United States v. Moffitt Zwerling, 4th Cir. (1996)
United States v. Moffitt Zwerling, 4th Cir. (1996)
United States v. Moffitt Zwerling, 4th Cir. (1996)
ment, in turn, contests the limitations imposed on its efforts to ascertain the disposition of the fee. We affirm in part, and reverse in part
the district court's rulings on this matter.
We reverse, however, with respect to the most significant issue
raised by this appeal: the preemptive effect of the CFA on state claims
of detinue and conversion brought by the government to recover the
fee. The government brought these common law actions, in part
because the law firm had dissipated most of the $103,800 by the time
a restraining order was entered. We hold that these common law
actions are consistent with the purposes of the federal forfeiture statute and that the CFA does not abrogate the government's authority to
pursue them.
I.
In late August, 1991, William Paul Covington retained the law firm
of Moffitt, Zwerling & Kemler to defend him against charges of drug
trafficking and money laundering. Covington was then the subject of
a grand jury investigation and many of his personal and business
assets had already been seized. To secure the firm's representation,
Covington was required to pay $100,000 up front. On August 23,
1991, Covington partially paid the fee with a wad of bills fished from
his pocket that amounted to $17,000; the next day he delivered
another $86,800 in cash, stored in a cracker box or a shoe box. Much
of the $103,800 payment was in the form of $100 bills.
Neither William Moffitt nor John Zwerling asked Covington the
source of the $103,800, though Moffitt apparently told Covington
that, though they could accept cash, they could not accept "funny
money." Covington refused a receipt for both payments because, he
said, the F.B.I. might find it. The law firm thereafter filed the required
Internal Revenue Service Form 8300 reflecting the cash payments
from Covington, but failed to identify Covington as the source of the
cash transfer.
Once retained, the firm notified prosecutors that they represented
Covington. In a series of meetings with law firm members, the prosecutors outlined the nature of their case against Covington and provided a list of assets seized from Covington. These seizures included
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ture. Id. at 473. Covington himself told the firm's partners that he
used his businesses to facilitate drug dealing, id. at 469-70, 473, and
the firm was aware of the government's conclusion that the considerable amount of money Covington had accumulated and spent could
have only resulted from his drug trafficking activities. Id. at 470-71,
473. Despite this, the firm accepted from Covington two immense
cash payments, totalling $103,800 and largely comprised of $100
bills, over a two-day period. At Covington's request, the firm did not
give him a receipt for the $103,800 because Covington feared the
receipt might fall into the hands of the F.B.I. Id. at 473. Such circumstances were, to put it mildly, highly suspicious.
The firm contends that its partners believed, based on their extensive interviews with him, that Covington had "squirreled" away substantial assets from legitimate business activity. And the firm asserts
that Covington was informed that he could not pay in"funny money."
The district court found, however, that Covington advised the firm's
partners that he was broke, and for that reason continued to engage
in illegal activity. Id. at 470, 473; J.A. 1062. In addition, during the
supposedly extensive interviews with Covington, the firm's partners
tiptoed around the most pertinent questions. They did not even ask
Covington what legitimate sources of income he had. And, conspicuously, they avoided asking Covington exactly where he had obtained
the $103,800 in cash to pay his legal fee. Moffitt I at 470, 474. In their
meetings with Covington the lawyers did not seek to obviate doubts
that any person would have had about the source of Covington's substantial cash payment. The meetings, in fact, create the impression
that the participants were engaging in some sort of wink and nod ritual whereby they agreed not to ask -- or tell-- too much.
Based on this record, the district court observed, there was nothing
less than a "mass of evidence available to the Law Firm partners in
August 1991 that pointed convincingly to the conclusion that the cash
fee constituted, or was derived from, drug trafficking proceeds." Id.
at 475. We agree. Both what the law firm knew in August, 1991, and
what it declined to inquire about, convinces us that it reasonably had
cause to know that the $103,800 was subject to forfeiture, and thus
its 853(n)(6) petition was properly rejected.
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IV.
