United States Court of Appeals,
Eleventh Circuit.
No. 94-8158.
UNITED STATES of America, Plaintiff-Appellee,
v.
ROUTE 2, BOX 472, 136 ACRES MORE OR LESS, LAND LYING AND BEING IN
LAND LOT 221 OF THE 18TH DISTRICT, 1ST SECTION, TOWNS COUNTY,
GEORGIA with mailing address Route 2, Box 472, HIAWASSEE, GEORGIA,
Defendant,
Dyer's Trout Farms, Inc., Claimant-Appellant,
North Georgia Farm Credit, ACA Federal Credit Bank of Columbia,
Claimants.
Aug. 11, 1995.
Appeal from the United States District Court for the Northern
District of Georgia. (No. 2:92-cv-199-WCO), William C. O'Kelley,
Judge.
Before BIRCH and DUBINA, Circuit Judges, and CLARK, Senior Circuit
Judge.
CLARK, Senior Circuit Judge:
I. Introduction
The issue to be decided in this case is whether an officer
and majority shareholder's criminal activity is imputable to a
corporation so as to deny the corporation an "innocent owner"
defense in a forfeiture action. Today, we hold that where a
corporate employee engages in criminal activity outside the scope
of his employment, with no benefit accruing to the corporation, and
such activity was without the knowledge of the other shareholders,
the criminal activity is not imputable to the corporation. We
therefore reverse the district court's grant of summary judgment
for the United States, and remand the case for entry of summary
judgment in favor of the claimant corporation, Dyer's Trout Farms,
Inc. Because we find that the innocent owner exception applies, we
do not reach the second issue raised by the corporation—whether the
forfeiture of the property was disproportionally excessive in
violation of the Eighth Amendment.1
II. Background
The parties agree regarding the facts surrounding this
controversy, their dispute rather being focused on the
applicability of the innocent owner defense. Therefore, only a
brief recitation of the facts regarding ownership and control of
the res in question is necessary.
On September 10, 1991, Agents of the Georgia Bureau of
Investigation, the National Forest Service, and the Towns County
Sheriff's Department discovered a number of marijuana plants
growing on a parcel of land in Towns County, Georgia. The
defendant real property is a single tract of approximately 136
acres, owned by Dyer's Trout Farms, Inc. (the "Farm"). Government
agents discovered approximately 95 marijuana plants growing on a
wooded hillside a quarter of a mile from the residence of William
Dyer—president and majority shareholder of Dyer's Trout Farms, Inc.
An additional five to ten plants were discovered growing adjacent
to Dyer's residence. In outbuildings near Dyer's house, the
officers found three marijuana cigarettes, potting soil, and
"starter" cups that appeared to be connected to the marijuana
1
The district court determined that forfeiture of the entire
res did not violate the Excessive Fines Clause, noting that
federal courts have consistently upheld the validity of harsh
criminal penalties for drug offenses. Although this holding is
de facto rendered void in light of our decision to reverse, we
cast no opinion on the propriety of this conclusion.
growing on the wooded hillside.
Dyer admitted that he was aware of the plants growing adjacent
to his residence, but denied knowledge of the 95 plants on the
wooded hillside. In June 1992, William Dyer was convicted of
possession of one ounce of marijuana in a non-jury stipulated trial
in Towns County Superior Court. The United States has not
indicated any intention to bring federal narcotics charges against
Dyer. However, on October 20, 1992, the United States filed a
complaint pursuant to 21 U.S.C. § 881(a)(7) for forfeiture in rem
against the property, contending that it was used to facilitate
illegal drug trafficking.
In 1976, the Farm was incorporated by Paul Dyer, the father of
William, Willard, and Willis Dyer. The corporation was formed to
engage primarily in the raising and selling of fish and livestock.
In 1978, the land was transferred by Paul Dyer to Dyer's Trout
Farms, Inc. When Paul Dyer died in 1981, he left his stock in the
corporation to William Dyer. The present stock ownership is
divided 68 percent to William Dyer, 16 percent to Willard Dyer, and
16 percent to Willis Dyer. The sole officers of the corporation
are William Dyer, President, and Willard Dyer, Secretary. All
three brothers work full time on the Farm.
The district court found: "For purposes of the government's
motion for summary judgment the court accepts the following facts
as true. Dyer's Trout Farms, Inc. is engaged exclusively in the
business of raising and selling fish and livestock. The entire
income of the corporation is derived from the sale of fish and
livestock. The corporation has received no income or benefit from
the cultivation of marijuana. Neither Willard or Willis Dyer was
aware of or consented to the cultivation of marijuana on the
corporate property."
In rejecting the Farm's innocent ownership defense, the
district court stated: "This court will not establish a particular
number of shares of stock at which knowledge will be imputed from
an individual to a corporation. Other factors may increase or
decrease the relevance of a percentage of stock shares. However,
in this case a defendant who has 68% of the corporation's shares
and controlling authority of the daily activities of a family-owned
corporation is found to provide that corporation with knowledge of
his activities."
