United States v. $8,221,877.16 in United States Currency ( 2003 )

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
5-28-2003
USA v. 221,877.16
Precedential or Non-Precedential: Precedential
Docket 02-1264
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PRECEDENTIAL
Filed May 28, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-1264
UNITED STATES OF AMERICA
v.
$8,221,877.16 IN UNITED STATES
CURRENCY REPRESENTING;
$6,871,042.36 CONTAINED IN ACCOUNT
NUMBER 030101107 KNOWN AS THE VENUS
ACCOUNT, HELD IN THE NAME OF OR
FOR THE BENEFIT OF KESTEN DEVELOPMENT
CORP. AT MTB BANK; $1,345,771.64
CONTAINED IN ACCOUNT NUMBER 12108
KNOWN AS THE TADELAND ACCOUNT HELD
AT FOREX ASSOCIATES WHICH MAINTAINS
AN ACCOUNT AT EAB BANK; $5,063.16
CONTAINED IN ACCOUNT NUMBER 08-1641-3
IN THE NAME OF OR FOR THE BENEFIT OF
RAMAL VENTURES AT ISRAELI DISCOUNT BANK
(Newark New Jersey Civil No. 00-cv-02667)
KESTEN DEVELOPMENT CORP.
v.
MTB BANKING CORPORATION
(Newark New Jersey Civil No. 00-cv-04982)
Kesten Development Corp., and
Turist-Cambio Viagens e Turismo Ltda.,
Appellants
2
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Nos. 00-cv-02667 and 00-cv-04982)
District Court Judge: Honorable Nicholas H. Politan
Argued March 13, 2003
Before: BECKER, Chief Judge,* RENDELL and
AMBRO, Circuit Judges.
(Filed: May 28, 2003)
Paul J. Fishman, Esq. [ARGUED]
Friedman, Kaplan, Seiler & Adelman
One Gateway Center, 25th Floor
Newark, NJ 07102
Mishell B. Kneeland, Esq.
Fleckman & McGlynn
515 Congress Avenue
1800 Bank of America Tower
Austin, TX 78701
Counsel for Appellants
Peter W. Gaeta, Esq. [ARGUED]
Office of the U.S. Attorney
970 Broad Street, Room 700
Newark, NJ 07102
Stefan D. Cassella, Esq. [ARGUED]
U.S. Department of Justice
Asset Forfeiture Section
10th & Constitution Avenue, N.W.
Bond Building, 10th Floor
Washington, DC 20530
Counsel for Appellee
* Judge Becker completed his term as Chief Judge on May 4, 2003.
3
OPINION OF THE COURT
RENDELL, Circuit Judge.
The controversy before us focuses on over eight million
dollars in forfeited funds. Fighting over these funds are, on
the one hand, the corporations that claim them, Kesten
Development Corporation and its Brazilian parent
company, Turist-Cambio Viagens e Turismo Ltda.
(collectively, “Kesten”), and on the other, the United States
government, to whom they have been forfeited. Somewhere
in between lies Kesten’s bank, which, Kesten claims,
improperly turned over the funds to the government. We
address two issues: first, whether we should exercise our
appellate jurisdiction when the appeal is from an order
terminating one of two consolidated cases, and second,
whether the District Court erred in refusing to entertain
Kesten’s dismissal motion and granting judgment of
forfeiture to the government early in the government-
initiated proceedings. We conclude that we should exercise
our jurisdiction and we will reverse the District Court’s
award of judgment of forfeiture and remand for further
proceedings.
I. Background
Our story begins with the seizure of Kesten’s funds. In
January 1999, the DEA obtained warrants to seize the
contents of bank accounts Kesten maintained at MTB and
European American Bank. The warrants directed the agents
to seize the funds within ten days. Within that time frame,
the DEA seized all the existing funds in both accounts,
totaling approximately $7.3 million.1 The DEA then orally
directed MTB to send it any funds subsequently deposited
or wired into the MTB account. From January through
December 1999, MTB did so, forwarding to the DEA over
$800,000 in additional funds (the “after-deposited funds”).
1. The DEA also seized approximately five thousand dollars from an
Israeli bank. Kesten does not claim those funds.
4
Kesten attacked the seizures on two fronts. First, Kesten
brought a four-count suit against MTB in the United States
District Court for the Southern District of New York
claiming that MTB had breached its contractual, statutory,
and common law obligations by turning over the after-
deposited funds without any legal process authorizing that
action (the “MTB action”). Next, Kesten filed a motion under
Federal Rule of Procedure 41(e) in the United States District
Court for the District of New Jersey seeking the return of all
the funds seized by the DEA. In June 2000, after
negotiations with Kesten broke down, the government
instituted the forfeiture action by filing a civil complaint for
forfeiture in the same court.2
The forfeiture complaint alleged that the seized funds
were involved in a drug money laundering conspiracy
headed by a South American money exchanger, Markos
Glikas. Glikas was arrested in April 1998 and convicted of
conspiracy to commit money laundering in March 1999. As
part of the conspiracy, Glikas allegedly delivered drug
proceeds to Antonio Pires de Almeida (“Pires”), the former
owner of Turist-Cambio, who would then launder the
money through various intermediate accounts, ultimately
depositing it in Kesten’s account at MTB (the “Venus”
account). The government claimed that the seized funds
were subject to forfeiture under 18 U.S.C. §§ 981 and 984
for involvement in transactions that violated the federal
money laundering statutes. Along with the complaint, the
government served nearly forty pages of detailed
interrogatories on Turist-Cambio and Kesten, as authorized
by the rules governing forfeiture proceedings.
In July 2000, pursuant to a stipulation extending the
deadline for filing a claim, Kesten filed a verified claim to
the funds, over Pires’s signature as its legal representative.
Kesten was thus prosecuting a civil action in New York and
defending a civil forfeiture action in New Jersey, both of
which revolved around the funds seized from the Venus
account.
After the government filed the forfeiture action, MTB filed
a motion to have the MTB action stayed, to have the
2. Kesten’s 41(e) motion was thereafter denied without prejudice.
5
government joined as an indispensable party, or to have the
action transferred to the District of New Jersey. Finding
that the MTB action could have been brought in New Jersey
and that transfer would serve the interests of justice
because the two actions involved common questions about
the propriety of the seizure, the New York District Court
granted the motion for transfer. Kesten Dev. Corp. v. MTB
Banking Corp., 00 Civ. 2730 (S.D.N.Y. filed Sept. 22, 2000).
At a status conference after the transfer, the Magistrate
Judge overseeing discovery in the forfeiture action entered
an order sua sponte consolidating the forfeiture and MTB
actions “for all purposes.” The Judge then ordered the MTB
action “stayed for all purposes pending a decision on the
motions” then before the Court in the forfeiture action.
The motions then before the Court in the forfeiture action
arose out of Kesten’s motion to dismiss. The government
had granted Kesten additional time to “answer or otherwise
respond to” the forfeiture complaint. Within the stipulated
time period, Kesten filed a motion to dismiss pursuant to
Federal Rule of Civil Procedure 12, based on, inter alia, the
government’s failure to file the complaint within the
applicable statute of limitations. Rather than responding to
Kesten’s motion, the government cross-moved for an order
directing Kesten to answer the complaint and respond to
the interrogatories, arguing that the Supplemental Rule
governing forfeiture pleadings was inconsistent with the
relevant Federal Rule of Civil Procedure and required
Kesten to answer the interrogatories before filing any
dispositive motions. The District Court agreed, holding that
a forfeiture claimant may not file a motion to dismiss, or
any other dispositive motion, in lieu of an answer. United
States v. $8,221,877.16 in U.S. Currency, 148 F. Supp. 2d
427, 434 (D.N.J. 2001). The Court then dismissed Kesten’s
motion to dismiss without prejudice and directed Kesten to
serve its answer and respond to the interrogatories.
