State ex rel. Rooney v. One 1974 Green Targa Porsche Automobile , 112 Idaho 432 ( 1986 )

BAKES, Justice.

This is an appeal by the State of Idaho from a district court order upholding a lien held by First Security Bank (bank) in a Porsche automobile. The auto is the subject of a forfeiture action by the State of Idaho. The district court held that the bank had a valid and perfected lien and ordered the Porsche released to the bank. We reverse.

The parties stipulated to the following facts. The state and First Security Bank claim ownership of a 1974 Porsche automobile. The state’s claim arises under I.C. § 37-2744, which allows forfeiture to the state of property used in drug trafficking. Rudy Stephenson was the original owner of the Porsche. On June 4, 1984, Stephenson transferred title to the Porsche to Edward Thompson for $4,000. During this period, Stephenson retained possession of the car and held an option to repurchase the car. On July 11,1984, Stephenson was arrested for allegedly trafficking in cocaine. The police seized the car, which had been used to transport drugs, from Stephenson on July 18, 1984, pursuant to the forfeiture statute.

On August 9, 1984, the state filed its forfeiture complaint and sent notice of forfeiture to Stephenson and Thompson by certified mail. Afterwards, on August 20, 1984, Thompson sought a loan from First Security Bank. The loan, for $8,000, was granted on August 27, 1984, with the bank taking a lien on the Porsche.¹ The bank did not inspect the Porsche, which had been in police custody for over a month.

On August 30, 1984, the attorney for Thompson and Stephenson answered the state’s complaint of August 9,1984. Hearing was held on December 7, 1984, and on December 17, 1984, the Porsche was ordered forfeited from Thompson and Stephenson. On June 5, 1985, after an additional hearing, the district court held that the bank had a valid and perfected lien and ordered the Porsche released to the bank.

The central issue in this case is one of statutory construction. The issue is whether under I.C. § 37-2744 the state’s interest in the Porsche vested before the bank’s interest. In other words, at what point under the statute did the state’s interest in the Porsche arise.

The relevant portions of the statute in question, as it existed in 1984, read as follows:

“37-2744. Forfeitures. — (a) The following are subject to forfeiture:

“(4) All conveyances, including aircraft, vehicles, or vessels, which are used, or intended for use, to transport, or in any manner to facilitate the transportar tion, delivery, receipt, possession or concealment, for the purpose of distribution or receipt of property described in paragraph (1) or (2) [controlled substance] hereof, but:

“(B) No conveyance is subject to forfeiture under this section if the owner establishes that he could not have known in the exercise of reasonable diligence that the conveyance was being used to unlawfully transport any property described in paragraph (1) or (2) [controlled substances] hereof, but:

(D) A forfeiture of a conveyance encumbered by a bona fide security interest is subject to the interest of the secured party if he neither had knowledge of or reason to know nor consented to the act or omission.

“(d) Property taken or detained under this section shall not be subject to replevin, but is deemed to be in the custody of the director subject only to the orders and decrees of the district court, or magistrate’s division thereof, having jurisdiction over the forfeiture proceedings. Forfeiture proceedings shall be civil actions against the property subject to forfeiture and the standard of proof shall be preponderance of the evidence.

“[ (3)(D) ] (IV) An owner, co-owner or claimant of any right, title, or interest in the conveyance may prove that his right, title, or interest, whether under a lien, mortgage, conditional sales contract or otherwise, was created without any knowledge or reason to believe that the conveyance was being or was intended to be used, for the purpose charged; ____” (Emphasis added.)

This statute was adopted in Idaho in 1971 from the Uniform Controlled Substances Act. 1971 Idaho Sess. Laws, ch. 215. The forfeiture statute was modeled after 21 U.S.C. § 881 adopted by the United States Congress in 1970.

I

The bank’s interest in the Porsche arose op August 27, 1984. There are three dates on which the state’s rights may have vested under I.C. § 37-2744: (1) the date of the illegal activity, July 11, 1984; (2) the date the state seized the Porsche, July 18, 1984; (3) the date the district court made a judicial determination that the car was subject to forfeiture, December 17, 1984.

