CHARLES B.

“BRAD” FRYE
MEMORANDUM ATTORNEY AND COUNSELOR AT LAW
LINDEMAN, ALVARADO & FRYE
808 Travis, Suite 1101
Houston, Texas 77002
(713) 236-8700
Fax: (713) 229- 8031

This is a very general memorandum on the “innocent owner” defense in forfeiture cases.
It is not intended to be an exhaustive discussion of the defense (or of the permutations of the
rules of civil procedure which apply in these situations) but should get you started on evaluating
the availability of the defense, the factors to consider, and how to present it to the court.

Chapter 59 of the Texas Code of Criminal Procedure provides a safe harbor for "innocent
owners." Pursuant to article 59.02(c), "[a]n owner or interest holder's interest in property may not
be forfeited . . . if the owner or interest holder: (1) acquired and perfected the interest before or
during the act or omission giving rise to forfeiture or, if the property is real property, he acquired
an ownership interest, security interest, or lien interest before a lis pendens notice was filed . . .;
and (2) did not know or should not reasonably have known of the act or omission giving rise to
the forfeiture or that it was likely to occur at or before the time of acquiring and perfecting the
interest or, if the property is real property, at or before the time of acquiring the ownership
interest, security interest, or lien interest." The statutory safe harbor is an affirmative defense.

You must plead “innocent owner” as an affirmative defense.

This is the applicable text of the statute:

Art. 59.02 CODE CRIM. P. Forfeiture of contraband

(c) An owner or interest holder's interest in property may not be forfeited under this
chapter if the owner or interest holder proves by a preponderance of the evidence that the
owner or interest holder acquired and perfected the interest:

(2) after the act or omission giving rise to the forfeiture, but before the seizure of
the property, and only if the owner or interest holder: (A) was, at the time that the
interest in the property was acquired, an owner or interest holder for value; and
(B) was without reasonable cause to believe that the property was contraband and
did not purposefully avoid learning that the property was contraband.

You should also consider filing a “motion to return” property or a motion to replevy, pre-
trial, especially in the case of vehicles. Read that procedure in Art. 59 and be prepared to post

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the bond required.

Now, the key to the “innocent owner” defense is not whether the property is contraband –
one may concede that it is – but that it is excepted from the statute because of the standing of
another person besides the criminal actor as an owner of the property.

Consider this case in which the “innocent owner” defense was applied. From STATE v.
SOUTHWIND AUTO SALES, 951 S.W.2d 849 (Tex.App.-San Antonio 1997).

In this case, Southwind moved for summary judgment on its "innocent owner" defense.
To prevail on this affirmative defense, Southwind needed to show: (1) that it acquired and
perfected the interest before or during the act or omission giving rise to the forfeiture; and
(2) that it did not know or should not reasonably have known of the act or omission
giving rise to the forfeiture or that it was likely to occur at or before the time of acquiring
and perfecting the interest. TEX. CODE CRIM. PROC. ANN. art. 59.02 (c) (Vernon
Supp. 1997).

The Texas Code of Criminal Procedure provides that if an owner or interest holder
establishes these facts, its interest in property may not be forfeited. Id. An "Owner" is
defined as "a person who claims an equitable or legal ownership interest in the property."
Id. art. 59.01(6). The code defines an "Interest holder" as "the bona fide holder of a
perfected lien or a perfected security interest in property." Id. art. 59.01(4). Southwind
claims that it established the first prong of the statutory test by demonstrating that the
interest it acquired and perfected was that of an "owner" having legal title to the 1985
Cadillac.

Southwind contends that, as such an owner, it was not required to establish that it had a
perfected security interest in the property. We agree. Southwind's summary judgment
evidence established that title was last assigned to Southwind, and that Southwind entered
into an agreement with Regina McGowan for sale of the vehicle to her, but title to the
Cadillac was never transferred to McGowan because she failed to comply with the terms
of the contract.

The summary judgment evidence included the following: (1) a copy of a title certificate to
the vehicle that was issued to Homer Crawford initially, but that was then assigned by
Crawford to Gunn Olds, and by Gunn Olds to Southwind, with the assignments noted on
the certificate of title; (2) a copy of the retail installment contract between Southwind and
Regina McGowan, which required proof of liability insurance and physical damage
coverage with specified deductibles; (3) a copy of the reassignment of title to McGowan
and Application for Texas Certificate of Title for McGowan, which were never delivered
or submitted; and (4) the affidavit of Felix Pasedez, proprietor of Southwind, stating that
McGowan never provided proof of the required liability and physical-damage coverage.

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 The affidavit of Pasedez also established that a licensed dealer may establish complete
legal ownership of a vehicle held for resale by showing that title was assigned to it, even
though a new title has not been issued registered in the dealer's name. Southwind argued
that this evidence conclusively proved that it acquired title from Gunn by assignment and
that neither legal nor equitable title was conveyed to McGowan thereafter because the
sale to her was invalid due to her failure to establish proof of financial responsibility. It is
true that a dealer perfects legal title to a vehicle if he holds an executed assignment of
title, even though the dealer is not shown as the "registered" owner on a certificate of title.
See First State Bank of Corpus Christi v. Austin, 315 S.W.2d 390, 392 (Tex.Civ.App. —
San Antonio 1958, writ ref'd) (noting that transfer of title upon prescribed form by dealer
holding assignment of title would convey legal title to vehicle).

