Authority to Release Property Initially Seized as Evidence

FORMAL OPINION DATE: July 19, 1994

Subject: Authority to Release Property Initially Seized as Evidence or on the Grounds It Is Subject to Forfeiture Under the State Controlled Substances Act; Judicial Authority to Order Funds Be Substituted for Evidence or Property Subject to Forfeiture Released Without a Court Order; Return and Forfeiture of Substituted Funds — N.C.G.S. §§ 15-11.1; 15A-258; 90-112; 105-113.105 et seq.

Requested by: Janice H. Faulkner, Secretary, North Carolina Department of Revenue

Questions:

. When a state or local law enforcement agency seizes money or personal property as evidence of a state controlled substances law violation, may the property lawfully be released without a court order to the Department of Revenue for satisfaction of controlled substance excise taxes owed by the property’s owner?

. When a state or local law enforcement agency seizes money or personal property on the grounds it is subject to forfeiture under N.C.G.S. § 90-112, may the property lawfully be released without a court order to the Department of Revenue for satisfaction of controlled substance excise taxes owed by the property’s owner?

. When a state or local law enforcement agency seizes money or personal property as evidence of a state controlled substances law violation or on the grounds the property is subject to forfeiture under N.C.G.S. § 90-112 and subsequently releases it without a court order to the Department of Revenue for satisfaction of controlled substance excise taxes owed by the property’s owner, may the court order the law enforcement agency which releases the property to pay into the court substitute funds of equal value?

. Assuming a state or local law enforcement agency deposits funds with the court in substitution for money or personal property seized by the agency as evidence of a state controlled substances law violation or on the grounds it is subject to forfeiture under

N.C.G.S. § 90-112 but subsequently released without a court order to the Department of Revenue for satisfaction of controlled substance excise taxes owed by the property’s owner, may the court order the substitute funds turned over to the owner of the original property or forfeit the substitute funds pursuant to N.C.G.S. § 90-112?

Conclusions:

. Yes

. No

. No State and local law enforcement agencies most commonly seize evidence pursuant to a search warrant or consent, incident to an arrest or from plain view. An item is subject to seizure pursuant to a search warrant if there is probable cause to believe it is stolen or embezzled; is contraband or otherwise unlawfully possessed; has been used or is possessed for the purpose of being used to commit or conceal the commission of a crime; or constitutes evidence of an offense or the identity of a person participating in an offense. N.C.G.S. § 15A-242 (1988). "The things subject to seizure in the course of a search pursuant to [consent] are the same as specified in G.S. 15A-242." N.C.G.S. § 15A-223. No statutes specify what property may be seized incident to arrest or from plain view. However, appellate case law establishes a law enforcement officer may seize incident to a valid arrest any property which the arrested person has about him and which is evidence of a crime. State v. Harris, 279 N.C. 307, 182 S.E.2d 364 (1971). A law enforcement officer also may seize evidentiary objects which are in plain view. State v. Allen, 282 N.C. 503, 194 S.E.2d 9 (1973).

N.C.G.S.: § 15A-258 (1988). In State v. Jones, 97 N.C. App. 189, 388 S.E.2d 213 (1990), the defendant contended a local law enforcement agency violated N.C.G.S. § 15A-258 by not obtaining a court order prior to releasing to a federal law enforcement agency for forfeiture under federal law currency seized as evidence pursuant to a search warrant. In interpreting the postseizure custody and disposition requirements of N.C.G.S. § 15A-258, the court of appeals concluded:

Contrary to defendant’s contentions, the statute does not require that a court order be

obtained prior to any release of seized property . . . . Therefore, the release of the currency

to the Federal Drug Enforcement Administration did not violate G.S. 15A-258.

Id. at 199, 388 S.E.2d at 218.

N.C.G.S. § 15-11.1 controls the custody and disposition of property seized by state law enforcement officers pursuant to lawful authority other than that provided by a search warrant. The statute first states:

If a law-enforcement officer seizes property pursuant to lawful authority, he shall safely

keep the property under the direction of the court or magistrate as long as necessary to

assure that the property will be produced at and may be used as evidence in any trial.

N.C.G.S. § 15-11.1(a) (1983). Notwithstanding this general restriction, N.C.G.S. § 15-11.1(a) specifically authorizes the district attorney, upon application by the "lawful owner or a person, firm or corporation entitled to possession" of the property or upon his own determination, to release any property seized pursuant to lawful authority provided he "determines that such property is no longer useful or necessary as evidence in a criminal trial and he is presented with satisfactory evidence of ownership." Only when the district attorney denies a claimant’s request for release of seized property and the claimant applies to the court for its return, does N.C.G.S. § 15-11.1 grant the court jurisdiction to conduct a hearing and require an order be issued concerning the property’s custody and disposition.

