Is "policing for Profit" Really a Police Power Exception? Civil Asset Forfeiture as an Excessive Fine and the Police Power Exception to the Automatic Stay

• Publication year: 2020

Is "Policing for Profit" Really a Police Power Exception? Civil Asset Forfeiture as an Excessive Fine and the Police Power Exception to the Automatic Stay

Brittany Temple

IS "POLICING FOR PROFIT" REALLY A POLICE POWER EXCEPTION? CIVIL ASSET FORFEITURE AS AN EXCESSIVE FINE AND THE POLICE POWER EXCEPTION TO THE AUTOMATIC STAY

Abstract

When parallel bankruptcy and civil forfeiture proceedings arise, trustees and creditors are confronted with the issue of whether the police power exception to the automatic stay applies. Courts have widely ruled that civil forfeiture is a police power exception to the automatic stay because of its goal to deter crime and lack of monetary incentive. However, forfeiture has increasingly been viewed as excessive and unrestrained, often used as a tool to acquire funds for local government and law enforcement agencies.

This Comment argues that where a civil forfeiture is an excessive fine or there is an innocent owner, such as a creditor in the bankruptcy proceeding, the police power exception to the automatic stay should not apply. The effect on those actually punished by the fine, the creditors in the bankruptcy proceeding, must be considered.

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INTRODUCTION

The United States Supreme Court recently declared that the Excessive Fines Clause of the Eighth Amendment is a fundamental right and therefore incorporated by the Due Process Clause of the Fourteenth Amendment (Due Process Clause).¹ Thus, states may no longer impose excessive fines in the form of in rem civil forfeiture.² The Supreme Court recognizes the need to protect a wrongdoer from a forfeiture that violates the Excessive Fines Clause, yet when that forfeiture is intertwined with a bankruptcy proceeding, innocent creditors are not given the same consideration. The government is able to remove property from the bankruptcy estate through civil forfeiture as a "police power" exception to the automatic stay. Courts recognize criticism of civil forfeiture and the need for limitation across the entire country, except when the wrongdoer has also declared bankruptcy and it is the trustee striving to keep the property to protect the creditors.

This Comment asserts that public policy, along with the inadequate protections found in the Bankruptcy Code, demands the following solutions: (1) the Eighth Amendment Excessive Fines and Innocent Owner analyses should be conducted by the bankruptcy court when determining whether the automatic stay applies; (2) the culpability of the creditor(s) should also be considered when discussing the Excessive Fine and Innocent Owner defenses; and (3) Congress should enact legislation providing that if the bankruptcy courts cannot retain jurisdiction and the forfeiture proceeds, the Attorney General should at least be accountable to the bankruptcy court when distributing the assets from the forfeiture.

There is an obvious conflict between a civil forfeiture and bankruptcy proceeding because of the dispute over property. The principal purpose of the Bankruptcy Code is to provide debtors with a fresh start, yet the purpose of civil forfeiture is generally understood to be crime deterrence and even punishment in some cases.³ Crime deterrence and punishment are important purposes, but sometimes the owner of the property is entirely innocent.⁴ Even if the owner of the property is not an "innocent owner," creditors should not have to suffer for

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a debtor's wrongdoings. Civil forfeiture, if allowed to proceed, removes property from the bankruptcy estate and therefore leaves fewer assets for creditors to be repaid what they are owed.

The Excessive Fines Clause and Innocent Owner defense are only relevant when the property forfeited is "facilitating property," because that is when the civil forfeiture is punitive. There are three types of civil asset forfeiture: (1) forfeiture of contraband; (2) forfeiture of proceeds; and (3) forfeiture of facilitating property.⁵ This Comment focuses on the third type, forfeiture of facilitating property, because the forfeiture is inherently punitive. Seizure occurs not because of the type of property, but because of the property's use. The punitive nature of this type of forfeiture allows for the argument that forfeiture violates the Eighth Amendment as an excessive fine. First, forfeiture of contraband is the least controversial forfeiture, because it involves the forfeiture of illegal drugs, obscene material, or adulterated food.⁶ The purpose of contraband forfeiture is not to punish the owner, but to remove the material from circulation.⁷ Additionally, there is no concern about owner's rights with contraband forfeiture because, by definition, possessing the property is illegal.⁸ Therefore, contraband forfeiture is not punitive.⁹

Second, forfeiture of proceeds originally meant forfeiture of stolen property.¹⁰ However, courts and federal statute expanded the definition to include "earnings from various illegal transactions."¹¹ Often, forfeiture of proceeds is used to confiscate money from drug trades because one should not be allowed to profit from criminal activity.¹² The theory of unjust enrichment suggests that the claimant never had a legitimate right to the property.¹³ Therefore, forfeiture of proceeds is not punitive either.

