[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
NOV 17, 2008
No. 07-15772 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket Nos. 05-00084-CR-DHB-1
05-00121-CR-DHB
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
STACEY SHEFTON,
MICHAEL D. DUNN,
WILLIE J. ANDERSON, JR.,
Defendants,
ATTORNEY'S TITLE INSURANCE
FUND, INC.,
Interested Party-Appellant.
________________________
No. 07-15773
Non-Argument Calendar
________________________
D. C. Docket Nos. 05-00121-CR-DHB-1
05-00084-CR-DHB
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
WILLIE J. ANDERSON, JR.,
Defendant,
ATTORNEY'S TITLE INSURANCE FUND, INC.,
Interested Party-Appellant.
________________________
Appeals from the United States District Court
for the Southern District of Georgia
_________________________
(November 17, 2008)
Before HULL, MARCUS and PRYOR, Circuit Judges.
PER CURIAM:
Attorney’s Title Insurance Fund, Inc. (the “Fund”) appeals the district
court’s dismissal of the Fund’s petition, under 21 U.S.C. § 853(n)(2), for an
ancillary hearing with regard to the Fund’s interest in certain property that was
subject to a criminal forfeiture order. The district court held that the Fund’s
constructive trust on the property is not a legal interest that can defeat the
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government’s forfeiture claim. After review, we reverse.
I. BACKGROUND
A. Mortgage Fraud Scheme
This case involves a mortgage fraud scheme by which defendant Stacey
Shefton fraudulently obtained $726,856.60 in loan proceeds from Long Beach
Mortgage Company (“Long Beach”) by presenting fraudulent documents.
The scheme began on November 23, 2004, when Lawrence Dillard (the
“buyer”) agreed to purchase real property at 1254 Greenridge Lane in Lithonia,
Georgia (the “Greenridge Property”) from PremierOne Properties (the “seller”).
Before that sales transaction, GreenPoint Mortgage Funding, Inc. (“GreenPoint”)
already had two security deeds of record (the “GreenPoint mortgages”) on the
Greenridge Property.
In order to purchase the property, the buyer obtained two loans, totaling
$800,000, from Long Beach. The Fund issued title insurance policies to Long
Beach that insured Long Beach’s security deeds securing the new loans.
Before closing, the seller informed the closing attorney that GreenPoint had
sold its existing mortgages on the Greenridge Property and assigned them to
Wilshire Mortgage Company (“Wilshire”). The seller gave the attorney statements
purportedly from Wilshire that showed the amounts due to Wilshire to pay off the
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existing mortgages.
At closing, the closing attorney issued two payoff checks, totaling
$726,856.60, payable to Wilshire out of the Long Beach loan proceeds. The
attorney mailed the checks to the address provided in Wilshire’s loan payoff
statements.
Several months later, Long Beach discovered that the GreenPoint mortgages
had never been assigned to Wilshire or anyone else. Moreover, they were in
default. Consequently, the first and second GreenPoint mortgages had not and
would not be canceled. Long Beach’s security deeds were subordinate to the
existing GreenPoint mortgages, leaving Long Beach with little or no security for its
loans.
Long Beach made claims on the two title policies issued by the Fund, and
the Fund paid off the total amount due under the GreenPoint mortgages to clear the
encumbrances on Long Beach’s title. On or about October 31, 2005, the Fund paid
GreenPoint a total amount of $742,000.
This mortgage fraud scheme that resulted in the Fund’s $742,000 loss was
perpetrated by Stacey Shefton and others. Shefton was affiliated with both
Wilshire and the seller PremierOne, and leased the unused office space to which
the payoff checks were sent. Shefton obtained for his personal use the entirety of
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the Long Beach funds which were supposed to be used to pay off the existing
mortgages and thus to clear title to the Greenridge Property and give Long Beach
its desired security positions. Thus, because Shefton diverted the Long Beach loan
proceeds to himself, Long Beach is the direct victim of Shefton’s fraud.
B. Criminal Case
Shefton was indicted and pled guilty to wire fraud. As part of his plea
agreement, Shefton agreed to forfeit to the United States certain property in his
possession or control (the “Forfeited Property”) that constituted or derived from
proceeds Shefton obtained as a result of the wire fraud. The Forfeited Property
includes a car; a motorcycle; the funds in six different bank accounts;
approximately $300,000.00 in cash seized from a storage facility; and furniture,
appliances, and other personal property located at the Greenridge Property.
