A claimant with “a continuing security interest and lien” may qualify as a bona fide purchaser (BFP) for value under 21 U.S.C. § 853(n)(6)(B). In United States v. Huntington National Bank, the Government seized all of the asserts of Cyberco after several of its principals were convicted of using Cyberco to defraud dozens of lenders out of more than $100 million. Huntington National Bank (Bank) claimed a security interest in some of the money the Government seized. The Bank claimed that it had negotiated “a continuing security interest and lien” in all of Cyberco’s property in exchange for granting Cyberco a line of credit.
The Government conceded the Bank’s bona fides, but argued that the Bank was not a secured creditor and that the Bank’s interest in the property was contingent because it did not vest until after Cyberco’s fraud was known. The Court reject both arguments. In so doing, the Court held that, although federal law governs whether a claimant qualifies under Section 853(n)(6)(B), the concept of a bona fide purchaser for value “is derived ‘essentially from hornbook commercial law.’” 682 F.3d at 434 (citation omitted). As such, the Court looked to “state commercial law as persuasive guidance to help discern what Congress intended when it used the term.” 682 F.3d at 435-6. In this case, which originated in Michigan, the Sixth Circuit gave particular attention to Michigan state law.
The Government also raised two remarkable arguments in opposition to the Bank’s claim: (1) the Government argued that secured creditors should be treated the same as unsecured creditors because “the right of a secured creditor to appropriate the secured property typically vests upon default,” 682 F.3d at 435; and (2) the Government argued that expanding the BFP exception to cover “security interests in intangible deposit accounts . . . would render the relation-back doctrine . . . meaningless. 682 F.3d at 436. In regard to the first, the Government argued directly against contrary precedent. In regard to the second, the Court noted that the “government’s argument fails to appreciate the fact that the whole purpose of [Section] 853(n)(6)(B) is to protect innocent purchasers who acquired property without notice of the government’s superior interest—acquired through the operation of the relation-back doctrine—in the forfeited property.” 682 F.3d at 436. These remarkable arguments reflect the Government’s increasingly aggressive approach to forfeiture.
The case discussed above is United States v. Huntington National Bank, 682 F.3d 429 (6th Cir. 2012).