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United States v. Butt

United States Court of Appeals, Fifth Circuit

July 15, 2019

UNITED STATES OF AMERICA, Plaintiff-Appellee,
v.
BABAR JAVED BUTT, Defendant, and HUMA BUTT; TAJUDDIN SALAHUDDIN, Appellants.

          Appeals from the United States District Court for the Southern District of Texas

          Before HIGGINBOTHAM, SMITH, and SOUTHWICK, Circuit Judges.

          JERRY E. SMITH, CIRCUIT JUDGE

         Huma Butt ("Huma") and Tajuddin Salahuddin, pro se, asserted interests in a convicted criminal defendant's property that was subject to criminal forfeiture and criminal restitution. The district court denied their motions for ancillary hearings and return of property. They appeal, challenging the rejection of their petitions for ancillary hearings and asserting their interests in the criminal defendant's property. We affirm in part, vacate in part, and remand.

         I.

         Babar Javed Butt ("Babar") was convicted of mail fraud. During the criminal investigation, the government seized from Babar $91, 267 (the "cash") and 452 electronic devices (the "devices") consisting of tablets, phones, and computers. The cash was transferred to the U.S. Marshals Service. The district court sentenced Babar, in part, to $287, 679 in restitution and ordered him to forfeit $287, 679. The court also granted the government's motions to forfeit 360 of the devices to the United States in partial satisfaction of the forfeiture order and to turn over the cash in partial satisfaction of Babar's restitution debt.

         Huma and Salahuddin, not parties to the criminal proceeding, asserted interests in the cash and electronic devices, filing individual pro se motions seeking ancillary hearings and the return of property. Huma, Babar's sister, claimed that she had a "priority ownership" in and was a "bonafide purchaser" of the cash and devices because she had paid off a debt that Babar owed to a third party for lending him money to purchase electronic devices. The district court denied her motion because she was not a party to the criminal proceeding.

         Salahuddin contended that he was a secured creditor of Babar's and that he possessed a lien superior to that of the United States on the cash and devices because he had executed a Collateralized Inventory Loan with Babar that placed that property "under lien." The court also denied Salahuddin's motion because, taking his allegations as true, he was "at best" "an unsecured creditor" of the cash and devices, so "the United States ha[d] a superior claim to the assets."

         On appeal, Huma and Salahuddin challenge the denial of their motions asserting their interests in the cash and devices and seeking ancillary hearings. Huma contends that she has a "superior right because she is a bonafide lien holder" of the cash and devices for having paid Babar's debt to the third party. Salahuddin maintains that the Collateralized Inventory Loan establishes him as Babar's secured creditor with a lien superior to that of the United States on the cash and devices.

         II.

         A third party "asserting a legal interest in property which has been ordered forfeited" may "petition the court for a hearing to adjudicate the validity of his alleged interest in the property." 21 U.S.C. § 853(n)(2)-(3); see also Fed. R. Crim. P. 32.2(c). When "a third party files a petition asserting an interest" in property that the government seeks to forfeit, the district "court must conduct an ancillary proceeding." Fed. R. Crim. P. 32.2(c)(1). A petitioner has the burden of proving "by a preponderance of the evidence that" (1) "legal right, title, or interest" in the forfeited property "was vested in the petitioner rather than the defendant" or that petitioner's "legal right, title, or interest" was "superior" to that "of the defendant at the time of the commission of the acts which gave rise to the forfeiture," or (2) "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." 21 U.S.C. § 853(n)(6).

         "In [an] ancillary proceeding, the court may, on motion, dismiss the petition for lack of standing, for failure to state a claim, or for any other lawful reason." Fed. R. Crim. P. 32.2(c)(1)(A). "For purposes of the motion, the facts set forth in the petition are assumed to be true." Id. "Although . . . ancillary proceeding[s] arise[] in the context of criminal forfeiture, [they] closely resem-ble[] . . . civil proceeding[s]."[1] Furthermore, the advisory committee's notes to Rule 32.2 state that courts should follow the Federal Rules of Civil Procedure for "fundamental areas" of ancillary proceedings, such as "motion[s] to dismiss." Fed. R. Crim. P. 32.2 advisory committee's note to 2000 adoption.

         Consequently, this court applies the standard of review under Federal Rule of Civil Procedure 12 to the pleading-stage dismissal of a petition for an ancillary proceeding.[2] That standard of review states that this court "review[s] de novo a district court's grant or denial of a Rule 12(b)(6) motion to dismiss" for failure to state a claim, "accepting all well-pleaded facts as true and viewing those facts in the light most favorable to ...


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