United States v. Phillips

883 F.3d 399

UNITED STATES of America, Plaintiff–Appellee,

v. Damian PHILLIPS, Claimant–Appellant,andCurrency, $200,000.00 IN U.S., Defendant.

No. 16-2358

United States Court of Appeals, Fourth Circuit.

Argued: January 24, 2018

Decided: February 21, 2018

David Allen Bauernfeind, LAW OFFICE OF DAVID BAUERNFEIND, Raleigh, North Carolina, for Appellant. Steven N. Baker, OFFICE OF THE UNITED STATES ATTORNEY, Greensboro, North Carolina, for Appellee.

Before WILKINSON, NIEMEYER, and MOTZ, Circuit Judges.

Affirmed by published opinion. Judge Motz wrote the opinion, in which Judge Wilkinson and Judge Niemeyer joined.

DIANA GRIBBON MOTZ, Circuit Judge:

In this civil forfeiture case, the United States claims that $200,000 in cash discovered in a storage unit leased by Byron Phillips is subject to forfeiture because the cash is connected to the "exchange [of] a controlled substance." See 21 U.S.C. § 881(a)(6). Damian Phillips, Byron's brother, seeks to intervene, contending that the money is his life savings and has nothing to do with drugs. The district court granted the Government summary judgment, holding that Damian lacked standing to intervene. We affirm. Although claimants in civil forfeiture cases need only show a colorable interest in the property to have standing, the undisputed record evidence here establishes that Damian lacks such an interest.

I.

On April 4, 2014, detectives with the Durham County Sheriff's Office received reports of a marijuana odor emanating from a section of storage units at Brassfield Self Storage, located in Durham, North Carolina. After narrowing down the source of the odor with the help of a drug-sniffing dog, officers obtained a search warrant for a storage unit leased to Byron Phillips. Inside the unit, officers discovered a duffle bag with $200,000 in twelve vacuum-sealed plastic bags, though they did not find any marijuana. A drug-sniffing dog later alerted to the cash, indicating an odor of narcotics. Byron had previously been convicted of maintaining a vehicle or dwelling for controlled substances, and, in a separate incident, felony possession of marijuana.

Damian Phillips filed a verified claim stating that the currency found in the storage unit belonged to him, not his brother, Byron, and that the currency "was not [us]ed or intended to be used in exchange for controlled substances or to traffic in controlled substances." In support, Byron submitted a declaration stating that he had allowed his brother to store Damian's life savings of $200,000 in the storage unit.

During discovery, Damian asserted that he had accumulated the $200,000 between 2003 and 2013 by saving his earned income, a workers' compensation settlement, and unemployment benefits. He explained that he played professional football in the NFL and Arena Football League in 2003, worked as a counselor from 2004 to 2010, worked for a city parks and recreation program from 2004 to 2006, and received the settlement in 2008 and unemployment benefits from 2010 to 2011.

Damian's tax returns show that his adjusted gross income was $20,257 in 2003, $15,118 in 2004, $8,820 in 2006, $43,577 in 2007, $60,434 in 2008, $32,912 in 2009, and $10,168 in 2014. The IRS had no record of tax returns filed in 2005 or from 2010 to 2013. Phillips also produced a copy of a $40,095.45 settlement check. And he stated that he received $216 per week in unemployment benefits from November 2010 to November 2011, equivalent to $11,232 for a full year. The gross income reported in tax returns, the settlement, and the unemployment benefits add up to $242,613.45.

Damian admitted that in 2006 and 2010, car dealerships repossessed his vehicles, and that in November 2012, he and his wife were four months ($8,400) behind in their rent payments. In addition, his wife filed for bankruptcy on August 27, 2012. Damian also provided estimates of his monthly expenses from 2003 through 2014, ranging from $750 (in months when he allegedly lived with family members and paid no rent) to $4,552 (in the year 2013). The car payments and monthly expenses that Phillips reported he had incurred from 2003 through March 2014 totaled approximately $250,000.

The Government moved for summary judgment, contending that Damian had not submitted sufficient evidence to establish Article III standing. The district court granted the motion, holding that he lacked standing and that the Government was entitled to forfeiture of the $200,000 found in the storage unit. Damian timely appealed. We review de novo the district court's decision to dismiss for lack of standing. Beck v. McDonald , 848 F.3d 262, 269 (4th Cir. 2017).

II.

