Fourth Circuit opens door to double jeopardy defense in many drug cases.

Lawyers representing clients on drug charges involving a state excise tax may now raise a double jeopardy defense if their clients have paid the tax, thanks to a ruling by the Fourth Circuit.

A three-judge panel in Lynn v. West found that North Carolina's tax on illegal drugs is "in reality" a criminal penalty that cannot be enforced without the constitutional safeguards that accompany criminal proceedings. (134 F.3d 582 (4th Cir. 1998).)

In 1993, state law enforcement agents obtained a warrant to search David Lynn Jr.'s house. When state and federal agents executed the warrant, they found 970 grams of cocaine. Lynn was later convicted on federal drug charges in U.S. District Court. In the same proceeding, prosecutors obtained an order of forfeiture for Lynn's house and furniture under the corresponding criminal forfeiture statute. (21 U.S.C. [sections] 853.)

North Carolina then assessed a tax liability against Lynn under its Controlled Substance Tax. (N.C. Gen. Stat. [subsections] 105-113.105.) Under the law, the state can impose a special excise tax on "dealers" who illegally possess a sufficient quantity of a controlled substance.

Drug dealers must submit a form reporting their illegal possession and pay the tax. In return, dealers are supposed to receive stamps to affix to the drugs before they are resold. But since payment of the drug tax does not make possession or resale legal, no drug dealer has ever filed a form and paid the tax voluntarily. However, seizure of assets constitutes payment under the law.

The cocaine seized was worth about $25,000. But the North Carolina Department of Revenue assessed, a $389,125.20 drug tax liability against Lynn for unpaid taxes, penalties, and interest. According to the department, Lynn owed a tax of $200 per gram on the 970 grams of cocaine taken from his house ($194,000), plus a 100 percent penalty for failure to pay the tax on time ($194,000), plus interest ($1,125.20). Lynn's remaining personal property was seized to satisfy the drug tax assessment.

Lynn filed suit challenging the constitutionality of the tax and alleging civil rights violations under 42 U.S.C. [sections] 1983. At the heart of the complaint was his contention that the drug tax is a criminal penalty, not a civil tax. While the district court disagreed, the appellate court reversed, citing Supreme Court precedent established in Department of Revenue v. Kurth Ranch.

In that case, the Court examined Montana's Dangerous Drug Tax Act, reaching its holding by discussing four features that rendered the tax a second punishment: the high tax rate, the deterrent purpose of the tax, the fact that the tax was conditioned on the commission of a crime, and the fact that the tax was levied on possession of goods that no longer exist and that the taxpayer never lawfully possessed. (511 U.S. 767 (1994).)

The appellate court compared North Carolina's drug tax to Montana's, finding that both share all four features. "The drug tax singles out a class of persons who have engaged in criminal activity and subjects the class to a rate of taxation far beyond that faced by any legitimate taxpayer," the court wrote.

"As the Supreme Court said when it held that a Prohibition era tax was a criminal penalty, `[C]ertainly we cannot conclude... that penalties for crime should be enforced through the secret findings and summary action of executive officers. The guarantees of due process of law and trial by jury are not to be forgotten or disregarded.'"

While the court cleared the way for future double jeopardy defenses to be raised in similar cases, it found that Lynn's claim did not trigger those protections because only federal drug charges were brought against him for cocaine possession. Because the United States brought the prior criminal prosecution, North Carolina remained free to impose its own criminal sanctions--namely, the drug tax.

In light of the ruling, Lynn's attorney, Terry Ham of Chapel Hill, North Carolina, said that lawyers should always file a double jeopardy motion in a drug case where a tax has been paid. "I've been contacted by lawyers from Tucson to Indianapolis wanting to discuss the case," he said. "The ramifications are that broad, and the taxes are that widespread."