McLaughlin, Ganey and Adams, Circuit Judges. Adams, Circuit Judge (concurring).
GERALD McLAUGHLIN, Circuit Judge.
This is an appeal by the United States Government from a district court's decision awarding $2,438,110 to Hudson County, New Jersey. It is conceded that the money in question was the property of one Joseph V. Moriarty. Appellant maintains that the district court did not have jurisdiction to pass upon this case and should have dismissed it.
On July 3, 1962 some workmen were renovating private garages on Oxford Avenue, Jersey City, N. J. While so engaged they discovered $2,438,110 in the trunk of a 1947 Plymouth automobile parked in garage #48. Various other articles pertaining to Joseph V. Moriarty were also found in the garage. The F.B.I. was called to the scene and agents from that department took initial control of the money. On July 5, 1962 the District Director of Internal Revenue made a jeopardy assessment against Moriarty for income tax and interest due in the amount of $3,395,655.33. On July 9, 1962 the Government's notice of lien was filed in the Hudson County Register's Office and a notice of levy was served on the United States Marshal who had custody of the currency. On July 16, 1962 the money was turned over to the Internal Revenue Department by the United States Marshal and deposited in the National State Bank of Newark, New Jersey which is the depository for Internal Revenue collections for New Jersey. Within twenty-four hours the said funds were credited to the account of the Secretary of the Treasury in the Federal Reserve Bank of New York and thus covered into the United States Treasury.
On September 24, 1962, Hudson County filed a complaint in the Superior Court of New Jersey, Law Division, Hudson County, seeking a judgment that the money be forfeited to the County of Hudson by reason of its being contraband pursuant to N.J.Stat.Ann. § 2A:152-9.*fn1 The complaint named Chris L. Gross, the District Director of Internal Revenue, as one of the claimants to the fund, by reason of the fact that he had served a notice of levy on the Prosecutor of Hudson County, claiming a lien on all property owned by Moriarty.
On October 16, 1962 Mr. Gross filed a petition for removal in the United States District Court for the District of New Jersey pursuant to 28 U.S.C. § 1442(a) (1)*fn2 on the grounds that the proceeding in the state court was an action commenced against an officer of the United States for an act performed under color of office. The suit was so removed. Hudson County tried to have the litigation remanded to the state court. That motion was denied on April 3, 1963. Thereafter, on February 17, 1964, the County filed a supplemental complaint and subsequently filed amendments to that supplemental complaint, one of which substituted the United States as a party defendant. The trial judge found that Hudson County was entitled to the money. The United States appeals from that decision.
Admittedly, the suit was originally commenced in the Superior Court of New Jersey and later removed to the Federal District Court. The jurisdiction of the federal court over a cause removed from the state courts is derived from the question of the state court's jurisdiction; if the state court lacked jurisdiction of subject matter or parties, then the federal court acquires none, even though it might have jurisdiction in a like claim first brought in the federal system. See Lambert Run Coal Co. v. Baltimore & Ohio R.R. Co., 258 U.S. 377, 42 S. Ct. 349, 66 L. Ed. 671 (1922); A. J. Curtis and Company v. D. W. Falls, Inc., 305 F.2d 811 (3rd Cir. 1962); Minnesota v. United States, 305 U.S. 382, 59 S. Ct. 292, 83 L. Ed. 235 (1939). Therefore the problem which must be resolved is, did the Superior Court of New Jersey have jurisdiction over this claim prior to it being removed to the federal court?
The money involved was taken by agents of the Federal Bureau of Investigation to be counted and remained in charge of federal officials until it was ultimately deposited in the Treasury of the United States. At no time in fact or in law did state or local officers possess custody or control of the currency; the state court simply never did have jurisdiction over the subject matter. The situation before us is in no way similar to United States v. Bleasby, 257 F.2d 278 (3rd Cir. 1958) where county officials seized money used in gambling, as contraband and maintained possession of it. The holding there was that the New Jersey court had possession over the res and exerted valid in rem jurisdiction which could not be collaterally attacked by the United States in its effort to establish priority for its tax lien. Under the facts here the said money was never in the control of County or State officials.
