Dye, Stephen v. Frank, Matthew J. ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-1368
STEPHEN DYE,
Petitioner-Appellant,
v.
MATTHEW J. FRANK,
Respondent-Appellee.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 99-C-198—Charles N. Clevert, Jr., Judge.
____________
ARGUED DECEMBER 9, 2003—DECIDED JANUARY 27, 2004
____________
Before FLAUM, Chief Judge, and BAUER and ROVNER,
Circuit Judges.
FLAUM, Chief Judge. In 1995, Stephen Dye was convicted
by a Wisconsin jury of possession with intent to deliver
cocaine. After exhausting his state remedies, Dye filed a
petition for writ of habeas corpus in the district court,
arguing that his criminal conviction was a violation of the
Double Jeopardy Clause of the United States Constitution
as he had already been subjected to a tax assessment and
seizure based upon his possession of the same drugs. The
district court denied Dye’s petition and he now appeals. For
the reasons stated herein, we reverse.
2 No. 03-1368
I. BACKGROUND
On March 17, 1994, police executed a search warrant
at Stephen Dye’s home. During the search, police found 11.9
grams of cocaine. The cocaine did not bear the Wisconsin
Controlled Substance Tax Stamps required under
Wisconsin Statutes § 139.88, which mandated that drug
dealers (defined as those who possess more than seven
grams of cocaine) pay an occupational tax upon acquisition
or possession of controlled substances.1
A few days later, the state of Wisconsin instituted a
collection determination procedure to collect the delinquent
taxes, interest, and penalty fees due under the Wisconsin
Controlled Substance Tax. The state sought and received a
court order freezing Dye’s assets, and later seized $4,896
from Dye’s bank account. The money seized was returned to
Dye in August 1994, but the tax assessment remained in
effect for an additional three years until the Department of
Revenue cancelled the assessment in May 1997.
In addition to the tax assessment and seizure, Dye was
subsequently criminally charged for possession of more
than five grams of cocaine with intent to deliver. After a
trial, Dye was convicted and sentenced to twenty years’
imprisonment. Throughout Dye’s trial and postconviction
proceedings, he argued that the criminal charges following
the seizure of his assets constituted double punishment in
violation of the Double Jeopardy Clause of the United
States Constitution.
1
This version of the tax was found unconstitutional by the
Wisconsin Supreme Court in 1997. See State v. Hall, 557 N.W.2d
778 (Wis. 1997) (holding that the drug tax violated the privilege
against self-incrimination). However, the statute was operative in
1994 when Dye’s property was seized and we must therefore
determine whether it also enacts a criminal punishment for the
purposes of double jeopardy analysis.
No. 03-1368 3
II. DISCUSSION
The Double Jeopardy Clause of the Fifth Amendment
consists of three separate constitutional protections: it pro-
hibits a second prosecution for the same offense after an
acquittal, it prohibits a second prosecution for the same of-
fense after a conviction, and it prohibits multiple criminal
punishments for the same offense. See Hudson v. United
States, 522 U.S. 93, 99 (1997); Brown v. Ohio, 432 U.S. 161,
165 (1977). Dye alleges that a tax seizure followed by
criminal imprisonment violates the prohibition against
multiple punishments. It is undisputed that Dye’s criminal
conviction and imprisonment constituted criminal punish-
ment. Thus, the issue becomes whether the tax seizure also
constituted criminal punishment.
The drug tax is on its face part of a civil statutory scheme.
See Wis. Stat. § 139.88 (“There is imposed on dealers, upon
acquisition or possession by them in this state, an occupa-
tional tax at the following rates . . . [p]er gram or part of a
gram of other schedule I controlled substances or schedule
II controlled substances, whether pure or impure, measured
when in the dealer’s possession, $200”). This, however, does
not end our analysis as to whether the drug tax enacts a
criminal punishment. “Even in those cases where the
legislature ‘has indicated an intention to establish a civil
penalty, we have inquired further whether the statutory
scheme was so punitive either in purpose or effect’ as to
‘transform what was clearly intended as a civil remedy into
a criminal penalty.’ ” Hudson, 522 U.S. at 99 (citations
omitted).
