will not hear such a claim as a matter
of public policy. The Court of Appeals quoted an excerpt from the
opinion in Riggs v. Palmer, 115 N. Y. 506, at 511: "No one
shall be permitted to profit by his own fraud, or to take advantage of
his own wrong, or to found any claim upon his own iniquity, or to
acquire property by his own crime. These maxims are dictated by public
policy, have their foundation in universal law administered in all
civilized countries, and have nowhere been superseded by statutes."
The Government, under its lien, can have no better right than had
McFall. U. S. v. Manufacturers Trust Co., 198 Fed. (2d) 366 [52-2
USTC ¶9417]. Since McFall had none when the tax claim of the plaintiff
became a lien or since, the Government can have none now. The United
States Attorney ignores the decision in U. S. v. Ortiz, 140 Fed.
Supp. 355 [56-1 USTC ¶9387] and cites Welsh v. U. S., 220 Fed.
(2d) 200 [55-1 USTC ¶9238]; Farley v. Manning, 4 N. J. 571, 73
Atl. (2d) 551 [50-2 USTC ¶9374]; and U. S. v. Willmann, 63 Fed.
Supp. 535 [45-2 USTC ¶9444]. Nothing decided in any of these cases
conflicts in any way with anything in this decision or with the decision
in Ortiz. More important is the fact that none of them concerns
itself with New York State Law which is decisive here. Burnet v.
Coronado Oil & Gas Co., 285 U. S. 393, at 399 [3 USTC ¶925]; Fidelity
& Deposit Co. v. New York City Housing Authority, 241 Fed. (2d)
142, at 144 [57-1 USTC ¶9410]; U. S. v. Bess, 357 U. S. 51 [58-2
United States of
America, Plaintiff v. Angelo Ortiz and Thomas E. Rosetti, individually
and as Property Clerk of the Police Department of the City of New York,
the United States District Court for the Southern District of New York,
Civ. 95-12, 140 FSupp 355, March 14, 1956
[1939 Code Secs. 3670, 3692-similar to 1954 Code Secs. 6321, 6331]
Lien for taxes: Property subject to lien: Unlawfully obtained money
held by police.--At the time of his arrest for selling narcotics,
$3,580.89 was taken from the defendant Ortiz and turned over to the
Property Clerk of the New York City Police Department. Almost five
months later, the Federal government acquired a lien against all the
property of Ortiz in the amount of over $185,000 for marijuana transfer
taxes. The court held that the Federal government was entitled to
$1,080.89 of the money in police custody since Ortiz had obtained it
from lawful sources, but that the government was not entitled to the
remaining $2,500, because Ortiz had obtained it from unlawful sources
(sale of narcotics) and had no property interest in the money so
acquired since, under New York law, a wrongdoer obtains no property
interest in money so acquired.
W. Williams, United States Attorney for the Southern District of New
York (Robert J. Ward, Assistant United States Attorney, of counsel), for
plaintiff. Peter Campbell Brown, Corporation Counsel (George P.
Hennessy, Nathan E. Silverstein, of counsel), for defendants.
is an action by the plaintiff, United States of America, to foreclose a
federal tax lien on money in the sum of $3,580.89 held by the defendant,
Thomas E. Rosetti, as Property Clerk of the New York City Police
Department. The claim of the United States is based on unpaid marijuana
transfer taxes due and owing by the defendant, Angelo Ortiz.
On December 8, 1949, $3,580.89 was lawfully taken by a New York City
Police Officer from the defendant, Angelo Ortiz, at the time of his
arrest for selling narcotics. The Police Officer turned over said money
to the custody of the Property Clerk of the Police Department of the
City of New York pursuant to Section 435-5.0 of the Administrative Code
of the City of New York. The defendant Ortiz is in default.
On May 1, 1950, the Collector of Internal Revenue for the Third District
of New York received an assessment list containing an assessment of
$185,002.50 plus interest and penalty, for marijuana transfer taxes
against the defendant Ortiz. On that date the United States of America
acquired a lien against all the property belonging to the defendant
It was stipulated and agreed by the United States Government and the
Corporation Counsel of the City of New York that the defendant Ortiz
obtained $1,080.89 from lawful sources and $2,500.00 from unlawful
sources, that is, proceeds of the sale of narcotics in violation of
Section 1751 Penal Law of the State of New York.
