             Equitable Transfers of Forfeited Monies or Property


W h e n th e fe d e ra l g o v e rn m e n t m a k e s an e q u ita b le tra n s fe r o f fo rfe ite d m o n ies o r p ro p e rty to a s ta te o r
     local la w e n fo rc e m e n t a g e n c y , th a t transfer is m o re a p p ro p ria te ly c h a ra c te riz e d as a c o n d itio n a l gift
     to th e a g e n c y ra th e r th a n as a fo rm al c o n tract b e tw e e n th e fe d e ra l g o v e rn m e n t a n d the a g en c y .


If the s ta te o r lo c a l a g e n c y fa ils to u se the tra n s fe rre d p ro p e rty fo r law e n fo rc e m e n t p u rp o se s, th e fe d ­
     eral g o v e rn m e n t m a y b e a b le to p u rsu e re s titu tio n o f th e p ro p e rly .


                                                                                                                            April 19, 1994

                       M e m o r a n d u m O p t i o n f o r t h e D ir e c t o r a n d C h ie f C o u n s e l
                                        E x e c u t iv e O f f ic e f o r A s s e t F o r f e it u r e


    You have requested our assistance in determ ining whether equitable transfers of
forfeited property to state and local law enforcem ent agencies should be viewed as
contracts or as conditional gifts. Pursuant to 21 U .S.C ’ § 881 and 19 U.S.C.
§ 1616a, the Attorney General has the authority to share forfeited monies or tangi­
ble property with any state or local law enforcem ent agency which participated
directly in the investigative or prosecutorial efforts leading to the seizure and for­
feiture o f the property. The local agency wishing to share in the forfeited property
m ust apply by subm itting an “Application for Transfer of Federally Forfeited
Property — Form D A G -71” (“DAG-71”) within sixty days of the seizure. See A
G uide to E qu itable Sharing o f F ederally F orfeited P ro p erty f o r State an d L ocal
Law E nforcem ent A gen cies, December 1990, at 3 (“Guide”). Both the shared
property and any income generated from it “m ust be used for the law enforcement
purposes” specified by the requesting agency in its DAG-71 form. Id. at 4; see
a lso The A ttorn ey G e n e ra l’s G uidelines on S eized an d F orfeited P roperty, July
1990, at 8 (“G uidelines”).1 Permissible law enforcem ent purposes include, but are
not limited to, the purchase of vehicles, weapons, or protective equipment and the
paym ent o f salaries and other expenses. Guide at 4.
   The question about the appropriate characterization of equitable transfers has
arisen because o f the failure of some local agencies to comply with the Guidelines.
Specifically, a 1992 audit by the Inspector General revealed that some agencies
have failed to use transferred monies and property for permissible law enforcement
purposes. The General Counsel o f the Office of the Inspector General concluded
that the Justice Departm ent could seek to recover these misspent monies through
restitution because the equitable transfer created a contractual relationship.2 See

   1 B oth the D AG-71 form and its accom panying in stru ctio n s also state that all assets transferred m ust be
used for the law en fo rcem en t pu rp o se specified in the request.
   " T h e G en eral C ounsel also concluded th at th e D epartm ent co u ld act to preclude future disbursem ents to
an ag en cy m isu sin g funds T h e availability o f th is rem edy has not been questioned

                                                                        74
                          Equitable T ransfers o f F orfeited M onies or Property'


Memorandum for Guy Zimmerman, Assistant Inspector General for Audit, from
Howard L. Sribnick, General Counsel, Office of the Inspector General (Sept. 9,
1992). The Executive Office of Asset Forfeiture, however, has stated that it
is more inclined to view equitable transfers as conditional gifts rather than
contractual relationships and thus believes the Department is powerless to seek
restitution of transferred funds.       See M emorandum for W alter Dellinger,
Assistant Attorney General, Office o f Legal Counsel, from Cary H. Copeland,
Director and C hief Counsel, Executive Office for Asset Forfeiture (Dec. 17,
1993).
   We believe that the equitable transfers at issue here are more analogous to
a conditional gift than to a formal contractual relationship. Although it is true
that the Guide states that the DAG-71 should be “treated as a contract” between
the requesting agency and the Department of Justice, see Guide at 4, we believe
that this language is better read as signifying that the conditions placed on the
transfer are binding on the local agency rather than as creating a formal contract.
A formal contract is not created for three reasons. First, the language o f both the
Guide and the Guidelines suggests that the intent of the program is to reward local
law enforcement agencies for their valuable past assistance in securing the prop­
erty, rather than to create a bargained-for exchange o f the agency’s promise to use
the money for law enforcement in return for a share in the forfeited property. For
example, the amount of the equitable share awarded depends in part on the degree
of direct participation in the law enforcement effort by the local agency and on
whether the local agency provided unique or indispensable assistance. Guidelines
at 9. A promise to reward past conduct is not sufficient to create a contract under
settled principles of contract law. R estatem ent (Second) o f C ontracts § 86 (1981).
Second, the absence of bargained-for legal detriment on the part o f the requesting
agency suggests that the relationship created is that of a conditional gift rather than
a formal contractual relationship. Even though the requesting agency promises not
to use the money for any purpose other than that specified in the request, this is not
an example of a promise not to do something the agency would otherwise have the
right to do. Finally, neither the DAG-71 form nor the Guidelines suggest that the
federal government is ever bound to make the requested transfer. See, e.g., G uide­
lines at 1 (Guidelines are not intended to create any rights on behalf of claim ants or
petitioners).
   It is also our belief, however, that the conclusion that an equitable transfer is
a conditional gift does not necessarily preclude the federal government from seek­
ing restitution of transferred funds being used for non-law-enforcement purposes.
As an initial matter, it is clear that a promise to use the transferred property for