The government thereafter sought a final decree of forfeiture for
the $103,800. According to the law firm, the government's recovery
was limited to $3,695, the amount of the fee that remained when the
restraining order was entered in May, 1992. Seeking to recover the
full amount of the fee, however, the government argued that under 21
U.S.C. 853 the law firm was obligated to remit to the government
the entire $103,800. The district court rejected this argument, Moffitt
II, 864 F. Supp. 527, but observed that the government might have
other remedies available to it, such as a state law conversion action,
to recover the fee. Id. at 544 n.49. Consequently, the government
brought common law actions of conversion and detinue under Virginia law to recover the full $103,800. The district court, however,
ruled that the federal forfeiture law preempted the government's ability to bring those actions. Moffitt IV, 875 F. Supp. at 1203-07.
We thus turn to the preemptive effect of the Comprehensive Forfeiture Act.1 Because the CFA does not contain an express preemption
provision, the question is whether it, by implication, overrides state
law. The law firm argues, and the district court agreed, that under the
principles of implied conflict preemption the government cannot pursue the common law actions of detinue and conversion. Id.2 We
_________________________________________________________________
1 "The CFA added or amended forfeiture provisions for two classes of
violations under federal law, racketeering offenses and CCE offenses,
see 98 Stat. 2040-2053, as amended." United States v. Monsanto, 491
U.S. 600, 603 n.1 (1989). In this opinion, we refer to the portion of the
CFA that authorizes forfeiture for continuing criminal enterprise (CCE)
offenses. See 21 U.S.C. 853.
2 Federal preemption under the Supremacy Clause is fundamentally a
question of whether a state law "conflicts with Congress' intent (either
express or plainly implied) to exclude state regulation." English v. General Electric Co., 496 U.S. 72, 79-80 n.5 (1990). Such an intent can be
identified in a number of ways, Freightliner Corp. v. Myrick, 115 S.Ct.
1483, 1487 (1995), but, other than implied conflict preemption, none are
relevant here. In particular, there is no "actual conflict" between the CFA
and the state claims brought by the government because it would not be
"impossible for a private party to comply with both state and federal"
law. English, 496 U.S. at 79.
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believe, however, that common law actions are available to the government in its effort to forfeit the fee.
A.
We start from the premise that federal statutes do not, by implication, abrogate the government's right to bring common law suits. This
controlling principle is derived directly from United States v. Texas,
507 U.S. 529 (1993). As in this case, Texas involved a claim that a
federal statute extinguished the right of the United States to pursue
collection efforts under common law. In Texas , the Supreme Court
held that the Debt Collection Act of 1982 did not abrogate the federal
government's common law right to recover prejudgment interest
against states, even though the Act did not explicitly make such interest recoverable from the states. Id.
The right exercised by the federal government in Texas to bring
suit at common law was a long-standing one. The roots of this authority can be traced to the First Judiciary Act of 1789. Act of Sept. 24,
1789, 9, 1 Stat. 73, 77 (granting federal district court jurisdiction
over "all suits at common law where the United States shall sue.").
Federal courts currently exercise original jurisdiction over "civil
actions, suits, or proceedings" brought by the United States. 28 U.S.C.
1345. Under this authority, the United States can bring common law
actions "claiming in its contractual and proprietary relations the same
protection of the general law, at least, that belong[s] to any other legal
person." Paul Bator et al., Hart and Wechsler's Federal Courts and
the Federal System 911 (3d ed. 1988); see also United States v. San
Jacinto Tin Co., 125 U.S. 273, 278-86 (1888); Jessup v. United
States, 106 U.S. 147, 152 (1882). As in Texas, the federal government
has done nothing more here than exercise an established right to bring
common law actions, in this case ones of conversion and detinue. See
United States v. Union Livestock Sales Co., 298 F.2d 755 (4th Cir.
1962) (conversion action); United States v. Butt , 203 F.2d 643 (10th
Cir. 1953) (same).
The question, then, is whether the CFA somehow abrogated this
recognized right on the part of the United States. The CFA, like the
Debt Collection Act in Texas, "does not speak directly to the Federal
Government's right to" pursue state common law claims against par10
date of the activity giving rise to the forfeiture. See Caplin &
Drysdale, 491 U.S. at 627. The government's reliance on this doctrine, however, to establish one element of a common law cause of
action does not remove this case from the reach of Texas. To prohibit
the government from availing itself of a statutory right that Congress
conferred upon it would arbitrarily restrict the government's ability to
pursue its remedies at common law. Just as any party might rely on
legal or contractual authority to establish a right to possess a piece of
property, the government has the perfect right to point to other provisions of law that confer a right to possession of the fee.