Judgment is awarded to plaintiff, United States of America, in the
amount of $1,080.89.
counsel apparently concedes the soundness of the holding in U. S. v.
Pagan at al. (unreported case Judge Clancy S. D. N. Y. 1955 [55-2
USTC ¶9600]) but has endeavored to distinguish its facts from those in
basis of the alleged distinction is that in the Pagan case the
unlawful money held by the Property Clerk was the proceeds of gambling,
while in this case the unlawful money was the proceeds of marijuana
find no basis in law for the distinction. As a general rule property
rights and ownership are determined by the laws of the State. Burnet
v. Coronado Oil & Gas Co., 285 U. S. 393 (1930) [3 USTC ¶925].
Under the law of New York State a wrongdoer obtains no property interest
in money so acquired. Hofferman v. Simmons, 290 N. Y. 449 (1943).
do we think that the fact that the tax involved here was on marijuana,
the unlawful sale of which gave the defendant Ortiz possession of the
money, can be a basis of distinction. The Statute, Secs. 3670-71
Title 26 USCA (1939 Internal Revenue Code) which creates the lien
which the Government seeks to enforce here, is the same as in the Pagan
case. In accordance with that Statute the lien did not come into
existence until the assessment list was received by the Collector. This
was long after the defendant Ortiz had lost possession of the moneys.
United States of
America, Plaintiff v. Arnold J. Willmann, Sheriff of St. Louis County,
Missouri, Jack Bender, Ralph Bohan, Earl Schachter, Jack Grodsky, Herman
Schachter, and Harry Schachter, alias E. B. McDonald, alias Harry
McDonald, alias Brassie McDonald, Defendants, Sam Schachter, Intervenor
United States District
Court, Eastern District of Missouri, Eastern Division, No. 3244, 63
FSupp 535, Filed June 29, 1945, [Priority of lien for unpaid income
Hudson County Board of
Chosen Freeholders, Appellant v. Morales, Jorge; Township of Secaucus;
Internal Revenue Service; and Plaza National Bank, Appellees
U. S. Court of Appeals, 3rd Circuit, No. 77-2253, 581 F2d 379, 7/31/78,
Affirming unreported District Court decision
[Code Sec. 7402--result unchanged by '76 Tax Reform Act--and 28 U.S.C.
District Court: Jurisdiction: Removal of action: Tax lien: Challenge
to.--The District Court had jurisdiction over an action removed from
the state court at the behest of the IRS, which claimed that money
seized from a debtor at the time of his arrest was subject to a federal
lien. The complaint challenged the validity of the lien and thus
impinged directly on an interest of the United States in the property in
[Code Sec. 6321--result unchanged by '76 Tax Reform Act]
Tax liens: Property subject to: Contraband.--Money seized from a
debtor by local authorities at the time of his arrest was subject to a
federal lien and should not have been forfeited to the county. There was
no evidence to link the money with the narcotics violation with which
the debtor was charged.
J. Frank, Assistant County Counsel, & Harold J. Ruvoldt, 595 Newark
Avenue, Jersey City, New Jersey, 07306, for appellant, M. Carr Ferguson,
Assistant Attorney General, Michael J. Roach, Gilbert E. Andrews,
Crombie J. D. Garrett, Department of Justice, Washington, D. C. 20530,
ADAMS, HUNTER and WEIS, Circuit Judges.
of the Court
appeal is from a judgment by the district court rejecting the position
of the Hudson County Board of Chosen Freeholders that a sum of money
seized at the time of Jorge Morales' arrest was forfeited to it,
ordering instead that a substantial portion of the money be paid to the
United States in satisfaction of a lien for federal income taxes owed by
Morales, and directing that the remainder be returned to Morales.
Morales was arrested by the police of Secaucus, New Jersey, on February
1, 1974, and charged with violating New Jersey law by possessing a
controlled dangerous substance and by possessing such substance with an
intent to dispense it. At the time of Morales' arrest, the trunk of the
vehicle he was driving was opened at the request of a police officer,
and in it the officer observed a paper bag containing a sizeable sum of
seizing the money, which totaled $27,805, the Secaucus police placed it
in an account in the Plaza National Bank of Secaucus. There it has been
retained in a safety deposit box.
