from the United States District Court for the Eastern
District of Tennessee at Knoxville. No.
3:15-cr-00154-1-Pamela Lynn Reeves, District Judge.
A. Sanders, KNOX COUNTY, Knoxville, Tennessee, for Appellant.
Anne-Marie Svolto, UNITED STATES ATTORNEY'S OFFICE,
Knoxville, Tennessee, for Appellee.
Before: MOORE, WHITE, and DONALD, Circuit Judges.
NELSON MOORE, CIRCUIT JUDGE.
case, we are called upon to decide whether Knox County,
Tennessee has standing to file a claim in district court
asserting its undisputed right to collect delinquent property
taxes on real property that is subject to criminal forfeiture
by the U.S. government and to assess whether the district
court abused its discretion in denying Knox County's
motion for an interlocutory sale of the seized property.
Because Knox County has a legally cognizable interest in the
property in the form of a tax lien, the district court erred
in dismissing for lack of standing Knox County's claim.
This does not mean, however, that Knox County is necessarily
entitled to a hearing on the validity of its claim, as the
district court may be able to ascertain the scope of Knox
County's interest on a motion for summary judgment by the
government without holding a hearing. Because the district
court must account for Knox County's interest before
entering a final order of forfeiture, we
VACATE the district court's final order
of forfeiture and REMAND this case for
proceedings consistent with this decision.
further hold that the district court did not abuse its
discretion when it denied Knox County's motion for an
interlocutory sale of the property. Accordingly, we
AFFIRM the district court's denial of
the motion for interlocutory sale.
2015, the United States charged George Marcus Hall with
running an unlawful gambling operation and money laundering
scheme. R. 1 (Information at 1-2) (Page ID #1-2). Pursuant to
a plea agreement with the U.S. government, Hall agreed to
forfeit all properties that he had acquired with funds
derived from his illicit activities. R. 2 (Plea Agreement at
7) (Page ID #22). In December 2015, the United States
initiated criminal forfeiture proceedings and obtained a
preliminary forfeiture order for eighteen parcels of real
property owned by Hall and located in Knox County, Tennessee.
R. 12 (Agreed Prelim. Order of Forfeiture at 9-11) (Page ID
#78-80). Upon learning of the forfeiture action, "Knox
County determined that Hall owed a substantial amount of
delinquent real property tax on the properties he [had]
agreed to forfeit." Appellant Br. at 9. Under Tennessee
law, these back taxes, along with the "penalties,
interest, and costs accruing thereon, " gave Knox County
a first lien on the property. See Tenn. Code Ann.
federal statute, a party asserting an interest in property
that is subject to criminal forfeiture may "petition the
court for a hearing to adjudicate the validity of his alleged
interest in the property" within thirty days of final
publication of notice or receipt of direct written notice of
an entry of an order of forfeiture, whichever is earlier. 21
U.S.C. § 853(n)(2). Knox County filed a first verified
claim and petition for a hearing asserting its interest in
the seized property after the thirty-day deadline had passed.
R. 79 ([First] Verified Claim at 1-4) (Page ID #711- 14). The
district court subsequently amended the preliminary
forfeiture order to cover an additional four parcels of
property, three of which are located in Knox County,
see R. 97 (Am. Agreed Preliminary Order at 8-11)
(Page ID #850-53), and Knox County filed a timely second
verified claim and petition for hearing in July 2016, R. 104
([Second] Verified Claim at 1-4) (Page ID #892-95).
second verified claim, Knox County requested "a hearing
to adjudicate the validity of Knox County's rights and
interests" in the property subject to the amended
preliminary forfeiture order, and asked the district court to
enter an order "[d]irecting an interlocutory sale of the
[subject] Property, " "[d]elaying entry of the
final order of forfeiture" until the date of the sale,
"[s]evering the Property" until Knox County
receives full payment, allowing the current owner to keep the
property "subject to a lien in favor of the Government
to the extent of the forfeitable interest in the property,
" or authorizing some alternative remedy "providing
that Knox County will continue to receive annual tax
revenues[, ] penalties, interest, and costs that accrue in
connection with the Property under state law."