To determine whether a civil penalty is so punitive that
it is should be characterized as criminal punishment, we
must consider the factors listed by the Supreme Court in
Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168-69 (1963),
and reaffirmed in Hudson v. United States. See Hudson, 522
U.S. at 99. These include: (1) whether the sanction involves
4 No. 03-1368
an affirmative disability or restraint; (2) whether the
sanction has historically been regarded as a punishment;
(3) whether the sanction comes into play only upon a
finding of scienter; (4) whether the sanction promotes the
traditional aims of punishment such as retribution and
deterrence; (5) whether the behavior which is sanctioned is
already a crime; (6) whether the sanction serves an alterna-
tive purpose; and (7) whether the sanction appears exces-
sive in relation to the alternative purpose. See id. at 99-100.
We consider these factors “in relation to the statute on its
face” and only “the clearest proof” will transform what the
legislature has designated a civil remedy into a criminal
punishment. Id. at 100.
Using the Kennedy factors, we conclude that the
Wisconsin drug tax was so punitive in purpose and effect
that it constituted a criminal punishment. The Appellee
concedes that the Wisconsin legislature enacted the tax
in order to promote the traditional aims of punishment such
as retribution and deterrence. It is further admitted that
the tax is only applied to behavior that is already a crime.
And although the Appellee insists that this tax served an
alternative revenue-raising purpose, the Wisconsin Su-
preme Court properly rejected this argument in State v.
Hall, 557 N.W.2d 778, 790-91 (Wis. 1997). As the Wisconsin
Supreme Court noted, “the legislature never expected this
tax law to raise revenue,” rather, “the legislature’s purpose
for drafting the original drug stamp tax bill was to learn the
identity of drug dealers.” Id. A “tax” that is created in order
to deter criminal conduct, which applies only to those
violating criminal laws, and which serves no revenue-
generating purpose is divorced from typical tax assessments
and strikes this Court as punitive in nature.
Furthermore, the high tax rate is indicative of criminal
punishment rather than revenue-raising goals. According to
Wisconsin Statutes § 139.88, cocaine is “taxed” at $200 per
No. 03-1368 5
gram. The penalty for not paying the tax as soon as one
obtains possession of the drugs is another $200 per gram.
See Wis. Stat. § 71.83. Our research indicates that cocaine
has a market value of approximately $80 per gram. See
Drug Enforcement Administration, Illegal Drug Price and
Purity Report, at http://www.usdoj.gov/dea/pubs/intel/
02058/02058.html#3 (stating that one gram of cocaine in
Chicago had a market value of $75-150 from 1998-2001); see
also United States v. Hill, 142 F.3d 305, 311 (6th Cir. 1998)
(stating that one gram of cocaine has a market value of
$83). The tax assessment and penalty therefore total
approximately five times the market value of the drugs. A
“tax” that is five times the value of the item taxed is re-
markably high and is more consistent with punishing own-
ership of the item than with raising revenue from owner-
ship of the good. See Dep’t of Revenue of Montana v. Kurth
Ranch, 511 U.S. 767, 780 (1994) (invalidating a drug tax
that was more than eight times the drug’s market value
based in part upon the high tax rate). Considering all of
these factors, we therefore hold that the Wisconsin drug tax
is fairly characterized as a criminal punishment for the
purpose of double jeopardy analysis.
In reaching this decision, we acknowledge that a few of
the Kennedy factors are not present in this case. Speci-
fically, monetary fines do not involve an affirmative disa-
bility or restraint and have not historically been viewed
as punishment. See Hudson, 522 U.S. at 104. Moreover,
the statute imposes strict liability upon the acquisition
or possession of controlled substances and therefore does
not require a finding of scienter. See Wis. Stat. § 139.88.
However, the absence of these elements is not dispositive,
as all of the factors are “relevant to the inquiry, and
may often point in differing directions.” See Kennedy v.
Mendoza-Martinez, 372 U.S. 144, 169 (1963).
We find support for our conclusion in the closely analo-
gous case of Department of Revenue of Montana v. Kurth
6 No. 03-1368
Ranch, 511 U.S. 767 (1994). In Kurth Ranch, the Supreme
Court held that Montana’s tax on the possession of illegal
drugs was a punishment for the purposes of double jeopardy
analysis. See id. at 784. Acknowledging that “the unlawful-
ness of an activity does not prevent its taxation,” the Court
still found that where a tax has punitive characteristics, it
will be subject to the constraints of the Double Jeopardy
Clause. See id. at 778-79.
In Kurth Ranch, the Supreme Court found that the
Montana drug tax was a punitive tax, and therefore subject
to double jeopardy analysis, due to a combination of several
factors. One of these factors was that the tax assessment
was more than eight times the market value of the drugs
taxed, which the Court characterized as “a remarkably high
tax.” Id. at 780. The Court also considered the fact that the
tax was conditioned on the commission of a crime to be
“significant of penal and prohibitory intent rather than the
gathering of revenue.” Id. at 781. Another “exceptional”
feature of this tax was that the drugs had already been
confiscated and presumably destroyed by the time the tax
was imposed. Id. at 783. According to the Court, a “tax on
‘possession’ of goods that no longer exist and that the
taxpayer never lawfully possessed has an unmistakable
punitive character.” Id.
Notably, all of these “exceptional” features are also pres-
ent in the Wisconsin drug tax. Just like the Montana drug
tax, the Wisconsin tax imposes a high tax rate, is condi-
tioned on the commission of a crime, and was applied to the
Appellant after the drugs were confiscated and presumably
destroyed by the state.
The Appellee does not quarrel with the closely analogous
nature of Kurth Ranch, but rather argues that Kurth Ranch
is no longer good law. It is argued that Kurth Ranch was
derived from United States v. Halper, 490 U.S. 435 (1989),
which was then overruled by Hudson v. United States, 522
No. 03-1368 7
U.S. 93 (1997). See United States v. Warneke, 199 F.3d 906,
908 (7th Cir. 1999) (stating in dicta that the “analytical
approach employed in Kurth Ranch . . . was jettisoned in
Hudson” but ultimately holding that Kurth Ranch did not
apply to the case at issue).
While Kurth Ranch discussed Halper, the analysis used
in Kurth Ranch did not mirror the analysis used in Halper.
See Kurth Ranch, 511 U.S. at 776 (“In Halper we considered
‘whether and under what circumstances a civil penalty may
constitute ‘punishment’ for the purposes of double jeopardy
analysis.’ Our answer to that question does not decide the
different question whether Montana’s tax should be charac-
terized as punishment.”) (citation omitted); see also id. at
784 (“tax statutes serve a purpose quite different from civil
penalties, and Halper’s method of determining whether the
exaction was remedial or punitive ‘simply does not work in
the case of a tax statute.’ Subjecting Montana’s drug tax to
Halper’s test for civil penalties is therefore inappropriate”)
(citations omitted). Specifically, Kurth Ranch did not focus
solely on whether the sanction was grossly disproportionate
to the harm caused, nor did it assess the “character of the
actual sanctions imposed” rather than evaluating the
“statute on its face”—the two aspects of Halper’s analysis
that the Supreme Court found to be in error in Hudson. See
Hudson, 522 U.S. at 101.
Rather, Kurth Ranch used a test much more akin to
that set forth in Hudson.2 First, the Court stated that a
2
As was already discussed, Hudson set forth a two-part test un-
der which courts first analyze whether the legislature intended to
create a civil or criminal sanction, and second determine whether
a statute designated as civil is so punitive in either form or effect
that it should be characterized as criminal despite the legisla-
(continued...)
8 No. 03-1368
tax will only be viewed as a criminal punishment when “the
penalizing features of the so-called tax” cause it to lose “its
character as such and become[ ] a mere penalty with the
characteristics of regulation and punishment.” Kurth
Ranch, 511 U.S.at 779. Next, the Court went on to analyze
a variety of factors to determine whether the tax should be
considered a form of punishment. These include: whether
the tax is “motivated by revenue-raising, rather than
punitive, purposes”; whether it is “a remarkably high tax”;
whether the tax serves “an obvious deterrent purpose”;
whether the “tax is conditioned on the commission of a
crime”; whether the tax is “exacted only after the taxpayer
has been arrested for the precise conduct that gives rise to
the tax obligation”; and whether the tax is “levied on goods
that the taxpayer neither owns nor possesses when the tax
is imposed”. See id. at 779-83. Significantly, at least four of
these factors exactly mirror four of the Kennedy factors used
in Hudson.
The similarity of the tests was acknowledged in Hudson
itself, when the Court stated in a footnote that Kurth Ranch
“applied a Kennedy-like test before concluding that
Montana’s dangerous drug tax was ‘the functional equiva-
lent of a successive criminal prosecution.’ ” Hudson, 522
U.S. at 102, n.6 (citations omitted). Moreover, Justice
Stevens’ concurrence emphasized that the Court’s decision
in Hudson reaffirmed the central holding of Kurth Ranch.
Id. at 110. In another concurrence, Justice Breyer, joined by
Justice Ginsburg, commented that Kurth Ranch properly
“track[ed] the non-exclusive list of factors set forth in
Kennedy, and it is, I believe, the proper approach.” Id. at
115. Thus, notwithstanding any previous dicta by this
2
(...continued)
ture’s contrary intent. See Hudson v. United States, 522 U.S. 93,
103-04 (1997).
No. 03-1368 9
Court, Hudson should not be read as disavowing the
analysis or holding of Kurth Ranch.
We conclude that Kurth Ranch is still good law. We fur-
ther conclude that under both Kurth Ranch and Hudson,
the Wisconsin drug tax is properly characterized as a
criminal punishment for the purposes of double jeopardy
analysis. Therefore, we must proceed to discuss whether
jeopardy attached to this tax assessment and seizure. After
all, it is a fundamental principle of double jeopardy law
“that an accused must suffer jeopardy before he can suffer
double jeopardy.” Serfass v. United States, 420 U.S. 377,
393 (1975).
Before we begin this analysis, however, we pause to note
that both parties agree that the standards set forth in the
Antiterrorism and Effective Death Penalty Act of 1996
(AEDPA) do not apply to this case because the Wisconsin
Court of Appeals found that the double jeopardy issue was
moot and thus did not analyze the claim on its merits. Cf.
Moore v. Parke, 148 F.3d 705, 708 (7th Cir. 1998) (holding
that AEDPA only applies where the state court adjudicated
the constitutional issue on the merits). Under pre-AEDPA
standards, we presume that questions of fact decided by the
state court are correct, see Rodriguez v. Peters, 63 F.3d 546,
554 (7th Cir. 1995), while questions of law or mixed ques-
tions of law and fact are reviewed de novo. See Shasteen v.
Saver, 252 F.3d 929, 933 (7th Cir. 2001).
As this Court has previously discussed, the Supreme
Court has not decided the issue of when jeopardy attaches
to a taxing procedure. See United States v. Warneke, 199
F.3d 906, 908 (7th Cir. 1999) (“if the tax had been levied
prior to the drug prosecution, the Supreme Court would
then have had to determine whether the taxing procedure
resulted in the attachment of jeopardy”). In Kurth Ranch,
the criminal prosecution was followed by a tax assessment,
and the Supreme Court concluded that “[t]he proceeding
10 No. 03-1368
Montana initiated to collect a tax on the possession of drugs
was the functional equivalent of a successive criminal
prosecution that placed the Kurths in jeopardy a second
time.” 511 U.S. at 784. It is unclear, however, what proceed-
ing the Supreme Court was referring to. This Court has
hypothesized that, for the purposes of a civil forfeiture,
jeopardy does not attach until there is a contested hearing
“when evidence is first presented to the trier of fact.” See
United States v. Torres, 28 F.3d 1463, 1465 (7th Cir. 1994).
In the instant case, such an approach would result in a
conclusion that jeopardy did not attach, because the
Department of Revenue cancelled the assessment and
returned Dye’s money before a hearing took place. However,
it is arguable that the requirement of a contested hearing
should not apply when one is seeking relief from multiple
punishments rather than multiple prosecutions. Using this
logic, we might adopt a rule similar to the Fifth Circuit’s,
which holds that jeopardy attaches to a punitive tax “when
the defendant voluntarily pays the amount due in full . . .
[or] when the government takes title to a defendant’s
assets.” See Doyle v. Johnson, 235 F.3d 956, 959 (5th Cir.
2000). Under this approach, we would conclude that
jeopardy attached in this case as soon as Dye’s bank
account funds were seized.
We conclude that the purposes of the Double Jeopardy
Clause are best served by the latter rule. This case is
analogous to those where a defendant is sentenced to both
a fine and imprisonment when the statute allows only a fine
or imprisonment. In such cases, if the fine has been paid,
the defendant has “fully performed, completed, and endured
one of the alternative punishments which the law pre-
scribed for that offence” and therefore the court’s “power to
punish for that offence was at an end.” See Ex Parte Lange,
85 U.S. 163, 176 (1873); see also In re Bradley, 318 U.S. 50,
52 (1943) (holding that when a fine is paid, there is “a full
satisfaction of one of the alternative penalties of the law”
No. 03-1368 11
and that the fine cannot be reimbursed in order to punish
the defendant instead with imprisonment). Similarly, when
the state of Wisconsin seized Dye’s assets, he endured one
of the alternative punishments allowed under the Wiscon-
sin Statutes. Wisconsin cannot undo the punishment by
returning the money, nor can it seek to impose another
punishment once the money has been paid.3
We note that this case is distinguishable from those
where a civil forfeiture proceeding takes place without op-
position and the defendant never becomes a party to the
proceeding. See United States v. Torres, 28 F.3d 1463, 1465-
66 (7th Cir. 1994). Here, Dye was a named party on the
subpoena seeking to freeze his assets and Dye filed a
written objection to the seizure of his assets and the tax
assessment. There is therefore no question that the money
belonged to Dye and that his punishment was complete
once the state of Wisconsin took title to his assets.
For these reasons, we reverse the district court’s denial of
habeas corpus. In doing so, we emphasize that this case
does not stand for the proposition that Wisconsin cannot
both tax and imprison those who violate drug laws. It is
well-established that cumulative punishments may be
meted out as long as they result from a single proceeding.
See, e.g., Kurth Ranch, 511 U.S. at 778; Torres, 28 F.3d at
1464. Moreover, it is a rare tax statute which is so punitive
in either purpose or effect that it is subject to double jeop-
ardy analysis at all. However, when we are presented with
3
For this reason, the Appellee’s mootness arguments are without
merit. The Appellee cites no case law, and we can find none, that
supports the proposition that jeopardy can “unattach” once it has
attached. Dye’s claim is therefore not rendered moot by the return
of his money because jeopardy attached at the moment it was
seized.
12 No. 03-1368
a criminal punishment masquerading as a civil tax, we are
compelled by the mandates of the Constitution to ensure
that the defendant is punished only once for his misconduct.
III. CONCLUSION
For the foregoing reasons, the district court’s denial of
Dye’s petition for habeas relief is REVERSED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—1-27-04