Morales was detained at the police station after his arrest, the police
engaged in a consent search of his apartment. That search revealed the
presence of heroin, cocaine and marijuana. A Hudson County grand jury
subsequently returned an indictment against Morales. Morales pleaded
guilty to the count charging him with possession of a controlled
dangerous substance with intent to dispense, and the other counts were
after the money seized from Morales' vehicle had been placed in the
bank, a notice of levy against it was served on the Secaucus policy by
the Internal Revenue Service (IRS). The IRS sought the funds to satisfy
federal income taxes claimed from Morales. In April of 1974, Morales
filed a tax return for the year 1973, which resulted in an assessment
for unpaid taxes for 1973 in the amount of $16,899.61. Thereafter, on
May 28, 1974, the IRS served on the Secaucus police an updated notice of
levy reflecting the newly-determined amount of tax liability.
October 29, 1975, the Board of Chosen Freeholders of Hudson County filed
a complaint in Hudson County Superior Court, Law Division, seeking a
judgment that would "(d)eny the validity of the claimed lien by the
Internal Revenue Service," declare "the money forfeited to the
County of Hudson" and order "the Township of Secaucus and
Plaza National Bank to remit said monies to the Treasurer of Hudson
County." The theory of the complaint filed by Hudson County was
that since Morales had committed a crime in violation of New Jersey law,
the money seized at the time of his arrest was ipso facto
forfeited to the County "wherein the offense took place, namely
Hudson, and said forfeitute became effective at the time of the
commission of the offenses involved." On this basis, the complaint
asserted, "the Internal Revenue Service's attempt to levy is
invalid, and the said sum of $27,805.00 together with any accrued
interest belongs to the people and governmetn of Hudson County."
Complaint at p. 2.
for the IRS, the United States Attorney on November 28, 1975, filed a
petition for removal of the suit to federal court. The petition stated
that the action is "subject to removal pursuant to 28 U. S. C. §1444
in that the complaint appears to allege a claim to quiet title to
personal property on which the United States claims a lien."
a letter opinion dated March 29, 1976, the district court concluded that
it had jurisdiction over the case. It noted that the United States was
named as a party to the action by means of the designation of the IRS as
a defendant, and that the complaint sought to quiet title to cash to
which the United States asserted a tax lien. The district judge then
determined that the IRS had a right to remove the suit to federal court
under 28 U. S. C. §§ 1444 and 2410(a), since the action was one to
"quiet title to . . . real or personal property on which the United
States has or claims a mortgage or other lien." 28 U. S. C. §2410(a).
In an order entered on May 6, 1976, the district court denied the
County's petition for remand to the Superior Court.
IRS filed an answer on May 25, 1976, in which it maintained, inter
alia, that the court should dismiss the complaint, and asserted a
counter-claim seeking enforcement of a lien for unpaid federal income
taxes against the sum of cash held in the Plaza National Bank. Morales
filed an answer seeking, inter alia, an order that the $27,805,
less the sum of $16,899.61 due the United States, be returned to him.
opinion by the district court dated March 3, 1977, reaffirmed its prior
conclusions that it had jurisdiction pursuant to 28 U. S. C. §§ 1444
and 2410(a). The court also concluded that the $27,805 in Morales'
possession at the time of his arrest was contraband, since it was
derived from the sale of narcotics, and thus was forfeited to the
County; that the money was not abandoned or unclaimed within the meaning
of New Jersey law and therefore was not payable into the general
municipal treasury; and that the federal tax lien, although proved to
exist, did not attach to the $27,805 because that sum had been forfeited
to the County.
the IRS filed a motion for the amendment of the district court's
conclusions of law and for the entry of a new judgment. On May 19, 1977,
the district court reversed its earlier decision on the merits, and
ruled that the IRS' motion should be granted and a new judgment entered
in its favor. The district relied on State of New Jersey v. Kaiser,
476 F. 2d 610 (3d Cir.), cert. denied 414 U. S. 856 (1973), where
the issue was said to be whether money discovered as a result of a
search had been employed as an element of the offense for which the
defendant was convicted and thus was forfeited to the county, or whether
it may have been an accumulation of profits from some other act,
criminal or otherwise. On the basis of Kaiser, the district court
determined as a matter of law that the money found in the trunk was
"not an instrumentality of the crime for which defendant Morales
was arrested and convicted--possession of a controlled dangerous
substance and possession of a controlled dangerous substance with an
intent to dispense." As a result, the court reasoned, the money
must be awarded to the IRS pursuant to the tax lien and the remainder of
it returned to Morales.
final judgment directing the Plaza National Bank to pay the sum of the
lien to the IRS, and the remainder to Morales, was entered on June 27,
1977. From the judgment, Hudson County now appeals.
Before reaching the issue whether the district court erred in
ascertaining that the money taken from Morales' vehicle was not
forfeited to Hudson County and accordingly was subject to the federal
tax lien, we must address the question whether the district court
properly assumed jurisdiction over the action as a consequence of its
removal to federal court.
right to remove an action from state to federal court was unknown at
common law and was not provided for in the federal Constitution, see C.