Faced with the prospect of responding to enormously
detailed interrogatories, Kesten petitioned the Court for
relief. After a hearing, the Magistrate Judge limited the
scope of the interrogatories and ordered Pires to submit to
a deposition in the United States. (Mag. Order of July 13,
2001) Unfortunately for Kesten, Pires declined to do so, as
6
he was apparently in ill health and also feared that he
would be arrested upon entry into the U.S. He did,
however, indicate his willingness to be deposed in Brazil.
Kesten responded to the remaining interrogatories but
never produced Pires for the deposition.
The government then moved for discovery sanctions
under Rule 37(b), asking the District Court to strike
Kesten’s claim. The District Court granted the government’s
motion, dismissed Kesten’s claim to the funds, and, twelve
days later, entered a final judgment of forfeiture. Kesten
thus lost the funds without ever having a chance to attack
the complaint.
MTB then filed a motion to dismiss the MTB action,
arguing that Kesten should be barred by principles of res
judicata and collateral estoppel from asserting any further
interest in the funds in the MTB action, or alternatively
that Kesten’s civil suit should be dismissed for the same
discovery violation that resulted in the dismissal of Kesten’s
claim to the funds because MTB was also purportedly
harmed by Kesten’s failure to produce Pires. A1494. That
motion is still pending.3
II. Jurisdiction
We exercise jurisdiction pursuant to 28 U.S.C. § 1291over those district court orders that are final. The District
Court here dismissed Kesten’s claim and entered a
forfeiture judgment in favor of the government that would
ordinarily be considered final. See, e.g., United States v. Ten
Thousand Seven Hundred Dollars & No Cents, 258 F.3d
215, 221 (3d Cir. 2001) (finding decree of forfeiture to be
final, appealable order); United States v. Contents of
Accounts Nos. 3034504504 & 14407143 (In re Friko Corp.),
971 F.2d 974, 978 n.3 (3d Cir. 1992) (finding order striking
claim to be final, appealable order). But this is no ordinary
forfeiture case. The forfeiture action from which Kesten
appeals was consolidated “for all purposes” with the civil
3. Judge Politan presided over the forfeiture and bank actions until his
retirement in December 2002. At that time, both actions were
transferred to Judge Cavanaugh.
7
action that Kesten initiated against MTB Bank, which is
still pending. Normally, under Rule 54(b), any order that
disposes of “fewer than all of the claims or the rights and
liability of fewer than all the parties” is not a final,
appealable order unless certified as such by the district
court. Fed. R. Civ. P. 54(b).
Kesten argues that we may exercise jurisdiction because
the orders appealed from should be considered final
notwithstanding the pendency of the bank action.4
Interestingly, MTB has notified the Court that it is not a
party to the case on appeal and is not directly impacted by
the question of our jurisdiction over the issues presented in
the forfeiture case. The government, although it recognizes
that there is an issue as to our jurisdiction, also urges the
Court to address the forfeiture issues before the MTB action
proceeds.
The consolidation of two cases does not automatically
preclude the appealability of an order in one. We have
consistently rejected a bright-line rule, preferring a case-by-
case approach that examines the overlap among the claims,
the relationship of the various parties, and the likelihood of
the claims’ being tried together. See Hall v. Wilkerson, 926
F.2d 311, 314 (3d Cir. 1991); Bergman v. Atlantic City, 860
F.2d 560, 567 (3d Cir. 1988). Applying this fact-specific
approach to the case at hand, we conclude that the orders
in the forfeiture case are final for purposes of appeal.
A close examination of our previous precedents in which
we have spoken on this issue guides our reasoning and
supports this result. In Bergman, our first case to address
this issue, we held that an order disposing of one suit that
had been consolidated for all purposes of discovery and
trial with a second suit was not a final, appealable order
where the second suit was still pending. Id. at 567. There,
a homeowner, suing in his individual capacity and seeking
to represent a class of homeowners, sued various municipal
and housing authorities for amending a development plan
without the consent of the homeowners. The Homeowners
Association that represented the relevant homeowners filed
4. Kesten has moved the District Court for an order severing the two
actions. As of this appeal, that motion is still pending.
8
a second suit with the same central claims. The two suits
were then consolidated “for all purposes of discovery and
trial.” Id. at 562-63. Following consolidation, the district
court granted summary judgment for the defendants
against the individual homeowner. The individual
homeowner appealed. Id. at 563.
We dismissed the appeal for lack of appellate jurisdiction.
In coming to our conclusion that the summary judgment
order in the individual homeowner’s case was not a final
order, we discussed our reasoning in Bogosian v. Gulf Oil
Corp., 561 F.2d 434 (3d Cir. 1977), in which a similar issue
of finality had been presented, but in the context of the
certification of a summary judgment order in one of two
consolidated cases. Bergman, 860 F.2d at 564. There, two
actions had been consolidated, but not “for all purposes.”
We held that the two cases were not a single unit and that
an order in one case could be certified under Rule 54(b).
Bogosian, 561 F.2d at 441. We looked behind the
consolidation label and examined the actual relationship of
one case to the other. First, we noted factors mitigating
against the cases’ separateness: “That both plaintiffs are
represented by the same attorney, the suits are filed in the
same forum, are before the same judge, and the complaints
and the defendants are identical.” Id. However, we then
noted that “the cases have not been consolidated for trial,”
and that it was “possible that the cases could be scheduled
for trial at different times and be tried before different
juries.” Id. We then held that “at least absent consolidation
for all purposes of cases separately filed, each civil action is
to be viewed as a separate unit.” Id.In Bergman we relied on our reasoning in Bogosian and
endorsed consideration of the factors we had outlined there
for determining whether an order in a consolidated case
was final for purposes of appeal. Bergman, 860 F.2d at 567.
Rejecting a bright-line rule, we noted the relevant factors as
including whether the cases were in the same forum before
the same judge, whether the claims and parties were
identical, and whether the cases were consolidated for trial
or just for pre-trial administration. Id. We then reasoned
that, because the two cases were consolidated for all
purposes of discovery and trial, and the adjudication of the
9
issues as to the individual plaintiff would necessarily affect
the rights of the Homeowners Association, the order
disposing of the individual’s claim was not final. Id.In our next case in which we addressed “finality”
concerns in consolidated actions, we applied the Bogosian
factors and found that an order disposing of one case was
a final order for purposes of appeal. See Hall, 926 F.2d at
314. In Hall, we were faced with three consolidated cases:
two were declaratory judgment actions requesting a
determination as to whether a driver who had been in an
accident was an “insured” under an insurance policy, and
the third was a tort action against the driver. Id. at 312-13.
After a hearing, the court entered a judgment that the
driver was not an “insured.” The driver appealed, even
though the district court refused to certify the judgment as
final. The tort action was scheduled for trial several months
later. Id. at 313.
We held that the driver could appeal the order in the
declaratory actions. Id. at 314. We noted that our rulings in
Bergman and Bogosian had turned on whether the cases
had been consolidated for trial. Id. We also emphasized that
in Bergman the complaints in the two actions were
“substantially similar.” Id. We then applied the Bogosian
factors and determined that because the claims were not
the same, the parties were not identical, and it was unlikely
that the actions would be tried together because trial of the
insurance coverage issue before the same jury would have
impermissibly introduced the issue of insurance into the
tort action, the order in the declaratory action was final. Id.Our case law thus instructs us to apply the Bogosian
factors to determine whether the MTB action and the
forfeiture action here are truly a single unit. When we do
so, we find that, as in Hall, the orders on appeal before us
from the forfeiture action are final and appealable.
Although we are faced with two cases that were ordered
consolidated “for all purposes,” a label that seems to make
this case more akin to Bergman, the consolidation order
here was entered by the Magistrate Judge sua sponte,
without briefing or argument, causing some uncertainty as
to what the Court actually intended to accomplish. When
10
we look beyond the label, we find that the two actions are
not consolidated in a way that would preclude our
jurisdiction, and that our disposition of Kesten’s appeal in
the forfeiture action would probably advance, rather than
hinder, the MTB action.
