In re Williams

IN RE: William Fredrick Williams, Debtor.

Case No. 16-30243-can13

UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF MISSOURI

May 15, 2017

MEMORANDUM OPINION AND ORDER SUSTAINING THE UNITED STATES' OBJECTION TO CONFIRMATION AND DENYING WITHOUT PREJUDICE THE UNITED STATES' MOTION FOR DECLARATORY JUDGMENTS

In the context of a long-running dispute between a pro se debtor and the United States of America, the United States objects to confirmation of a Chapter 13 plan that reneges on a settlement reached in a previous Chapter 13 case - a settlement that would have allowed the United States to enforce its restitution judgment against a debtor's IRA once the previous case completed. The United States also asks this court for a declaratory judgment that the stay does not apply to its broader restitution enforcement efforts against the debtor. Under the facts of this case, this court agrees that the plan reneging on the settlement has not been proposed in good faith and that the United States should be allowed to liquidate the IRA, but declines to issue a declaratory judgment that would extend beyond the scope of the current controversy.

Procedural Background

The facts and procedural history of this case span one criminal case and two Chapter 13 bankruptcy cases. Although the procedural history is lengthy, it is nonetheless necessary to understanding the current controversy between the two parties, especially because the parties waived their right to an evidentiary hearing and agreed to submit the matter on the moving papers and briefs.

The Criminal Case

The procedural history of this case starts on June 27, 2006, almost eleven years ago. On that date, William F. Williams, the debtor here, was indicted in the Western District of Missouri for violations of 18 U.S.C. §§ 1957 and 2314.¹ He pled guilty to Count II of the indictment. The District Court sentenced Mr. Williams to 21 months of imprisonment and three years of supervised release. In addition, the District Court ordered Mr. Williams to pay a $100 assessment and restitution of $196,361.49. The District Court waived interest on the restitution, which was due immediately, although the order stated Mr. Williams was to make payments of $100 per month. The restitution payee was Hendren Chevrolet-Pontiac.²

In November 2012, after the completion of Mr. Williams' prison sentence and supervised release, the United States filed an Application for Writ of Garnishment in the District Court, pursuant to 28 U.S.C. § 3205 of the Federal Debt Collection Procedure Act. The Application stated Mr. Williams had been making $100 monthly payments, and that $189,511.49 remained outstanding. The proposed garnishee was National Financial Services, LLC ("NFS"). NFS answered that it held $103,571 in an individual retirement account ("IRA") belonging to Mr. Williams. Mr. Williams first attacked the garnishment on the grounds that Missouri law allowed him to exempt the IRA. Mr. Williams' son, Chad Williams, also sought to intervene, asserting that his father had given him a lien in the IRA before the United States' restitution judgment was entered. The District Court ruled against Mr. Williams and his son on both issues. In an order dated March 14, 2013 (the "Turnover Order"), the District Court ordered that NFS turn over the IRA to the Clerk of Court for the Western District of Missouri in partial satisfaction of the restitution.

First Chapter 13 Filing³

On March 18, 2013, four days after the District Court Turnover Order, Mr. Williams filed a pro se Chapter 13 bankruptcy with this court.⁴ He scheduled the IRA as a 401k worth $104,000.⁵ Mr. Williams originally scheduled the United States as having a $104,000 secured claim. He then filed an amended Schedule E, listing the United States' claim as a priority, unsecured claim for $94,305.75. Mr. Williams first formally informed the District Court of his bankruptcy filing about a week after the filing.⁶

In April 2013, Mr. Williams sent a letter to this court construed as a motion for stay violation damages under 11 U.S.C. § 362(k)⁷ ("Stay Violation Motion"). In the Stay Violation Motion, Mr. Williams alleged that despite the United States' having notice of the bankruptcy, the United States intended to pursue turnover of the IRA. Mr. Williams also alleged that NFS sent the IRA funds to the District Court on April 5, after the United States had notice of the bankruptcy. Mr. Williams then sent a second, similar letter to this court, asking for return of the IRA funds. This court set the Stay Violation Motion for hearing.