Wright, Law of Federal Courts, §38 (2d ed.). Rather, it depends
upon the expression of the will of Congress as articulated in the
various removal statutes, see e.g., Finn v. American Fire & Cas.
Co., 207 F. 2d 113, 115 (5th Cir. 1953), cert. denied, 347 U. S. 912
(1954). The particular enactment relied upon in the present case, 28 U.
S. C. §1444, establishes that:
action brought under section 2410 of this title against the United
States in any State court may be removed by the United States to the
district court of the United States for the district and division in
which the action is pending.
in §1444 to §2410 is significant since if an action against the United
States falls outside the ambit of §2410, the federal government may not
be taken to have waived its sovereign immunity from suit. Cf. Jacobs
v. District Director of Internal Revenue, 217 F. Supp. 104, 106 (S.
D. N. Y. 1963). Thus, §2410, while it does not of itself confer
jurisdiction on district courts, is the basis for finding a waiver of
sovereign immunity and consequently for allowing the action to go
forward. See Remis v. United States [60-1 USTC ¶9183], 273 F. 2d
293, 294 (1st Cir. 1960).
2410(a) provides that:
the conditions prescribed in this section and section 1444 of this title
for the protection of the United States, the United States may be named
a party in any civil action or suit in any district court, or in any
State court having jurisdiction of the subject matter--
to quiet title to,
to foreclose a mortgage or other lien upon,
to condemn, or
of interpleader or in the nature of interpleader with respect to,
or personal property on which the United States has or claims a mortgage
or other lien.
the issue regarding jurisdiction turns on whether the matter raised in
the complaint comes within one of the categories listed in §2410, and
thereby concerns a subject as to which the United States has waived its
two subsections of §2410(a) that might apply to this action are those
denominated (1) and (2), pertaining respectively to actions "to
quiet title," or "to foreclose a mortgage or other lien,"
upon "real or personal property on which the United States has or
claims a mortgage or other lien." However, we do not believe that
the second heading, "to foreclose a mortgage or other lien,"
in fact has any applicability to this action, for Hudson County's
complaint speaks of the County's alleged entitlement to the money
because it has been forfeited to it. Nothing is said about the
creation of a lien in favor of the county when the cash was seized in
connection with an arrest and the lodging of charges for violating New
Jersey's statute dealing with controlled dangerous substances. Cf.
Stapleton v. $2,438,110, 454 F. 2d 1210, 1219 (3d Cir.) (Adams, J.,
concurring), cert. denied 409 U. S. 894 (1972).