We think in this case there are "other factors" to consider
and that they decrease the relevance of William's 68% stock
ownership. Additionally, we do not think the district court gave
sufficient weight to certain language in 21 U.S.C. § 881(a)(7):
... except that no property shall be forfeited under this
paragraph, to the extent of an interest of an owner, by reason
of any act or omission established by that owner to have been
committed without the knowledge or consent of that owner.
How the Farm has been operated and the distribution of the
benefits from the Farm influence our decision in this case. The
Board of Directors of the corporation consists of William, the
President, and Willard, the Secretary. The Board seldom has an
official meeting. Willard is in charge of the maintenance and
growing of rainbow trout. William is in charge of sales and the
operation of the processing plant. Willard is paid an annual
salary of $10,000, William, the President, $7,800, and Willis
$7,800. No dividends have ever been paid, although one year each
of the brothers received a $2,000 Christmas bonus. The corporation
regularly employs six employees who report to William. The three
brothers meet about twice a month to discuss matters pertaining to
the Farm.
There are five houses on the property, one of which is
unoccupied. Each brother occupies a house and Willard's son,
Jason, occupies a house. The brothers' mother, Mrs. Paul Dyer,
lives with one of the brothers. Since the formation of the
corporation, two of the five houses have been built, William's and
Willard's. The brothers built these new houses using lumber cut
from the land owned by the corporation. The corporation paid all
expenses of building these houses, including the appliances. The
corporation pays for the utilities for all four houses and
maintains the houses and their appliances. These facts are related
to demonstrate that although William owns 68% of the stock, the
Farm is operated more like an equal cooperative family venture in
which the brothers may have some minor variation in their receipt
of the benefits of the operation and there is some variance in
their responsibilities. We are impressed with two rather
significant facts—William's growth of the marijuana was unknown to
his brothers, and did not in any conceivable way benefit the
corporation.
After the government and the Farm filed cross-motions for
summary judgment, the district court granted the government's
motion and denied the Farm's motion. The Farm appeals, arguing
that the court improperly rejected its innocent owner defense.
III. Analysis
We review grants of summary judgment under a de novo standard
of review, considering the evidence in the light most favorable to
the non-moving party. 2 Summary judgment is appropriate if the
pleadings, depositions, answers to interrogatories, and admissions
to the file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law.3
Under 21 U.S.C. § 881(a), the government must establish
probable cause to believe that a substantial connection exists
between the property to be forfeited and an illegal exchange of a
controlled substance.4 In the instant action, the Farm concedes
that the United States can show probable cause that a portion of
the property was used to grow marijuana, and that William Dyer was
at least aware of the marijuana being grown next to his residence.
Once probable cause is established, the burden shifts to the
claimant to prove by a preponderance of the evidence that the
5
property is not subject to forfeiture. This burden can be met
either by rebutting the government's evidence, or by showing that
the claimant was an innocent owner.6
The innocent owner defense is expressly provided for, as
2
Jaques v. Kendrick, 43 F.3d 628, 630 (11th Cir.1995).
3
Fed.R.Civ.P. 56(c); Akin v. PAFEC Ltd., 991 F.2d 1550,
1556 (11th Cir.1993).
4
United States v. A Single Family Residence, 803 F.2d 625,
628 (11th Cir.1986).
5
United States v. $4,255,625.39, 762 F.2d 895, 904 (11th
Cir.1985), cert. denied, 474 U.S. 1056, 106 S.Ct. 795, 88 L.Ed.2d
772 (1986).
6
A Single Family Residence, 803 F.2d at 629.
stated above, within the four corners of 21 U.S.C. § 881(a)(7):
"... no property shall be forfeited under this paragraph, to the
extent of an interest of an owner, by reason of any act or omission
established by that owner to have been committed or omitted without
the knowledge or consent of that owner." 7 The claimant bears the
burden of proving by a preponderance of the evidence that it did
not have knowledge of the illicit activity taking place on its
land.8 Here, we are confronted with the question of whether an
individual shareholder's knowledge of illicit activity is imputable
to the corporation.
Knowledge of an illegal activity may be attributed to a
corporation only when the knowledge was obtained by an agent acting
within the scope of his or her employment and for the benefit of
the corporation.9 "Acting within the scope of employment entails
more than being on the corporate employer's premises[,]" but rather
also involves an intent to benefit the corporation.10
In One Parcel, the Seventh Circuit was faced with a factual
scenario remarkably similar to the instant case. The corporation
7
The question of consent is not considered here, as the
Farm's argument is premised on its lack of knowledge. It
follows, logically, that if the corporation was unaware of the
illicit activity, it could not have consented to it.
8
United States v. One Parcel of Land, 965 F.2d 311, 315 (7th
Cir.1992).
9
Grand Union Co. v. United States, 696 F.2d 888, 891 (11th
Cir.1983).
10
965 F.2d at 316; also see United States v. Gold, 743 F.2d
800, 823 (11th Cir.1984), cert. denied, 469 U.S. 1217, 105 S.Ct.