B.
Even accepting the general premise of Texas, however, MoffittZwerling argues that, under this particular statute, the government's
common law actions are preempted because they conflict with the
objectives of the CFA. For support, the firm points to the "substitute
asset" provision of 21 U.S.C. 853(p). Under that provision, if forfeitable assets are unavailable at the time a forfeiture order is entered,
the government has a statutory right to obtain "any other property of
the defendant up to the value" of those assets. Id. Section 853(p),
however, says nothing about the recovery of substitute assets from
third parties (as opposed to defendants) who had reason to know that
the fee was subject to forfeiture. This silence, according to the law
firm, indicates that one purpose of the CFA is to protect third party
transferees who no longer possess property that would otherwise be
forfeited. The law firm argues that permitting actions in conversion
and detinue would "stand[ ] as an obstacle to the accomplishment of
the full purposes and objectives" of the CFA. Silkwood v. KerrMcGee Corp., 464 U.S. 238, 248 (1984).
The firm's argument that the CFA preempts state common law
actions by negative implication is faulty on several grounds. To begin
with, a court approaches preemption claims "with the basic assumption that Congress did not intend to displace state law." Maryland v.
Louisiana, 451 U.S. 725, 746 (1981). This assumption has particular
force here because Congress explicitly stated that the federal drug
laws do not generally preempt state law. 21 U.S.C. 903. In fact, federal anti-drug laws override state law only if "there is a positive conflict between [state law and federal law] so that the two cannot
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v. Certain Real Property at 2525 Leroy Lane, 910 F.2d 343, 347-49
(6th Cir. 1990), cert. denied, 499 U.S. 947 (1991). And, of course, the
anti-drug laws authorize the federal government to cooperate with
state and local governments in efforts aimed at drug trafficking. See
21 U.S.C. 873. The Attorney General is authorized to assist states
in "the institution and prosecution of cases in the courts of the United
States and . . . courts of the several States," 21 U.S.C. 873(a)(2), and
in "conducting investigations and prosecutions" of the diversion of
legitimate drugs to illegitimate uses, 873(d)(1)(B). In short, the
claim that Congress regulated so pervasively in the field of forfeiture
as to make "no room" for state law is groundless. English, 496 U.S.
at 79 (citation omitted).
V.
The government's common law actions of detinue and conversion
are thus not preempted by the CFA. We next address whether the
government has stated the required elements of a conversion claim.
We affirm the district court's judgment that the government has
stated the elements of a conversion action. Conversion is the "wrongful exercise or assumption of authority . . . over another's goods . . ."
United Leasing Corp. v. Thrift Ins. Corp., 440 S.E.2d 902, 905 (Va.
1994) (quoting Universal C.I.T. Credit Corp. v. Kaplan, 92 S.E.2d
359, 365 (Va. 1956)); see also McCormick v. AT & T Technologies,
Inc., 934 F.2d 531, 535 (4th Cir. 1991), cert. denied, 502 U.S. 1048
(1992). To make out a conversion action in Virginia the government
must have had an immediate right to possess the $103,800 at the time
it was allegedly wrongfully converted by the law firm. United
Leasing, 440 S.E.2d at 906. The key dispute is whether the government had such a right to possession.
Under the relation back doctrine codified in 853(c), the government had the right to possess the $103,800 at the time the law firm
received it in August, 1991. 21 U.S.C. 853(c). No provision of the
CFA suggests that 853(c) cannot be relied upon to establish one element of a conversion action. Moffitt, Zwerling emphasizes, however,
that the government did not actually gain title to the $103,800 until
the entry of the forfeiture order. But once the forfeiture order was
entered, the government's title dated back in time to the criminal
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to provide a receipt for fear, the client said, it would fall into the
hands of law enforcement authorities. Perhaps most disturbing, the
district court disqualified the firm from this case in part because of
evidence that the firm tried to dissuade its own client from negotiating
with the government because of the unfavorable effect a guilty plea
might have on the law firm's fee. Moffitt I, 846 F. Supp. at 467; J.A.
567-68. This conduct disappoints. It falls far short of what America
expects from the members of one of its most privileged professions.
For the foregoing reasons, the district court's judgment is affirmed
in part, and reversed in part. The case is remanded for further proceedings consistent with this opinion.
SO ORDERED
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