oral argument, where the parties were requested to discuss the issue of
jurisdiction, counsel for the IRS urged that jurisdiction properly may
be assumed under that subsection of §2410 dealing with actions to
"quiet title" to personal property as to which the IRS has or
claims a lien. The basis of this position is that the federal government
was a named defendant in the complaint originally filed in state court,
and it asserts a lien with respect to the funds that are the subject of
the complaint. Further plaintiff specially seeks an order that the money
belongs to Hudson County, and not to the federal government. Hence, says
the IRS, the action should be treated as one to quiet title as to
personal property with respect to which the federal government asserts a
agree with the IRS that Aqua Bar & Lounge v. U. S. Dept. of
Treasury [76-2 USTC ¶9554] 539 F. 2d 935 (3d Cir. 1976), supports
the view that there is federal jurisdiction in the present case. In Aqua
Bar, a taxpayer whose restaurant liquor license had been seized and
sold by the federal government for non-payment of federal taxes brought
an action against the United States and the purchaser of the license to
have the seizure and sale declared null and void. This Court reversed
the district court--which had found that there was no jurisdiction--on
the ground that the action could be treated as one to quiet title to
property regarding which the United States asserts a lien and thus came
within the scope of §2410(a)(1). See 539 F. 2d at 937-38. Agua Bar
stressed that even though the license was not real property but rather
was personal property, that fact did not bar the assumption of
jurisdiction, for "(a)lthough suits to quiet title have
traditionally involved real property, this particular action is governed
by federal rather than state law." Id. at 938. And the specific
statute applicable, §2410, "by its very terms" contemplates
"actions to quiet title to personalty on which the United States
has or claims a lien." See Yannicelli v. Nash [72-2 USTC ¶9763],
354 F. Supp. 143, 150 (D. N. J. 1973); cf. Little River Farms, Inc.
v. United States [71-1 USTC ¶9644], 328 F. Supp. 476, 479 (N. D.
response, counsel for Hudson County noted that the federal government is
not a party against which any specific relief is sought other than a
declaration nullifying the claimed tax lien. However, that contention
does not prevent the assumption of jurisdiction, for the complaint does
explicitly challenge the validity of the government's tax lien, and thus
impinges directly on an interest of the United States in the property in
question--which is the sort of situation that §2410 was designed to
reach, see Aqua Bar, supra. Also, in light of the governing
statute, there appears to be no reason for distinguishing between the
type of personal property involved here, a sum of money in a bank, from
other forms of personal property, such as a liquor license, for the
language of the statute speaks of "personal property" as such
and not of given forms of it. Cf. Logan Planning Mill Co. v. Fidelity
and Casualty Co. of N. Y. [63-1 USTC ¶9343], 212 F. Supp. 906,
913-14 (S. D. W. Va. 1962). Consequently, we have concluded that the
district court did have jurisdiction in the present case under §§ 1444
proceeding to the merits, we note that the doctrine of forfeiture, on
which Hudson County relies, is that one should not be allowed to retain
the fruits of a specific criminal act for which he has been convicted.
See State v. Sherry, 215 A. 2d 536, 538 (N. J. 1965). Our task,
then, is to determine whether the district court erred in concluding
that there was insufficient evidence for holding that the money seized
from Morales' vehicle at the time of his arrest was not connected to the
particular crime to which he pleaded guilty, namely, possession of a
controlled dangerous substance with intent to dispense.
do not believe that the district court committed reversible error in
this regard. Although the record includes statements about Morales'
narcotics activities, there was no proof adduced to link the funds
seized with any given narcotics violation. Indeed, one of the officers
who testified noted that the transaction which aroused the suspicion
leading to the investigation and arrest in the first place turned out to
be a conversation between Morales and his landlord, and had no
demonstrated relationship with any dealings n narcotics. No witness was
able to identify a single transgression with which the money seized was
connected, or from which it was derived. Cf. State of New Jersey v.
Kaiser, 476 F. 2d 610 (3rd Cir.), cert. denied 414 U. S. 856 (1973).
we hold that the district court did not err in its determination that
the money in question should not be forfeited to Hudson County, and that
instead it is subject to the outstanding federal tax lien. The order of
the district court will be affirmed.
State of New Jersey,
Plaintiff-Appellee v. Harry Joseph Kaiser and Harry J. Kaiser, as
Administrator of the Estate of Susan Kaiser, Deceased, Defendants.
United States of America, Intervenor-Appellant
U. S. Court of Appeals, 3rd Circuit, No. 72-1075, 476 F2d 610, 3/13/73,
Reversing District Court, 71-2 USTC ¶9708, 338 F. Supp. 42
[Code Sec. 6321]
Tax liens: Property subject to: Money: Gambling raid: Seizure.--$265,000,
seized during a search of premises suspected of being the site a
gambling operation was an accumulation of profits and proceeds. It was
not currently being used in a gambling operation. Thus, the money was
not subject to forfeiture to the state but was property to which a
federal tax lien could attach.
S. Gross, Walter J. Dorgan, Gross, Demetrakis & Donohue, One Essex
St., Hackensack, N. J., for plaintiff-appellee. Herbert J. Stern, United
States Attorney, Newark, N. J., Scott P. Crampton, Assistant Attorney
General, Meyer Rothwacks, Bennet N. Hollander, Thomas H. Boerschinger,
Department of Justice, Washington, D. C. 20530, for defendants and
VAN DUSEN and ADAMS, Circuit Judges, and BRODERICK, District Judge.
of the Court
conflicting claims of the United States and Bergen County, New Jersey to
a large sum of money, seized during a search of premises suspected of
being the site of a gambling operation, form the basis of this appeal.