Shefton admitted in his plea agreement that the cash and all the funds in the bank
accounts represented proceeds of the mortgage fraud scheme by which Shefton
intercepted the Long Beach loan proceeds.
The government sought, and the district court granted, a preliminary order of
forfeiture.
Thereafter, the Fund asserted a legal interest in the Forfeited Property that
Shefton obtained from the Long Beach loan proceeds. The Fund petitioned the
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district court for an ancillary hearing, pursuant to 21 U.S.C. § 853(n)(2), to
adjudicate the validity of the Fund’s alleged interest in the property. According to
the Fund’s petition, the Forfeited Property is, or can be traced to, the Long Beach
loan proceeds,1 which Shefton fraudulently obtained, and Shefton’s fraud was the
sole reason the Fund had to pay off the GreenPoint mortgages.
The government moved to dismiss the Fund’s § 853(n)(2) petition. The
government recognized Long Beach (and the Fund) as a victim of Shefton’s fraud.
However, the government argued that the Fund, “one of the many victims of the
Shefton . . . fraud scheme,” was merely an unsecured creditor and lacked standing
to contest the forfeiture. Specifically, the government contended that the Fund did
not have a “legal interest” in the Forfeited Property, as required by § 853(n)(6).
The Fund responded that it had the requisite legal interest through Long
Beach. Shefton fraudulently obtained from Long Beach the proceeds of Long
Beach’s loans and used those proceeds to acquire the Forfeited Property. Long
Beach was therefore entitled to a constructive trust on Shefton’s Forfeited Property
bought with Long Beach’s money. And, pursuant to the terms of the Fund’s title
insurance policies and state law, the Fund was subrogated to the rights and claims
1
As mentioned above, Shefton admitted that the cash and all the money in the bank
accounts represented Long Beach loan proceeds. The Fund’s petition further alleged that
Shefton used the fraudulently obtained loan proceeds to purchase the car, motorcycle, furniture,
appliances, and other personal property.
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of Long Beach against Shefton once it paid off the GreenPoint mortgages on Long
Beach’s behalf. Thus, the Fund succeeded to all of Long Beach’s rights and
disabilities with respect to the Long Beach loan proceeds fraudulently transferred
to Shefton. See Landrum v. State Farm Mut. Auto. Ins. Co., 527 S.E.2d 637, 638
(Ga. App. 2000). In other words, the Fund stands in the shoes of Long Beach. For
simplicity, we will refer hereafter to the Fund’s interest in the Forfeited Property,
though the interest at the time of the fraud was Long Beach’s.
In reply, the government did not contest that the Forfeited Property was, or
was purchased with, the Long Beach loan proceeds. Instead, the government noted
that Congress has not defined the term “legal interest” in § 853(n)(6)(A), and
argued that “it would frustrate the operation and effect of the forfeiture statute” to
construe as a § 853(n)(6)(A) “legal interest” a constructive trust that arises
“whenever a victim to a fraud voluntarily transfers money to another person.”
The district court granted the government’s motion to dismiss, concluding
that the Fund’s constructive trust claim could not be imposed to defeat the
government’s forfeiture claim. The Fund appealed.
II. STANDARD OF REVIEW
“In the context of third-party claims to criminally forfeited property, we
review the district court’s factual findings for clear error and its legal conclusions
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de novo.” United States v. Watkins, 320 F.3d 1279, 1281 (11th Cir. 2003).
Because the district court disposed of the Fund’s ancillary hearing petition on the
government’s motion to dismiss, we assume (as did the district court) that the facts
alleged in the petition are true. See Fed. R. Crim. P. 32.2(c)(1)(A). Thus, the only
issues before us in this appeal are legal ones meriting de novo review.
III. DISCUSSION
Section 853 governs criminal forfeiture proceedings, see 28 U.S.C. §
2461(c), and provides that persons convicted of certain criminal violations shall
forfeit to the United States any property used to commit or facilitate the crime, or
any property “constituting, or derived from, any proceeds the person obtained”
from the crime, 21 U.S.C. § 853(a)(1)-(2). “All right, title, and interest” in the
forfeited property “vests in the United States upon the commission of the act
giving rise to forfeiture.” 21 U.S.C. § 853(c).
Section 853(n) establishes a procedure for third parties who claim an interest
in forfeited property to avoid its forfeiture. Such parties may “petition the [district]
court for a hearing to adjudicate the validity of [their] alleged interest in the
property.” Id. § 853(n)(2). The statute establishes the following standard by
which third-party interests are adjudicated:
If, after the hearing, the court determines that the petitioner has
established by a preponderance of the evidence that–
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(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 petitioner 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 accordance with its
determination.