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The third type, forfeiture of facilitating property, or the "instrumentalities" of the crime, is the most likely to raise constitutional issues because the government is taking both licit and legally acquired property.¹⁴ The property is only forfeitable because of how it is used, not what it is. Under this type of civil forfeiture, it is common that the property's true owner is entirely innocent.¹⁵ For example, imagine that someone's car was seized while it was borrowed or stolen because of a possession offense and the owner had no knowledge of the existence of drugs in the vehicle.

If the debtor is an innocent owner like in the aforementioned hypothetical, the debtors' fresh start in the bankruptcy proceeding gets interrupted. This is because the debtors must attempt to prove their innocence in the forfeiture proceeding before their bankruptcy case can proceed. Forfeiture allows the government to seize the property without compensation or regard for any ongoing bankruptcy proceedings. The government can ignore creditors' rights and the entire bankruptcy process. Even more so, there are creditors who expect payment in the bankruptcy proceeding, perhaps even with liens on that property, that the government just told their rights are not as important as the government's own interests.

This Comment first discusses a recent Supreme Court case that incorporates the Excessive Fines Clause, Timbs v. Indiana, along with additional public policy arguments surrounding civil forfeiture. Next, this Comment explains why the automatic stay is determinative to parallel forfeiture and bankruptcy proceedings, regarding the relation-back doctrine, jurisdiction, and traditional injunctions. Then, this Comment lists possible expansions of the property of the estate.

The Analysis section first evaluates the inadequacy of seeking an equitable remedy from the Attorney General. Next, the Analysis section outlines how courts interpret and apply the automatic stay in bankruptcy proceedings. The automatic stay is an injunction on any attempts to collect property of the debtor, including litigation, after commencement of a bankruptcy proceeding.¹⁶ Finally, the Analysis section concludes with the importance of using the Excessive Fines Clause and innocent owner defense to prove the police power exception to the automatic stay does not apply.

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I. Background

Before discussing the importance of the Excessive Fines Clause analysis and innocent owner defense in determining whether the automatic stay applies, it is necessary to understand the public policy issues surrounding civil forfeiture and why the automatic stay is so determinative. First, this section of the Comment discusses Timbs v. Indiana, the recent Supreme Court case holding that the Eighth Amendment Excessive Fines Clause is incorporated to the states. Next, this section provides further public policy support for limiting civil forfeiture. Then, there is an explanation of how the automatic stay affects both the relation-back doctrine and the bankruptcy court's jurisdiction. Finally, it becomes clear that the automatic stay determination is crucial because of the inadequacy of an ordinary injunction request and lack of available protections from the Bankruptcy Code.

A. Public Policy

Civil forfeiture is an overused, abusive form of punishment that allows the State to profit off of mistakes of its citizens. The need to limit civil forfeiture has been recognized across the political spectrum and even recently in the Supreme Court. Yet in the context of a bankruptcy proceeding, civil forfeiture is considered a police power exception to the automatic stay. The public policy surrounding civil forfeiture makes it clear why civil forfeiture should not always be considered a police power.

1. Supreme Court Decision Involving Civil Forfeiture

In Timbs v. Indiana, decided in February 2019, the Supreme Court held that the Eighth Amendment Excessive Fines Clause is incorporated by the Due Process Clause of the Fourteenth Amendment.¹⁷ The decision makes the arguments regarding parallel civil forfeiture and bankruptcy proceedings especially relevant.

Tyson Timbs used his father's life insurance proceeds to purchase a $42,000 Land Rover.¹⁸ In 2013, the authorities found Timbs with heroin at a traffic stop and charged him with Class B Felony for dealing heroin and one count of

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conspiracy to commit theft.¹⁹ Nearly two years later, in 2015, Timbs pled guilty to the charges.²⁰ The court sentenced Timbs to six years—one year in community corrections and five years suspended to probation.²¹ Additionally, Timbs paid fees totaling about $1,200 in exchange for his plea.²² The maximum statutory fine...