Central to the resolution of these competing claims is the determination
whether that fund, to wit $265,000, represents an instrumentality of
illegal activity and thus contraband, forfeitable to the state or
county, or an accumulation of funds or profits derived from illegal
activity, and thus subject to a lien asserted by the United States.
facts giving rise to this controversy are fully explicated in the
opinion of the district court and need only summarization at this point.
July 14, 1960, a raid pursuant to a search warrant was conducted on a
house in North Arlington, New Jersey. This house was occupied at that
time by Harry Kaiser, Susan Kaiser and Edna Kaiser. The search of the
first floor of the house uncovered numbers slips, gambling paraphernalia
and a sum of cash totaling slightly more than $18,500. The second floor
of the house contained two bedrooms. The search of one of the bedrooms
produced $3,650 in a chest of drawers. Further search of that room
revealed a fireproof steel strongbox. Because the Kaisers did not have a
key for it, the police had to force open the box. When opened, the box
was found to contain $265,000. Beyond this large sum of money, the
search produced clothing and two prescriptions indicating that this
bedroom had been occupied by one Joseph Moriarity. Later investigation
revealed that Moriarity had in his possession keys which would open the
V. Moriarity has an extensive record of involvement in illegal gambling.
See Farley v. $168,400.97, 55 N. J. 31, 259 A. 2d 201 (1969). In
August, 1947, a federal income tax delinquency was assessed against
Moriarity and demand for payment made. In 1955, a judgment on this
delinquency was entered. Thus, the Federal government has a lien on
property belonging to Moriarity. And the claims of the Federal
government exceed $265,000.
Jersey has a statutory schema requiring forfeiture of certain seized
contraband. N. J. Stat. Ann. §2A:152-6 provides that, when seized,
"any furniture, implement, device or machine, made or used for the
purpose of gambling" becomes the property of the county. It is the
county's burden, however, to prove illegal use. Krug v. Board of
Chosen Freeholders, 3 N. J. Super. 22, 65 A. 2d 542 (App. Div.
1949). N. J. Stat. Ann. §2A:152-7, enacted after 152-6, permits the
assumption that if money is seized in connection with an arrest for
violation of the gambling laws the money is prima facie
contraband and forfeitable. Both statutes require, however, that there
be an active employment of the money in a gambling operation. See Krug
v. Board of Chosen Freeholder, supra.
district court, relying on Spagnuolo v. Bonnet, 16 N. J. 546, 109
A. 2d 623 (1954), stated its belief that the source of the money,
not the present utilization of the sum, determines whether it is an
element in a gambling enterprise for the purpose of the state
forfeiture. Finding that the money was the product of a gambling
enterprise, the district court determined that the money was
forfeitable. Therefore, it reasoned, the money was not an asset of
Moriarity's and hence not subject to the lien of the Federal government.
Thus, the district court held that the state's claim to the money was to
district court issued its opinion on October 15, 1971. On January 25,
1972, this Court decided the case of Stapleton v. $2,438,110. 1
Stapleton also involved Moriarity, his tax lien, and money found
belonging to him. In Stapleton, as here, there were competing
claims for the money, the state claiming that the money was forfeitable
under the state statutory arrangement, the Federal government asserting
its rights under the tax lien. Implicit in the opinion of the Court and
explicit in the concurring opinion of Judge Adams was the
differentiation between funds seized which are actually in use in
furtherance of a gambling operation and funds which have passed out of
the operation and become accumulated profits. In holding that the funds
in Stapleton were to go to the Federal government, that case
makes clear that only funds actively used in a gambling operation are
forfeitable to the state. 2
determination issue thus can be stated fairly simply. If the $265,000 is
money that is being used as an element in a gambling operation revealed
in the search, then, pursuant to the New Jersey statutes, the money is
forfeitable to the state. If, however, the money is not an element in
the enterprise but "an accumulation of profits or the product of
gambling," following Stapleton, it is not subject to state
forfeiture. If the money is forfeitable, the Federal lien does not
attach because the fund cannot be deemed the property of Moriarity. On
the other hand, if the sum is not forfeitable, then, assuming that the
sum is Moriarity's, 3
it becomes subject to attachment by operation of the lien.
