FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
STEFAN ANDRE WILSON, a/k/a
Steven K. Wilson, a/k/a Stefan A. No. 09-10330
Wilson, a/k/a Stephen K. Wilson, D.C. No.
Defendant, 2:08-CR-00114-
v. LKK
RICHARD A. GRAY, JR., GRAY OPINION
INVESTMENT PARTNERS, and
CUMBERLAND HILL CAPITAL FUND,
L.P.,
Movants-Appellants.
Appeal from the United States District Court
for the Eastern District of California
Lawrence K. Karlton, District Judge, Presiding
Argued and Submitted
September 15, 2010—San Francisco, California
Filed October 28, 2011
Before: J. Clifford Wallace and Sidney R. Thomas,
Circuit Judges, and Richard Mills,* Senior District Judge.
Opinion by Judge Mills
*The Honorable Richard Mills, Senior United States District Judge for
the Central District of Illinois, sitting by designation.
19597
UNITED STATES v. WILSON 19599
COUNSEL
David W. Klaudt (argued), Cynthia K. Timms, and Jason M.
Hopkins, Locke Lord Bissell & Liddell LLP, Dallas, Texas,
for the movants-appellants.
Kristen S. Door, Assistant United States Attorney, Sacra-
mento, California, for the plaintiff-appellee.
19600 UNITED STATES v. WILSON
OPINION
MILLS, Senior District Judge:
Petitioner-Appellants Richard A. Gray, Jr., Gray Invest-
ment Partners, and Cumberland Hill Capital Fund, L.P.,1 (col-
lectively “Gray”) appeal the district court’s order dismissing
their third-party petition to adjudicate property interests in
forfeited property. We have jurisdiction pursuant to 28 U.S.C.
§ 1291, and we reverse and remand.
I.
A.
Stefan Wilson operated a fraudulent investment fund. His
Ponzi scheme took almost $13 million from over 50 investors.
Gray was among the investors.
By January 2008, the Government had been investigating
Wilson for some time. Unaware of the investigation, Gray
executed a standard subscription agreement in Wilson’s fund
on January 28, 2008. Gray wired a total of $2.3 million to
Wilson’s account at Washington Mutual Bank on February 2,
2008.
On February 2 and February 5, 2008, Wilson transferred
the entirety of Gray’s funds to an Ameritrade brokerage
account, which Wilson had been using to carry out his fraud.
Prior to the transfer of Gray’s funds, the account balance was
allegedly $324.43.
On February 12, 2008, an FBI agent met with Nell John-
son, another victim of the Ponzi scheme. Following the inter-
1
Mr. Gray either controls or owns Gray Investment Partners and Cum-
berland Hill Capital Fund. At Gray’s direction the two entities deposited
funds with Wilson.
UNITED STATES v. WILSON 19601
view, Johnson demanded that Wilson return her investment.
Wilson transferred $425,000 from the Ameritrade account to
an account held by Johnson.
On February 15, 2008, Wilson was arrested, and the bal-
ance of the Ameritrade account—$1,490,418.57—was seized.
The Government also seized the $425,000 that Wilson had
transferred to Johnson. Wilson was indicted on March 13,
2008, and entered into a plea agreement with the Government.
Gray argues that he can trace all of the $425,000 that ended
up in Johnson’s account to his investment. Gray further
argues that all but $324.43 of the funds seized from the
Ameritrade account are traceable to Gray’s investment.
The remainder of Gray’s investment—$384,905.86—was
diffused via lulling payments, trading losses, and margin calls
during the two weeks that Wilson held the investment.
B.
Pursuant to the plea agreement, the district court entered its
preliminary order of forfeiture on April 21, 2009, forfeiting to
the Government the $1,490,418.57 balance in the Ameritrade
account and the $425,000 in Johnson’s account. Gray filed his
petition on June 2, 2009.
Gray’s petition, filed under 21 U.S.C. § 853(n)(2), alleged
that Gray had an interest in $1,915,094.14 of the forfeited
funds, and that his interest was superior to that of Wilson and
that of the Government.
The Government filed a motion to dismiss the petition, and,
after the issue was fully briefed and a hearing was held, the
district court granted the motion to dismiss.