Id. at 2-3 (Page ID #893-94). Also on July 12, 2016,
Knox County "move[d] for an order directing the
interlocutory sale of each parcel of real property subject to
this forfeiture proceeding located in Knox County, " R.
106 (Mot. for Interlocutory Sale at 1) (Page ID #899).
response, the United States "aver[ed] that any taxes and
interest that are owed as of the date of the entry of a final
order of forfeiture in this case will be honored." R.
112 (Response to Motions at 8) (Page ID #937). The United
States expressly offered to pay "whatever taxes, plus
interest" are owed to Knox County "up until the
time of the final order of forfeiture, " regardless of
whether Knox County received notice of the forfeiture or
filed a claim. R. 80 (Hr'g Tr. at 18) (Page ID #732). The
United States later clarified that its offer to pay the
"present value of all of the County's taxes that
have accrued" included "interest on taxes assessed
prior to entry of a final order of forfeiture [that
had] . . . continue[d] to accrue up until the date of the
sale." R. 114 (Opp'n to Objections to Magistrate
Judge's R & R at 3-4) (Page ID #951-52). And the
United States' promise is backed by its "pattern of
practice of always paying" such sums on forfeited
properties, regardless of whether a taxing authority files a
claim asserting its interest under 21 U.S.C. § 853(n).
See, e.g., R. 80 (Hr'g Tr. at 19) (Page ID #733)
("We have done it in every case [in] at least the last
while the United States had "no opposition to
recognizing Knox County's property tax interest that have
[sic] accrued up through the date of entry of the final order
of forfeiture, " R. 112 (Response to Motions at 8) (Page
ID #937), the United States argued that Knox County has no
legally cognizable interest in accruing taxes on the seized
property once title passes to the United States because,
under the Supremacy Clause, local governments may not levy
taxes on federal properties. See id. The U.S.
government therefore "object[ed] to Knox County's
attempts to avoid application of the Supremacy Clause"
by seeking to delay entry of a final order of forfeiture
until the date of sale or to force an interlocutory sale of
the properties in an effort to generate additional tax
district court denied Knox County's first and second
verified claims on September 20, 2016. R. 119 (Dist. Ct. Op.)
(Page ID #993-1019). The district court rejected Knox
County's first claim as untimely, id. at 15-18)
(Page ID #1007-10), which Knox County does not now challenge
on appeal, Appellant Br. at 10 n.1. The district court then
denied Knox County's second claim for lack of
standing. As the district court reasoned, Knox
County "has no legally cognizable interest" in
taxes, or the interest, penalties, and costs that would
accrue on those taxes, after the final entry of the
forfeiture order because as soon as the district court enters
a final order of forfeiture, "the U.S. Government owns
the properties, " R. 119 (Dist. Ct. Op. at 19) (Page ID
#1011), and Tennessee law recognizes that U.S. property is
"exempt from taxation, " id. (quoting
Tenn. Code Ann. § 67-5-203(a)(1)). Therefore, the
district court determined that Knox County "has suffered
no injury-in-fact as to this revenue." Id.
addition, the district court held that Knox County lacks
standing to pursue a claim for taxes accrued before
forfeiture and the interest, penalties, and costs on those
taxes that would accrue after forfeiture through the date of
sale. The district court reasoned that "[t]he Government
has already agreed to hand these funds over to the County. .
. . As a result, no redress is possible as to this revenue.
Redressability exists only where a court order 'would
amount to a significant increase in the likelihood that the
plaintiff would obtain the relief that directly redresses the
injury suffered.'" Id. at 20 (Page ID
#1012) (quoting Hamdi ex rel. Hamdi v. Napolitano,
620 F.3d 615, 628 n.15 (6th Cir. 2010)). The district court
further held that Knox County "lacks standing to contest
its right to receive any penalties whatsoever" because,
under Tennessee state law, penalties accrue on tax defaults
"[u]pon the filing of suits to enforce [a] tax lien
against real or personal property, " id. at 22
(Page ID #1014) (quoting Tenn. Code Ann. §
67-5-2410(a)(1)(A), and "[n]o tax suit has been filed in
this case, " id. Therefore, "the
County's injury-its inability to collect penalties on
back taxes-is not fairly traceable to the ...