review of the findings of the district court indicates that the $265,000
was not actively used in a gambling operation but was an accumulation of
profits or proceeds, of some enterprise, not necessarily the one
revealed in the July 14, 1960 search. The numbers operation uncovered in
the search of the Kaiser's house appeared to have receipts for the day
totaling approximately $12,000. Uncontradicted expert testimony showed
that the cash reserve, or "bank," necessary to support a
numbers operation need be only one-half of the daily handle. Thus, the
$265,000 clearly was not the "bank" of that operation. Indeed,
the district court stated, "[I]t was accumulated out of the
proceeds. . . . The fact that the $265,000 may not have been used in the
daily operation and financing of the gambling business being conducted
in the Kaiser residence would in no way affect the presumption that the
money was the proceeds of a gambling operation."
our holding in Stapleton, these findings require that the fund be
awarded to the United States under the lien against Moriarity rather
than be forfeited to the state as contraband. Therefore, the judgment of
the district court must be reversed.
case will be remanded to the district court for the entry of a judgment
in conformity with this opinion. Costs to be taxed to each side.
454 F. 2d 1210 (3d Cir.), cert. denied, 41 U. S. L. W. 3188 (U.
S. Oct. 10, 1972).
The Stapleton opinion made reference to the decision of the
district court in this case. Although the opinion states that the money
seized in this case was "proven to be a part of a current gambling
operation" our review of the record and the opinion of the district
court indicate the contrary, as will be discussed infra.
As the Kaisers have disclaimed any rights, title or interest in the
$265,000, there can be no question but that the sum is Moriarity's.
Richard A. Simpson,
United States Marshal for the Eastern District of Virginia, C. W.
Glotzbach, District Director of Internal Revenue, and United States of
America, Appellants v. John L. Thomas and Earl J. Butler, Appellees
U. S. Court of Appeals, 4th Circuit, No. 7883, 271 F2d 450, 11/2/59,
Reversing an unreported District Court decision
[1954 Code Sec. 6321]
Lien for taxes: Funds held by United States Marshal.--Money taken
from the taxpayers incident to lawful arrest and held by the United
States Marshal for safekeeping was subject to a federal tax lien and was
not immune from levy.
F. Lynch, Department of Justice, Washington, D. C. (Howard A. Heffron,
Acting Assistant Attorney General, Lee A. Jackson, A. F. Prescott,
Joseph Kovner, Department of Justice, Washington, D. C., John M. Hollis,
United States Attorney, Norfolk, Va., Joseph S. Bambacus, Assistant
United States Attorney, State Planters Building, Richmond, Va., on
brief), for appellants. R. R. Ryder, Suite 415, Mutual Building,
Richmond, Va., for appellees.
SOBELOFF, Chief Judge, and HAYNSWORTH and BOREMAN, Circuit Judges.
and Butler seek the return to them of money taken from them, incident to
a lawful arrest, to be held by the United States Marshal for
safekeeping. Their position is that their funds, thus in the hands of
the United States Marshal, could not be subjected to a federal tax lien
and was immune from levy by the United States in aid of the collection
of its taxes. The District Court found that the funds in the hands of
the United States Marshal for safekeeping were immune from the lien and
the levy. He ordered their return to the claimants. We disagree.
Held by Marshal for Safekeeping]
and Butler were arrested at different times for violations of the
Internal Revenue laws. In each instance, the arrest was lawful. At the
time of arrest, each was found to be in possession of a substantial
amount of money, which was delivered to the United States Marshal for
safekeeping during the incarceration of the owner. In each instance, a
jeopardy assessment of taxes claimed to be due the United States on
distilled spirits in the possession of the accused at the time of his
arrest was regularly made. When Thomas and Butler, upon formal demand of
payment of taxes claimed to be due, did not make payment, notices of the
tax liens and the levy were regularly served upon the Marshal.
Marshal responded to the demand of the District Director of Internal
Revenue in the Thomas case by delivering over the money he held. In
Butler's case, he still retains the money.
and Butler filed petitions, in the criminal proceedings pending against
them, for an order directed to the District Director of Internal Revenue
requiring him to show cause why the money should not be turned over to
the petitioners. The order sought by the petitioners was signed and
filed by the District Court. Thomas also filed a civil action against
the District Director demanding the return of his money, while Butler
filed a similar civil action against the Marshal. All of these cases
were heard together. The District Court, being of the opinion that the
moneys were in custodia legis and were not contraband, concluded
that the claimants were entitled to be restored upon their release upon
bond to all of the nonforfeitable property in their possession at the
time of their arrest. He ordered the return to them of these moneys.
reaching this conclusion, he was concerned that permitting summary
collection of taxes claimed to be due in this manner could amount to an
abuse of the criminal process.
