United States v. McClellan

44 F.4th 200

UNITED STATES of America, Plaintiff – Appellee,

v.Dereck MCCLELLAN; Yvonne Silver, Claimants – Appellants,and69,940.50 in United States Currency, Asset ID: 19–CBP–000267, Defendant.

Institute for Justice, Amicus Supporting Appellants.

No. 20-2251

United States Court of Appeals, Fourth Circuit.

Argued: May 4, 2022

Decided: August 10, 2022

ARGUED: Adrianne Turner, TURNER LAW, LLC, Columbia, South Carolina, for Appellants. Carrie Fisher Sherard, OFFICE OF THE UNITED STATES ATTORNEY, Greenville, South Carolina, for Appellee. Robert Everett Johnson, INSTITUTE FOR JUSTICE, Shaker Heights, Ohio, for Amicus Curiae. ON BRIEF: M. Rhett DeHart, Acting United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Charleston, South Carolina, for Appellee. Caroline Grace Brothers, INSTITUTE FOR JUSTICE, Arlington, Virginia, for Amicus Curiae.

Before WILKINSON, RICHARDSON, and RUSHING, Circuit Judges.

Reversed and remanded by published opinion. Judge Richardson wrote the opinion, in which Judge Rushing joined. Judge Wilkinson wrote a separate opinion, dissenting.

RICHARDSON, Circuit Judge:

The United States Government seized $69,940.50 in cash from Dereck McClellan's car. McClellan and his girlfriend, Yvonne Silver, challenged the seizure, claiming that the cash was not subject to forfeiture. To forfeit the seized cash, the Government bore the burden of establishing a connection between the cash and the illegal activity—in this case, illegal drug trafficking. The district court, in granting summary judgment, found that the facts painted a picture that definitively established that the cash was drug money. And it's true that a reasonable jury might well decide that the painting of these facts shows the cash came from drug trafficking. But a reasonable jury might not. So we reverse.

I. Background

In early January 2019, Dereck McClellan smashed his car into a concrete pillar at a gas station, narrowly missing a gas pump. A local officer responded to the scene. Approaching the car, the officer noticed the strong odor of marijuana. The driver's window was down, and the officer found McClellan passed out in the front seat next to an empty Hennessey bottle. The officer woke McClellan, who staggered out of the vehicle. Given McClellan's condition, the officer arrested him for public drunkenness and driving with an open container (otherwise known as "transportation of alcohol in a motor vehicle with a broken seal"). McClellan also admitted that he had "smoked some marijuana." J.A. 9.

A search of the vehicle revealed a marijuana blunt in the ash tray, a bundle of cash in the console, and a duffel bag filled with cash in the trunk. There were also two medical marijuana identification cards in McClellan's wallet. The seized cash was separated into bundles secured with rubber bands and totaled $69,940.50. When asked about his occupation, McClellan said he "does a lot of different stuff," J.A. 9, and when asked about where he got the cash, McClellan said it was for his girlfriend's shop. McClellan refused to provide his girlfriend's name or the name or location of the store. McClellan also offered various totals for how much cash he had in the car, suggesting at separate times that the car had $80,000, $70,000, and between $72,000 to $73,000 in it. Later, the Department of Homeland Security conducted five ion scans on the currency. Ion scans detect minute particles on an object and determine the substance of those particles. All five ion scans tested positive for cocaine, and one scan tested positive for the explosive substance RDX.

One of the medical marijuana cards in McClellan's wallet identified McClellan as its owner, and the other belonged to "Yvonna Silver." J.A. 78–79.¹ The cards were two years old, with McClellan and Silver both using the same California address. The address was for a hotel. Police later discovered that Silver was McClellan's girlfriend and that the two lived together with their three children. Police also later discovered that Silver's shop, which McClellan had identified as the source of the cash, was called Labelz StyleHouse. Labelz sells consumer goods, some of which were allegedly counterfeit. But Labelz is not an incorporated entity, so for practical purposes it is indistinguishable from Silver herself.

Before McClellan's crash into the gas station, he already had a long criminal record. In 2002, he was convicted of unlawfully carrying a weapon. In 2007, he was convicted of trafficking cocaine and meth. In 2008, he was convicted of assault and battery and receipt of stolen goods. In 2013, he was convicted of possession of marijuana with intent to distribute. In connection with the 2013 conviction, law enforcement seized and forfeited $53,495. Since 2013, McClellan has not been convicted of any other crimes.