We initially address a matter of first impression in this circuit: the appropriate test for third-party standing in civil forfeiture cases. To establish Article III standing, a party "must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct ... and (3) that is likely to be redressed by a favorable judicial decision." Spokeo, Inc. v. Robins , ––– U.S. ––––, 136 S.Ct. 1540, 1547, 194 L.Ed.2d 635 (2016). To meet these requirements, a claimant seeking to challenge a civil forfeiture must have an ownership or possessory interest in the property, "because an owner or possessor of property that has been seized necessarily suffers an injury that can be redressed at least in part by return of the seized property." United States v. $17,900 , 859 F.3d 1085, 1090 (D.C. Cir. 2017) (quoting United States v. $515,060.42 , 152 F.3d 491, 497 (6th Cir. 1998) ); United States v. Contents of Accounts Nos. 3034504504 & 144-07143 , 971 F.2d 974, 985 (3d Cir. 1992).

As in all cases, the "manner and degree of evidence required" to establish standing depends on the "stage[ ] of the litigation." See Lujan v. Defs. of Wildlife , 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). At the pleading stage, a claimant in a civil forfeiture case need only allege a possessory or ownership interest in the property. See $17,900 , 859 F.3d at 1090 ; United States v. $133,420 , 672 F.3d 629, 638 (9th Cir. 2012). "In response to a summary judgment motion, however, the [claimant] can no longer rest on such ‘mere allegations,’ but must ‘set forth’ by affidavit or other evidence ‘specific facts,’ which for purposes of the summary judgment motion will be taken to be true." Lujan , 504 U.S. at 561, 112 S.Ct. 2130 (quoting Fed. R. Civ. P. 56(e) ).

Our court has not previously addressed the "manner and degree of evidence required" for a claimant to establish standing at the summary judgment stage in a civil forfeiture proceeding. Every court of appeals that has addressed the issue in the last twenty years has used the "colorable interest" test, which requires a claimant to present "some evidence of ownership" beyond the mere assertion of an ownership interest in the property. See United States v. $81,000 , 189 F.3d 28, 35 (1st Cir. 1999) ; Torres v. $36,256.80 , 25 F.3d 1154, 1158 (2d Cir. 1994) ; Mantilla v. United States , 302 F.3d 182, 185 (3d Cir. 2002) ; Kadonsky v. United States , 216 F.3d 499, 508 (5th Cir. 2000) ; United States v. $515,060.42 , 152 F.3d 491, 497–98 (6th Cir. 1998) ; United States v. $239,400 , 795 F.3d 639, 642–43 (7th Cir. 2015) ; United States v. One Lincoln Navigator 1998 , 328 F.3d 1011, 1013 (8th Cir. 2003) ; $133,420 , 672 F.3d at 639 (9th Cir.) ; United States v. $148,840 , 521 F.3d 1268, 1276 (10th Cir. 2008) ; $17,900 , 859 F.3d at 1090 (D.C. Cir.).¹

We agree that the colorable interest test applies to determine a claimant's standing to challenge a civil forfeiture. As other courts have recognized, demanding more than "some evidence" of ownership in such cases would be inappropriate in part because of "how challenging it can be to document ownership of property seized by law enforcement." See $17,900 , 859 F.3d at 1090. This is especially true for cash, as "the very qualities that make paper money useful for illicit activity—in particular, its untraceability—often make it difficult to prove that any cash is legitimate, no matter its source." Id.

Moreover, applying the colorable interest test "preserves the important distinction between constitutional standing and the merits" of a civil forfeiture case. Id. at 1091. Although a claimant bears the burden of establishing standing, the government bears the burden of proving, on the merits, "that the property is subject to forfeiture." 18 U.S.C. § 983(c)(1). Here, for example, the Government contends that the currency is linked to the "exchange [of] a controlled substance." Damian contends to the contrary, namely, that the cash is his life savings, not drug money. Requiring him to prove that assertion by demonstrating something more than a colorable interest could impermissibly shift the merits burden to him—essentially requiring him to prove that the money is unconnected to drug activity.

Our criminal forfeiture cases—in which we have held that, to have statutory standing, a third party must demonstrate "dominion and control" over the forfeited property—in no way conflict with our holding today. See In re Bryson , 406 F.3d 284, 291 (4th Cir. 2005) ; United States v. Morgan , 224 F.3d 339, 343 (4th Cir. 2000). In those cases, we did not address Article III standing to challenge a forfeiture at all, but rather described the statutory standing requirements unique to criminal forfeiture proceedings, contained in 21 U.S.C. § 853(n)(6).

Because criminal forfeiture is an action brought against a defendant as part of the prosecution of that defendant, there is only a very limited possibility for a third party to intervene: "Following the entry of an order of [criminal] forfeiture," a third party may, within thirty days, "petition the court for a hearing to adjudicate the validity of his alleged interest in the property." Id. §§ 853(n)(1), (2). At this hearing, the petitioner must establish that he or she had a "legal right, title, or interest in the property" at the time of the criminal acts that...