United States v. Maling ( 1993 )

March 5, 1993
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 92-1698
UNITED STATES,
Appellee,
v.
RALPH MALING,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Andrew A. Caffrey, Senior U.S. District Judge]
Before
Breyer, Chief Judge,
Higginbotham,* Senior Circuit Judge,
and Boudin, Circuit Judge.
Joshua L. Dratel with whom Gerald B. Lefcourt, P.C., was on brief
for appellant.
Frederick E. Dashiell, Assistant United States Attorney, with
whom A. John Pappalardo, United States Attorney, and Paul V. Kelly,
Assistant United States Attorney, were on brief for appellee.
March 5, 1993
*Of the Third Circuit, sitting by designation.
BREYER, Chief Judge. Ralph Maling appeals from a
judgment imposing a fine as partial punishment for drug
crimes. He argues, in essence, that the court wanted to set
the fine at a level that would credit him with the value of
property to be forfeited. He adds that the court failed to
do so. And, the Government, he says, is responsible for
this failure. We find the district court's determinations
lawful, and we affirm its judgment.
I
Background
The reader should keep in mind the following two
sets of background events:
Forfeitures. In May 1990, Maling and the
Government entered into a Plea Agreement, in which Maling
(and several co-defendants) agreed to forfeit property that
would have a total value of $2.8 million. In September
1990, Maling signed a separate agreement in which he
promised to forfeit assets (listed in the agreement's
Appendix A) including some condominiums owned by J & R
Properties, Inc., a firm of which he and James Taglienti
each owned half. On September 20, 1990, the district court
entered an initial "Amended Order of Forfeiture," which
listed the condominiums (among other properties) as items
subject to forfeiture (the forfeiture itself to take place
only after the court had an opportunity to consider any
competing claims to the property). See 21 U.S.C. 853(a),
(p) (providing for assets to be made subject to forfeiture);
853(n)(7) (providing a mechanism for forfeiture actually
to occur); United States v. Schwimmer, 968 F.2d 1570, 1576
n.4 (2d Cir. 1992) (interpreting the RICO equivalent of
853(n)(7) as implying that the Government does not take good
title to forfeited property until after competing claims are
determined); Amended Order of Forfeiture, 8. On November
13, 1990, Taglienti filed a petition objecting, under 21
U.S.C. 853(n), to the forfeiture of the J & R condominiums
on the ground that he (through J & R) owned a half interest
in them. The Government then refused to accept the
condominiums as satisfying (in part) Maling's forfeiture
obligation. And, on May 26, 1992, the district court
entered a "Final Order of Forfeiture," which forfeited other
property, but which specifically said that the condominiums
were not forfeited.
The Fine. In September 1990, the district court
imposed a fine of $250,000 as partial punishment following
Maling's guilty plea to drug charges. Maling appealed. See
United States v. Maling, 942 F.2d 808 (1st Cir. 1991)
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("Maling I"). He argued that the Plea Agreement had assumed
that the defendants would pay no more (in fines plus
forfeitures) than $2.8 million total. He added that the
fine plus forfeitures would exceed that amount. We agreed
that the Plea Agreement did assume a $2.8 million "ceiling,"
but we held that the Plea Agreement bound the parties, not
the district court. Nonetheless, we concluded that there
had been "confusion during the sentencing proceedings about
the meaning of the Plea Agreement." And, because of that
confusion, we would "vacate the sentence insofar as it
imposes fines . . . and remand for resentencing in respect
to fines." Id. at 811. We said specifically:
Although the Agreement does not bind the
district court, we believe the
appellants should now be sentenced with
the district court fully aware of the
Agreement's efforts to impose a $2.8
million cap upon the appellants' total
financial liability.
Id. (emphasis added).
On remand, the district court received written
submissions from the parties and held three further
hearings. The court said that it wished to impose fines
such that the "total financial liability" would amount to
$2.8 million. The court then entered judgment imposing a
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fine of $634,000 against Maling. He now appeals that
judgment.
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II
The Size of the Gap
The district court made clear that its basic
objective in assessing a fine in the amount of $634,000 was
to fill a gap -- the gap between the value of the assets
forfeited and the $2.8 million Plea Agreement "ceiling."