These statutory and case law authorities clearly support the conclusion that in the absence of a pre-existing valid court order directing that property seized pursuant to a search warrant or other lawful authority be retained by the court or delivered to another court, a law enforcement agency in possession of the property is not required to obtain a court order prior to releasing it. However, further analysis of the Controlled Substance Tax Act and the remedies available to collect the tax is required to determine whether property seized as evidence may be released without a court order to the N.C. Department of Revenue for satisfaction of excise taxes owed by the property’s owner.

The State Controlled Substance Tax Act, N.C.G.S. §§ 105-113.105 et seq., requires an excise tax to be levied, paid and a tax stamp affixed to "dealer amounts" of controlled substances. N.C.G.S. §§ 105-113.107, 105-113.108, 105-113.109. If "dealer amounts" of controlled substances are found without appropriate tax stamps affixed thereto, the Department of Revenue is required to assess the statutory excise tax, penalty and interest against the dealer-taxpayer. N.C.G.S. §§ 105

113.111. The dealer-taxpayer is notified in writing of the assessment and immediate payment is demanded of him. If the dealer-taxpayer does not pay the tax, penalty and interest immediately upon receipt of the notice and demand, the Secretary of Revenue is required by law to collect the tax using all remedies available, including jeopardy assessments, tax warrants, attachment and garnishment, and certificates of tax liability. See N.C.G.S. §§ 105-241.1(g) and 105-242. The controlled substance excise tax due may be collected from any property found in the state in which the taxpayer has a legal, equitable or beneficial interest. N.C.G.S. § 105-113.111(a). Execution may issue immediately unless the dealer-taxpayer appeals the assessment and files with the Secretary of Revenue a bond in the amount of the assessed liability. N.C.G.S. § 105113.111(a).

"Garnishment . . . is the remedy for . . . subjecting to attachment . . . tangible personal property belonging to the defendant but not in his possession." N.C.G.S. § 1-440.21. Therefore, when a controlled substance excise tax has been assessed and money or personal property belonging to the dealer-taxpayer is in the possession of a state or local law enforcement agency, Department of Revenue enforcement officers are authorized to use the attachment and garnishment remedy to seize the property for satisfaction of excise taxes due. To affect garnishment, the Secretary of Revenue must only cause to be served on the taxpayer and the garnishee law enforcement agency notice of the garnishment. N.C.G.S. § 105-242(b). If the garnishee law enforcement agency has no defense to offer or set off against the taxpayer, it is obligated by law to remit to the Secretary of Revenue property of the taxpayer it possesses of a value up to the amount of the assessment.

N.C.G.S. § 105-242(b).

When the dealer-taxpayer’s property obviously is not necessary to prove an element of the controlled substances law offense with which he has been charged, Jones provides authority for a law enforcement agency to release the property, without first obtaining a court order, to the Department of Revenue for satisfaction of controlled substance excise taxes owed. Jones arguably also provides authority for a law enforcement agency to release property which has evidentiary value. However, where seized property may have evidentiary value, the better practice is for the Department of Revenue to request the district attorney to release the property pursuant to N.C.G.S. § 15-11.1.

The district attorney may release seized property without a court order to the Department of Revenue under N.C.G.S. § 15-11.1 provided the department establishes it is a "person, firm or corporation entitled to possession" and provided further that the district attorney determines the property no longer is useful or necessary as evidence in a criminal trial. Even if the district attorney determines the dealer-taxpayer’s property is useful or necessary as evidence, he has discretionary authority to release it to the Department of Revenue provided substitute evidence in the form of photographs or photocopies of the property are made and their introduction at trial would not prejudice the dealer-taxpayer’s rights. N.C.G.S. § 15-11.1(a). A district attorney may determine in advance that the substitute evidence provision of N.C.G.S. § 15-11.1 can be utilized for certain categories of property, for example currency or conveyances, and authorize law enforcement agencies to release such property to a proper claimant, including the Department of Revenue, provided photographs or photocopies are made and retained for use at trial.