First and foremost, the issues on appeal in the forfeiture
action are completely distinct from the underlying issues in
the MTB action. The forfeiture action will turn on the
government’s right to seizure of the funds under a specific
statutory framework. By contrast, the MTB action
challenges the propriety of the bank’s conduct vis a vis its
depositor and the government. And, although both cases
may touch upon the legality of the seizure warrant, the
forfeiture action comes to us on procedural points peculiar
to forfeiture proceedings that have nothing whatsoever to
do with the seizure of the funds or the merits of Kesten’s
claim to the funds, let alone the merits of Kesten’s action
against MTB Bank. The crucial issue we must consider is
whether the rules applicable in forfeiture cases permitted
Kesten to move to dismiss the forfeiture complaint.
Furthermore, the central issue in the forfeiture action as it
moves forward will be whether the funds were the proceeds
of illegal activity. In contrast, the central issue in the MTB
action is whether MTB should have turned over Kesten’s
money at the oral request of the DEA. Though there may
later be a slight similarity of subject matter regarding the
seizure, this is not enough to preclude our jurisdiction over
the present question. In fact, it could be argued that a final
order in the forfeiture action before the MTB action
proceeds further is advisable, as Kesten might view the
MTB action differently if the forfeiture were to be
overturned and the funds returned.
Second, the parties in both actions are not identical, nor
do they have identical interests. Although the government
and MTB argue that the government is a necessary party to
the MTB action, the government has never been joined, nor
has Kesten shown any inclination to name the government
as a defendant. The sole question in the MTB action is
whether the Bank properly turned over the money, not
whether the money was properly seized by the government.
11
Finally, the two actions are governed by somewhat
different procedural rules and have been treated separately
from the start. We find it highly unlikely that they would or
could ever be tried together. The two are simply not
intertwined. Unlike in Bergman, the resolution of the
forfeiture issues will not in any way hamper the rights of
MTB in the MTB action. If anything, as we have noted,
finality would enhance the situation. And, in fact, when the
Magistrate Judge entered the consolidation order, he also
stayed the MTB action pending the outcome of motions
then before the Court in the forfeiture action. Those
motions are the same motions that eventually gave rise to
this appeal. As MTB has recognized, it has never had any
interest in the issues before us. We therefore see no reason
not to address these issues.
In short, we find that this case is more like the distinct
declaratory and tort actions in Hall and the separable suits
in Bogosian than the nearly indistinguishable homeowners’
suits in Bergman. Because an examination of the Bogosian
factors weighs heavily in favor of finality, we hold that the
orders in the forfeiture case are final orders for the
purposes of section 1291. We will therefore exercise our
jurisdiction to decide the issues on appeal.
III. Merits
Kesten contends that the Supplemental Rules governing
admiralty and forfeiture proceedings do not bar it from
filing a motion to dismiss before answering interrogatories
that the government served with its complaint, and that the
District Court erred in holding to the contrary. It urges that
it was authorized to file its motion to dismiss before serving
an answer, and that its motion should be granted because
the government failed to file suit within one year of the date
of the offense.5 The government takes the position that the
District Court’s decision refusing to consider Kesten’s
motion to dismiss was sound, as was its dismissal of
5. Kesten also contends that the Magistrate Judge exceeded his authority
by ordering Pires’ deposition in lieu of requiring a complete answer to the
interrogatories. As we are vacating the District Court’s order compelling
Kesten to answer the interrogatories, this issue is moot.
12
Kesten’s claim as a sanction for discovery abuses, and that
it timely commenced the forfeiture action.
A. Dismissal of the Motion to Dismiss
Kesten first asks us to reverse the Court’s order refusing
to entertain its motion to dismiss the forfeiture complaint.
Following the procedure authorized by Federal Rule of Civil
Procedure 12, Kesten filed a 12(b)(6) motion. It did so after
it had filed a verified claim but before answering the
complaint or responding to the interrogatories served
therewith. The District Court held that Rule 12 was
“inconsistent with” Supplemental Rule C(6), and that
Kesten was required to serve an answer and respond to the
interrogatories before it filed any motions. The Court thus
dismissed Kesten’s motion.6 For the reasons that follow, we
will reverse the Court’s order and reinstate Kesten’s motion.
Parties to civil forfeiture proceedings are the servants of
two procedural masters: the Supplemental Rules specially
devised for admiralty and in rem proceedings, and the
generally applicable Federal Rules of Civil Procedure (“Civil
Rules”). The balance between the two is struck in favor of
the Supplemental Rules, which always apply to civil
forfeiture proceedings. See 18 U.S.C. § 983(a)(3).7 However,
the Supplemental Rules, like the former admiralty rules
from which they are derived, “are not comprehensive codes
regulating every detail of practice,” Miner v. Atlass, 363 U.S.
641, 648 (1960) (construing the former admiralty rules);
rather, they are special provisions that overlay the Civil
Rules, adding unique requirements necessary only in
6. Our review of the District Court’s interpretation of Rule C(6) is
plenary. Tudor Dev. Group, Inc. v. U.S. Fidelity & Guar. Co., 968 F.2d
357, 359 (3d Cir. 1992).
7. Section 983 was enacted in August 2000 as part of the Civil Asset
Forfeiture Reform Act (“CAFRA”) and therefore does not apply to this
forfeiture claim, which was filed before CAFRA took effect. See United
States v. One “Piper” Aztec, 321 F.3d 355, 358 (3d Cir. 2003) (holding
that CAFRA does not apply retroactively). However, section 983 merely
made explicit the pre-CAFRA practice of applying the Supplemental
Rules to civil forfeiture actions. See, e.g., United States v. 51 Pieces of
Real Prop., 17 F.3d 1306, 1308 n.2 (10th Cir. 1994) (recognizing that the
Supplemental Rules apply to forfeiture actions under 18 U.S.C. § 981).
13
forfeiture and admiralty proceedings that have no place in
general civil litigation.8 The Civil Rules therefore also apply
to in rem proceedings, but only to the extent that they are
not “inconsistent with” the Supplemental Rules. Supp. R. A.
This scheme seems simple enough. The difficulty arises in
determining when precisely a Civil Rule is “inconsistent
with” a Supplemental Rule.
Here, the District Court held that Civil Rule 12’s
procedure for motions in lieu of an answer was inconsistent
with Supplemental Rule C(6)’s pleadings procedure. It
reasoned that Rule C(6) requires “an ‘answer’ and only an
answer,” and further requires a response to interrogatories,
and that it therefore could not be reconciled with Rule 12,
which allows for motions in lieu of an answer. Having found
that the allowance of motions in Rule 12 was inconsistent
with the lack of a provision for motions in Rule C(6), the
Court dismissed Kesten’s motion to dismiss, and required
it to serve an answer and respond to the interrogatories
before filing any other motions.9 The government asks us to
affirm this order.
8. The Rules of Practice in Admiralty and Maritime Cases were rescinded
in 1966, when the rules were merged into the Federal Rules of Civil
Procedure. U.S. Express Lines Ltd. v. Higgins, 281 F.3d 383, 390 (3d Cir.
2002) (holding that the applicability and construction of Supplemental
Rule B presents a federal question for purposes of removal).
9. The District Court couched its dismissal of Kesten’s motion in terms
of Kesten’s failure to establish “statutory standing” to file a motion to
dismiss. However, the Court’s terminology is misleading, as Kesten’s
right to appear before the Court to contest the forfeiture action is a
separate concept from whether Kesten had to serve an answer before
filing its motion to dismiss.
A forfeiture claimant must meet both Article III and statutory standing
requirements before it may stand before a court to contest a forfeiture.