In its published order, the district court began by reviewing
the applicable standards in forfeiture proceedings. The district
19602 UNITED STATES v. WILSON
court stated that “[p]ersons who have been convicted of speci-
fied crimes must forfeit to the government property derived
from or obtained as a result of the crime or used to commit
or facilitate the crime.” United States v. Wilson, 640 F. Supp.
2d 1257, 1259 (E.D. Cal. 2009). The district court noted that
under § 853(c), the “government’s interest in the property
vests at the moment the crime occurs.” Id. The district court
explained that “certain narrow classes of owners of the prop-
erty have interests in the property superior to the government.
Such asserted interests are adjudicated at a hearing, which the
statute describes, as well as when a third-party’s interest is
superior to that of the government.” Id. (citation omitted).
The district court started its analysis by examining whether
a constructive trust arose upon Gray’s transfer of funds to
Wilson. The district court and the parties assumed that Cali-
fornia law applied to this question.
The district court explained that in United States v.
$4,224,958.57 (“Boylan”), 392 F.3d 1002, 1004 (9th Cir.
2004), we “held unequivocally that [under California law] a
constructive trust arises by operation of law as soon as the
fraudster obtains the victim’s property.” Wilson, 640 F. Supp.
2d at 1259-60.
The district court noted, though, that in Davies v. Krasna,
14 Cal. 3d 502, 515-16 (1975), the California Supreme Court
adopted the view that constructive trusts had to be created by
a court. Wilson, 640 F. Supp. 2d at 1260.
The district court aired its misgivings about Boylan’s fidel-
ity to California law, but recognized that it had to follow the
precedent of this Court. The district court found that Gray,
pursuant to Boylan, “obtained a constructive trust in the prop-
erty that was the subject of the defendant’s fraud by operation
of law at the moment the fraud occurred.” Id.
After reviewing Gray’s claim against the property under
§ 835(n), the district court found that “[w]hile it seems clear
UNITED STATES v. WILSON 19603
that under Boylan the [Gray] petitioners do have an interest
superior to the defendant it also appears that interest is not
superior to the government.” Id. at 1261.
Next, the district court examined the case of United States
v. Hooper, 229 F.3d 818 (9th Cir. 2000), where the wives of
two drug dealers tried to lay claim against forfeited drug pro-
ceeds under the theory that, pursuant to California law, they
had an automatic community property interest in these pro-
ceeds. The district court noted that, in Hooper, we “held that
the government has interest in the property, except where a
third party was a bona fide purchaser of the property or the
third-party’s interest antedated the crime.” Wilson, 640 F.
Supp. 2d at 1261.
The district court stated that although Gray had an interest
in the funds prior to the crime, that interest ceased when the
funds were transferred to Wilson. Id. at 1262. The district
court noted that a new interest was formed at the time of the
transfer, but that Gray’s new interest arose simultaneously to
the creation of Government’s interest. Id. The district court
held that Gray’s interest was inferior to the Government’s
interest.
Finally, the district court concluded that the petitioners lack
prudential standing. The district court noted that the Govern-
ment’s briefing on that point was a recitation of the magistrate
judge’s findings and recommendations in a related case,
United States v. Real Property Located at 730 Glen-Mady
Way, 590 F. Supp. 2d 1295, 1297 (2008) (civil in rem forfei-
ture proceeding against defendant Wilson’s house). Wilson,
640 F. Supp. 2d at 1262.
The district court briefly summarized a few key points that
the magistrate judge made in 730 Glen-Mady Way: Congress
has created a statutory structure for victims to receive restitu-
tion and that “the interests of crime victims in receiving resti-
tution are not in the zone of interests implicated in the statute
19604 UNITED STATES v. WILSON
governing the forfeiture hearing.” Wilson, 640 F. Supp. 2d at
1262.
The district court concluded by stating the following: “For
the same reasons that the court adopted [the magistrate
judge’s] findings in [United States v. Real Property Located
at 730 Glen-Mady Way], the petitioners appear to lack pru-
dential standing in this action.” Id.
II.