If the district attorney declines to release the dealer-taxpayer’s property to the Department of Revenue, the department or any other claimant may apply to the court pursuant to N.C.G.S. § 1511.1(a) for an order directing "any or all of the property" to be released to it as the lawful owner or a person, firm or corporation entitled to possession. N.C.G.S. § 15-11.1(a). In exercising its authority to release seized property, the court "may enter such order as may be necessary to assure that the evidence will be available for use as evidence at the time of trial, and will otherwise protect the rights of all parties." N.C.G.S. § 15-11.1(a). The court’s obligation to protect the rights of all parties necessarily requires it to consider the Department of Revenue’s right to the seized property created by perfection of any lawful tax collection remedy. The court also should consider its statutory authority to allow the substitution of photographs or photocopies for the evidence and case law precedent which establishes that the introduction of photographs of money seized in connection with a controlled substance law violation does not prejudice a defendant’s rights at trial. See State v. Alston, 91 N.C. App. 707, 373 S.E.2d 306 (1988).

Finally, it must be recognized that the custody and disposition restrictions of N.C.G.S. §§ 15

11.1 and 15A-258 apply only where property actually has been seized as evidence. "Legal evidence" is defined as "[a] broad general term meaning all admissible evidence, including both oral and documentary, but with a further implication that it must be of such a character as tends reasonably and substantially to prove the point, not to raise a mere suspicion or conjecture." Black’s Law Dictionary, 6th Edition Rev. (1990). With the possible exception of "engaging in a continuing criminal enterprise" in violation of N.C.G.S. § 90-95.1, no offense under the State Controlled Substances Act requires as an element of proof that the defendant possessed money or personal property. Similarly, with the exception of "maintaining a conveyance for use, storage or sale of controlled substances" in violation of N.C.G.S. § 90-108(a)(7), no offense under the State Controlled Substances Act requires as an element of proof that a conveyance was used in the offense. Therefore, only when these offenses are charged does a state or local law enforcement officer have the duty to seize, or a prosecutor the requirement to introduce at trial, money or personal property to reasonably and substantially prove an element of a state controlled substance law offense or the identity of the perpetrator. If money or property is not seized as evidence of a controlled substance law violation, agents of the N.C. Department of Revenue may seize it for satisfaction of controlled substance excise taxes without an order from the court having jurisdiction over the criminal offense and without the district attorney’s consent provided the seizure otherwise is made in compliance with law.

(2) Neither N.C.G.S. §§15-11.1 nor 15A-258 control the post-seizure custody and disposition of property seized on the grounds it is subject to forfeiture under N.C.G.S. § 90-112. N.C.G.S. § 1511.1(c) specifically states the section’s provisions do not apply to "[a]ny property, the forfeiture and disposition of which is specified in any general or special law. . . ." See also N.C.G.S. § 1517 ("This Article shall not be construed to apply to the seizure and disposition of . . . property or articles which have been or may be seized, where existing law now provides the method, manner, and extent of the disposition of such articles or of the proceeds derived from the sale thereof."). By its terms, N.C.G.S. § 15A-258 controls only the custody and disposition of property seized as evidence.

If a state or local law enforcement officer actually seizes money or personal property on his authority to seize property subject to forfeiture under N.C.G.S. § 90-112, the custody and disposition restrictions of that statute apply. The statute provides:

Property taken or detained under this section shall not be repleviable, but shall be deemed to be in custody of the law-enforcement agency seizing it, which may:

. Place the property under seal; or,

. Remove the property to a place designated by it; or,

. Request that The North Carolina Department of Justice take custody of the property and remove it to an appropriate location for disposition in accordance with law.

Any property seized by a State, local, or county law enforcement officer shall be held in safekeeping as provided in this subsection until an order of disposition is properly entered by the judge.

N.C.G.S.: § 90-112(c) (Emphasis added). Clearly, money or personal property seized by a state or local law enforcement officer under the authority of N.C.G.S. § 90-112 as property subject to forfeiture may not be turned over, without a court order, to the N.C. Department of Revenue or any other person. However, unless a law enforcement officer actually seizes money or property for forfeiture under the authority of N.C.G.S. § 90-112, the custody and disposition restrictions of
N.C.G.S.: § 90-112(c) cannot and do not apply.
N.C.G.S.: § 90-112(b) states "[a]ny property subject to forfeiture under this Article may be seized by any law-enforcement officer . . . ." N.C.G.S. § 90-112(b) (emphasis added). Under the basic rules of statutory interpretation and construction, when a statute employs the word "may", its provisions will be construed as permissive and not mandatory. Re Hardy, 294 N.C. 90, 240

S.E.2d 367 (1978). Therefore, state and local law enforcement officers are not required to seize property subject to forfeiture under N.C.G.S. § 90-112 but, rather, simply are authorized to do so under appropriate circumstances. In some situations, a law enforcement officer with probable cause to seize money or personal property under N.C.G.S. § 90-112 may not do so because there clearly are insufficient facts to support its subsequent forfeiture. For example, the fact that money is found in close proximity to controlled substances may establish probable cause to seize it but is insufficient, standing alone, to support forfeiture. State v. Fink, 92 N.C. App. 523, 375 S.E.2d 303 (1989); State v. Teasley, 82 N.C. App. 150, 346 S.E.2d 277, cert. denied, 318 N.C. 701, 351 S.E.2d 759 (1987). More frequently, money and personal property subject to forfeiture under

N.C.G.S. § 90-112 is not seized because an obvious affirmative defense to criminal forfeiture exists. For example, a conveyance owned by a third party cannot be forfeited if its owner did not consent to or know of its illegal use. In still other situations, property subject to forfeiture under the authority of N.C.G.S. § 90-112 is not seized pursuant to that statute because an alternate state or federal forfeiture remedy is available. If a state or local law enforcement officer has reasonable justification to not seize property for forfeiture under N.C.G.S. § 90-112, it is lawful and proper for the officer to inform another state or federal agency with appropriate jurisdiction of the property’s existence and for that agency to take possession of it.

If the N.C. Department of Revenue takes possession of money or property for satisfaction of controlled substance excise taxes due using a lawful tax collection remedy, control of its custody and disposition lies exclusively in the Secretary of Revenue until the taxpayer exhausts his administrative remedies. N.C.G.S. §§ 105-241.1 through 105-241.4 See also N.C.G.S. § 105-267 (No court of this State shall entertain a suit of any kind brought for the purpose of preventing the collection of any tax imposed in this subchapter.) If a federal investigative agency takes actual or constructive possession of money or property for forfeiture under federal law, the property is deemed to have been seized by the federal government, and thus is subject to federal jurisdiction, from the time it initially was seized by the state or local agency. Thereafter, state courts are without jurisdiction to issue any order concerning custody and disposition of the property. United States v. Alston, 717 F.Supp. 378 (M.D.N.C. 1989), aff’d, U.S. v. Winston-Salem/Forsyth County Board of Education, 902 F.2d 267 (4th Cir. 1990). See also 21 U.S.C. 881(c) ("Property taken or detained under [21 U.S.C. 881] shall not be repleviable, but shall be deemed to be in the custody of the [United States] Attorney General, subject only to the orders and decrees of the [federal] court or the [federal] official having jurisdiction thereof.").

If a law enforcement officer seizes money or personal property on probable cause to believe it is subject to forfeiture under N.C.G.S. § 90-112 but in a subsequent state forfeiture proceeding the court determines it is not subject to forfeiture, any properly initiated, valid tax collection remedy should be honored and all or part of the money or property turned over to the Department of Revenue to the extent necessary to satisfy the controlled substance excise taxes owed by the property’s owner. N.C.G.S. § 105-238 ("Every tax imposed . . . and all interest and penalties thereon, shall become, from the time it is due and payable, a debt . . . to the State . . . ."). If the court determines the property is subject to forfeiture under N.C.G.S. § 90-112 and a valid tax collection remedy has been initiated prior to issuance of an order of forfeiture and disposition, the court should recognize the Department of Revenue as an innocent owner of an interest in the property equal to the amount of the excise tax debt. N.C.G.S. § 18B-504(h); State v. Richardson, 23 N.C. App. 33, 208 S.E.2d 274, cert. denied, 286 N.C. 213 (1974) (The rules and procedures for forfeiture of alcohol related cases govern the procedure for forfeiture in drug related cases.).

(3) Neither N.C.G.S. §§ 15-11.1, 15A-258, 90-112 nor any other state statute provides specific authority for a court to order a law enforcement agency or officer to deposit money with the court in substitution for money or property seized as evidence or on the grounds it is subject to forfeiture which has been released without a court order. Therefore, if such authority exists, it must be based upon a court’s implied or inherent powers.

Implied powers are such as are necessary to make available and carry into effect those powers which are expressly granted or conferred and which must therefore be presumed to have been within the intention of the constitutional or legislative grant.

Mallard, Inherent Power of the Courts of North Carolina, 10 Wake Forest L. Rev. 1, 12 (1974). The only powers implied or reasonably inferred from a statute are those essential to effectuate its terms. The terms of N.C.G.S. §§ 15-11.1, 15A-258 and 90-112 do not confer upon a court the power to return substitute funds to the owner of evidence improperly released or to forfeit funds deposited in substitution of property subject to forfeiture. Therefore, a court has no implied power to order substitute funds be deposited for evidence or property subject to forfeiture which has been released without a court order even where its release was improper.