The Texas Certificate of Title Act, as it existed at the time relevant to this forfeiture
action, specifically exempted dealers from the requirement that a certificate of title be
issued in the name of the owner prior to a sale. TEX. REV. CIV. STAT. ANN. art. 6687-
1 §27 (Vernon 1977) (amended 1995) (current version at TEX. TRANSP. CODE ANN.
§501.022 (Vernon Pamphlet 1997)). Accordingly, Southwind, by proving that it received
an assignment of title to the vehicle from Gunn and that the subsequent sale to McGowan
was never finalized, established conclusively that it was the legal owner of the vehicle at
the time of the forfeiture.

In summary, the requirements of the “Innocent Owner” defense as set out in MITCHELL
v. STATE, 819 S.W.2d 659 (Tex.App.-El Paso 1991):

In response to the State's forfeiture suit, Appellant Carrol Mitchell filed a verified
answer asserting that he was the owner of the Cadillac, the Rolex watch and the
$1,683.00 in currency. Appellant also pled that he acquired his interest in the
property prior to the commission of the offense; and that he did not know, nor
consent to the use of the property in the commission of a felony. By pleading
such facts, Appellant raised a defense known as the innocent owner defense
allowed by Tex. Code Crim.Pro.Ann. art. 59.02(c)(2). The burden of proof for this
defense is placed on the owner of the property. If the owner sustains this burden,
the property is not forfeitable. McDorman v. State, 757 S.W.2d 905 (Tex.App. —
Eastland 1988, writ denied); Gaston v. State, 641 S.W.2d 261 (Tex.App. —
Houston [14th Dist] 1982, no writ).

“Proportionality” is another defense which must be plead in your answer.

If it has been established that the property in question is contraband, the court must then
apply a "proportionality" test as set forth in United States v. Bajakajian,524 U.S. 321, 118 S.Ct.
2028, 141 L.Ed.2d 314 (1998). Bajakajian pertained to a forfeiture of currency under a Federal
Statute making it a crime to carry more than $10,000 in currency out of the country without
reporting it. Respondent pled guilty to the criminal violation of failure to report. The government

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also sought forfeiture of the entire amount of cash carried by Respondent, $357,144. The district
court ruled that under the statute the entire sum was subject to forfeiture, but declined to enter
such a judgment, holding that such a result would violate the Excessive Fines Clause. The Ninth
Circuit affirmed. Id. at 326-27.

The Supreme Court held: (1) forfeitures, i.e., payments in kind, are "fines" subject to the
limitations of the Eighth Amendment if they constitute punishment for an offense, Id. at 328; (2)
the forfeiture of currency under the subject statute is a form of punishment; it is an additional
sanction available when imposing a sentence for violation of the criminal statute, imposed at the
culmination of criminal proceedings and cannot be imposed on an "innocent owner," Id.; and (3)
modern statutory forfeiture provisions are "fines" for Eighth Amendment purposes, if they
constitute, even in part, punishment, Id. at 332-34. Therefore, the forfeiture of currency was
subject to the Excessive Fines Clause. Id. at 334.

In determining whether the fine is excessive, the district court first, and the court of
appeals de novo on appeal, must consider proportionality, i.e., the amount of the forfeiture must
bear some relationship to the gravity of the offense that it is designed to punish. Id. at 334, 335-
36. In determining whether the forfeiture of the entire sum was "excessive" or "grossly
disproportional," the Court examined the nature of the offense (essentially, a reporting violation),
the relationship of the offense to other illegal activities (none), the class of offenders addressed
by the forfeiture (Respondents did not fit the class), and the harm caused (little or none). The
Court held that the forfeiture of the entire sum of money, $357,144, bore no correlation to any
damages sustained by society or to the cost of enforcing the law. Id. at 340; 118 S.Ct. 2028; see
Austin, 509 U.S. at 621, 113 S.Ct. 2801.

Often, because of the expense of litigation versus the value of the seized property is a
major consideration, one should consider trying to resolve the case through summary judgment,
rather than trial. Keep in mind that the “innocent owner” defense is an affirmative defense, and
they are treated differently under the rules applicable to summary judgment.

A defending party may move for summary judgment based on an affirmative defense.
Montgomery v. Kennedy, 669 S.W.2d 309, 310-11 (Tex. 1984); Hidalgo v. Surety Savs. & Loan
Ass'n, 462 S.W.2d 540, 545 (Tex. 1971). A defendant moving for summary judgment upon an
affirmative defense must prove conclusively each element of the defense as a matter of law.
Swilley v. Hughes, 488 S.W.2d 64, 67 (Tex. 1972). Once each element of an affirmative defense
is conclusively established, the movant has met his burden and the burden of raising a disputed
issue of material fact shifts to the non-movant. Palmer v. Enserch Corp., 728 S.W.2d 431, 435
(Tex.App. — Austin 1987, writ ref'd n.r.e.).

In summary, the “innocent owner” defense is very fact-specific and it is important to

gather those facts in support of the defense at the outset to ensure that the client has a reasonable
chance to prevail in litigation.

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Charles B. “Brad” Frye (713) 236-8700
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Charles B. “Brad” Frye (713) 236-8700