     ' The legislative history o f the am endm ents to 21 U S C. § 881 and 19 U S C § 1616a also m akes plain
that the purpose o f allow ing the A ttorney G eneral to transfer funds to local agencies was to recognize the
assistance o f those agencies in securing the forfeiture and to enhance cooperation betw een local and federal
law enforcem ent agencies H R Rep. No 98-1030, at 216, 219 (1984), rep rin ted in 1984 U S C C A N
3 1 8 2 ,3 3 9 9 , 3402

                                                     75
                                     O pinions o f the O ffice o f L egal C ounsel


law enforcement purposes is in fact a condition of receiving an equitable
share from the federal government. See, e.g., DAG-71 (requiring requestor to
certify that property will be used for law enforcement purpose stated); Guidelines
at 8 (stating that all property transferred shall be used for law enforcement pur­
poses). The DAG-71 further reinforces the interest of the federal government in
ensuring that the money is used for law enforcement purposes by requiring the lo­
cal agency to certify that it will report on the actual use of equitably shared prop­
erty upon request. In addition, the Guidelines make plain that “the integrity of the
entire forfeiture program depends upon the faithful stewardship of forfeited prop­
erty and the proceeds thereof.” Guidelines at 1. Permitting local agencies to use
the proceeds of forfeited property for any purpose whatsoever would undermine
the integrity of the program.
    The fact that the Department has placed such a clear condition on the use of
funds received under the equitable sharing program and has reserved the right
to confirm that an agency uses transferred funds as promised suggests that the
Department did not intend to pass unconditional control of the funds to the
local agency. Instead, it appears that the Department intended to make a condi­
tional gift, which remains in effect only so long as the gift is being used for its
intended purpose. “A gift may be conditioned upon the donee’s performance
of specified obligations . . . If the obligation is not performed, the donor is entitled
to restitution.” Ball v. Hall, 274 A .2d 516, 520 (Vt. 1971). In the analogous
context of federal grants to state and local agencies, courts have stated that the
federal government may use principles of restitution to recover monies that
were granted for specific purposes and then used in contravention of those
purposes, even in the absence of statutory authority expressly permitting such
recovery. See, e.g., West Virginia v. Secretary o f Educ., 667 F.2d 417, 419
(4th Cir. 1981) (per curiam); Mount Sinai Hosp. v. Weinberger, 517 F.2d 329
(5th Cir. 1975), cert, denied, 425 U.S. 935 (1976). But see 2 Richard B. Cappalli,
Federal Grants and Cooperative Agreements § 8:15, at 80-82 (1982) (suggesting
that federal agency may have forfeited its right to recover improperly used funds if
it has not established a right to recovery in the grant agreement or in duly promul­
gated regulations). Restitutionary remedies are available because, although not a
formal contractual relationship, federal grant programs are nonetheless “much in
the nature of a contract: in return for federal funds, the [grantee] agree[s] to com­
ply with federally imposed conditions.” Pennhurst State School v. Halderman,
451 U.S. 1, 17 (1981).
    W hether to pursue restitution against local agencies misusing funds transferred
to them under the equitable sharing program is a policy question not suited for



   4     T h e S u p rem e C o u rt has not yet resolved th e question w h eth er the federal governm ent has a com m on law
right to re c o v er funds w h en ev er a grant recip ien t fails to co m p ly w ith the conditions of the grant. Bell v.
N ew J e r s e y , 461 U .S. 773, 782 n 7 (1983)

                                                          76
                    E quitable T ra n tfers o f F orfeited M onies o r Properry


resolution by this office. We mean to suggest only that a right to recover misspent
funds on a restitution theory may well be supportable under current case law.


                                                         WALTER DELLINGER
                                                       Assistant Attorney General
                                                        Office o f Legal Counsel




                                               77