In lieu of filing a response to the Stay Violation Motion, the United States filed a motion to continue the hearing, arguing in essence that the District Court should decide whether theautomatic stay applied to the United States' collection efforts. In a written order, this court denied the United States' motion and directed it to file a response. The United States' substantive response asked for a determination that the stay does not apply, or, alternatively, for relief from the automatic stay if the stay did apply ("Motion for Relief from Stay").

At a May 2013 status conference on both motions, the United States stated it needed discovery, and Mr. Williams requested time to hire an attorney. The court agreed to give both parties additional time, and continued both motions to a June status conference with a final evidentiary hearing set for August 2013.

In the meantime, Mr. Williams had filed a plan, albeit untimely, that proposed to pay creditors $100 per month for 36 months. The plan did not address the United States' secured restitution claim or disposition of the IRA. After Mr. Williams attempted to amend the plan to propose a surrender of his home, the United States objected to confirmation on the grounds the plan failed to treat its secured claim and was proposed in bad faith, among other arguments. A day later, the United States also filed a motion to dismiss the Stay Violation Motion or, alternatively, for declaratory judgment or summary judgment ("Motion for Partial Summary Judgment"). In its Motion for Partial Summary Judgment, the United States argued that its restitution enforcement actions were excepted from the stay as the continuation of a criminal proceeding under § 362(b)(1), or in the alternative that the Mandatory Victims Restitution Act ("MVRA")⁸ supersedes the automatic stay in bankruptcy.

Meanwhile, Mr. Williams asked for and received a continuance of the August 2013 hearing on the Stay Violation Motion and Motion for Relief from Stay (over the United States' objection) due to his continuing efforts to find an attorney. The court thus rescheduled theevidentiary hearing on both stay-related motions to October 2013. In the interim, the court held a preliminary hearing on the United States' First Objection to Confirmation in July 2013. At that hearing, the parties agreed that the First Objection to Confirmation required evidence and should be heard with the dueling stay-related motions already set for a final evidentiary hearing in October 2013, since all three matters were intertwined. At the same time, the court informed Mr. Williams that he had failed to respond timely to the United States' Motion for Partial Summary Judgment. Mr. Williams orally moved for another 21-day extension, which the court granted. Mr. Williams did not, however, timely respond to the United States' Motion for Partial Summary Judgment, instead moving for another 60 days, arguing that he had never seen the United States' Motion before the hearing.

Noting that a 60-day extension would give Mr. Williams until just before the evidentiary hearing set in October, the court entered an order granting Mr. Williams a partial extension of 14 days and setting another hearing in August 2013 to give Mr. Williams a chance to explain his need for an additional sixty days to respond. Before the extended deadline, however, Mr. Williams filed a "Motion for Violation of Automatic Stay and Creditor Misconduct," which this court treated as a response to the United States' Motion for Partial Summary Judgment.⁹ The court thus denied the 60-day extension request as moot, considering the three pending matters (Mr. Williams' Stay Violation Motion, and the United States' Motion for Relief from Stay and First Objection to Confirmation) fully responded to and ready to be heard in October.

At the final pretrial conference before the October 2013 evidentiary hearing, the United States informed the court of the possibility that its witnesses would not be able to attend the October 17 hearing due to the impending federal government shut-down. The court sua sponte continued the evidentiary hearing to November 14, 2013, and entered an order denying the United States' Motion for Partial Summary Judgment.

Ten days before the November 2013 final evidentiary hearing, Mr. Williams filed a motion requesting that the court order "the Department of Justice to return the $108,022.10" to him. The United States responded that the Department of Justice did not control the funds but that the District Court did. Given the proximity of that motion to the hearing, it was not heard with the other matters in November.

The court thus took up Mr. Williams' Stay Violation Motion, the United States' Motion for Relief from Stay, and the United States' First Objection to Confirmation at an evidentiary hearing in November 2013, and denied the United States' motion for a judgment at the conclusion of Mr. William's case-in-chief. During closing arguments, however, the United States and Mr. Williams agreed to mediate their dispute. The court thus deferred ruling, and appointed the Honorable Arthur B. Federman as mediator. Mediations were set for January 8, 2014 and February 5, 2014, but were postponed for unknown reasons. On June 11, 2014, Judge Federman conducted a first round of mediation, but Mr. Williams and the United States were unable to reach a settlement.

At a status conference in...