Id. § 853(n)(6) (emphasis added). The Fund does not claim to be a “bona fide
purchaser for value” under § 853(n)(6)(B); rather, it proceeds exclusively under the
“superior legal interest” prong in § 853(n)(6)(A). Thus, under § 853(n)(6)(A) the
Fund must establish that: (1) Long Beach (the Fund’s subrogor) had a legal interest
in the Forfeited Property, and (2) Long Beach’s interest was superior to Shefton’s
interest in the Forfeited Property (3) at the time of Shefton’s fraud. If the Fund can
demonstrate all three elements, then the order of forfeiture is invalid. 21 U.S.C. §
853(n)(6)(A).
The parties agree that we apply state law to determine the nature of the
Fund’s interest in the Forfeited Property. United States v. Fleet, 498 F.3d 1225,
1231 (11th Cir. 2007). On the other hand, whether the Fund’s interest in the
Forfeited Property is superior and thus renders the forfeiture order invalid under §
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853(n)(6) is a matter of federal law. Id. We first examine the nature of the Fund’s
interest.
A. State Law
Under Georgia law, a constructive trust arises “whenever the circumstances
are such that the person holding legal title to property, either from fraud or
otherwise, cannot enjoy the beneficial interest in the property without violating
some established principle of equity.” O.C.G.A. § 53-12-93(a); see St. Paul
Mercury Ins. Co. v. Meeks, 508 S.E.2d 646, 648 (Ga. 1998) (“[A] constructive
trust is a remedy created by a court in equity to prevent unjust enrichment.”).
Georgia courts have imposed constructive trusts upon money obtained by one
person from another through fraud. See, e.g., Bateman v. Patterson, 92 S.E.2d 8,
10 (Ga. 1956).
The Fund’s petition alleges that Shefton obtained the $726,856.60 in
payments from the Long Beach loan proceeds by presenting fraudulent loan payoff
statements from Wilshire. As a result, Long Beach was deprived of the bargained-
for security for its loans, and, pursuant to its policies, the Fund was required to pay
off the GreenPoint mortgages on Long Beach’s behalf.
Assuming the facts alleged in the Fund’s petition are true, we conclude that
the Fund has established it is entitled to imposition of a constructive trust on the
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Forfeited Property under Georgia law. Shefton obtained the proceeds of the Long
Beach loans through fraud; thus, he “cannot enjoy the beneficial interest” in the
property he obtained from those loan proceeds “without violating [an] established
principle of equity.” O.C.G.A. § 53-12-93(a); see Aetna Life Ins. Co. v. Weekes,
244 S.E.2d 46, 48 (Ga. 1978) (“A constructive trust arises . . . by equity with
respect to property acquired by fraud . . . .”).
We recognize the government argues that the Fund is not entitled to a
constructive trust because the Fund has an adequate remedy at law based on the
Attorney General’s authority, pursuant to § 853(i)(1), to remit forfeiture “in the
interest of justice.” However, § 853(i)(1) remission is a non-judicial remedy left
entirely to the discretion of the Attorney General. DSI Assocs. LLC v. United
States, 496 F.3d 175, 186-87 (2d Cir. 2007); United States v. Lavin, 942 F.2d 177,
185-86 (3d Cir. 1991). Under Georgia law, equitable remedies, such as
constructive trusts, are not precluded by the existence of an alternate remedy that is
“not as complete or effectual as the equitable relief.” O.C.G.A. § 23-1-4. Given
that § 853(i)(1) leaves to the government, which holds the forfeited property, full
and unreviewable discretion as to whether it will release some or all of it, §
853(i)(1) remission is certainly not as complete or effectual as the equitable relief
of a constructive trust. Thus, we conclude that the Fund has, under these facts,
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established an entitlement to a constructive trust on the Forfeited Property.
