The Supreme Court/The Supreme Court.iso/pc/ascii/1991/91_781/91_781.zd

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SUPREME COURT OF THE UNITED STATES
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No. 91-781
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UNITED STATES, PETITIONER v. A PARCEL OF
LAND, BUILDINGS, APPURTENANCES and IM-
PROVEMENTS, known as 92 BUENA VISTA
 AVENUE, RUMSON, NEW JERSEY, et al.
on writ of certiorari to the united states court
of appeals for the third circuit
[February 24, 1993]

  Justice Kennedy, with whom The Chief Justice and
Justice White join, dissenting.
  Once this case left the District Court, the appellate
courts and all counsel began to grapple with the wrong
issue, one that need not be addressed.  The right ques-
tion, I submit, is not whether the donee's ownership meets
the statutory test of innocence.  21 U. S. C. 881(a)(6).
Instead, the threshold and dispositive inquiry is whether
the donee had any ownership rights that required a
separate forfeiture, given that her title was defective and
subject to the Government's claim from the outset.  We
must ask whether a wrongdoer holding a forfeitable asset,
property in which the United States has an undoubted
superior claim, can defeat that claim by a transfer for no
value.  Under settled principles of property transfers,
trusts and commercial transactions, the answer is no.  We
need not address the donee's position except to acknowl-
edge that she has whatever right the donor had, a right
which falls before the Government's superior claim.  In
this case, forfeiture is determined by the title and
ownership of the asset in the hands of the donor, not the
donee.  The position of respondent as the present holder
of the asset and her knowledge, or lack of knowledge,
regarding any drug offenses are, under these facts, but
abstract inquiries, unnecessary to the resolution of the
case.
                            I
  We can begin with the state of affairs when the alleged
drug dealer held the funds he was later to transfer to
respondent.  Those moneys were proceeds of unlawful
drug transactions and in the dealer's hands were, without
question, subject to forfeiture under 881(a)(6).  The
dealer did not just know of the illegal acts; he performed
them.  As the case is presented to us, any defense of his
based on lack of knowledge is not a possibility.  As long
as the dealer held the illegal asset, it was subject to
forfeiture and to the claim of the United States, which
had a superior interest in the property.
  Suppose the drug dealer with unlawful proceeds had
encountered a swindler who, knowing nothing of the
dealer's drug offenses, defrauded him of the forfeitable
property.  In an action by the Government against the
property, it need not seek to forfeit any ownership interest
of the swindler.  In the in rem proceeding the Government
would need to establish only the forfeitable character of
the property in the hands of the dealer and then trace the
property to the swindler who, having no higher or better
title to interpose, must yield to the Government's interest.
In this context we would not entertain an argument that
the swindler could keep the property because he had no
knowledge of the illegal drug transaction.  The defect in
title arose in the hands of the first holder and was not
eliminated by the transfer procured through fraud.  Thus
the only possible -interest of an owner,- 881(a)(6), that
the swindler could hold was one inferior to the interest
of the United States.
  Here, of course, the holder is a donee, not a swindler,
but the result is the same.  As against a claimant with
a superior right enforceable against the donor, a donee
has no defense save as might exist, say, under a statute
of limitations.  The case would be different, of course, if
the donee had in turn transferred the property to a bona
fide purchaser for full consideration.  The voidable title
in the asset at that point would become unassailable in
the purchaser, subject to any heightened rules of inno-
cence the Government might lawfully impose under the
forfeiture laws.  But there is no bona fide purchaser here.
  The matter not having been argued before us in these
terms, perhaps it is premature to say whether the control-
ling law for transferring and tracing property rights of the
United States under 881 is federal common law, see
Boyle v. United Technologies Corp., 487 U. S. 500 (1988);
Clearfield Trust Co. v. United States, 318 U. S. 363
(1943), or the law of the State governing the transfer
under normal conflict-of-law rules, which here appears to
be New Jersey.  That matter could be explored on remand
if the parties thought anything turned upon it, though the
result likely would be the same under either source of law
because the controlling principles are so well settled.
  The controlling principles are established by the law of
voidable title, a centuries-old concept now codified in 49
States as part of their adoption of the Uniform Commer-
cial Code.  1 J. White & R. Summers, Uniform Commer-
cial Code 1, 186-191 (3d ed. 1988).  These principles
should control the inquiry into whether property once
-subject to forfeiture to the United States,- 881(a),
remains so after subsequent transactions.  Cf. R. Brown,
Personal Property 70, pp. 237-238 (2d ed. 1955); Restate-
ment (Second) of Trusts 284, 287, 289, pp. 47-48, 54-56
(1959); Restatement (Second) of Property 34.9, p. 338
(1992).  The primary rules of voidable title are manage-
able and few in number.  The first is that one who
purchases property in good faith and for value from the
holder of voidable title obtains good title.  The second
rule, reciprocal to the first, is that one who acquires
property from a holder of voidable title other than by a
good faith purchase for value obtains nothing beyond what
the transferor held.  The third rule is that a transferee
who acquires property from a good faith purchaser for
value or one of his lawful successors obtains good title,
even if the transferee did not pay value or act in good
faith.  See Ames, Purchase for Value Without Notice, 1
Harv. L. Rev. 1 (1887); Uniform Commercial Code 2-403-
(1) (Official Draft 1978); Uniform Commercial Code
2-403(1) (Official Draft 1957); Uniform Commercial Code
2-403(1) (Official Draft 1952).  See also 4 A. Scott & W.
Fratcher, Law of Trusts 284-289, pp. 35-70 (4th ed.