(1) Date of the illegal activity: The seminal case regarding forfeitures is the early case of United States v. Stowell, 133 U.S. 1, 10 S.Ct. 244, 33 L.Ed. 555 (1890), in which the United States Supreme Court chose the date of the illegal activity as the time when the government’s rights vest under the federal forfeiture statutes then in effect. The court held:

“By the settled doctrine of this court, whenever a statute enacts that upon the commission of a certain act specific property used in or connected with that act shall be forfeited, the forfeiture takes effect immediately upon the commission of the act; the right to the property then vests in the United States, although their title is not perfected until judicial condemnation; the forfeiture constitutes a statutory transfer of the right to the United States at the time the offense is committed; and the condemnation, when obtained, relates back to that time, and avoids all intermediate sales and alienations, even to purchasers in good faith." United States v. Stowell, 133 U.S. at 16, 17, 10 S.Ct. at 247 (emphasis added).

The Stowell rule has been widely adopted by the federal courts. See United States v. $84,000 U.S. Currency, 717 F.2d 1090 (7th Cir.1983); Ivers v. United States, 581 F.2d 1362 (9th Cir.1978); United States v. One 1975 Chevrolet, etc., 495 F.Supp. 737 (W.D.Mich.1980); United States v. $36,125 in U.S. Currency, 510 F.Supp. 303 (E.D.La.1980). Closer to Idaho, Oregon has also adopted Stowell in State v. Crampton, 30 Or.App. 779, 568 P.2d 680 (1977), holding “that no post-seizure lien can be created where the subject property has been seized.” State v. Crampton, supra 568 P.2d at 684. In People v. Grant, 52 Cal.App.2d 794, 127 P.2d 19 (1942), California adopted the Stowell doctrine for statutory forfeiture.

Stowell created a strict rule which holds that after there has been a judicial determination that the subject property was indeed involved in illegal acts, the doctrine of relation back is invoked. Under this doctrine, the government’s rights in the property are perfected and effective at the time such illegal acts were committed and thereby defeat all innocent third party interests which may have arisen in the interim. See Simons v. United States, 541 F.2d 1351 (9th Cir.1976); United States v. One Piece of Real Estate, etc., 571 F.Supp. 723 (W.D.Tex.1983); United States v. One 1975 Chevrolet, etc., supra; United States v. One 1951 Douglas DC-6 Aircraft, 525 F.Supp. 13 (W.D.Tenn.1979). A literal interpretation of Stowell would cut off the innocent third party at the date of the violation, even if the third party had no notice of the previous use of the subject property.

(2) The date of seizure: The date of seizure would serve to protect innocent parties that would be harmed under the Stowell rule. The federal government has administratively modified Stowell by protecting lienholders through an act of executive clemency. The court in United States v. One Piece of Real Estate, etc., supra, pointed out that:

“Historically, the remedy of the innocent holder of a lien interest in property forfeited under Section 881 and other statutes has been to petition the Attorney General of the United States for remission or mitigation, an act of executive clemency. Thus, although innocent lien-holders could not prevent forfeiture of their interests, they could request an administrative determination that certain properties be returned or a portion of the proceeds of sale be paid to them. (Citations omitted.)” 571 F.Supp. at 724.

The court went on to note that “[i]n ruling on petitions for remission and mitigation, the Department of Justice has consistently taken the position that a lienholder’s interest is cut off as of the date of the seizure.” United States v. One Piece of Real Estate, etc., 571 F.Supp. at 725. “[T]he pivotal time after which no further liens may attach is the moment when the state takes physical possession of the vehicle.” State v. Crampton, 30 Or.App. 779, 568 P.2d 680, 684 (1977) (Lee, J., specially concurring). Using the date of seizure would moderate the effects of Stowell and still uphold the deterrent purposes of the statute.

(3) The date of judicial determination: The bank argues that, according to 37 C.J.S. Forfeitures § 6(b) (1943), there are two types of statutory forfeiture — mandatory and permissive. A statute is mandatory if it declares in absolute terms that property is forfeited on the commission of an offense. A statute is permissive if the state is given an alternative to forfeiture or has an election to proceed. Under a permissive statute an innocent person may acquire a title which cannot be impaired by the subsequent action of the state. Since the state’s rights under a permissive statute are not perfected until after a judicial determination, the bank’s position is that it only had to perfect its interest before the judicial determination of forfeiture on December 17, 1984. The bank asserts that the language “subject to forfeiture” which exists in the Idaho statute is intended to create just such a permissive statute. The legal support for using the date of judicial determination is found in a Fifth Circuit case which stated that a statute that used “subject to forfeiture” language was permissive, and under a permissive statute the government’s interest did not vest until a judicial determination was made. United States v. Currency Totalling $48,318.08, 609 F.2d 210 (5th Cir.1980). This is clearly a minority position.