“In a case involving § 853(n), we review the district court’s
findings of fact for clear error and its legal conclusions de
novo.” United States v. Nava, 404 F.3d 1119, 1127 n.3 (9th
Cir. 2005). The facts alleged in Gray’s petition are assumed
to be true. See Fed. R. Crim. P. 32.2(c)(1)(A) (“In the ancil-
lary proceeding, the court may, on motion, dismiss the peti-
tion for lack of standing, for failure to state a claim, or for any
other lawful reason. For purposes of the motion, the facts set
forth in the petition are assumed to be true.”).
III.
A.
The district court erred in holding that Gray lacks pruden-
tial standing. The Supreme Court has stated that “[b]eyond the
constitutional requirements, the federal judiciary has also
adhered to a set of prudential principles that bear on the ques-
tion of standing.” Valley Forge Christian Coll. v. Ams. United
for Separation of Church & State, Inc., 454 U.S. 464, 474
(1982). “Congress legislates against the background of our
prudential standing doctrine, which applies unless it is
expressly negated.” Bennett v. Spear, 520 U.S. 154, 163
(1997).
In this case, the district court raised the issue of prudential
standing under the zone of interests test. In order for a litigant
UNITED STATES v. WILSON 19605
to have prudential standing under the zone of interests test,
the litigant’s claim must fall within the zone of interests pro-
tected by the law invoked. Elk Grove Unified Sch. Dist. v.
Newdow, 542 U.S. 1, 12 (2004).
[1] However, there are situations where the zone of inter-
ests test does not apply to a statute, because Congress has
negated that test. See Bennett, 520 U.S. at 164-65. When Con-
gress broadly opens the remedy to “any person,” without
qualification, the zone of interests test does not apply. Id.
[2] Here, the forfeiture statute provides:
Any person, other than the defendant, asserting a
legal interest in property which has been ordered for-
feited to the United States pursuant to this section
may, within thirty days of the final publication of
notice or his receipt of notice under paragraph (1),
whichever is earlier, petition the court for a hearing
to adjudicate the validity of his alleged interest in the
property. The hearing shall be held before the court
alone, without a jury.
21 U.S.C. § 853(n)(2) (emphasis added). Therefore, with the
exception of the defendant, any person may petition the court
for the property.
[3] Accordingly, we conclude that, pursuant to Bennett, the
zone of interests test does not apply to this case. Conse-
quently, we hold that Gray has prudential standing to assert
a claim.
B.
The district court erred when it found that the Govern-
ment’s interest in the funds was superior to Gray’s interests.
The key statutory provision states:
19606 UNITED STATES v. WILSON
If, after the hearing, the court determines that the
petitioner has established by a preponderance of the
evidence that—
(A) the petitioner has a legal right, title, or
interest in the property, and such right, title,
or interest renders the order of forfeiture
invalid in whole or in part because the
right, title, or interest was vested in the peti-
tioner rather than the defendant or was
superior to any right, title, or interest of the
defendant at the time of the commission of
the acts which gave rise to the forfeiture of
the property under this section; or
(B) the petitioner is a bona fide purchaser
for value of the right, title, or interest in the
property and was at the time of purchase
reasonably without cause to believe that the
property was subject to forfeiture under this
section;
the court shall amend the order of forfeiture in accor-
dance with its determination.
21 U.S.C. § 853(n)(6).
[4] The language of § 853(n)(6)(A) is clear. If the peti-
tioner can show by the preponderance of the evidence that his
interest is greater than that of the defendant, the district court
is to amend the order of forfeiture.
The district court looked to the combination of
§ 853(n)(6)(A) and the portion of the forfeiture statute related
to third party transfers—§ 853(c)—to come to its conclusion.
Section 853(c) provides:
All right, title, and interest in property described in
subsection (a) of this section vests in the United
UNITED STATES v. WILSON 19607
States upon the commission of the act giving rise to
forfeiture under this section. Any such property that
is subsequently transferred to a person other than the
defendant may be the subject of a special verdict of
forfeiture and thereafter shall be ordered forfeited to
the United States, unless the transferee establishes in
a hearing pursuant to subsection (n) of this section
that he is a bona fide purchaser for value of such
property who at the time of purchase was reasonably
without cause to believe that the property was sub-
ject to forfeiture under this section.
21 U.S.C. § 853(c).
The district court relied upon the interplay between 853(c)
and 853(n)(6)(A) to dismiss Gray’s petition. The district court
reasoned that the Government took title to Gray’s money
upon Wilson’s receipt of the funds, and therefore the Govern-
ment’s interest must be weighed against Gray’s constructive
trust, which arose at the same time under Boylan.
The district court created a false conflict. Section 853(c)
concerns only third-party transfers, like the situation in
Hooper. See Hooper, 229 F.3d at 821. The language in
§ 853(c) is broad, because it is laying claim to interests down-
stream from the defendant.
In Hooper, the defendants’ wives claimed that they had
community property interests in the proceeds from drug sales
that were forfeited when the defendants were convicted. 229
F.3d at 819-20. The wives claimed that, pursuant to state law,
the property interest arose automatically. See id.
In Hooper, we examined 21 U.S.C. § 853(n)(6)(A) and
interpreted the temporal requirement of that subsection as
applying to both vested interests and superior interests. 229
F.3d at 821. This means that for a petition to succeed: (1) the
interest must have vested to the petitioner, rather than the
19608 UNITED STATES v. WILSON
defendant, at the time the offense occurred, or (2) the peti-
tioner had a superior interest than the defendant at the time
the offense occurred. See id.
Hooper is not entirely analogous to the case before us.
First, as we pointed out in Hooper, § 853(n)(6)(A) is better
designed to deal with the instrumentalities of crime than the
proceeds of crime. 229 F.3d at 822. In Hooper, we drew a
sharp dichotomy between the instrumentalities and the pro-
ceeds of crime. Id. (employing the analogy of a husband using
the family’s car to conduct drug deals (the instrumentality)
and the money received in the course of those deals (the pro-
ceeds)). Of course, the problem with Ponzi schemes is that a
fraud victim’s money is both an instrumentality and the pro-
ceeds of the crime.
Second, Hooper relates to closing a loophole that would
otherwise allow the spouses of drug dealers to legally obtain
the proceeds of the crime. In the instant case, we are dealing
with a petitioner who had an interest both before and after the
crime.
The district court’s heavy reliance on Hooper is misplaced.
The point of Hooper and § 853(c) is that the Government’s
interest attaches at the time of the crime, in order to prevent
criminals from distributing the proceeds of crime to friends,
relatives, and straw persons.
[5] Immediately before the transfer of funds, Gray owned
his own money. At the time of transfer, a constructive trust
arose, pursuant to Boylan. Also at the same time, the Govern-
ment’s interest attached. So, the district court was correct that
these two interests arose simultaneously.
[6] The district court erred in concluding that these inter-
ests are in conflict. It is pursuant to the Government’s interest
that the property is seized and later subjected to proceedings
under § 853(n). Therefore, the attachment of the Govern-
UNITED STATES v. WILSON 19609
ment’s interest under § 853(c) is a threshold event that gives
rise to the petitioner seeking the return of the fraudulently
obtained property.
[7] Contrary to the conclusions of the district court, once
the original owner meets the burden of proof set out at
§ 853(n), the Government’s interest is eliminated.
The district court held:
Here, under Hooper, it appears that petitioners’
interests are not cognizable under § 853(n)(6)(A).
Although they had an interest in the claimed prop-
erty prior to the crime, since they were the original
holders of the property that defendant obtained
through fraud, this interest ceased when the petition-
ers transferred the property to the defendant. A new
interest arose when they became victims of the
fraud; this is the constructive trust interest that peti-
tioners assert. This interest, however, arose by virtue
of the defendant’s fraud and, as such, arose simulta-
neously with the government’s interest. See 21
U.S.C. § 853(c). Therefore it appears that under
Hooper and the plain language of § 853, petitioners’
interests did not precede the government’s and thus
do not fit into either of the categories recognized as
defeating the government’s claimed forfeiture.
Wilson, 640 F. Supp. 2d at 1262. Under this view, in order for
a petitioner to prevail, they would need to not only have a pre-
existing interest in the property, but, in addition, their type of
interest in that property could not have changed due to the
commission of the crime. The district court essentially held
that because there was a change in the kind of interest Gray
held, he lost his right to his funds.
[8] Under Hooper, a petitioner’s interest must have existed
prior to the event that gave rise to the Government’s interest.
19610 UNITED STATES v. WILSON
229 F.3d at 821. As detailed above, in Hooper our analysis
did not consider the kind of case that is now before us. There-
fore, we now hold that a petitioner’s interest, or a related
interest derived from the petitioner’s original interest, must
have existed prior to the event that gave rise to the Govern-
ment’s interest.
[9] Under § 853(n), Gray’s interest is greater than Wil-
son’s. The Government is merely standing in Wilson’s shoes,
and its interest cannot exceed Wilson’s interest. Therefore, the
district court erred in holding that the Government’s interest
was greater than Gray’s.
C.
The Government proposes that the whole issue can be
resolved if we overturn Boylan. The Government maintains
that without Boylan, no constructive trust would have auto-
matically been in place on behalf of Gray, and as a result, he
would be unable to proceed under § 853.
The Government argues that in Boylan, we did not accu-
rately interpret California law. Under Boylan, constructive
trusts arise as a matter of law at the time the fraud is perpe-
trated.
Critics argue that Boylan runs counter to a number of Cali-
fornia appellate cases, see, e.g., Embarcadero Mun. Imp. Dist.
v. Cnty. of Santa Barbara, 88 Cal. App. 4th 781 (2001), and
one California Supreme Court case, Davies v. Krasna, 14 Cal.
3d 502 (1975), which hold that constructive trusts only arise
at the time they are put into effect by a court, after determin-
ing that the elements of California Civil Code §§ 2223 and
2224 have been met.
Nevertheless, in Boylan, we scoffed at the notion that a
constructive trust could not come into existence until a court
so decided. Boylan, 392 F.3d at 1004. As the Government
UNITED STATES v. WILSON 19611
notes, the Court in Boylan relied upon the California Civil
Code, the Restatement (First) of Restitution (1937), the
Restatement of the Law of Restitution, California Annotations
(1940), and Scott on Trusts (4th ed. 1989), rather than looking
to California case law. Boylan, 392 F.3d at 1004.
Generally, a three-judge panel of this Court may not over-
turn circuit precedent. See Palmer v. Sanderson, 9 F.3d 1433,
1437 n.5 (9th Cir. 1993). Even if we agreed that Boylan
should be overturned, we are without the power to do so.2
D.
We note that our decision results in a different outcome
than the U.S. Court of Appeals for the Eleventh Circuit
reached in United States v. Ramunno, 599 F.3d 1269 (11th
Cir. 2010), but that case is distinguishable on an important
point.
In Ramunno, the Eleventh Circuit faced an almost identical
2
Similarly, we decline to effectively revise Boylan’s holding with a
novel interpretation. The language and reasoning of Boylan are clear:
“[t]he obligation on the fraudster is imposed by law and arises immedi-
ately with his acquisition of the proceeds of the fraud.” Boylan, 392 F.3d
at 1004. As to the question of whether a court must weigh the equities
before establishing a constructive trust, the Boylan court noted that “[i]t
is an elementary mistake to suppose that a court creates a trust.” Boylan,
392 F.3d at 1004; see also id. (characterizing the expression “the court
constructs the trust,” as “absurd” (quotations omitted)).
In Boylan we were not merely presuming that the equities warranted a
trust for the purposes of a standing analysis. The Boylan court based its
decision that Appellants had standing on the existence of a constructive
trust. As the opinion detailed, “[i]f the Appellants can prove their [fraud]
claims . . . they are the beneficiaries of the constructive trust and have,
therefore, equitable interests in it. . . . They consequently have Article III
standing in the [forfeiture] proceeding.” Id. at 1005 (emphases added).
The court did not hold that a trust “might” or “may” be imposed. It held
that a constructive trust was imposed, and it directed the district court to
administer “that trust.” Id. at 1005.
19612 UNITED STATES v. WILSON
scenario as we face in the instant case. An investor in a Ponzi
scheme transmitted $2 million shortly before the Government
seized the fraudster’s assets, and the investor alleged he could
trace his investment funds. Id. at 1271-72. The investor filed
a petition and requested that the court amend the preliminary
order of forfeiture. Id. at 1272. The district court granted the
Government’s motion to dismiss the petition without holding
an evidentiary hearing. Id.
The district court refused to award the investor a construc-
tive trust, reasoning that to allow the investor full recovery
would inequitably diminish the pool available to the remain-
ing victims. Id. at 1275. The Eleventh Circuit affirmed the
decision of the district court, holding that the district court did
not abuse its discretion in denying the investor a constructive
trust. Id. at 1276.
The outcomes in Ramunno and this case are different
because they both involve the interpretation of state law by
the federal courts of appeals. Under Boylan, this Court inter-
prets California law as establishing a constructive trust at the
time the fraud is perpetrated, without further court action. In
Ramunno, the Eleventh Circuit interpreted Georgia law as
requiring judicial action to establish a constructive trust, and
further requiring that principles of equity and fairness be con-
sidered in determining whether to establish a constructive trust.3
Id. at 1274.
3
We do not hold that concerns for “equity and fairness” cannot be con-
sidered when addressing a constructive trust arising in California. Rather,
we simply observe that Boylan requires that a constructive trust is auto-
matically imposed when a claimant establishes fraud. We note, however,
that courts still consider “equity and fairness” under Boylan—they con-
sider them in the administration, and not the creation, of constructive
trusts. See Boylan, 392 F.3d at 1005 (remanding to the district court to
administer the trust, “taking steps to assure that no claimant obtains more
than his or her fair share.”).
UNITED STATES v. WILSON 19613
E.
There are several issues that will need to be resolved on
remand. The district court did not hold an evidentiary hearing
under § 835(n), because the petition was dismissed. As a
result of the dismissal, we have presumed that Gray’s allega-
tions, such as the traceability of the funds, are true. See Fed.
R. Crim. P. 32.2(c)(1)(A). However, on remand Gray will
have to meet the burden of proof set out in the statute.
Furthermore, this decision should not be read to preclude
equitable analysis by the court below. The Boylan court
remanded with instructions to administer the constructive
trust fairly. Boylan, 392 F.3d at 1005. So do we. Thus, the
court below should “tak[e] steps to assure that no claimant
obtains more than his or her fair share.” Id.
For example, even if the forfeited assets can be traced back
to Gray’s investment into Wilson’s fraudulent scheme, this
does not necessarily move him ahead of the other victims in
this case.
[10] According to the Supreme Court, tracing rules can be
suspended where equity so demands. See Cunningham v.
Brown, 265 U.S. 1, 13 (1924). In Cunningham, creditors
sought to rescind certain contracts with Charles Ponzi, the
man who perpetuated the original eponymous scheme, based
on allegations of fraud. Rather than allow these creditors to
rely on tracing rules that would have permitted them to
recover at the exclusion of similarly-situated creditors, the
Court held that the money in the account belonged to all of
the victims, not Ponzi, and that the use of the tracing pre-
sumption would harm some of the victims’ rights. Id. Inas-
much as these creditors occupied the same legal position as
other creditors, equity would not permit them a preference. Id.
This was so, the Court explained, because “equality is equi-
ty.” Id.
19614 UNITED STATES v. WILSON
[11] The same principle seems applicable here. Because
Gray relies on a tracing presumption as the basis for his
alleged superior interest, this case arguably presents circum-
stances where equity would justify suspension of those tracing
rules. See id. Indeed, under our precedent, courts generally
will not indulge in tracing when doing so would allow one
fraud victim to recover all of his losses at the expense of other
victims. United States v. 13328 & 13324 State Hwy. 75 N., 89
F.3d 551, 554 (9th Cir. 1996) (refusing to apply tracing rules
in an SEC enforcement action).
Finally, we note that there are several disputed factual mat-
ters regarding the transfer of funds. These outstanding issues
can be resolved on remand.
IV.
The decision of the district court dismissing Gray’s petition
is reversed, and the case is remanded for further proceedings
not inconsistent with this opinion.
REVERSED AND REMANDED.