Posts Tagged ‘turnover orders’

Turnover Orders in Civil Forfeiture Cases

By Steven L. Kessler | Article Posted 9/16/96

I know what you’re thinking: This article is going to be drier than Death Valley at noon. But, if you handle any forfeiture cases on the federal or state level, the few moments it takes for you to read this may be well worth your — and your client’s time.

In the forfeiture area, New York is what is called a “turnover order” state. This means that an order must be obtained from the state court which signed the warrant before the seized property is transferred to a court of another jurisdiction. This scenario arises most frequently when property is seized pursuant to a state warrant but, for any of a myriad of reasons, the District Attorney decides not to proceed, preferring instead to hand over the case to the federal authorities for prosecution.

To appreciate the issue in this context, discussion of some basics are in order.

First, although state forfeiture proceedings under CPLR Article 13-A are in personam — commenced against the individual — the subsequent federal forfeiture action is in rem — directed against the property. In an in rem forfeiture proceeding, jurisdiction is obtained only when the res is properly under the control of the federal court.

Moreover, when deciding the propriety of a federal court’s jurisdiction, the court must look to the law of the state pursuant to which the property was seized and transferred to its control. If there is a state law requiring that a court “turnover” order must be obtained prior to the transfer or adoption, that statute must be complied with. Without such an order, the federal action must be dismissed and the property must be returned.

Under New York’s statutory scheme, Criminal Procedure Law _690.55, once a New York court receives property pursuant to its warrant, the court may: (a) Retain it in the custody of the court pending further disposition thereof pursuant to subdivision two or some other provision of law; or (b) Direct that it be held in the custody of the person who applied for the warrant . . . upon condition that upon order of such court such property be returned thereto or delivered to another court.

Section 690.55 does not permit the transfer of the property to an investigatory authority, such as the U.S. Attorney’s office. Further, a proper, although as yet untested, reading of the statute requires the pendency of another criminal action.

Accordingly, even Federal civil term, before whom a civil forfeiture action might be filed, would not have jurisdiction.

Tangentially, the fact that the state prosecutor decides not to pursue a state forfeiture proceeding does not divest the state court of jurisdiction over the res. Once property has been seized pursuant to a state warrant, jurisdiction over the res is not lost until the court makes a determination pursuant to C.P.L. _690.55. Also, the subsequent ssuance of an in rem warrant does not remedy the initial unlawful transfer of the property, the subsequent unlawful retention of the property or the government’s refusal to return the property. Without the statutorily required turnover order, the federal court is without jurisdiction.

Even if the state court directs another person to retain custody of the property, the “property seized pursuant to a search warrant technically remains in the custody of the court, and the District Attorney or property clerk possesses the property only as an officer of the court, subject to the court’s direction and disposition.” In re Documents Seized Pursuant to a Search Warrant, 124 Misc.2d 897, 478 N.Y.S.2d 490, 494 (Sup. Ct. N.Y. Co. 1984), quoted by Mansour v. Abrams 151 Misc.2d 121, 573 N.Y.S.2d 364, 368 (Sup. Ct. Monroe Co. 1991); see Stuhler v. State of New York, 127 Misc.2d 390, 485 N.Y.S.2d 957, 959-960 (Sup. Ct. N.Y. Co. 1985) (holding that _690.55 provides a state court with the “power to direct [the State of New York] to retain [seized property] pending distribution pursuant to a restitution plan”), cited by United States v. Benitez, 779 F.2d 135, 139 (2d Cir. 1985) (noting that _690.55 provides the court with “the power to retain custody of property seized pursuant to a search warrant”). New York’s statutory scheme, therefore, provides that the disposition of the res is subject only to orders of the state court. Mandeville v. Canterbury, 318 U.S. 47, 49, 63 S.Ct. 472, 87 L.Ed. 605 (1943) (recognizing that “possession and control of the property . . . are indispensable to the exercise of [in rem] jurisdiction”); United States v. One 1987 Jeep Wrangler, 972 F.2d 472, 477 (2d Cir. 1992) (noting that “custody . . . over the res” is the “elemental distinction of in rem jurisdiction which allows for jurisdiction”).