In re Friko Corp., 971 F.2d at 984. “Article III standing requires the
claimant to show an interest in the property sufficient to create a ‘case
or controversy,’ while statutory standing requires claimants to comply
with certain procedures.” Id. The statutory standing procedures with
which a forfeiture claimant must comply are set forth in Rule C(6), and
involve the timely filing of a verified claim. The purpose of statutory
standing is to force claimants “to come forward as quickly as possible
after the initiation of forfeiture proceedings, so that the court may hear
14
Kesten asks us to reverse and reinstate its motion. It
argues that Rule C(6) is a truly supplemental rule, one that
does nothing more than provide for certain unique aspects
all interested parties and resolve the dispute without delay,” and to
minimize the danger of false claims by requiring claims to be verified or
solemnly affirmed. United States v. Various Computers & Computer
Equip., 82 F.3d 582, 585 (3d Cir. 1996).
The District Court found that Kesten had satisfied both Article III and
statutory standing requirements and was properly before the Court. It
held that “Pires’ statement under oath, coupled with the government’s
allegations that Pires controlled the seized funds,” was enough to show
that Kesten had a sufficient possessory interest in the seized funds to
establish “statutory standing for purposes of defending this in rem
action.”
Confusingly, the Court went on to state that although Kesten had
“statutory standing” to defend the forfeiture, it did not have different
“statutory standing” to file a motion to dismiss. It reasoned even though
Kesten was a proper claimant, Rule C(6) was inconsistent with Rule 12
and required Kesten to serve an answer before filing any motions. The
Court then dismissed Kesten’s motion without prejudice, and with the
right to renew when Kesten had filed an answer and responded to the
interrogatories.
However, the Court’s holding regarding the inconsistency between the
Civil Rules and the Supplemental Rules had little to do with Kesten’s
statutory standing. Statutory standing is a threshold issue that
determines whether a party is properly before the court. Had the Court
truly held that Kesten lacked statutory standing to proceed, the proper
response would have been to strike Kesten’s claim. Cf. 51 Pieces of Real
Prop., 17 F.3d at 1319 (finding no abuse of discretion where district
court struck untimely claim); United States v. Ford 250 Pickup 1990, 980
F.2d 1242, 1245 (8th Cir. 1993) (finding no abuse of discretion where
district court struck claim because answer was untimely); United States
v. United States Currency in the Amount of $2,857, 754 F.2d 208, 213
(7th Cir. 1985) (striking claim because it was not “verified on oath”); One
Parcel of Real Prop. Located at Route 2, 46 F. Supp. 2d 572 (S.D. Miss.
1998) (striking claim because answer was untimely); United States v.
$288,914, 722 F. Supp. 267 (E.D. La. 1989) (same). Because the Court
chose instead to continue the litigation and preserve Kesten’s right to file
a motion at a later time, we view its reference to a “different” standing
issue regarding the filing of a motion to have been merely a misleading
labeling of the issue and conclude that it did not actually find that
Kesten lacked any aspect of standing.
15
of forfeiture proceedings, namely, the filing of a claim and
the timing for filing responsive pleadings in light of the
claims process, but does not displace the motions scheme
set forth in Rule 12. Kesten urges that the District Court’s
reading of Rule C(6) as completely disallowing pre-answer
motions is not consistent with Supreme Court case law, the
Supplemental Rules, and routine practice in the district
courts.
We have found no reported decision that analyzes the
issue as to whether Rule 12 is indeed “inconsistent with”
Supplemental Rule C(6). One court has, in an unpublished
opinion and without a great deal of discussion, adopted the
view taken here by the District Court. See United States v.
$38,870.00, No. 7:99-47 (M.D. Ga. filed Sept. 24, 1999)
(dismissing motion to dismiss because claimant had not yet
served an answer). Other federal courts have entertained
motions to dismiss prior to the claimant’s serving an
answer, but they have done so without specifically
addressing whether Rule 12 is inconsistent with Rule C(6).
See, e.g., United States v. 2751 Peyton Woods Trail, 66 F.3d
1164 (11th Cir. 1995) (remanding for consideration of
claimant’s motion to dismiss); United States v. Funds in the
Amount of $29,266.00, 96 F. Supp. 2d 806 (N.D. Ill. 2000)
(denying motion to dismiss); United States v. 657 Acres of
Land, 978 F. Supp. 999 (D. Wyo. 1997) (same); United
States v. Funds in the Amount of $9,800, 952 F. Supp. 1254(N.D. Ill. 1996) (dismissing complaint for failure to state a
claim).
Kesten cites to the Supreme Court’s decision in Degen v.
United States, 517 U.S. 820 (1996), as controlling authority
supporting its position, but we do not read it as such.
There, the Court held that a district court may not strike a
claimant’s filing and enter summary judgment against him
in a civil forfeiture suit merely because he failed to appear
in a related criminal prosecution. Id. at 826. While the
Court did comment that consideration of the claimant’s
motion to dismiss would impose no great burden on the
government, because it was based on a failure to file within
the statute of limitations, defense of which does not require
a great deal of discovery, id. at 827-28, the issue of motion
practice in forfeiture cases as presented to us was not
16
before it. We do not agree with Kesten that the one
sentence in Degen regarding motions to dismiss controls
the analysis here. Although we take some policy guidance
from the Supreme Court’s discussion regarding the
importance of such motions and the ease with which the
government may defend against them, as we discuss infra,
we do not read anything further into the Court’s dicta and
certainly do not find within it any ruling on the issue of
Rule 12’s interaction with Supplemental Rule C(6).
As there is no binding precedent to guide us, we must
draw upon principles of statutory construction, look to the
overall scheme imposed by the Supplemental Rules, and
consider the policy behind pre-answer motions.
We will first examine the language of the two rules at
issue. Rule 12 provides the civil procedure for answers. It
states in relevant part:
(a) When Presented.
(1) Unless a different time is prescribed in a statute of
the United States, a defendant shall serve an answer
(A) within 20 days after being served with the
summons and complaint . . . . (4) Unless a different
time is fixed by court order, the service of a motion
permitted under this rule alters these periods of time as
follows: (A) if the court denies the motion or postpones
its disposition until the trial on the merits, the
responsive pleading shall be served within 10 days
after notice of the court’s action . . . .
Fed. R. Civ. P. 12 (emphasis added). Motions are
specifically permitted and itemized under Rule 12(b), which
states:
Every defense, in law or fact, to a claim for relief in any
pleading, . . . shall be asserted in the responsive
pleading thereto if one is required, except that the
following defenses may at the option of the pleader be
made by motion: . . . (6) failure to state a claim upon
which relief can be granted.
Fed. R. Civ. P. 12(b).
Rule C(6) provides the Supplemental Rule for claims and
answers. It states in its entirety:
17
Claim and Answer; Interrogatories. The claimant of
property that is the subject of an action in rem shall
file a claim within 10 days after process has been
executed, or within such additional time as may be
allowed by the court, and shall serve an answer within
20 days after the filing of the claim. The claim shall be
verified on oath or solemn affirmation, and shall state
the interest in the property by virtue of which the
claimant demands its restitution and the right to
defend the action. If the claim is made on behalf of the
person entitled to possession by an agent, bailee, or
attorney, it shall state that the agent, bailee, or
attorney is duly authorized to make the claim. At the
time of answering the claimant shall also serve answers
to any interrogatories served with the complaint. In
actions in rem interrogatories may be so served
without leave of court.10
Supp. R. C(6) (emphasis added).
Thus, standard civil proceedings contemplate a complaint
followed by an answer or a motion. The Supplemental Rule
provides for initial “process” — by complaint — then the
filing of a claim, then an answer to the complaint. No
mention is made of motion practice. The question we must
answer is whether the pleadings scheme laid out in the
Civil Rules is “inconsistent with” the pleadings scheme in
Supplemental Rule C(6).
