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Can a General Creditor Recoup Funds in Asset Forfeiture?

By William Vogeler, Esq. on September 01, 2017 | Last updated on March 21, 2019

Two things are certain: death and taxes. Government claims are a close third.

That's a one-sentence summary of United States of America v. Catala, decided by the U.S. First Circuit Court of Appeals. The appellate court said, as between the government and a general creditor, the government has priority to assets forfeited in a criminal case.

Forfeiture laws are designed to separate a criminal from ill-gotten gains, the appeals panel said. It would carve a "gaping hole into the forfeiture framework" to allow a general creditor to collect from those assets.

Illegal Drug Sales

The story started in 2007 when David Vogel loaned Juan G. Catala $8,500 during a trip to Las Vegas. When Catala defaulted, Vogel sued him and a state court entered judgment against Catala.

Sometime later, federal authorities caught Catala distributing oxycodone and marijuana and seized $14,792 in cash from his home. Catala pleaded guilty, and the court concluded that the cash came from illegal drug sales.

Vogel filed a third-party claim for the money under 21 U.S.C. Section 853(n) and Federal Rule of Criminal Procedure 32.2(c). The trial judge granted the government's motion to dismiss.

First Impressions

On appeal, the appeals court considered the issue as a matter of first impression in the First Circuit.

Writing for the unanimous panel, Judge Bruce M. Selya said the government's interest in the forfeited cash vested when Catala began selling drugs. The proceeds were ill-gotten gains as soon as he received the funds.

Vogel's interest could not exist in those proceeds before Catala engaged in drug distribution. And a third party cannot have an interest in proceeds that do not yet exist, Selya reasoned.

"This result conforms not only to the letter of the forfeiture statute but also to the policies behind it," he wrote. "After all, if a criminal defendant's forfeited cash could be used to defray his debts to general creditors, the defendant would continue to benefit from his illicit activities"

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