II

Forfeiture is the divestiture of specific property without compensation, in consequence of some default or act forbidden by law. 37 C.J.S. Forfeiture § 1 (1943). Statutory forfeiture has been entrenched in the law since pre-colonial times. Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 94 S.Ct. 2080, 40 L.Ed.2d 452 (1974). The United States Supreme Court has stated that the purpose of a forfeiture statute is to attack the economic aspects of certain crimes, as well as to prevent further illicit use of the property. Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. at 679, 94 S.Ct. at 2089. In accepting this policy behind statutory forfeiture, we must seek to construe I.C. § 37-2744 to protect the purpose of the law while, at the same time, protecting the rights of parties whose property interests are protected by the act. A statute should be interpreted to mean what the legislature intended it to mean, and to accomplish what the legislature sought to achieve by its passage. Smith v. Dept. of Employment, 100 Idaho 520, 602 P.2d 18 (1979).

Respondent bank’s position that the state received no interest in the Porsche until the district court made a determination is difficult to reconcile with the purposes of the statute. Using this date would, in effect, severely limit the purpose of the statute by setting such a late time for vesting of the state’s rights that seizure of forfeited property would be rendered ineffective. By not allowing the state’s rights in forfeited property to vest until there has been a judicial determination, criminals would be able to avoid the law altogether by encumbering their property after seizure, effectively turning their loss into cash. We do not believe that the legislature intended to allow a third party to get an interest (post-seizure) that is stronger than the state’s interest.

I.C. § 37-2744 protects the interests of bona fide encumbrancers in § 37-2744(a)(4)(D) and in § 37-2744(d)(3)(D)(IV). The statute provides that a party claiming an interest under a lien may show that the lien “was created without any knowledge or reason to believe that the conveyance was being or was intended to be used for the purpose charged.” I.C. § 37-2744(d)(3)(D)(IV) (1984). In adopting the forfeiture statute, the legislature sought to attack the economic aspects of crimes and to prevent illicit use of property. Once seizure has taken place, this goal has been satisfied. It would be illogical, and would frustrate the legislative policy to hold that an owner of seized property has the option of encumbering that property and thereby benefitting economically by cutting off the state’s forfeiture rights.

In this case there are two innocent parties, the state and the bank. The state followed all of the required procedural obligations under I.C. § 37-2744. The car was seized, and notice was given to all parties who had an existing interest in the car at the time of seizure. The bank did not obtain its interest in the property until twenty days after seizure. By adopting the date of seizure rule, the harshness of the Stowell rule is mitigated and the purposes and policies behind the law are protected. Criminals will not be able to avoid forfeiture by borrowing against their property after seizure. Lenders will be protected against pre-seizure situations where it would be impossible to protect themselves. They can protect themselves from post-seizure difficulties if they take the step of inspecting collateral before issuing loans. The burden on the bank is minimal — they simply must inspect collateral. Such an inspection in this case would have protected the bank because they would have discovered that the car had been seized and was in police custody, and therefore Thompson’s title was questionable. We hold that once the state has seized property pursuant to I.C. § 37-2744 a third party cannot get a lien interest in the seized property which is protected by the statute.

Ill

Having determined that the Porsche belonged to the state on the day it was seized, we now address the bank’s claim that the state’s appeal was moot. The bank argues that because the car was released to the bank and was subsequently sold by the bank, there was no controversy to decide on appeal. However, the state had paramount title to the Porsche, as we have held in Part II, and as a result a title dispute existed between the state and the bank. By selling the Porsche, a justiciable issue of conversion existed between the state and the bank. Accordingly, the case is not moot.

The judgment of the district court is reversed. Costs to appellant.

DONALDSON, C.J., and SHEPARD and HUNTLEY, JJ., concur.

1 . The lien was noted on the title which was re-issued on September 21, 1984.