United States v. France, 14–2743.

782 F.3d 820

UNITED STATES of America, Plaintiff–Appellee

v.Gary L. FRANCE, Defendant–Appellant.

No. 14–2743.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 23, 2015.

Decided April 7, 2015.

Joseph A. Stewart, Attorney, Office of the United States Attorney, Chicago, IL, for Plaintiff–Appellee.

Kenneth M. Ducduong, Attorney, Kmd Law Office, Robert Pawel Groszek, Attorney, Paul Edward Peldyak, Attorney, Groszek Law Firm, Chicago, IL, for Defendant–Appellant.

Before WOOD, Chief Judge, and KANNE and TINDER, Circuit Judges.

Opinion

TINDER, Circuit Judge.

In 2002, Dr. Gary France was ordered to pay $800,000 in restitution to victims of a fraudulent billing scheme he committed. By 2014, however, France had paid less than $11,000 toward that amount, so the government moved under the Mandatory Victims Restitution Act (MVRA), 18 U.S.C. § 3613(a), to garnish monthly payments of $16,296 from France's privately purchased disability insurance policy. France maintains that these payments are at least partially exempt from garnishment, and his ex-wife, Theresa Duperon, seeks to exempt a portion of the payments that she receives for child support. The district court allowed the government to garnish the entire amount. We affirm.

I. BACKGROUND

In the mid–1990s, France owned and operated a dental business in Chicago. During this time, he engaged in a lucrative scheme to fraudulently bill insurers for employees of the City of Chicago and the Chicago Transit Authority. For that scam, he pleaded guilty in April 2002 to mail fraud. See 18 U.S.C. § 1341. Meanwhile, in 1996, France closed his solo dental practice after being injured in a car accident and started collecting monthly benefits from a disability income policy he had purchased through his dental business. In 1999, he agreed to give a portion of these monthly payments, for a limited time, to Western United Life Insurance Company in exchange for a lump sum of more than $300,000. He then transferred this money into various accounts in the names of other people, including Duperon (his then-wife), before filing a Chapter 7 bankruptcy petition in early 2000. He failed to disclose the lump sum payment or subsequent transfers in the bankruptcy petition and in fact made affirmative declarations concealing their existence. For that reason, at the same time he pleaded guilty to mail fraud, France pleaded guilty to knowingly making a false declaration under penalty of perjury.See 18 U.S.C. § 152(3).

In August 2002, the district court sentenced France to a total prison term of 30 months and ordered him to pay $800,000 in restitution to the City of Chicago Law Department and the Chicago Transit Authority. In September 2002, the government recorded notice of this lien in California, where France had relocated. Two months later, the trustee appointed in France's bankruptcy proceedings obtained an order giving the trustee title to ongoing payments from the disability insurance. (The Chapter 7 case began with the United States trustee serving as trustee for the estate, but later, in 2002, a private attorney was appointed as trustee, as is standard practice. See 28 U.S.C. § 586(a)(1) (requiring United States trustee to maintain a panel of private trustees for cases filed under Chapter 7); United States Trustee Program, About the Program, http://www.justice.gov/ust/eo/ust_org/index.htm visited Mar. 13, 2015).

In July 2003, France and Duperon divorced and reached a marital settlement under which Duperon was to receive payments for child support through 2019 from the disability insurance payments. The payments would increase up to $7,000 per month. A California court approved the settlement in August 2003.

In February 2004, France's insurance company filed an interpleader action in California to resolve conflicting claims to the insurance proceeds from the bankruptcy trustee, France, France's sister, and Duperon. In March 2005, these parties reached a settlement agreement, which the bankruptcy court approved, purporting to control all other judgments in regard to the insurance policy. The settlement did not mention the restitution lien from France's criminal case, and it appears that the bankruptcy trustee was never notified of it.

In May 2013, the government filed in France's criminal case in the Northern District of Illinois citations to discover assets in accordance with Illinois law that were directed at France, his insurer, and Duperon. See 735 ILCS 5/2–1402 (authorizing procedure for creditor to prosecute supplementary proceedings to discover assets). France moved to quash the citation primarily on the basis that his disability payments were exempt from garnishment under California law. But the insurance company responded to the citation by informing the government that it was distributing monthly payments of $9,296 to France and $7,000 to Duperon, for a total of $16,296. France's insurer also began withholding the $9,296 that had been going to France.