The district court in its opinion claimed in personam jurisdiction to decide this litigation stating "However, this Court is not convinced that this suit is merely an in rem action erroneously commenced. To the contrary, there is strong reason to believe that this suit is purely an in personam matter seeking to determine the rightful owner of money found in the Jersey City garage. United States v. Klein, 303 U.S. 276, 58 S. Ct. 536, 82 L. Ed. 840 (1937) holds that a State has a right to adjudicate the title to a fund in possession of the United States Treasury on an in personam basis. Such an adjudication could only designate the rightful claimants to the fund, but could not control its distribution."
Based upon that erroneous reasoning the district court concluded that under the authority of the Klein opinion, supra, a state court has the right to determine the ownership of funds in the possession of the United States Treasury, even though that court could not order a government official to deliver possession of the funds to anyone. In that situation the prevailing party would have to go to a federal court for enforcement of the decree. The truth is that what Klein establishes is that a state court may determine rights to property on an in personam basis only where the United States has custody of the funds as a mere stakeholder and that the state court lacks the power to act where the United States claims an interest in the property at issue.
Klein dealt with the constitutionality of certain statutes of the Commonwealth of Pennsylvania purporting to confer jurisdiction on a state tribunal to declare the escheat of money deposited in the registry of the federal court and later covered into the Treasury of the United States. The circumstances surrounding that claim are as follows: The District Court for the Eastern District of Pennsylvania found that certain bondholders were entitled to specific sums. All monies due bondholders who could not be located were paid into the registry of the court. Five years later all unclaimed sums were transferred to the United States Treasury. The Escheator of the Commonwealth of Pennsylvania sought to escheat these funds and so petitioned the district court. The court dismissed the petition without prejudice on the grounds that petitioner had not yet procured a declaration of escheat, which was necessary to perfect the Commonwealth's title, and that the district court was without jurisdiction to make such a declaration. Thereafter an action was begun in the Court of Common Pleas praying a declaration that the fund had escheated to the Commonwealth. Eventually the court entered a decree of escheat and directed the Escheater to apply to the United States District Court for an order that the monies be paid him as Escheator. This decision was affirmed by the Pennsylvania Supreme Court. The Supreme Court of the United States also affirmed this decision in United States v. Klein, 303 U.S. 276, 58 S. Ct. 536, 82 L. Ed. 840 (1937).
In that opinion Justice Stone writing for the Court carefully noted that "The Government does not, in pleading or argument, set up any right, title or interest in the present fund adverse to the unknown bondholders. It does not contend that the fund has been or can be escheated to the United States." United States v. Klein, supra, at p. 280, 58 S. Ct. at 538. He went on to say: "The present decree for escheat of the fund is not founded on possession and does not disturb or purport to affect the Treasury's possession of the fund or the District Court's authority over it. Nor could it do so . . . At most the decree of the state court purports to be an adjudication upon the title of the unknown claimants in the fund by a proceeding in the nature of an inquest of office as in the case of escheated lands, . . . and to confirm the authority of appellee to make claim to the moneys." United States v. Klein, supra, at p. 282, 58 S. Ct. at 539.
The facts before us are wholly distinguishable from those in United States v. Klein. The vitally important distinction between the two is that the Government had no claim to the money in the Klein action. It was merely a stakeholder waiting for the owner to appear. Since the funds were not claimed, the money could escheat to the state though it was in the United States Treasury. The money in this appeal is in the United States Treasury but the Government is not holding it as a stakeholder but as owner thereof by reason of having taken possession of it in satisfaction for taxes due. It is settled law that a suit directly concerning the title to property in which the United States has an interest is a suit against the sovereign which absent the consent of the sovereign, cannot be maintained in the state court. In comparable circumstances Chief Judge Biggs held for this court, that "It is settled that a suit directly involving the title of property in which the United States claims an interest is a suit against the sovereign. n.13 Hence the suit in the Court of Common Pleas is against the sovereign, the United States. But since the sovereign has not consented to be sued in the Pennsylvania tribunal, that Court lacks jurisdiction or the power to adjudicate the issues presented. n.14" In Re Escheat of Monies Deposited in United States District Court, 187 F.2d 131, 135 (3rd Cir. 1950), footnotes including great number of supporting cases, omitted.