According to Webster’s Dictionary, “inconsistent” means
“lacking in correct logical relation, contradictory,” or “not in
agreement or harmony, incompatible.” Webster’s II New
Riverside University Dictionary 620 (1988). Applying this
definition, we can see that several of the Supplemental
Rules and the Civil Rules are clearly incompatible and
disharmonious. For example, Civil Rule 12(a)(1) is
inconsistent with Supplemental Rule C(6) because the two
cannot be logically read together: a requirement that an
answer be filed within twenty days of service of process
10. We use here the wording of Rule C(6) as of the date the forfeiture
complaint was filed. The rule has since been amended to provide for a
“verified statement” instead of a “claim” but remains substantively
unchanged. See Supp. R. C(6) (2001).
18
simply cannot be reconciled with a rule allowing an answer
to be served within twenty days after filing a claim.
Similarly, Supplemental Rule E(2), which requires a
forfeiture complaint to “state the circumstances from which
the claim arises with such particularity that the defendant
or claimant will be able, without moving for a more definite
statement, to commence an investigation of the facts and to
frame a responsive pleading,” is incompatible with Civil
Rule 8(a), which allows for a “short and plain statement of
the claim.” United States v. $39,000, 801 F.2d 1210, 1216
(10th Cir. 1986). The two rules are contradictory: one
requires detail, the other does not. As there is a conflict,
the Supplemental Rule prevails. Rule E(2) is also
inconsistent with Civil Rules 12(e) and (f), which require a
party to make a motion for a more definitive statement
before filing a motion to strike. United States v. $38,000,
816 F.2d 1538, 1547 n.20 (11th Cir. 1987). The civil and
supplemental schemes cannot be fit together: one cannot
be required to make a motion for a definitive statement and
also not be so required. Again, in such a situation, the
Supplemental Rule takes precedence.
In contrast to these instances of clear incompatibility, the
civil scheme for motions in Rule 12(a)(4) can be read
together with the supplemental pleading requirements in
Rule C(6). Supplemental Rule C(6), like Civil Rule 12(a)(1),
provides the timing requirements for responsive pleadings.
Rule C(6), however, operates in the world of forfeiture, and
therefore must include different instructions. Whereas civil
complaints are served on a known defendant, forfeiture
complaints are served on the res, the property. Before the
action can proceed, the party claiming the res must make
himself known by filing a claim. The claim adds an extra
step not contemplated by the Civil Rules. The Supplemental
Rules must therefore instruct parties that before they may
file an answer, they must first file a claim. In terms of
timing, the claim in a forfeiture proceeding is equivalent to
the answer in a general civil proceeding: both begin a
responsive pleading process, and both must be filed within
twenty days of service of process. Parties to forfeiture
proceedings, however, must then also be apprised of when
the answer to the complaint is due. Rule C(6) instructs that
it must be filed within ten days after the filing of the claim.
19
Neither Civil Rule 12(a)(1) nor Supplemental Rule C(6)
includes any discussion of motions. They both simply
provide that “an answer” must be served within a certain
time period. Clearly, however, under the Civil Rules, Rule
12(a)(4) modifies Rule 12(a)(1) and allows a defendant to file
a motion before filing an answer. We see no reason why
Rule 12(a)(4) cannot similarly modify Supplemental Rule
C(6). The term “answer” in Rule C(6) should be interpreted
the same way it is in Rule 12(a)(1), whose timing provisions
Rule C(6) supplants. Under the Civil Rules, 12(a)(1)’s
requirement that “an answer” be served within twenty days
of service of process is not read to trump 12(a)(4)’s
provision for filing a motion in lieu of answer. Neither must
Supplemental Rule C(6)’s requirement that “an answer” be
served within ten days of the filing of a claim be so read.
Rule 12(a)(4) is simply not incompatible with
Supplemental Rule C(6). Rather, the two fit comfortably
together, the same way that Rules 12(a)(1) and 12(a)(4) do.
Just as a civil defendant may respond to a complaint with
a motion to dismiss, and must then file an answer within
ten days after the court disposes of that motion, a forfeiture
claimant may, after being served with a complaint and filing
a verified claim, respond to a forfeiture complaint by filing
a motion to dismiss; the claimant must then serve an
answer within ten days after the court disposes of that
motion. There is no “either/or” choice to be made. Asking
whether C(6) or 12(a)(4) applies is like asking whether
12(a)(1) or 12(a)(4) applies. The simple answer is: both do.
The compatibility of Supplemental Rule C(6) and Rule
12(a)(4) is supported by another provision of the
Supplemental Rules, case law arising out of a similar
context, and policy considerations.
First, only by reading Supplemental Rule C(6) to permit
pre-answer motions in forfeiture can we reconcile that rule
with Supplemental Rule E(2), the enforcement of which
appears to require such motions. As stated above, Rule E(2)
imposes a particularity requirement on forfeiture pleadings.
It requires the government to draft its complaint with
precision so that a claimant need not move for a more
definite statement before framing responsive pleadings.
Supp. R. E(2). This particularity requirement arises out of
20
the drastic nature of forfeiture actions, which allow for the
seizure of property while the claim on the merits is litigated.
Rule E(2) is thus an important safeguard against the
government’s seizing and holding property on the basis of
mere conclusory allegations that the property is forfeitable.
United States v. One Partially Assembled Drag Racer, 899 F.
Supp. 1334, 1340 (D.N.J. 1995). Claimants can enforce
Rule E(2) by filing motions to dismiss for lack of
particularity prior to forming their responsive pleadings.
See, e.g., United States v. Premises & Real Prop. at 4492 S.
Livonia Rd., 889 F.2d 1258, 1266 (2d Cir. 1989) (affirming
denial of motion); United States v. Funds in the Amount of
$29,266.00, 96 F. Supp. 2d 806, 811 (N.D. Ill. 2000)
(denying motion); One Partially Assembled Drag Racer, 899
F. Supp. at 1341 (same).
Kesten persuasively argues that if Rule C(6) were to bar
the filing of motions prior to answers, as the government
suggests, claimants would have no mechanism for holding
forfeiture complaints to the particularity required in Rule
E(2). If a complaint were vague, claimants would
nonetheless be obliged to first file a general answer and
respond to what may be very extensive interrogatories
before moving for relief from the insufficient complaint. This
cannot be. The government’s response, that claimants could
wait until they file an answer and respond to the
interrogatories before attacking the validity of the
complaint, see United States v. Currency $267,961.07, 916
F.2d 1104, 1106 (6th Cir. 1990) (stating that claimant first
filed a claim and answer and then filed a motion to dismiss
the complaint for lack of particularity), is not responsive.
The very purpose of Rule E(2) is to protect claimants from
having their property held and from being exposed to
invasive discovery on the basis of vague, conclusory
complaints. Under the government’s reading, this goal
would be undermined by Rule C(6). That claimants can wait
to file a motion to dismiss, and in the meantime suffer the
seizure of their property on the basis of what may be an
insufficient complaint, does not mean that they must. We
will not read Rule C(6) to frustrate so directly a claimant’s
ability to enforce the particularity requirement in Rule E(2).
Next, the Court of Appeals for the First Circuit’s analysis
21
in United States v. One 1987 BMW 325, 985 F.2d 655 (1st
Cir. 1993), supports our view that when a Supplemental
Rule is silent on a particular procedure, we should not take
that silence as an indication that the procedure has no
place in forfeiture, but rather should fill the gap with the
relevant Civil Rule. There, the court reversed the district
court’s order striking a claim as a sanction for the
claimant’s failure to answer the interrogatories served with
the complaint. Id. at 656. In determining what procedure
applied to remedy a forfeiture claimant’s failure to respond
to the interrogatories, the court first examined the
Supplemental Rules. When it did, it found those rules
“completely bereft of guidance concerning what measures
may be appropriate when parties fail to serve answers to
interrogatories in a full and timely fashion.” Id. at 659. The
court then looked to Rule 37 to fill the gap. Id. In so doing,
the court rejected the government’s “curious interpretation”
of Supplemental Rule C(6) as “allowing dismissal in the first
instance if interrogatories are served thereunder and then
ignored.” Id. at 659-60. Because Rule C(6) was silent on the
topic of discovery sanctions, the BMW court “[d]iscern[ed]
no hint of inconsistency” between Rule C(6) and Rule 37,
and held that the use of discovery sanctions in forfeiture
actions was properly governed by its Rule 37 jurisprudence.