So what happens if the local DA transfers the property to the feds without first securing a turnover order? That was the issue before the district court in United States v. $490,920 in United States Currency, 911 F.3d 720?? (S.D.N.Y. 1996), a case to which the remainder of this article will be devoted. Note that, as you might guess, the decision in each case must be fact specific, relying heavily upon the fact pattern before the court. In any event, the following discussion should prove instructive.

In $490,920, the state and federal authorities failed to secure a turnover order from New York State Supreme Court Justice Franklin Weissberg prior to transferring nearly half million dollars from state to federal custody in January 1995. Based upon this failure, Claimants argued that the state court retained exclusive in rem jurisdiction over the funds until the U.S. Attorney’s office and the District Attorney’s office complied fully with Justice Weissberg’s order directing the return of the property, and that the federal forfeiture action, initiated after the issuance of Justice Weissberg’s order, should be dismissed for lack of in rem jurisdiction.

The court agreed. Finding C.P.L. _690.55 to be jurisdictional in nature, the court interpreted the statute as providing the state court with exclusive in rem jurisdiction until it relinquishes its jurisdiction upon full compliance with its final disposition order regarding the seized property.

Decisions from other circuits suggest that turnover order requirements are indicative of the jurisdictional nature of a state’s warrant and seizure scheme. One such case is Scarabin v. Drug Enforcement Administration, 966 F.2d 989 (5th Cir. 1992), a case that should be taped to the office wall of any attorney practicing in the forfeiture area. In Scarabin, the Fifth Circuit interpreted a Louisiana statute which provided that “when property is seized pursuant to a search warrant, it shall be retained under the direction of the judge. If seized property is not to be used a [sic] evidence or is no longer needed as evidence, it shall be disposed of according to law, under the direction of the judge.” 966 F.2d at 994. State deputies executed a search warrant issued pursuant to this provision and seized, among other things, $12,360 in cash allegedly derived from drug dealing. Id. at 991. Three days later, the state officials, without the knowledge or authority of the state court, bought a cashier’s check using the seized funds. The state authorities then transferred the cashier’s check to the DEA for civil forfeiture under federal law. Subsequently, the DEA proceeded to administratively forfeit the $12,360 cashier’s check while purporting to forfeit the $12,360 seized.

The Circuit court held that the forfeiture “never happened” because the DEA only had custody of the cashier’s check, not the underlying currency. Absent anything for the court to review, the court dismissed the appeal due to the lack of jurisdiction.

But even if this court were to ignore the DEA’s recent confession that it never had physical control over the res — Scarabin’s $12,360 in cash — we would nevertheless conclude that the DEA lacked in rem jurisdiction to forfeit Scarabin’s property. From the moment of seizure the state district court had exclusive control over the res by virtue of issuing the search warrant that procured the seized funds and never relinquished that control to the DEA or any other agency or person. A federal agency cannot obtain jurisdiction over the res — and thus cannot find the res administratively forfeit — when a state court obtains jurisdiction first and never relinquishes that jurisdiction. Id. at 993.

The court expressly rejected the notion that “a state court may acquire in rem jurisdiction only through [the] . . . commencement of forfeiture proceedings in that court.” Id. at 994. Further, the court stated, under Louisiana’s warrant statute — a broader scheme than New York’s — the “state court’s control terminates when, but only when, the seized property is dispose of according to the law,” and may not be defeated by “unsanctioned transfers by local police.” Id. at 993. Accordingly, the court instructed the DEA, if it still wished to bring a forfeiture proceeding against the $12,360, to “first seek a turnover order from the state court, or wait until that court relinquishes control over the res, and then proceed anew.” Id. at 995. More recently, the Eighth Circuit was confronted with a “conflict between state jurisdiction over seized property and federal adoptive forfeiture of that property.” In Madewell v. Downs, 68 F.3d 1030, 1041 (8th Cir. 1995), the court discussed its prior holding that the seizure of property pursuant to a Missouri warrant does not establish exclusive state jurisdiction over the seized property preventing its voluntary transfer to federal authorities. Rather than disagreeing with the Fifth Circuit’s contrary opinion in Scarabin, however, the Eighth Circuit distinguished it, basing its holding on a fundamentally different state warrant and seizure scheme than that addressed by the Fifth Circuit.