B. Federal Law
We turn now to the effect of the Fund’s constructive trust on the forfeiture
order. We agree with the large majority of courts that have determined (1) that a
constructive trust, despite being an equitable remedy, constitutes a “legal right,
title, or interest in . . . property” under § 853(n)(6)(A),2 and (2) that a constructive
trust can render a forfeiture order invalid pursuant to that subsection. See United
States v. $4,224,958.57, 392 F.3d 1002, 1004-05 (9th Cir. 2004) (stating that if the
petitioners can prove the defendant defrauded them of funds he forfeited to the
government, they are beneficiaries of a constructive trust and can challenge the
forfeiture); United States v. Schwimmer, 968 F.2d 1570, 1574, 1582 (2d Cir. 1992)
(holding that Congress’s reference to “legal right, title, or interest” included
interests arising in equity and that “a constructive trust warrants an amendment of
an order of forfeiture . . . if . . . the property ordered forfeited is traceable to
property held in constructive trust”); Lavin, 942 F.2d at 185-87 & n.10 (concluding
that Congress’s reference in § 853(n) to “legal” interests extended also to equitable
ones, but determining that § 853(n)(6)(A) did not apply under the facts of the case
2
Some of the cases discussed below construed the criminal forfeiture provisions set forth
in 18 U.S.C. § 1963(l)(6). But this Court has held that statute is “substantively identical” to §
853(n)(6) and has applied § 853(n) and § 1963(l) precedent interchangeably. Watkins, 320 F.3d
at 1283 n.2 (quotation marks omitted).
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because the defendant’s forfeiture-causing drug trafficking activity began three
years before his constructive-trust-causing embezzlement); United States v.
Campos, 859 F.2d 1233, 1238-39 (6th Cir. 1988) (stating in dicta that a
constructive trust would constitute a superior interest under § 853(n)); United
States v. Marx, 844 F.2d 1303, 1308 (7th Cir. 1988) (holding that a constructive
trust interest in forfeited property can entitle a petitioner to relief from forfeiture).
Only one circuit court has concluded that a constructive trust cannot
invalidate a forfeiture order. See United States v. BCCI Holdings (Luxembourg),
S.A., 46 F.3d 1185, 1190-91 (D.C. Cir. 1995). In BCCI, the District of Columbia
Circuit agreed with the other circuits that Congress did not intend “to draw the
ancient, but largely ignored, distinction between technically legal and technically
equitable claims in forfeiture challenges.” Id. at 1190. However, it concluded that
a constructive trust “is a remedy that a court devises after litigation,” and therefore
it cannot “be interposed as superior to the government’s forfeiture claim” because
forfeiture vests title in the government at the time of the defendant’s wrongdoing.
Id. at 1190-91. The district court adopted BCCI’s holding in dismissing the Fund’s
petition.
We are unpersuaded by the reasoning in BCCI. First, one of its premises is
incorrect. Although a constructive trust is a judicially recognized remedy, see
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Meeks, 508 S.E.2d at 648, it arises when the underlying equities exist, not when it
is announced, United States v. 1419 Mount Alto Rd., 830 F. Supp. 1476, 1481-82
(N.D. Ga. 1993) (applying Georgia law); see also $4,224,958.57, 392 F.3d at 1004
(“It is an elementary mistake to suppose that a court creates the trust . . . . The
obligation on the fraudster is imposed by law and arises immediately with his
acquisition of the proceeds of the fraud.”). Thus, the Fund’s constructive trust
arose upon transfer of the Long Beach loan proceeds to Shefton.3
Second, the issue is not, as the court in BCCI stated, whether a petitioner’s
constructive trust interest “can be interposed as superior to the government’s
forfeiture claim.” BCCI, 46 F.3d at 1191. Rather, it is whether the petitioner’s
interest is superior to the defendant’s interest in the forfeited property. See 21
U.S.C. § 853(n)(6)(A) (stating that a criminal forfeiture order may be invalidated if
“the petitioner has a legal right, title, or interest in the property . . . [that] 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” (emphasis added)).
3
The government contends that the Fund’s involvement did not begin until it paid off the
GreenPoint mortgages, which occurred well after the fraud, which ensued when the Long Beach
loan proceeds were transferred to Shefton. Hence, the government argues, the Fund’s interest in
the Forfeited Property arose after forfeiture, too late to satisfy § 853(n)(6). However, as
mentioned above, the Fund was subrogated to Long Beach’s rights. Consequently, the Fund
legally “stands in the shoes” of Long Beach, see Landrum, 527 S.E.2d at 638 (quotation marks
omitted), and thus the relevant issue is the nature of Long Beach’s interest – not the Fund’s – at
the time of the fraud.
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Accordingly, we agree with the majority of circuits that have held that a
constructive trust can serve as a superior legal interest under § 853(n)(6)(A) and
thus can serve as grounds for invalidating a criminal forfeiture order. We reverse
the district court’s dismissal of the Fund’s petition and remand for further
proceedings consistent with this opinion.
REVERSED AND REMANDED.
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