Id. at 660. Thus, silence in the Supplemental Rules was
taken not as an indication that discovery sanctions had no
place in forfeiture, but rather as a sign that the Civil Rules
were meant to step in and provide the proper procedure.11
11. The leading treatise on forfeiture also agrees with our interpretation
of Rule C(6), and has in fact opined that the District Court’s ruling in
this case was incorrect. See David B. Smith, Prosecution and Defense of
Forfeiture Cases, ¶ 9.04[1] n.2 (Dec. 2002). Smith explains:
To make matters worse, one court has incorrectly held that a
claimant cannot file a Rule 12(b) motion before it has filed an
answer under Rule C(6) and answered any interrogatories served
with the Complaint. Contrary to that opinion, there is no
inconsistency between Rule 12(b) and Rule C(6). Rule C(6) has no
language suggesting that a Rule 12(b) motion cannot be filed in lieu
of an answer.
Id. (citation omitted).
22
Finally, our interpretation of Supplemental Rule C(6) is
buttressed by policy considerations. Civil Rule 12(b)
motions are intended to “streamline[ ] litigation by
dispensing with needless discovery and factfinding.” Neitzke
v. Williams, 490 U.S. 319, 326-27 (1989). Forfeiture
proceedings are no different in this regard. Defenses such
as a failure to adhere to the statute of limitations can be
litigated without a great deal of discovery. If a complaint
should be dismissed, the government should not be able to
prolong dismissal simply because the claimant has not
responded to interrogatories that the claimant should never
have been required to answer in the first place. Motions
under Rule 12(b) provide litigants with a fundamental
procedural safeguard and prevent burdensome discovery in
meritless cases. In the words of the Supreme Court, “If
[defenses requiring little discovery] have merit, the
government should not prevail; if they are groundless, the
government’s interests will not be compromised by their
consideration.” Degen, 517 U.S. at 827-28.
We have been presented with no evidence that
Supplemental Rule C(6) was intended to pull the rug out
from under forfeiture claimants by abolishing the time-
honored protections provided in Rule 12(b). The advisory
committee notes explain that the procedure for serving
interrogatories with the complaint is justified by “the
special needs of expedition that often arise in admiralty.”
Supp. R. C advisory committee’s note. Contrary to the
government’s urging, the procedure for interrogatories does
not appear to have been provided to inform the government
as to the claimant’s statutory standing in forfeiture cases.
In fact, the notes later acknowledge that the needs of
expedition “do not commonly arise in forfeiture
proceedings.” Id. The advisory committee made no other
comment regarding the reason for allowing the government
to serve interrogatories with the complaint, nor did it
indicate that the special needs of expedition are so great
that they completely override the procedural safeguards of
Rule 12(b). We will therefore not read into Rule C(6) any
intention to do so.
The government vigorously argues that our interpretation
of Supplemental Rule C(6)’s interaction with Rule 12
23
contradicts the policy underlying the Supplemental Rules.
It urges that we cannot “assume” that the Supplemental
Rules incorporate the motions scheme in Rule 12, as the
procedural rules in forfeiture and admiralty practice serve
different purposes from the procedural rules in normal civil
practice. It argues that forfeiture proceedings carry a
substantial danger of false claims, a danger not inherent in
civil proceedings where the defendant is a known entity,
and that full compliance with each of the steps in Rule
C(6)’s pleadings scheme is required to ensure a claimant’s
bona fides. The government raises the specter of wasteful
litigation against wily false claimants whose claims may at
first seem genuine, but whose illegitimacy would
presumably be revealed in the answers and responses to
interrogatories. The government urges that “[i]t is simply
wrong to require [it] to try its case . . . before the claimant
answers the complaint and responds to the first set of
interrogatories,” and asserts that it has “every right to
insist on the answers to certain questions before engaging
in litigation . . . over the funds.” It then concludes that
because the answer and responses to interrogatories are
essential to the goal of “smoking out” false claims, they are
a requirement of Rule C(6) that cannot be overridden by the
provision for motions in Rule 12.
This argument appears to be one of efficiency, that is
that by permitting extensive inquiry into the nature of the
claimant’s interest in the property, the court will be able to
avoid being burdened by proceedings by a claimant who
might not have a real interest. But we conclude that any
concern as to a waste of judicial resources is laid to rest
not only by the requirement that the claimant file a verified
claim to the funds, but also by the very tactic the
government decries, namely, the early motion to dismiss. If
the claimant would have succeeded on the motion to
dismiss, it would be a waste of resources to require the
claimant to answer extensive interrogatories before making
the motion to dismiss. And, in the present case, the
government linked Kesten to the seized money in its
complaint — having stated “Pires is the principal in Kesten
Development Corp. which maintained the Venus account at
24
MTB Bank” — and cannot seriously contend that Kesten is
feigning its interest in the seized property.12
By resorting to policy arguments regarding the different
motivations behind the Supplemental and Civil Rules,
moreover, the government’s argument misses the mark; it
fails to grasp the way that the Civil Rules apply in
forfeiture. As the Supreme Court explained in Miner, the
Supplemental Rules are not comprehensive. See Miner, 363
U.S. at 648. The Civil Rules provide the basic procedures
for forfeiture; the Supplemental Rules are simply an overlay
— they are, as their title indicates, supplemental. In finding
that Rule 12(a)(4) modifies Rule C(6) the same way it
modifies Rule 12(a)(1), we are not distorting the statutory
scheme; rather, we are carrying it out. We are applying the
Supplemental Rules and the Civil Rules in the manner
dictated by Supplemental Rule A. The government’s
position that Rule C(6) “encompasses the entire field” of
forfeiture pleadings and disallows pre-answer motions by
failing to mention them cannot be logically reconciled with
Rule A’s instruction that we look to the Civil Rules when
the Supplemental Rules are silent on a particular
procedural provision. Policy arguments cannot alter or
undermine this clear statutory directive.
The government is right that it should not be forced to try
its case before an answer is filed and it receives meaningful
12. In questioning Kesten’s “bona fides,” the government appears to be
attacking, in a roundabout way, that aspect of the District Court’s order
holding that Kesten had demonstrated a sufficient possessory interest in
the funds to establish statutory standing to contest the forfeiture. See
supra n.9. The government’s fears that Kesten is a false claimant were
actually addressed by that ruling. The Court examined Kesten’s verified
claim, considered the arguments advanced by the government, and held
that Kesten was a genuine claimant. The government has not cross-
appealed the District Court’s ruling on that point, nor does it assert that
the District Court should have stricken Kesten’s claim because it failed
to meet the requirements of Rule C(6). Rather, its sole contention on
appeal is that the District Court properly held that under Rule C(6),
Kesten may not file a motion to dismiss before answering the complaint.
As the issue of Kesten’s statutory standing was decided by the District
Court and is not before us, we find unavailing the government’s attempt
to argue that Kesten’s failure to file an answer affects its standing.
25
discovery. But it simply does not follow that Kesten should
be required to serve an answer and respond to the
interrogatories before it files a motion to dismiss. We are
not compelling the government to litigate the ultimate issue
of forfeiture any sooner than we normally ask plaintiffs to
prove their cases. We are merely requiring it to defend
against a motion to dismiss the complaint that raises
preliminary issues before it imposes upon Kesten a great
deal of burdensome discovery, just as we require plaintiffs
in normal civil cases to defend the adequacy of their
complaints before the defendant must file an answer.