Missouri, unlike the Louisiana statutes at issue in Scarabin, had “no such jurisdictional element to its statutory warrant and seizure scheme, but instead approves of the voluntary turnover of seized property from state or local officials to federal agencies for the commencement of forfeiture proceedings.” The court continued by noting that “although Missouri now has a statute specifically requiring a turnover order from the court before transfer of property to federal control, it did not have such a statute at the time of the events in question here.” Id. at 1042-1043 (footnote omitted).

The Seventh Circuit affirmed a district court’s dismissal of a forfeiture action based upon the lack of in rem jurisdiction. United States v. One 1987 Mercedes Benz, 2 F.3d 241 (7th Cir. 1993). Although state forfeiture proceedings were not instituted, the state officials transferred the Mercedes to the DEA without obtaining the requisite state court turnover order. In this regard, the court held that lacking a turnover order, federal authorities did not obtain lawful possession of the Mercedes.

“Indeed, their possession has been improper since the unauthorized transfer took place. As a result, the Mercedes was not properly before the district court, and thus the court had no jurisdiction to order the vehicle forfeited. Therefore, the district court’s first dismissal for lack of in rem jurisdiction was correct, as was the order that the Mercedes be returned to the Clerk of the Circuit Court of Cook County.” Id. at 243. The court stressed that, even if a state forfeiture proceeding was pending, its decision did ” not turn upon who won the forfeiture “foot race” in the courts, but rather upon the fact that there is no authority for the type of transfer between executives of agencies that took place here.'” Id. (citation omitted). See also United States v. One 1979 Chevrolet C-20 Van, 924 F.2d 120 (7th Cir. 1991).

In a related context, the Ninth Circuit affirmed a district court’s order forfeiting an automobile, but reversed and remanded an order forfeiting currency. United States v. One 1985 Cadillac Seville, 866 F.2d 1142 (9th Cir. 1989). While state forfeiture proceedings against only the currency were pending, the DEA seized both the currency and the automobile.

Regarding the currency, the Circuit court declined to “substitute a rule of force for the principle of mutual respect embodied in the prior exclusive jurisdiction doctrine.” Id. at 1146 (citation omitted). The court held that the district court should not have exercised in rem jurisdiction because the state forfeiture proceeding commenced prior to the federal proceeding, and the “last recorded order of the state court . . . requires the money to be held by state authorities pending disposition.” Id. at 1145.

Absent “some affirmative act of abandonment” of the property by the state court, the state court retains the exclusive jurisdiction over the res. It is not sufficient for state executive authorities to approve the federal seizure of the res, because the exclusive in rem jurisdiction rule was “intended to promote comity between courts, not executives.” Id. With respect to the car, the court upheld district court jurisdiction because the vehicle “was the subject of neither the state forfeiture complaint nor of any state court order.” Thus, as the court in $490,920 held, statutory turnover requirements, such as C.P.L. _690.55, provide the state court with in rem jurisdiction which, absent compliance with the requirement, will defeat an attempt by another court subsequently to exercise in rem jurisdiction over the same res.

The $490,920 court properly distinguished decisions which suggested that the institution of a state forfeiture action, rather than the issuance of a warrant, is necessary to obtain in rem jurisdiction. For example, the First Circuit addressed a claimant’s argument that a district court lacked in rem jurisdiction over a res already subject to a prior state proceeding. United States v. One 1986 Chevrolet Van 927 F.2d 39, 44-45 (1st Cir. 1991). The court disagreed, holding that the only state action pending was an in personam criminal action against the claimant. In addition, the court stated that “contrary to Claimant’s contentions, this conclusion is not altered by the fact that the car was seized following a search conducted pursuant to a state warrant.” Id. However, as recognized by the Fifth Circuit, the First Circuit offered “no explanation for its bald assertion that state court control begins with the commencement of state forfeiture proceedings,” rather than the issuance of a warrant. Scarabin, 966 F.2d at 944. See also United States v. Salen/Forsyth County Bd. of Educ., 902 F.2d 267, 269 (4th Cir. 1990) (decision relied upon authority that did not involve a competing state warrant or proceeding; in fact, the seizing official was a federal official. Concerns of comity between the state and federal judiciaries, therefore, were not implicated).

Of note in $490,920 was the court’s discussion of the general rule of exclusive in rem jurisdiction. ” A common-law rule of long standing prohibits a court, whether state or federal, from assuming in rem jurisdiction over a res that is already under the in rem jurisdiction of another court.'” Chesley v. Union Carbide Corp., 927 F.2d 60, 66 (2d Cir. 1991) (quoting United States v. One 1985 Cadillac Seville, 866 F.2d 1142, 1145 (9th Cir. 1989); China Trade and Dev. Corp. v. M.V. Choong Yong, 837 F.2d 33, 36 (2d Cir. 1987) (“A long-standing exception to the usual rule tolerating concurrent proceedings has been recognized for proceedings in rem or quasi in rem, because of the threat a second action poses to the first court’s basis for jurisdiction”); Lankenau v. Coggeshall & Hicks, 350 F.2d 61, 64 (2d Cir. 1965) (“Where the jurisdiction of the state court has first attached, the federal court is precluded from exercising its jurisdiction over the same res to defeat or impair the state court’s jurisdiction”).

The purpose of the rule of exclusive in rem jurisdiction is clear. “It would be a most unseemly intrusion, inconsistent with the implications of federalism, were an order of one court to deprive the other court of its basis for jurisdiction and power to proceed.” Lankenau, supra; accord Mandeville, 318 U.S. at 49 (expressing the “necessity to prevent unseemly conflicts between the federal and state courts and to prevent the impasse which would arise if the federal court were unable to maintain its possession and control of the property, which are indispensable to the exercise of the jurisdiction it has assumed”); Princess Lida v. Thompson, 305 U.S. 456, 466, 59 S.Ct. 275, 83 L.Ed. 285 (1939) (“The doctrine is necessary to the harmonious cooperation of federal and state tribunals”); Chesley, 927 F.2d at 66 (“The purpose of the rule is the maintenance of comity between the courts . . . .”) (citation omitted).

There is, however, an exception to exclusive in rem jurisdiction. At least in the Second Circuit, the government highlights this exception by relying upon United States v. $3,000,000 Obligation of Qatar Nat’l Bank, 810 F. Supp. 116 (S.D.N.Y. 1993) to assert that even if New York’s statutory scheme is jurisdictional, “two courts can exercise jurisdiction concurrently over the same res where the rulings and judgments of the second court do not interfere with the first court’s jurisdiction over the res or give rise to concerns of comity.” A careful reading of $3,000,000 Obligation and the cases upon which it relies, however, demonstrates that although a second court may adjudicate rights in a res subject to a first court’s in rem jurisdiction or issue other orders which are related to the res, this exception does not sanction a second court exercising its jurisdiction to interfere with the possession of the res in the custody of the first court.

In $3,000,000 Obligation, the government commenced a forfeiture action under 18 U.S.C. _981 against funds allegedly derived from an unlawful sale of aircraft parts to Libya. In August 1989, one of the individuals involved in the illegal export scheme filed an action in New York state court and, by way of an order to show cause, sought to restrain the payment of the funds. The court issued the temporary restraining order and, on April 24, 1990, issued a preliminary injunction enjoining payment of the funds to certain individuals involved in the export scheme. In October 1990, the federal government filed its forfeiture action against the funds.

Although the claimant argued that the federal court lacked in rem jurisdiction over the funds, the court rejected this argument. The court denied the motion to dismiss for lack of jurisdiction. The court held that the “first exercised jurisdiction is exclusive only so far as . . . exercise [of exclusive jurisdiction] is necessary for the appropriate control and disposition of the property.'” Id. at 118, quoting Penn General Casualty Co. v. Pennsylvania, 294 U.S. 189, 198, 55 S.Ct. 386, 79 L.Ed. 850 (1935).

The rulings and judgments of this court need not in any way affect or interfere with the state court’s jurisdiction over the res, or give rise to concerns of comity, . . . because, in an action of this nature, the federal court could stay the execution of its judgment as to the res and assert a lien that would result in seizure of the asset only upon its release from the state court’s control.

$3,000,000 Obligation, 810 F. Supp. at 118.

But although they qualify the absolute nature of the exclusive in rem jurisdiction doctrine, the cases upon which the court relied in $3,000,000 Obligation leave unfettered the doctrine’s underlying concern, based on comity, for respecting the first court’s control over the res within its possession or custody. Under the facts in $490,920, this concern mandated “the denial of the Government’s request for a seizure warrant . . . and the dismissal of the complaint.” In $490,920, the government filed its complaint in the midst of “its intentional violation of the [state court’s order] regarding the possession and custody of the Funds. With each passing day, in other words, the Government and the D.A.’s office are in further violation of an order that directly implicates the concerns of comity which lie at the core of the doctrine of exclusive in rem jurisdiction. Further, for reasons unarticulated, the Government chose not to appeal the [state court order] or to renew its request of Justice Weissberg for a turnover order after filing the instant action. . . .” Instead, the Government stands before this Court requesting an in rem seizure warrant in an attempt to cure what it concedes is a potential defect in in rem jurisdiction’ (citation omitted). The Government’s plea to the need to indicate its independent interest in seeking forfeiture of the funds’ (id.) does not mask the reality of its willful and continuous violation of an order regarding the possession and custody of a res already subject to another court’s jurisdiction. To encourage this ongoing violation is to render the concerns of comity a nullity. The Government’s reliance on decisions which suggest that certain exercises of concurrent in rem jurisdiction are permissible is without merit and thus does not allay the concerns of comity.

Accordingly, the district court held, until the state court relinquishes its jurisdiction over the property upon full compliance with his order or otherwise, i.e., by entering a turnover order, the federal court may not exercise concurrent in rem jurisdiction over the funds.

A few final thoughts. The government in $490,920 subsequently secured from the court an anticipatory seizure warrant. These proceedings are pending in district court, with an order to show cause pending in state court to compel the government’s compliance with the state court order. Notably, the attorneys from both prosecutors’ offices have insisted in affirmations and at oral argument that the situation surrounding this “mistaken, inadvertent, once-in-a-lifetime transfer” will not happen again as “measures have been put in place to prevent its reoccurrence.” Take that from whence it comes, because, only a few weeks ago, a potential client approached me with a virtually identical scenario. The point is: Beware of the turnover situation, especially in the adoptive forfeiture setting. Catching the government in this “rare, inadvertent, once-in-a-lifetime mistake” may secure the return of your client’s property without lengthy and costly litigation.

Steven L. Kessler is a practicing attorney in New York City and the author of Civil and Criminal Forfeiture: Federal and State Practice (Clark Boardman Callaghan 1993 and 1996 Supp.), a three-volume treatise on the forfeiture and RICO statutes in all 50 states and the District of Columbia and major federal forfeiture provisions, with interpretive case law and analysis. A sustaining member of the NYSACDL and a member of the Forfeiture Abuse Task force of the NACDL, Mr. Kessler represented the Claimants in the $490,920 litigation.

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