Owner can sue U.S. over seized goods

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Suing the United States under the Federal Tort Claims Act (FTCA) is a viable remedy for wrongfully seizing goods under the civil forfeiture laws.

On Nov. 3, U.S. District Court Judge Lynn Adelman refused to dismiss a claim brought by the owner of nearly one million dollars worth of infant formula that was seized in 2007.

Although the formula was seized in February 2007, on suspicion it had been stolen from retail stores, no criminal charges have ever been filed.

Kaloti Wholesale, Inc., the owner of the formula, tried to have the formula sold after it was seized, with the proceeds to be placed in escrow, before it spoiled.

In March 2009, however, the 7th Circuit held that the district court did not abuse its discretion in refusing to permit the sale, and all the formula spoiled.

In that opinion, the 7th Circuit suggested that Kaloti might be able to sue the government under the FTCA. “[Kaloti] might have a remedy in damages under the Federal Tort Claims Act if the government’s action in holding on to the baby formula until it became unsalable was negligent …, or a possible Bivens action for the deprivation of property without due process of law.”

However, the court stopped short of expressly holding that this remedy was available to Kaloti could do this, calling the possibility “highly speculative.”

Kaloti did sue under the FTCA and Bivens v. Six Unknown Agents of the Federal Bureau of Narcotics, 403 U.S. 388 (1971), and although Judge Adelman dismissed some of the claims, he declined to dismiss the action in its entirety.

Noting that the only proper FTCA defendant is the United States, and that Bivens authorizes claims only against individuals, the court dismissed the FTCA claims against the individual defendants.

But the court held that the complaint stated a claim against the United States under the FTCA. Although Kaloti failed to identify the source of the claim under Wisconsin tort law, the court found it the facts stated a claim for wrongful conversion.

Turning to the merits of that claim, the court acknowledged that the FTCA generally does not permit claims arising from the “detention of any goods, merchandise, or other property by a … law enforcement officer.” 28 U.S.C. 2680(c).

But in 2000, Congress enacted the Civil Asset Forfeiture Reform Act (CAFRA), amending the statute and waiving sovereign immunity with respect to suits claiming damage to detained goods if: (1) the property was seized for the purpose of forfeiture; (2) the interest of the claimant was not forfeited; (3) the interest of the claimant was not remitted or mitigated (if the property was subject to forfeiture); and (4) the claimant was not convicted of a crime.”

Judge Adelman acknowledged that the 9th Circuit has held that the government can be sued under CAFRA only if the goods are sized “solely” for the purpose and not if the government has another purpose, such as investigating a possible crime. Foster v. U.S., 522 F.3d 1071, 11075 (9th Cir. 2008).

However, the 7th Circuit neither adopted or rejected this view. Pearson v. U.S., 373 Fed.Appx. 622, 624 (7th Cir. 2010).

Judge Adelman also declined to decide whether Foster was correctly decided, concluding that even if it is, the complaint alleges facts sufficient to survive a motion to dismiss. “Plaintiff alleges facts from which it could be plausibly inferred that the government seized the infant formula for the purpose of forfeiture. Although the government disputes this and contends that it also had other purposes in mind, I must treat all of plaintiff’s allegations as true.”

Adelman also found the other elements were met: because the forfeiture action has not concluded, Kaloti’s interest in the property has not yet been forfeited; the government has not remitted Kaloti’s property; and Kaloti has not been convicted of any crime relating to the formula.

Accordingly, Adelman denied the motion to dismiss.

Analysis

Attorneys seeking relief under the FTCA pursuant to the CAFRA exception have a strong argument that Foster was incorrectly decided and should not be adopted in this circuit.

The opinion in the case at bar quotes the first element of the exception only in part: “(1) the property was seized for the purpose of forfeiture…”

The text replaced with ellipses, however, is very significant to the issue: “the property was seized for the purpose of forfeiture under any provision of Federal law providing for the forfeiture of property other than as a sentence imposed upon conviction of a criminal offense.”

The key language is “other than as a sentence imposed upon conviction of a criminal offense.”

But, the 9th Circuit in Foster ignored the final part of the statute and emphasized instead, “seized for the purpose of forfeiture.” Foster, 522 F.3d at 1075.

The more reasonable interpretation is that, unless the property owner is convicted of a crime and the property ordered forfeited at sentencing, this element is satisfied.

The 9th Circuit rejected this interpretation by stating that, if that was Congress’ intent, it would have drafted the text to say: “if the property was seized and forfeited (emphasis added by court).” Foster, at 1077.

But such language would make no sense. If the property was both “seized and forfeited,” then the property owner would necessarily fail to meet the second element: “the interest of the claimant was not forfeited.”

Given this obvious flaw in the Ninth Circuit’s reasoning in Foster, attorneys making claims under CAFRA should vigorously oppose its adoption in the 7th Circuit.

David Ziemer can be reached at [email protected].

What the Court Held

Case: Kaloti Wholesale, Inc. v. U.S., No. 09-C-1156

Issue: Can the owner of property seized under the forfeiture laws sue the United States under the FTCA?

Holding: Yes. If the statutory requirements under CAFA are met, the owner can sue for damage to detained goods.