Because we find no inconsistency between Rule C(6)’s
timing requirements and Rule 12’s authorization of pre-
answer motions, we will reverse the District Court’s order
dismissing Kesten’s motion to dismiss for lack of standing
and compelling Kesten to respond to the interrogatories.
Accordingly, we will vacate the orders entered thereafter
and the final judgment of forfeiture, so that Kesten’s claim
to the funds and its motion to dismiss are reinstated.
B. Statute of Limitations
Kesten urges that instead of remanding for the District
Court to consider the motion to dismiss, we should rule
that, based on the record before us, the government’s
forfeiture complaint was indeed untimely.13 We would
normally decline to address issues not passed upon below,
but we will address at least preliminarily certain issues
presented by Kesten’s motion to dismiss, as it presents an
issue of statutory interpretation that we deem to be a
question of some importance, and that was specifically
raised and argued by the parties. See Loretangeli v. Critelli,
853 F.2d 186, 189 n.5 (3d Cir. 1988) (“This court may
consider a question of pure law even if not raised below
where . . . the issue’s resolution is of public importance.”).
Kesten argues that the government failed to file its
complaint within the one year limitation set forth in 18
U.S.C. § 984, and urges us to hold that the District Court
13. Kesten appears to acknowledge that the other grounds for dismissal
that it raised in its motion before the District Court would be more
appropriate for consideration on remand.
26
must dismiss the complaint on this basis. The government
responds with two arguments: first, although it did not file
the forfeiture complaint within a year of the offense, it met
the one year limitation in section 984 by seizing the funds
within one year. Second, the government argues that even
if it did not meet the timing requirement in section 984, the
entire complaint is not barred, because it met the five year
limitation period for forfeiture claims under section 981,
and the record has not yet been developed with respect to
its claim under that section.
A brief detour to examine the interaction between 18
U.S.C. § 981 and 18 U.S.C. § 984 is necessary background
for our discussion. Section 981 sets forth the cause of
action for the forfeiture of property involved in money
laundering offenses. See 18 U.S.C. § 981(a)(1)(A) (“The
following property is subject to forfeiture to the United
States: (A) any property, real or personal, involved in a
transaction or attempted transaction in violation of section
1956, 1957 or 1960 of this title, or any property traceable
to such property.”). In forfeitures under section 981, the
government is required to trace the seized property directly
to the offense giving rise to the forfeiture. This can prove
difficult when the underlying property is funds that can be
deposited in a bank account, withdrawn, and replaced with
new, untainted funds, or may be commingled with
untainted funds within one account. We have held in the
criminal forfeiture context that “the term ‘traceable to’
means exactly what it says,” and have avoided “the
problems plaguing other courts that have attempted to
devise a workable tracing analysis for tainted property that
has been commingled in a bank account with untainted
property” by requiring the government to prove “some
nexus to the property ‘involved in’ the money laundering
offense.” United States v. Voigt, 89 F.3d 1050, 1087 & n.22
(3d Cir. 1996) (construing 18 U.S.C. § 982(a)(1)). In Voigt,
we suggested that the same analysis would apply in the
civil context. Id. at 1087 n.23 (citing United States v.
$448,342.85, 969 F.2d 474, 477 (7th Cir. 1992)). Thus,
where funds involved in a money laundering offense have
been commingled with untainted funds, it may be difficult
to prove that the funds are “property traceable to” other
funds. Difficult, but not necessarily impossible.
27
Section 984 is a “substitute asset provision” enacted to
overcome these tracing difficulties and ease the
government’s burden of proof in civil forfeiture proceedings
involving fungible property. It states in relevant part:
Civil Forfeiture of Fungible Property
(a) This section shall apply to any action for forfeiture
brought by the Government in connection with any
offense under section 1956, 1957, or 1960 of this title
. . . . (b)(1) In any forfeiture action in rem in which the
subject property is cash, monetary instruments in
bearer form, funds deposited in an account in a
financial institution, or other fungible property — (A) it
shall not be necessary for the Government to identify
the specific property involved in the offense that is the
basis for the forfeiture; and (B) it shall not be a defense
that the property involved in such an offense has been
removed and replaced by identical property. (2) Except
as provided in subsection (c), any identical property
found in the same place or account as the property
involved in the offense that is the basis for the
forfeiture shall be subject to forfeiture under this
section. (c) No action pursuant to this section to forfeit
property not traceable directly to the offense that is the
basis for the forfeiture may be commenced more than
1 year from the date of the offense.14
18 U.S.C. § 984 (emphasis added). Thus, section 984 is not
by its terms a separate action for forfeiture. Rather, it
applies to, and modifies the requirements of, forfeiture
actions in which the subject property is cash or other
fungible property. Under section 984, the government need
not identify the specific property involved in the money
laundering scheme, nor may a claimant raise as a defense
the property’s removal and replacement by identical
property. Identical property that is not directly traceable to
the offense but is found in the same place or account as
the property actually involved in the offense may therefore
be forfeited. However, Congress put a limit on this eased
14. We cite to section 984 as codified in 2000, when the forfeiture
complaint was filed. Section 984’s provisions have since been
redesignated, but no substantive change has been made.
28
burden, providing that any action to forfeit property not
directly traceable to the offense “be commenced” within one
year.
The threshold issue that we confront here is whether
under section 984, the commencement of the action means
the government must file the forfeiture complaint within one
year of the date of the offense, or may it be met by the
government’s seizure of the funds within one year. For if
seizure is sufficient, the government timely commenced the
action. If the action is only commenced by the filing of the
complaint and if the government here needs to rely on
section 984 because it cannot trace, then the action was
not in time. We hold that section 984, by its plain and
unambiguous language, requires the filing of a complaint
within one year of the offense.
We begin, as we must, with the language of the statute
itself. United States v. Ron Pair Enterprises, Inc., 489 U.S.
235, 241 (1989). Where the statute’s language is plain, “the
sole function of the courts is to enforce it according to its
terms.” Caminetti v. United States, 242 U.S. 470, 485
(1917).
Section 984(c) states that “no action pursuant to this
section to forfeit property not directly traceable to the
offense that is the basis for the forfeiture may be
commenced more than 1 year from the date of the offense.”
In everyday parlance, the term “commenced” may arguably
be open to interpretation. One might think that the
government could “commence” a forfeiture action in any
number of ways, by beginning an investigation, say, or
seizing the property, or even by filing a complaint. However,
where a time limitation for instituting civil proceedings is
concerned — as it clearly is here — the word “commence”
is a term of art with only one unambiguous meaning,
expressed in Federal Rule of Civil Procedure 3: “A civil
action is commenced by filing a complaint with the court.”
Fed. R. Civ. P. 3. In the context of civil actions, the word
“commence” does not encompass broad concepts, but
rather requires “invocation of the judicial process.” McNeil
v. United States, 508 U.S. 106, 112 (1993) (holding that the
receipt of a formal denial from an administrative agency did
not “institute” an action under the Federal Tort Claims Act
29
because the words “institute,” “begin,” and “commence”
must be read to require “invocation of the judicial process”).
Thus, we conclude that, when read properly to incorporate
a term embedded with such legal significance, section 984
requires the government to file a forfeiture complaint within
one year of the underlying offense.
We note that our reading of the word “commenced” as
used in section 984 is consistent with the interpretation
that we and other federal courts of appeals have given to
the same word in the statute of limitations generally
applicable to civil forfeiture actions, 19 U.S.C. § 1621.