In February 2014, based on the information from the insurance company, the government moved to garnish the entire monthly distributions under § 3613(a), which provides as follows:

(a) Enforcement. —The United States may enforce a judgment imposing a fine in accordance with the practices and procedures for the enforcement of a civil judgment under Federal law or State law. Notwithstanding any other Federal law (including section 207 of the Social Security Act), a judgment imposing a fine may be enforced against all property or rights to property of the person fined, except that—

(1) property exempt from levy for taxes pursuant to section 6334(a)(1), (2), (3), (4), (5), (6), (7), (8), (10), and (12) of the Internal Revenue Code of 1986 shall be exempt from enforcement of the judgment under Federal law;

(2) section 3014 of chapter 176 of title 28 shall not apply to enforcement under Federal law; and

(3) the provisions of section 303 of the Consumer Credit Protection Act (15 U.S.C. 1673 ) shall apply to enforcement of the judgment under Federal law or State law.

In response to the government's motion, France's insurer began withholding Duperon's payments in addition to France's, and France and Duperon asserted that the payments—or at least a portion of them—were exempt from garnishment. In addition to asserting state law exemptions, France argued that the payments were partially exempt under § 3613(a)(3) as “earnings” under the Consumer Credit Protection Act (CCPA), which sets a ceiling of 25% per week for garnishment of “disposable earnings.” 15 U.S.C. § 1673(a)(1). He emphasized that the Eighth Circuit recently held that payments from private disability insurance constitute “earnings” under the CCPA in United States v. Ashcraft, 732 F.3d 860 (8th Cir.2013). Duperon additionally argued that the government should be estopped from undermining the interpleader settlement involving the bankruptcy trustee.

The district court rejected France's and Duperon's arguments and ordered garnishment of the entire disability payments. The court noted that France had “arguably waived his right to claim the CCPA statutory exemption” by not asserting it when first served with the citation for discovery of assets. The court concluded that, in any event, the disability payments were not compensation paid for personal services, and thus did not fall under the CCPA's definition of earnings. See 15 U.S.C. § 1672(a). The court distinguished Ashcraft on the grounds that, unlike the defendant there, “France was self-employed,” and thus the payments were “not a benefit of his employment.” The court also concluded that state law exemptions did not apply because the government was proceeding under federal law.

As for Duperon, the district court acknowledged that 26 U.S.C. § 6334(a)(8), which is incorporated into § 3613(a)(1), exempts payments for support of minor children if ordered by a court judgment “entered prior to the date of levy.” But the court reasoned that, assuming Duperon had standing to assert the exemption, the government's restitution lien was superior to her interest, having been entered well before the couple's divorce. Moreover, the court noted that France no longer had a minor child because the couple's daughter had turned 19. The court also rejected Duperon's estoppel argument, concluding that the government was not bound by the results of the California litigation because it was unaware of those proceedings, and that the bankruptcy trustee had acted as a representative of the estate, not the government.

The district court also noted that, at that time, France had paid only $10,223.04 toward the restitution judgment. At argument, the government reported that, as a result of the garnishment order, it had already recovered almost $250,000. At that rate, counsel stated, the restitution judgment will be paid in three to four years.

II. DISCUSSION

France's lead argument on appeal is that the disability payments are exempt from garnishment because they are “earnings” under § 1672(a). The district court observed that France had “arguably” waived this argument by not asserting it when the government first sought to discover his assets, but we are not persuaded that waiver is appropriate here. As France notes, and the government does not dispute, the CCPA contains no requirement that a debtor affirmatively assert an exemption, and in fact, § 1673(c) states that “[n]o court ... may make, execute, or enforce any order or process in violation of this section,” suggesting the exemption is automatic. Moreover, the only authority the district court cited in support of waiver, Guess?, Inc. v. Chang, 912 F.Supp. 372, 379 (N.D.Ill.1995), is distinguishable because it involved an exemption under state law, not the MVRA or CCPA.

Moving to the merits, we start with the text of the MVRA, which incorporates the cap on garnishment of “disposable earnings” found in § 1673 into a list of exemptions from garnishment. 18 U.S.C. § 3613(a)(3). “Disposable earnings” is defined in § 1672(b) as ...