1196, 84 L.Ed.2d 341 (1985) (affirming jury instruction stating
that acting within the scope of corporate employment involves an
intention to produce at least in part some benefit to the
corporation).
in One Parcel was owned by three family members, a son and his
parents, in equal one-third shares. The son, who retained the
greatest authority in the corporation, including direction of the
day-to-day operations of the property, bought and sold cocaine
while on corporate premises. This drug activity was hidden from
the other members, no corporate money was used to purchase drugs,
nor was the money obtained put into the corporation. In short,
except for the fact that the drug transactions took place on
corporate land, the drug activity was wholly separate and apart
from the corporation. Nevertheless, the government sought
forfeiture of the parcel, arguing that the son's knowledge was
imputable due to the nature and extent of his authority and
interest in the corporation.
The Seventh Circuit rejected the government's contention,
noting that the imputation of knowledge to the corporation turns
not on an individual's stake in a corporation, but rather on
whether the illegal action taken was within the scope of the
individual's corporate authority and for the benefit of the
corporation.11 An individual's knowledge of his own illegal
activities, albeit pursued on corporate property, will not be
imputed to the corporation where the individual was acting for his
own benefit, not for the benefit of the corporation, and outside
the scope of his corporate employment.
The district court distinguished One Parcel from the instant
case on the basis that the defendant there owned one third of the
property, while William Dyer owned 68%. Corporate knowledge,
11
965 F.2d at 317.
however, should not, and indeed does not, turn on percentage
ownership of the stockholder with knowledge of the illegal
activity. Before such an individual's knowledge can be imputed to
the corporation, a showing would need to be made that the
corporation was merely a "sham" corporation, designed solely to
protect an individual's illicit activities.12 We do not believe
this places too great a burden on the government seeking to divest
a business of its assets through forfeiture.
In the present case, no evidence was offered to suggest that
the corporation was something other than an entirely legitimate
company, operating since its inception for the sole purpose of
raising fish and livestock. William Dyer's marijuana cultivation
took place separate and apart from the corporation, and there was
no evidence that other members of the corporation were aware of it,
that the corporation reaped any benefit from his actions, or that
there was an intent to benefit the corporation. The plain language
of § 881(a)(7) appears to contemplate precisely this type of
situation where the innocent owner defense ought to apply.
In Grand Union Co. v. United States,13 we said: "We have held
in cases brought under the False Claims Act that the knowledge of
an employee is imputed to the corporation when the employee acts
for the benefit of the corporation and within the scope of his
12
The Seventh Circuit succinctly outlined the scenarios
under which the innocent owner defense would not apply: (1) if
the corporation was merely the son's alter ego; (2) if the
corporation had been established to serve the son's drug
business; or (3) if title had been given to the corporation in
order to protect the son's assets. 965 F.2d at 320.
13
696 F.2d 888 (11th Cir.1983)
employment." We see no reason to depart from the well established
principles of corporate law that to impute knowledge to a
corporation an agent must be acting within the scope of his
employment and benefiting the corporation rather than acting
against its benefit.
The government argues, and the court below agreed, that the
instant case is more analogous to United States v. 141st Street
Corp.14 than to One Parcel. In that case, the defendant property
was an apartment complex in which there had been rampant and
obvious drug trafficking. The corporate claimant that owned the
building raised the innocent owner defense. The district court
rejected the defense as a matter of law, and the Second Circuit
affirmed, noting that the property was "a veritable anthill of drug
activity" and that the building superintendent accepted bribes from
the drug dealers and charged these dealers exorbitant rents.15 The
Court also noted that the corporation's president and principle
stockholder was aware that the drug activity was occurring in the
building. It was also apparent that the corporation benefitted
from the illegal activity. The Second Circuit concluded that the
president's knowledge could be imputed to the corporation.16
In One Parcel, the Seventh Circuit distinguished the case
before it from 141st Street in two ways, both of which are
applicable to the case before us as well. First, the Court noted
14
911 F.2d 870 (2d Cir.1990), cert. denied, 498 U.S. 1109,
111 S.Ct. 1017, 112 L.Ed.2d 1099 (1991).
15
911 F.2d at 877.
16
Id.
that the corporation in 141st Street benefitted from the drug
activity, in that it was able to charge exorbitant rents.17 In One
Parcel, no benefit to the corporation accrued from the son's drug
activity. Likewise, Dyer's Trout Farm, Inc. received no benefit
whatsoever from William Dyer's drug activity. Indeed, the
government never attempts to prove otherwise. Second, in 141st
Street, corporate officers who were independent of the drug
activity were aware of the activity. Contrarily, in One Parcel,
the other members of the corporation were entirely unaware of the
illicit activity being carried on by the son. Again the situation
is the same in the case at bar: no evidence has ever been offered
that the other members of the Farm were aware of William Dyer's
drug cultivation.
In sum, the case law suggests that the applicability of the
innocent owner defense will often turn on the particular facts
surrounding not the individual's ownership and authority over the
corporate parcel, but rather whether the individual vested with
such authority was acting within the scope of his corporate
employment.
IV. Conclusion
For the foregoing reasons, the district court's grant of
summary judgment is REVERSED and the case is REMANDED for entry of
summary judgment in favor of Dyer's Trout Farms, Inc.
17
965 F.2d at 318.