Section 1621 provides that forfeiture actions must be
“commenced within five years after the time when the
alleged offense was discovered.” 19 U.S.C. § 1621 (emphasis
added). Courts have uniformly interpreted this provision to
require the government to file a complaint within five years,
and have found actions to be untimely where the
government had seized the funds within five years but not
filed a complaint. See Mantilla v. United States, 302 F.3d
182, 184 (3d Cir. 2002) (indicating that the five-year statute
of limitations had lapsed where the government had seized
the property but never instituted forfeiture proceedings);
see also United States v. Rodriguez Aguirre, 264 F.3d 1195,
1202 (9th Cir. 2001) (“At the time Appellants filed their
Rule 41(e) motion, the statute of limitations had run on the
United States’ ability to commence forfeiture proceedings
against seized property that had not already been subject to
forfeiture proceedings initiated by the United States.”);
United States v. $30,006.25, 236 F.3d 610, 612 (10th Cir.
2000) (forfeiture action barred by statute of limitations
because complaint was not filed against seized property
within five years); United States v. $515,060.42, 152 F.3d
491, 501-03 (6th Cir. 1998) (same). Furthermore, the
Supreme Court has recognized in dictum that a forfeiture
action is “commenced” under section 1621 when a
complaint is filed. See United States v. James Daniel Good
Real Prop., 510 U.S. 43, 65 (1993) (“The Government filed
the action in this case within the 5-year statute of
limitations, and that sufficed to make it timely.”). We see no
reason to depart from the settled meaning of the term
“commenced” as it has always been understood in the
context of civil forfeiture proceedings.
30
The government urges that legislative history contradicts
our plain reading of the statute. It quotes extensively from
a House Committee Report, set forth fully in the margin,
that it contends reflects Congress’s intent to allow the
government to satisfy section 984’s one year time
requirement either by filing a complaint or seizing the
property. See H.R. Rep. 102-28, pt. 1, at 47-48 (1991).15
The government argues that Congress included the one
year time limit in order to ensure that the seized property
had a reasonable nexus to the underlying offense. If the
time between the offense and the seizure is relatively short,
then that nexus will still be satisfied, without regard to
when the complaint was actually filed.
While it may be a plausible reason for reading the timing
requirement in this way, we are not persuaded to rethink
our interpretation of the clear language in section 984 on
the basis of a few sentences in a Committee Report and the
government’s views as to Congress’s motives. When we read
statutes, we must “presume[ ] that Congress expresses its
intent through the ordinary meaning of its language.”
Rosenberg v. XM Ventures, 274 F.3d 137, 141 (3d Cir.
2001). Section 984 says what it means and means what it
says. We will not wade into the depths of legislative history
when the surface of the statute is clear and its meaning
apparent.
Court opinions that reference the Committee Report in
15. The Report states:
Section 984 provides that in cases involving fungible property,
property is subject to forfeiture if it is identical to otherwise
forfeitable property, is located or maintained in the same way as the
original forfeitable property, and not more than one year has passed
between the time the original property subject to forfeiture was so
located or maintained and the time the forfeiture action was
initiated by seizing the property or filing the complaint, regardless of
whether or not the fungible property was continuously present or
available between the time it became forfeitable and the time it was
seized. (The time limitation is considered necessary to ensure that
the property forfeited has a reasonable nexus to the offense giving
rise to the original action for forfeiture).
Id.31
dicta stand on no greater footing. See United States v.
Funds Representing Proceeds of Drug Trafficking, 52 F.
Supp. 2d 1160, 1166 (C.D. Cal. 1999); United States v. All
Funds Presently on Deposit, 832 F. Supp. 542, 558-59
(E.D.N.Y. 1993). In Funds Representing, the court was
presented with a situation different from that here. There,
the government had filed the complaint within a year but
did not seize the funds within the year. The court, relying
on Rule 3, held that the filing of the complaint was
sufficient to meet the timing requirement. 52 F. Supp. 2d at
1166. It then noted that, according to the Committee
Report, either a filing or a seizure within a year would
“commence” the action. Id. This statement, however, was
dictum and not necessary to its disposition; the court’s
holding, that the filing satisfied the timing requirement, is
entirely consistent with our reading of section 984. All
Funds deserves even less weight in this context. There, the
court quoted the Committee Report at length in the course
of examining the history of tracing requirements in civil
forfeiture, but did not apply that history to the issues
before it. 832 F. Supp. at 558-59. Thus, although both
opinions acknowledge the Committee Report, neither
provides a basis for us to follow the interpretation of section
984 advanced by the government.
We therefore hold that in order to forfeit property that is
not directly traceable to the offense under section 984, the
government must file a complaint within one year of the
date of the offense. Here, the government concedes that it
did not do so.
But that does not end the inquiry. The complaint invokes
section 981 as the base cause of action, and section 981
carries with it a five year statute of limitations, which was
clearly met here. Thus, Kesten’s motion to dismiss will
succeed only if the government cannot fulfill the tracing
requirement under section 981, such that it needs to resort
to section 984.16 We leave that to the District Court to
develop on remand.
16. At oral argument, Kesten argued that the complaint does not
sufficiently allege a cause of action under section 981 because it does
not allege that the funds are directly traceable to the money laundering,
and urged us to dismiss the complaint for that reason. However, the
sufficiency of the complaint regarding the tracing element was not raised
in the briefs as a basis for dismissal of this action, therefore we express
no opinion on that issue.
32
C. Discovery Sanction
Finally, although Kesten’s argument that the District
Court abused its discretion in dismissing Kesten’s claim as
a sanction for Kesten’s failure to produce Pires for a
deposition in the United States might appear moot in light
of our ruling, nonetheless, on remand, should the Court
conclude that the government’s claim was properly filed
under section 981, the issue of Kesten’s discovery conduct
may again arise. We therefore take this opportunity to
emphasize the proper methodology that we have previously
held applies in determining whether the sanction of
dismissal is warranted for discovery violations.
As we have often noted, the sanction of dismissal is
disfavored absent the most egregious circumstances. See
Poulis v. State Farm Fire & Cas. Co., 747 F.2d 863, 867-68
(3d Cir. 1984). We have opined that six important factors
must be weighed by a district court in determining whether
the harsh sanction of dismissal is justified:
1) the extent of the party’s personal responsibility; (2)
the prejudice to the adversary cause by the failure to
meet scheduling orders and respond to discovery; (3) a
history of dilatoriness; (4) whether the conduct of the
party or the attorney was willful or in bad faith; (5) the
effectiveness of sanctions other than dismissal, which
entails an analysis of alternative sanctions; and (6) the
meritoriousness of the claim or defense.
Id. at 868. In reviewing such a sanction, we look to the
manner in which the district court balanced these factors.
See, e.g., Curtis T. Bedwell & Sons, Inc. v. Int’l Fidelity Ins.
Co., 843 F.2d 683, 692 (3d Cir. 1988). Although we have
stated that “[n]ot all of these factors need be met for a
district court to find dismissal is warranted,” Hicks v.
Feeney, 850 F.2d 152, 156 (3d Cir. 1988), we have always
required consideration and balancing of all six of the
factors, and have recommended the resolution of any
doubts in favor of adjudication on the merits. Scarborough
v. Eubanks, 747 F.2d 871, 878 (3d Cir. 1984).
Here, the District Court addressed only four of the six
Poulis factors: the extent of Kesten’s responsibility, the
prejudice to the government, the willfulness of Kesten’s
33
conduct, and the effectiveness of alternative sanctions,
finding that these factors weighed in favor of dismissal. In
so doing, the Court ignored both the merits of Kesten’s
defenses and a lack of dilatory conduct, factors that
strongly caution against dismissal. Should the government
again move for dismissal as a discovery sanction, we note
that the District Court should balance all six of the relevant
factors in considering any such motion.
IV.
Because Kesten’s motion to dismiss was incorrectly
dismissed, we will reverse the District Court’s order, vacate
the discovery and sanction orders and the final judgment of
forfeiture entered thereafter, and reinstate Kesten’s claim
and its motion to dismiss. Although we hold that the
government’s complaint was untimely if it must rely on
section 984, we will not dismiss the complaint, but rather
will remand for the District Court to permit the complaint
for forfeiture to proceed under section 981.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit