U.S. v. Oregon, No. 10-2154

Decided Feb. 16, 2012

C.L.P., Inc., a seller and manufacturer of tobacco products, was found guilty of several violations of the Contraband Cigarette Trafficking Act. The United States sought to receive forfeited assets from the company in order to pay the assessed penalties. One source of assets, because C.L.P. was a not a member of the noted Master Settlement Agreement, were funds in an escrow account and subaccounts held by all the states where C.L.P. sold its products. The United States moved to access a percentage of the funds’ principal balances but the states argued that the government, by placing itself in the shoes of C.L.P. for the purposes of forfeiture actions, was able only to recover interest and return on investments that the escrow account and subaccounts had gained.

The district court agreed with the states and the United States appealed. The Fourth Circuit held that though legal title to the funds in escrow remained with C.L.P.—and therefore the United States—under North Carolina law, the states still had standing to press claims on the funds as obligees of the accounts. However, the states’ interest in the funds was not vested and not superior to C.L.P.’s—and therefore not superior to the United States’ interest. The district court’s order, then, was vacated and the matter was remanded to issue a new forfeiture order.

Full Opinion

-C. Alexander Cable

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