Maling says the district court was mistaken in believing
there was such a gap. In particular, he says, the gap was
filled, without the fine, by 1) his forfeiture of
condominiums owned by J & R Properties, Inc., valued at
$300,000, and 2) his forfeiture of property in Westwood,
valued at $335,000. The Government refuses to accept the
condominiums; it agrees that Maling forfeited the Westwood
property after entry of the $634,000 judgment and that the
judgment must be modified to take its value into account.
(The district court expressly left the judgment open for
sixty days so that it could be modified.) The Government
disagrees, however, about the value of that property.
The upshot is that the Government believes Maling
must pay a fine of $344,000, while Maling believes he need
not pay any fine at all. The difference reflects the
disagreements about whether the Government must accept the J
& R condominiums (worth $300,000) and about the value of the
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Westwood property (the difference in valuations amounting to
$45,000).
Before turning to the disagreements, we point out
that the district court has broad legal powers to determine
the amount of the fine. See Fed. R. Crim. P. 11(e)(1)(B);
Maling I, 942 F.2d at 810 (court not bound by sentencing
recommendations derived from Plea Agreement) (citing cases);
21 U.S.C. 848(a) (authorizing a fine of up to $2 million
for one of the offenses of which Maling was convicted);
U.S.S.G. 5E1.2(c)(4) (Sentencing Guidelines do not
constrain fines where statute authorizes fines in excess of
$250,000); United States v. Savoie, No. 92-1920, slip op. at
14-15 (1st Cir. Feb. 8, 1993) (appellate review of fines
imposed by the district court is under "an abuse-of-
discretion rubric" only). The court was not legally
compelled to limit its fine to the size of the gap (though
it quite reasonably chose to do so). Similarly, the court
was not legally required to measure the gap precisely or to
engage in professional matters of appraisal or make
technical property law determinations in doing so. The law
would permit the court to assess its fine on the basis of a
rough estimate of the gap size, or on an assumption that the
Government would probably, but not definitely, win disputed
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matters in respect to what was, or what was not, forfeitable
under the Plea Agreement. For this reason, we review the
district court's judgments about "gap size" with a degree of
deference.
a. The J & R Condominiums. Maling must concede
that there is a $300,000 gap, for, in fact, he has not
forfeited the J & R condominiums. Rather, he argues that
the Government should have accepted the condominiums for
forfeiture, and the district court should have assessed the
fine as if the government had done so. His claim that the
Government had to accept the condominiums stems from the
Plea Agreement, which says that the parties will enter into
a "separate agreement" that "specifically describe[s]" the
"property and assets" to be forfeited. That "separate
agreement" (as we have said) lists the J & R condominiums
among those assets. Consequently, says Maling, the
Government, having signed this "separate agreement," cannot
later reject the assets that it listed.
The Plea Agreement, however, contains an important
qualification. It says that "physical assets" will satisfy
the "forfeiture" obligation only if those physical assets
are "without any encumbrances." This qualification affects
the "separate agreement" subsequently made pursuant to the
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Plea Agreement. Thus, we read the Government's September
1990 agreement, accepting the forfeiture of "[a]ny and all
interest of J & R Properties, Inc." (our emphasis) in the
condominiums (not merely the "interest" of Maling) as
conditioned on the condominiums' being unencumbered when
forfeited. As we have said, after the parties signed that
"separate agreement" and after Maling (as J & R's President
and Treasurer) purported to convey the J & R condominiums to
the Government (but before the forfeiture order was final),
Maling's J & R co-owner James Taglienti filed a petition
with the court, under 21 U.S.C. 853(n), objecting to the
forfeiture on the ground that he had a fifty percent
interest in the condominiums. The Government asked the
court to omit the condominiums from its final forfeiture
order because it considered the petition an "encumbrance."
Maling argues that neither the petition (nor a
later-filed state tax lien, which we need not consider)
amounts to an "encumbrance." First, he says that
Taglienti's petition is without legal merit, for Taglienti,
too, was involved in (or knew about) relevant drug
activities, which involvement would prevent him from saving
his interests in the condominiums from forfeiture. See 21
U.S.C. 853(c), (n)(6). He adds that, even if Taglienti's
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petition is otherwise valid, the Government received title
documents from J & R's President and Treasurer (Maling) in
"good faith," which fact, under Massachusetts law, means the
Government takes title free of Taglienti's asserted
interests. Mass. Gen. L. ch. 155, 8; ch. 156B, 115; cf.
United States v. New Silver Palace Restaurant, Inc., 1992 WL
404160 (E.D.N.Y. Nov. 25, 1992) (finding shareholders'
rights in respect to corporate assets to be an inadequate
basis for a petition against forfeiture under 21 U.S.C.
881).
We need not consider whether or not Maling is
correct about the merits of Taglienti's claim, however, nor
need the district court have done so. We read the phrase
"without any encumbrances" as one who buys property would
likely read it, namely as imposing upon the conveyer an
obligation to clear up any asserted legal claims upon that
property prior to transfer, so that the buyer will receive
the property alone, instead of receiving "the property plus
the obligation to fight a lawsuit" (regardless of whether
the lawsuit ultimately turns out to be unfounded). See
American Law of Property 18.84 (A. James Casner ed., 1952)
("A pending action assailing a vendor's title or asserting
an interest therein or a lien thereon of which a purchaser
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has notice is at least a cloud on the title. Since a court
will not compel a purchaser to 'buy a lawsuit,' the pendency
of one of the character indicated is an encumbrance.")
(citations omitted). Such a reading would avoid imposing
upon the Government title-clearing obligations that it does
not wish to undertake, without (ordinarily) harming the
potential transferor (who simply would retain whatever
property interest he previously owned). Maling points to
nothing that might suggest that this natural reading of the
agreement is incorrect.
Such a reading ends the argument. To adjudicate
the merits of Taglienti's claim would require a legal
proceeding (perhaps a rather complicated one), as would any
effort to demonstrate that the Government (which had long
known that Taglienti was Maling's J & R co-owner) was a
"good faith" transferee entitled to clear title in all the
property, irrespective of the merits of Taglienti's claim.
See Mass. Gen. L. ch. 155, 8; ch. 156B, 115 (requiring
"good faith" for transferee of real estate from corporation
to take free of rights of owners of corporation). Hence, we
see nothing unlawful about the district court construing the
Plea Agreement's word "encumbrance" as encompassing the
Taglienti petition.
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Maling also claims that the Government is
"estopped" from refusing to accept the condominiums.
Estoppel, however, requires a statement or promise or action
that leads to reasonable reliance to one's detriment. See,
e.g., Restatement (Second) of Contracts 90(1) (1981) ("A
promise which the promisor should reasonably expect to
induce action or forbearance on the part of the promisee . .
. and which does induce such action or forbearance is
binding if injustice can be avoided only by enforcement of
the promise.") (emphasis added). We cannot find a statement
or action by the Government, in respect to the condominiums,
that led Maling reasonably to rely to his detriment on the
Government's keeping the condominiums despite a pre-final-
order "encumbrance" which, under the plea agreement,
entitled it to reject them. The Government, we concede,
knew (as, of course, did Maling) that Taglienti was a J & R
co-owner long before the condominiums appeared on the
"separate agreement" forfeiture list. But, Maling points to
no statement or action that suggests that the Government,
rather than Maling, was responsible for preventing any such
legal "cloud" upon the property from arising, or for
removing it once it arose. We also concede that the
Government, for a time, accepted condominium rents
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(presumably because it anticipated that forfeiture would
transfer the property to the Government with retroactive
effect, 21 U.S.C. 853(c)). But, we do not see how Maling
is any the worse for its having done so (assuming, of
course, that the Government pays over to him the rents it
received). That is to say, we do not see how the
Government's returning the property makes Maling
significantly worse off than had the Government never
included the property on the "separate agreement" list in
the first place. The district court could reasonably have
found no "reliance to his detriment" on Maling's part and
therefore no "estoppel."
Maling's strongest argument is that he wanted to
clear Taglienti's "encumbrance;" indeed, he asked the court
to permit him to prove that Taglienti was not the kind of
"good faith" or innocent owner who could object to
forfeiture of his own (i.e., Taglienti's) interest in the
property. See 21 U.S.C. 853(n)(6). But, once the
Government told the court that it did not want the
condominiums, the court simply denied Maling's request as
"moot." Maling, in essence, asks, "How can the Government
turn down the property as encumbered without letting me
remove the encumbrance?"
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The short, conclusive answer to this question lies
in the Plea Agreement itself. It says the Government can
turn down encumbered property. It does not say the
Government must give Maling a chance to remove an
encumbrance. And, we will not read such a right into the
Agreement, at least, in respect to this kind of removal of
an encumbrance. Maling does not offer to show that
Taglienti does not own the property. Rather, he wants to
intervene in the special statutory "third party versus
Government" proceedings to show that the Government could
defeat Taglienti's interest, if it decided to try to do so.
21 U.S.C. 853(c), (n)(6). But, the statute creates those
special proceedings, placing a special burden on third
parties to prove that they have "clean hands," in order to
benefit the Government. See S. Rep. No. 225, 98th Cong., 2d
Sess. 82, 191-92, 208, reprinted in 1984 U.S.C.C.A.N. 3182,
3265, 3374-75, 3391 (expressing purposes of removing
obstacles in the way of federal law enforcement agencies
seeking forfeiture, of ensuring expedition, and of
protecting third parties); United States v. Regan, 858 F.2d
115, 121 (2d Cir. 1988) ("orders directed at third parties
are strong medicine and should not be used where measures
that are adequate and less burdensome on the third parties
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are available."). They are not designed to help defendants
who would like to see some other person's property
forfeited, thereby perhaps obtaining credit. Thus, we think
the court acted lawfully in denying Maling's petition for
such a proceeding.
Is this result unfair to Maling? One can imagine
circumstances that could make it seem so. Suppose, for
example, that the Government, knowing full well that
Taglienti would likely create an encumbrance (i.e., file a
petition objecting to the forfeiture) led Maling down the
garden path. On the other hand, one can easily imagine
circumstances that indicate the contrary. Suppose, for
example, that the Government assumed that Taglienti would
not object (or that Maling could persuade him not to
object); or, suppose that the Government did not think about
the matter and Maling simply saw a fleeting opportunity to
satisfy a portion of his debt with someone else's property.
Regardless, this kind of ultimate fairness or unfairness to
Maling would arise out of facts and circumstances of which
we know little. And, it is beside the point. The
Government and Maling signed an Agreement the language of
which placed the risk of this, and any other, encumbrance
upon Maling. In all likelihood the Government wanted this
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language so that it would not have to become involved in the
kind of property law disagreements that Maling now raises.
The district court so interpreted the Agreement. It based
its fine upon that interpretation. In our view, the
district court's view is reasonable; and the resulting fine
is therefore lawful.
b. The Westwood Property. Maling argues about the
value of his forfeited Westwood property, property which was
not included in the September 1990 "separate agreement" list
and which he offered to forfeit for the first time in about
September 1991. An appraisal made about seventeen months
earlier (before the plea agreement) valued the property at
$335,000. By late 1991, when Maling offered the property to
the Government, its value had declined to $245,000. The
Government told the court that, for purposes of assessing
the "gap-filling" fine, it would assume the property was
worth $290,000, thereby "splitting the difference" between
the two evaluations.
Maling argues that he should be credited with the
higher valuation. But, we can find no promise by the
Government that it would do so. And, in the absence of such
a promise, we are aware of no law that would prevent the
Government from advising the court that the property should
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be assessed at $290,000 for "gap-filling" purposes. In the
absence of some specific agreement about valuation dates,
"splitting the difference" does not seem unreasonable to us;
and we do not know why the district court could not have
reached a similar conclusion.
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III
Recommending a Fine
The Plea Agreement, while leaving the court free
to impose a fine, nonetheless prohibits the Government from
recommending a fine. See Maling I, 942 F.2d at 810-11.
Maling says that the Government violated this obligation
when counsel told the district court, for example:
If the Court is entertaining the thought
of a fine, my suggestion in [sic] how
that should be fashioned . . . is that
the Court should issue an order of a
criminal fine in the amount of $634,000.
Taken out of context, this statement, and a few others like
it, might suggest a not-very-subtle attempt to avoid the "no
recommendation" obligation. Cf. United States v. Canada,
960 F.2d 263, 269 (1st Cir. 1992) (we will not allow the
Government to pay "lip service" to a plea agreement and then
do "end-runs" around it). But, in context, the statements
are perfectly proper.
The context reveals that the district court had
already decided to impose a fine despite the absence of a
fine recommendation. The context makes clear that the court
wanted, or could benefit from, discussion, recommendations,
and argument from all counsel, about the amount of fine that
would keep the total monetary liability within the $2.8
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million "ceiling." Government counsel, stating specifically
that the "U.S. Government is not recommending to this Court
that they [sic] impose a fine," went on to respond to the
court's request to help it determine the proper amount of
the fine that the court independently had decided to impose.
We see no violation of the Plea Agreement.
The judgment of the district court is
Affirmed.
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