Appellee contends that the filing of the supplemental complaint and subsequent amendments by the County gave the Federal Court jurisdiction of the litigation and the parties, irrespective of whether the state court from which it had been removed had jurisdiction. In support of this theory Freeman v. Bee Machine Co., 319 U.S. 448, 63 S. Ct. 1146, 87 L. Ed. 1509 (1943) is cited as holding that the District Courts have, after removal "the full arsenal of authority with which they have been endowed." Freeman v. Bee Machine Co., supra at 452, 63 S. Ct. at 1148. Appellant omits the all important difference between Freeman and this appeal. In Freeman, the State Court, before the removal of the case to the federal system, had proper jurisdiction. In fact that court held that "Congress has indeed provided that in a suit which has been removed the District Court shall ' proceed therein as if the suit had been originally commenced in said district court, and the same proceedings had been taken in such suit in said district court as shall have been had therein in said State court prior to its removal.' Judicial Code § 38, 28 U.S.C. § 81. While that section does not cure jurisdictional defects present in the state court action, it preserves to the Federal District Courts the full arsenal of authority with which they have been endowed." Freeman v. Bee Machine Co., 319 U.S. 448, 452, 63 S. Ct. 1146, 1148, 87 L. Ed. 1509 (1943). It is obvious from the above that before the district court can allow the filing of amendments and supplemental complaints it must have jurisdiction, and the filing of these does not remedy any defect in the state court's jurisdiction prior to removal. There is no authority in the federal court to permit appellee, under the guise of filing an amended petition, to eliminate the patent jurisdictional defects of the state court action. See Henderson v. Shell Oil Co., 173 F.2d 840 (8th Cir. 1949). Since the state court concededly lacked jurisdiction, the District Court could acquire none on removal and this claim should have been dismissed.
A second major error appears in the disposal of this claim by awarding the currency to Hudson County. The two statutes controlling the forfeiture of funds in this type of case are N.J.S.A. 2A:152-6*fn3 and N.J.S.A. 2A:152-7.*fn4 Hudson County founded its alleged right on the former statute. It had previously been held that N.J.S.A. 2A:152-6 was applicable to money where it had been earmarked and segregated as part of a gambling operation, such money constituted a gambling device and was contraband. See Spagnuolo v. Bonnet, 16 N.J. 546, 109 A.2d 623 (1954). While N.J.S.A. 2A:152-7 is primarily concerned with the seizure of currency, property of that sort when seized in connection with an arrest will be deemed prima facie to be contraband of law as a gambling device. Thus that statute so establishes a presumption that the money is contraband, a presumption which must be overcome by a contesting party. N.J.S.A. 2A:152-6 does not deal with any such presumption. The District Court, on plaintiff's urging, held that the County was entitled to the benefits of N.J.S.A. 2A:152-7 with the above described presumption which was not rightfully in this litigation at all. This entire claim depended solely upon N.J.S.A. 2A:152-6 which would have correctly forced Hudson County to prove that the money was an implement or device made or used for the purpose of gambling. There was no acceptable proof to that effect offered by this plaintiff.
A statute creating a forfeiture is penal in nature and must be strictly construed. See State v. La Bella, 88 N.J.Super. 330, 212 A.2d 192 (1965). The New Jersey Supreme Court in a case dealing with the construction of Section 2A:152-7 has held that the arrest need not occur simultaneously with seizure for there to be a forfeiture of gambling funds. See State v. Link, 14 N.J. 446, 102 A.2d 609 (1954). It has also held that the forfeiture occurred at the time the monies were wrongfully used and not at the time of seizure. See Spagnuolo v. Bonnet, 16 N.J. 546, 109 A.2d 623 (1954). It has never been held that absent an arrest or seizure the presumption of Section 2A:152-7 is applicable. In all published opinions concerning the application of this section there was seizure of money in connection with an arrest for violating the gambling statutes. In the appeal before us Moriarty was in jail at the time the money was found, nor was he subsequently arrested in connection with it. The money was not seized by local or state representatives, but taken by federal officials in connection with back taxes owed by Moriarty.
The $168,400.97 referred to by plaintiff, which was discovered later, was found in an entirely separate place where there was gambling paraphernalia pertaining to it and linking Moriarty with it. Moriarty pleaded guilty to possession of lottery slips in connection with that money. At no time ever was there any connection shown between the $2,438,110 and a gambling operation nor was there any arrest made in connection with it. It follows that N.J.S.A. 2A:152-7 cannot be applied to the suit money. In this strange litigation, the ostensible plaintiff, Hudson County, should have been denied any presumption that the currency ...