Exemption for Property Held by Marshal]
the amount of the taxes claimed to be due from each man exceeded the
amount of money held for him by the Marshal, we find no escape from the
fact that the Marshal, who had notice of the lien and of the levy, could
not lawfully return the money to the claimants without subjecting
himself to personal liability to the United States. The tax lien, which
arises under §6321 of the Internal Revenue Code of 1954 1
is broad and inclusive. There are specific exemptions, but there is no
exemption of the property of a federal prisoner whether it be held for
him by a United States Marshal or by others.
a tax lien attaches to property, the United States becomes in a sense a
co-owner with the taxpayer of the property to the extent of the lien. 2
The taxpayer then ceases to have an unconditional right to obtain or
retain possession of the property. The substantive rights of the United
States and of the taxpayer are in no sense dependent upon the nature of
the immediate custody of the property or the identity of the custodian.
If it appeared that money in the possession of a marshal had been
stolen, no good reason appears why the law should require its return to
the thief upon his discharge from custody. Nor do we see any reason why
the United States Marshal may not recognize the United States as the
owner of an interest in property in his custody.
far as we can find, it has been uniformly held that property held by a
marshal, or other custodian, for safekeeping is subject to an otherwise
valid tax lien for taxes claimed to be due from a prisoner from whom the
property was obtained. 3
This conclusion has been reached though the seizure of the property was,
itself, illegal, so that its suppression for use as evidence was
Abuse of Criminal Process]
is no evidence in this case that either arrest was prompted by a desire
to enforce a civil liability for taxes. Whether, under dissimilar
circumstances, a particular arrest and seizure might be thought to be an
abuse of the criminal process, we need not consider, for, in these
particular cases, there is no suggestion of an abuse of process.
retention of possession of the property was necessary to an exercise of
the Court's powers or jurisdiction, doubtless the Marshal would be
required to retain possession of it pending an order of the Court. In
that situation resistance to the levy might be warranted, but denial of
the validity of the lien could not be justified. Here, however, the
property was held solely for safekeeping until return to the prisoners
upon their release upon bond or acquittal. It was not intended for use
as evidence, nor was the Marshal's possession otherwise in aid of the
Court's jurisdiction or its processes.
are appropriate procedures by which the taxpayers here, if they dispute
the claim that they owed taxes in the amounts collected, may contest
them. These proceedings are not appropriate for that purpose. If the
action of Thomas against the District Director may be regarded as one
for a refund of taxes paid, it cannot be now maintained because he has
never filed a claim for refund.
these circumstances, we conclude that the Marshal properly recognized
the validity of the tax lien, of which he had notice, that he could not
have then lawfully returned the money to Thomas and Butler, and that the
Court's order that these moneys be returned to Thomas and Butler must be
26 USCA §6321.
United States v. City of Greenville, 4 Cir., 118 F. 2d 963 [41-1
Field v. United States, 5 Cir., 263 F. 2d 758; Welsh v. United
States, C. A. D. C., 220 F. 2d 200 [55-1 USTC ¶9238]; United
States v. City of New York, 2 Cir., 82 F. 2d 242 [36-1 USTC ¶9119];
United States v. Klein, S. D. N. Y., 163 F. Supp. 823 [58-2 USTC
¶9761]; United States v. Leuci, E. D. N. Y., 160 F. Supp. 715
[58-1 USTC ¶9480]; Weir v. Corbett, W. D. Wash., 158 F. Supp.
198 [58-1 USTC ¶9208]; United States v. Pagan, S. D. N. Y., 140
F. Supp. 711 [55-2 USTC ¶9600]; United States v. Ortiz, S. D. N.
Y., 140 F. Supp. 355 [56-1 USTC ¶9387]; United States v. Willmann,
E. D. Mo., 63 F. Supp. 535 [45-2 USTC ¶9444].
Field v. United States, 5 Cir., 263 F. 2d 758; Welsh v.
, C. A. D. C., 220 F. 2d 200 [55-1 USTC ¶9238].