Following McClellan's crash, the Department of Homeland Security sought to forfeit the seized cash found in the car. McClellan and Silver (together the "Claimants") both filed seized-asset claims contesting the administrative forfeiture and made sworn statements that they owned the seized currency "together equally" and that it consisted "entirely of profits from [their] retail business, Labelz StyleHouse." J.A. 2; S.J.A. 2–3, 6. They also requested referral to the district court. The Government then filed a verified civil complaint for forfeiture in the district court and applied for a warrant for arrest in rem of the seized cash. The complaint alleged that the cash was subject to forfeiture because it constituted drug proceeds, among other reasons. The court issued an arrest warrant for the currency, and McClellan and Silver answered the complaint.

In response to civil interrogatories, McClellan and Silver explained where the money came from. McClellan described how his mother died in 2014 and left him $110,000 and her home. He said living in the mortgage-free home, along with Silver and their three children, allowed them to keep their expenses low. He also claimed that he invested some of his inheritance money as "seed money" to help Silver start Lablez Stylehouse. J.A. 19. And from that investment McClellan claimed that he and Silver shared "profits" of $40,000, $60,000, and $90,000 over the past three years. J.A. 19. Silver also claimed that she earned about $2,500 per week as the manager of Ultra Lounge Bar from 2014 to 2017.

Silver's tax returns tell a different story. Her tax returns show no income from Ultra Lounge Bar. And the returns claimed that her store had much lower net profits—a total of $62,894 over the four tax years from 2016 to 2019.² For the years 2016 to 2019, other than earnings from Labelz, Silver reported no other income on her tax return, although she received refundable tax credits from the federal government for these years that totaled several thousand dollars.

The Government moved for summary judgment against the Claimants, which the district court granted. According to the district court, there was no genuine dispute of material fact that the seized cash was the proceeds of a drug trafficking operation.

II. Discussion

In a civil-forfeiture proceeding, the Government bears the burden "to establish, by a preponderance of the evidence, that the property is subject to forfeiture." 18 U.S.C. § 983(c)(1).³ Property is subject to forfeiture if it either facilitated the transportation, sale, receipt, possession, or concealment of a controlled substance, or was intended to do so, or constitutes proceeds of drug-trafficking activities. 21 U.S.C. § 881(a)(6).⁴ And when pursuing forfeiture on either of those theories, the Government must show a "substantial connection between the property and the offense." 18 U.S.C. § 983(c)(3).

Applying the summary judgment standard in a civil forfeiture action is no different than in any other civil case. We review the district court's grant of summary judgment de novo and "constru[e] all facts and reasonable inferences therefrom in favor of the nonmoving party." Gen. Ins. Co. of Am. v. U.S. Fire Ins. , 886 F.3d 346, 353 (4th Cir. 2018). We grant summary judgment only when "there is no genuine dispute as to any material fact." Fed. R. Civ. P. 56(a). "[T]he judge must view the evidence presented through the prism of the substantive evidentiary burden," and must deny summary judgment if "a jury could reasonably find either that the plaintiff proved his case by the quality and quantity of evidence required by the governing law or that he did not." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 254, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Even when the facts themselves are not in dispute, a genuine dispute of material fact about the inferences to be drawn from those facts precludes summary judgment. World-Wide Rts. Ltd. P'ship v. Combe Inc. , 955 F.2d 242, 244 (4th Cir. 1992). We begin with the Government's evidence, considering it as a whole but taking care to construe all facts and inferences in the light most favorable to the Claimants.

We start with a piece of evidence that contributes nothing to the whole. The Government argues that McClellan's prior drug charges and the cash forfeited in 2013 are evidence that he was likely dealing drugs when the cash was seized. In doing so, the Government asks us to make exactly the kind of "forbidden propensity inference" that the Federal Rules of Evidence prohibit. See United States v. Hall , 858 F.3d 254, 266 (4th Cir. 2017) (quoting United States v. Davis , 726 F.3d 434, 442 (3d Cir. 2013) ). The Federal Rules of Evidence bar parties from introducing evidence of a crime "to prove a person's character in order to show that on a particular occasion the person acted in accordance with the character." Fed. R. Evid. 404(b)(1). The rule ensures that the accused is tried for the allegation at hand and not his past wrongs. See Hall , 858 F.3d at 266. Thus, "it is well established that the ‘fact that a defendant may have been involved in drug activity in the past does not in and of itself provide sufficient nexus to...