Inherent power is that which a court necessarily possesses irrespective of statutory or constitutional provisions. In order for a court’s power to be inherent, "it must be such as is reasonably necessary for the exercise of its proper function and jurisdiction in the administration of justice . . . ." Mallard, Inherent Power of the Courts of North Carolina, 10 Wake Forest L. Rev. 1, 13 (1974). "Through its inherent power the court has authority to do all things that are reasonably necessary for the proper administration of justice." Beard v. N.C. State Bar, 320 N.C. 126, 129, 357 S.E.2d 694, 696 (1987).

When a law enforcement agency or officer ignores a statutory requirement to obtain a court order prior to releasing evidence or property subject to forfeiture, the legal owner or other claimant may bring a civil action against the offender for return of the property or damages. State v. Earley, 24 N.C. App. 387, 210 S.E.2d 541 (1975). However, a court has no subject matter jurisdiction to use the underlying criminal proceeding to adjudicate conflicting claims to the seized property. Id. If the requirement to retain custody of seized property is contained in a lawful court order, direction or instruction and the property’s owner is a defendant in a criminal trial, he may move to suppress testimony about the original property or evidence. If a state or local law enforcement agency or officer has actual knowledge of the court’s lawful order, direction or instruction and disobeys it, the court could exercise its contempt power to punish the offender or obtain compliance with the order.

These remedies are sufficient to make the property’s owner whole, protect his rights in a criminal trial and assure the proper administration of justice. Therefore, a direction that funds be substituted for evidence or property subject to forfeiture which has been released without a court order goes beyond what is necessary for the proper administration of justice and is not within the court’s inherent power.

(4) N.C.G.S. § 15-11.1 requires as a condition to releasing property no longer needed as evidence proof that the claimant is the owner of the property or otherwise entitled to possession. If money belonging to a third party is substituted for property originally seized as evidence but subsequently turned over to the Department of Revenue for satisfaction of an excise tax debt, the claimant would not be able to meet his burden of proving ownership or entitlement to possession. Therefore, the court would have no legal basis upon which to order the substitute funds be returned to the original property’s owner.

Money and personal property may be forfeited under N.C.G.S. § 90-112 only if the State proves by the preponderance of the evidence that it was "acquired, used, or intended for use, in selling [or] purchasing . . . a controlled substance in violation of [the State Controlled Substances Act]."

N.C.G.S. § 90-112(a)(2). A conveyances may be forfeited under N.C.G.S. § 90-112 only if the State proves by the preponderance of the evidence that it was "used or intended for use to unlawfully conceal, convey, or transport, or in any manner to facilitate the unlawful concealment, conveyance, or transportation of [controlled substances or money used in felony controlled substance violations]." N.C.G.S. § 90-112(a)(4). N.C.G.S. § 90-112 does not authorize forfeiture of substitute property belonging to either the defendant or a third party. Therefore, if money belonging to a law enforcement agency or officer is substituted for the original property which was subject to forfeiture, the State would be unable to meet its burden of proof and the court would have no legal basis upon which to order substitute funds forfeited.

A final issue underlying each of these questions needs to be addressed briefly. Does article IX, section 7 of the North Carolina Constitution, which requires "the clear proceeds of all penalties and forfeitures and of all fines collected in the several counties for any breach of the penal laws of the State" be paid to the local public school fund, control the disposition of the portion of excise tax assessments given to law enforcement agencies pursuant to N.C.G.S. § 105-113.113? The answer is no.

The payment required by the State Controlled Substance Tax Act is not a penalty, forfeiture or fine imposed for any breach of the penal laws of the State. It is an excise tax imposed upon persons who possess dealer amounts of controlled substances or counterfeit controlled substances. N.C.G.S. § 105-113.105. Even if the excise tax is construed to be a penalty, forfeiture or fine imposed for breach of the State’s penal laws, the disposition of the portion of the tax assessment accruing by statute to law enforcement agencies still is not controlled by article IX, section 7. In State ex rel. Thornburg v. House and Lot, 334 N.C. 290, 432 S.E.2d 367 (1993), the court concluded that the clear proceeds from penalties, fines and forfeitures must be paid to the public school fund only where they accrue to the State. Therefore, the portion of the excise tax assessment which specifically accrues to "the State or local law enforcement agency that conducted the investigation of a dealer that lead to the assessment" pursuant to N.C.G.S. § 105-113.113 is not governed by article IX, section 7.

Michael F. Easley Attorney General

W. Dale Talbert Special Deputy Attorney General

Christopher E. Allen

Assistant Attorney General