1989); Searey, Purchase for Value Without Notice, 23 Yale
L. J. 447 (1914).
  Applying these rules to a transferee of proceeds from a
drug sale, it follows that the transferee must be, or take
from, a bona fide purchaser for value to assert an inno-
cent owner defense under 881(a)(6).  Bona fide purchas-
ers for value or their lawful successors, having engaged
in or benefited from a transaction that the law accepts as
capable of creating property rights instead of merely
transferring possession, are entitled to test their claim of
ownership under 881(a)(6) against what the Government
alleges to be its own superior right.  The outcome, that
one who had defective title can create good title in the
new holder by transfer for value, is not to be condemned
as some bizarre surprise.  This is not alchemy.  It is the
common law.  See Independent Coal & Coke Co. v. United
States, 274 U. S. 640, 647 (1927); United States v. Chase
National Bank, 252 U. S. 485, 494 (1920); Wright-Blodgett
Co. v. United States, 236 U. S. 397, 403 (1915).  By con-
trast, the donee of drug trafficking proceeds has no valid
claim to the proceeds, not because she has done anything
wrong but because she stands in the shoes of one who
has.  It is the nature of the donor's interest, which the
donee has assumed, that renders the property subject to
forfeiture.  Cf. Otis v. Otis, 167 Mass. 245, 246 (1897)
(Holmes, J.) (-A person to whose hands a trust fund
comes by conveyance from the original trustee is charge-
able as a trustee in his turn, if he takes it without
consideration, whether he has notice of the trust or not.
This has been settled for three hundred years, since the
time of uses-).
  When the Government seeks forfeiture of an asset in
the hands of a donee, its forfeiture claim rests on defects
in the title of the asset in the hands of the donor.  The
transferee has no ownership superior to the transferor's
which must be forfeited, so her knowledge of the drug
transaction, or lack thereof, is quite irrelevant, as are the
arcane questions concerning the textual application of
881(a) to someone in a donee's position.  The so-called
innocent owner provisions of 881(a)(6) have ample scope
in other instances, say where a holder who once had valid
ownership in property is alleged to have consented to its
use to facilitate a drug transaction.  Furthermore, whether
respondent's marital rights were present value or an ante-
cedent debt and whether either could provide the neces-
sary consideration for a bona fide purchase are questions
that could be explored on remand, were my theory of the
case to control.
                           II
  As my opening premise is so different from the one the
plurality adopts, I do not address the difficult, and quite
unnecessary, puzzles encountered in its opinion and in the
concurring opinion of Justice Scalia.  It is my obligation
to say, however, that the plurality's opinion leaves the for-
feiture scheme that is the centerpiece of the Nation's drug
enforcement laws in quite a mess.
  The practical difficulties created by the plurality's inter-
pretation of 881 are immense, and we should not assume
Congress intended such results when it enacted 881(a)(6).
To start, the plurality's interpretation of 881(a)(6) con-
flicts with the principal purpose we have identified for
forfeiture under the Continuing Criminal Enterprise Act,
which is -the desire to lessen the economic power of . . .
drug enterprises.-  Caplin & Drysdale v. United States,
491 U. S. 617, 630 (1989).  When a criminal transfers
drug transaction proceeds to a good faith purchaser for
value, one would presume he does so because he considers
what he receives from the purchaser to be of equal or
greater value than what he gives to the purchaser, or
because he is attempting to launder the proceeds by
exchanging them for other property of near equal value.
In either case, the criminal's economic power is diminished
by seizing from him whatever he received in the exchange
with the good faith purchaser.  On the other hand, when
a criminal transfers drug transaction proceeds to another
without receiving value in return, he does so, it is safe to
assume, either to use his new-found, albeit illegal, wealth
to benefit an associate or to shelter the proceeds from
forfeiture, to be reacquired once he is clear from law
enforcement authorities.  In these cases, the criminal's
economic power cannot be diminished by seizing what he
received in the donative exchange, for he received no
tangible value.  If the Government is to drain the
criminal's economic power, it must be able to pierce
donative transfers and recapture the property given in the
exchange.  It is serious and surprising that the plurality
today denies the Government the right to pursue the same
ownership claims that under traditional and well-settled
principles any other claimant or trust beneficiary or right-
ful owner could assert against a possessor who took for
no value and who has no title or interest greater than
that of the transferor.
  Another oddity now given to us by the plurality's inter-
pretation is that a gratuitous transferee must forfeit the
proceeds of a drug deal if she knew of the drug deal
before she received the proceeds but not if she discovered
it a moment after.  Yet in the latter instance, the donee,
having given no value, is in no different position from the
donee who had knowledge all along, save perhaps that she
might have had a brief expectation the gift was clean.  By
contrast, the good faith purchaser for value who, after an
exchange of assets, finds out about his trading partner's
illegal conduct has undergone a significant change in cir-
cumstances: He has paid fair value for those proceeds in
a transaction which, as a practical matter in most cases,
he cannot reverse.
                           III
  The statutory puzzle the plurality and concurrence find
so engaging is created because of a false premise, the
premise that the possessor of an asset subject to forfeiture
does not stand in the position of the transferor but must
be charged with some guilty knowledge of her own.
Forfeiture proceedings, though, are directed at an asset,
and a donee in general has no more than the ownership
rights of the donor.  By denying this simple principle, the
plurality rips out the most effective enforcement provisions
in all of the drug forfeiture laws.  I would reverse the
judgment of the Court of Appeals, and with all due
respect, I dissent from the judgment of the Court.